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Did David Ricardo discover comparative advantage?

Hausarbeit 2016 10 Seiten

VWL - Außenhandelstheorie, Außenhandelspolitik

Leseprobe

1. Introduction

David Ricardo is considered to have discovered the law of comparative advantage. But other people are also considered to have played a major role in the discovery of this concept (Cf. Thweatt (1976), p. 1). The present paper investigates the arguments against and for David Ricardo's discovery made by three modern authors, Thweatt (1976), Ruffin (2002), and Gehrke (2015). Thweatt argues that Ricardo's writing about comparative advantage was probably not his own. Thweatt claims that Ricardo probably took the concept of comparative advantage from Mill (Cf. Thweatt (1976), p. 2). In contrast, Ruffin states that there is evidence that Ricardo very well discovered comparative advantage on his own. Ruffin's key evidence for this argumentation are three letters, which should indicate that Ricardo worked out comparative advantage during October 1816 (Cf. Ruffin (2002), p. 1). Finally, Gehrke claims that Ruffin's interpretation of the three letters is not solid. According to Gehrke, there is no evidence that Ricardo really worked out comparative advantage (Cf. Gehrke (2015), p. 1 and p. 26). The present paper analyzes and evaluates the argumentation made by these three authors. The purpose of this paper is to identify the most compelling interpretation of Ricardo's discovery. In my opinion, Gehrke has the most compelling argumentation because he revisits the arguments for Ricardo's discovery and demonstrates that there is no solid evidence for Ricardo's discovery.

2. Arguments against Ricardo's discovery

Let us begin with the arguments against Ricardo's discovery. Thweatt argues that Ricardo did not discover comparative advantage because Ricardo barely mentioned comparative advantage in his works Essay on Profits and Principles (Cf. Thweatt (1976), p. 216). Thweatt believes that Ricardo mainly discusses the concept of absolute advantage in the books. Ricardo supported free trade solely as a substitute for the shortage of land. As the amount of land is limited in each country, agriculture and thus the whole economy is limited in its growth. Thweatt argues that Ricardo hence justified foreign trade especially for low and constant priced food which acts as a substitute for land. Thus, the country could avoid its natural limit and the economy is able to expand further. In this context the reason for international trade could be formulated as an absolute cost advantage. Thweatt furthermore argues that Ricardo's view of foreign trade could in all of his works be explained with absolute advantage. The only exception are three paragraphs in the Principles, which will be analyzed later (Cf. Thweatt (1976), pp. 217­218).

According to Thweatt, another argument against Ricardo discovering comparative advantage is that Ricardo did not advocate for free trade in general. In his 1815 published Essay on Profits, Ricardo supported free trade only for countries which are already wealthy and only in the case of the Corn Laws (Cf. Thweatt (1976), pp. 218-219). Thweatt further argues that this opinion did not change when Ricardo published his Principles in 1817. Ricardo wanted free trade only for cheap importable wage-goods which would strengthen Industrialization. He wanted England, which was the most developed country in Europe, to be able to easily import goods which would lower wages and raise profits. These goods might have been raw materials or food, but not luxury goods. Thus, according to Thweatt, Ricardo was in favor of free trade only because he assumed that England had an absolute advantage (Cf. Thweatt (1976), p. 219).

In Thweatt's opinion, Ricardo actually discussed comparative advantage very little. He mentions that Ricardo wrote about it only in three paragraphs in his Principles. Thweatt highlights the brevity of this chapter in order to indicate that comparative advantage is not essential to it.

Because Ricardo was known for his analytic talent, his brief discussion suggests that he did not have serious concerns about comparative advantage (Cf. Thweatt (1976), pp. 220-221). Furthermore, Thweatt believes that the example used in these three paragraphs is unrealistic and does not follow Ricardo's previous logic. England in this example has a poor location, which makes Portugal more efficient. Additionally, the set of commodities deviates from the rest of the Principles. In this entire work, he discussed the trade of clothes and corn. But in the three paragraphs about comparative advantage, he used the commodities clothes and wine. According to Thweatt, the fact that Ricardo used a different example in this section is an evidence that these three paragraphs are irrelevant to the rest of the chapter (Cf. Thweatt (1976), pp. 227-228).

Thweatt also notes that Ricardo was influenced by Mill and already used Mill's ideas in his Economical and Secure Currency. Maybe Ricardo took the three paragraphs about comparative advantage from Mill as well. This might explain why the comparative advantage example is discussed so briefly and why the example is unrealistic. Thweatt claims that Mill even had a motive to promote Ricardo at that time. He wanted Ricardo to gain political and economic influence. Thus, Mill might have insisted in including the example of comparative advantage when he had a look at the manuscript in 1816. Evidence that Mill and Ricardo worked closely together on a manuscript of the Principles in 1816 supports this argument (Cf. Thweatt (1976), pp. 222-224).

Overall, even Thweatt admits that it is speculative whether the idea came from Mill. But, the fact that these three paragraphs are briefly explained, not precisely demonstrated and not supported by a relevant example suggest that Ricardo may not have fully understood the principle of comparative advantage (Cf. Thweatt (1976), pp. 226-227).

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Details

Seiten
10
Jahr
2016
ISBN (eBook)
9783668546042
ISBN (Buch)
9783668546059
Dateigröße
513 KB
Sprache
Englisch
Katalognummer
v377205
Institution / Hochschule
University of Wisconsin-Madison – Economics
Note
1,0
Schlagworte
David Ricardo David Ricardo Mill Comparative Advantage Komparativer Kostenvorteil Komparativer Kostenvorteil

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Titel: Did David Ricardo discover comparative advantage?