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September 11: David Ricardo and Comparative Advantage

September 11, 2014
david-ricardoDavid Ricardo, the classical economist, died at 51 on this date in 1823. Ricardo broke with his Orthodox Jewish family when he eloped with a Quaker and became a Unitarian. A wealthy stockbroker, at 27 he read Adam Smith’s The Wealth of Nations and determined to become an economist; he wrote his first article ten years later. Ricardo is best-known for his Theory of Comparative Advantage, which argues that a country that trades for products it can get at lower cost from another country is better off than if it had made the products at home; nations should therefore specialize in those industries in which they excel and rely on international trade for other needs. The theory challenged the mercantile system, in which nations sought trade surpluses on all fronts and the accumulation of gold and other precious metals. Instead, Ricardo advocated a free trade system without tariff protections. He also proposed a labor theory of value, which leftwing economists later interpreted as a foundation of socialist ideology. "Ricardo is still esteemed for his uncanny ability to arrive at complex conclusions without any of the mathematical tools now deemed essential. As economist David Friedman put it in his 1990 textbook, Price Theory, 'The modern economist reading Ricardo’s Principles feels rather as a member of one of the Mount Everest expeditions would feel if, arriving at the top of the mountain, he encountered a hiker clad in T-shirt and tennis shoes.'" The Concise Encyclopedia of Economics Entry edited to reflect comments below on September 9, 2015.