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Morgan Rose

A Brief History of the Concept of Comparative Advantage

Morgan Rose*

On November 9, trade ministers from most of the World Trade Organization's (WTO) member countries will gather in Doha, Qatar for meetings that could launch a new round of global trade talks. WTO planners must sensibly believe that Qatar's remote location, limited number of available hotel rooms, and (according to the State Department) somewhat lackadaisical approach to the freedom of assembly will discourage attendance by large numbers of protesters of the sort that wreaked havoc at international economic conferences in Seattle, Quebec, and most recently Genoa.1 But even if we are spared reports of insurgents collapsing from the heat of their black hoods under the desert sun, criticisms of the international trade regime will undoubtedly reach us through our newspapers, televisions, and classrooms.

One such criticism is over the obvious imbalance between the number of high-paying, high skill jobs available in western countries and the lack of such jobs in the developing world. Well-intentioned students, perhaps genuinely concerned with the plight of workers in the Third World, are apt to ask why this perceived injustice is allowed to persist, or why the governments of those countries do not break away from the WTO and allow manufacturing and high-tech industries to flourish domestically.

 

For an entertaining work illustrating comparative advantage, readable even by high school students, see Foreign Trade: or The Wedding Gown, by J. H. Marcet. By the 1830s, developments in economic thought by writers like Smith, Ricardo, Malthus, Mill, etc. were so exciting that they even caught the popular interest. Marcet was the U.K.'s most widely-read popularizer.

For over 200 years, economists have touted an alternative approach in which specialization leads to wealth and self-sufficiency leads to poverty. In Book IV, Chapter 3, paragraph 31 of An Inquiry into the Nature and Causes of the Wealth of Nations (1789; 1st edition: 1776), Adam Smith showed how both parties can benefit from trade, but it was David Ricardo who is credited with what is commonly called "comparative advantage," the idea that both parties can benefit from trade even if one of them is better at producing everything than the other. In Chapter 7, paragraph 16 of his On the Principles of Political Economy and Taxation (1817), Ricardo uses the example of England and Portugal to show that even if England were better than Portugal at producing both cloth and wine, Portugal can still have a comparative advantage in one good.

Ricardo may not have been the first economist to advance the concept of comparative advantage. Another Englishman, Colonel Robert Torrens, included a brief, very rough formulation of the law of comparative advantage in one paragraph in "An Essay on the External Corn Trade" (1815), but Ricardo's treatment of the topic is more explicit and influential. Torrens believed that his own writing influenced Ricardo's understanding of comparative advantage, and wrote as much in the Preface of the third edition of his Essay, but historians of economic thought consider it more likely that Ricardo arrived at his conclusions independently.2

 

Despite the interest by nineteenth economists in international trade, by the early part of the twentieth century, Alfred Marshall could publish an economic principles textbook in 1920 that had no more than a page or two on the subject, with no explicit mention of comparative advantage, comparative disadvantage, or comparative cost (see Principles of Economics,Book VI, Chapter XII, paragraph 12). Just twenty-eight years later, after a worldwide depression and the post-World War II international financial order, Paul Samuelson's Principles of Economics devoted an entire chapter solely to comparative advantage and trade issues.

The first use of the term "comparative advantage" in the sense in which we use it today is similarly difficult to pin down. Although James Mill used the word "comparative" in connection with international trade somewhat earlier, the first use of "comparative advantage" appears to be found in Chapter 19, paragraph 1, of Ricardo's Principles, describing the distress on a country's international commerce caused by a tax on certain goods. Ricardo also used the phrase "comparative disadvantage" in connection with foreign trade in Chapter 9, paragraph 38. Torrens did not use the phrase in the first edition of his Essay, but by the fourth edition in 1827, both "comparative advantage" and "comparative cost," as the concept also became known, were included. Prior to this, though, the phrase had already begun to spread, being take up by James Mill both in an article for Encyclopedia Britannica (1818) and in his book, Elements of Political Economy (1821).3

In both the intellectual origin of comparative advantage and the use of the term, Ricardo must in some measure share the credit with at least two of his countrymen. It is still his name, though, that has been firmly attached to the concept, perhaps because of his more expansive treatment of the implications of the law of comparative advantage. That treatment was even expansive enough (in Chapter 25, paragraph 12) to describe foreign trade and comparative advantage ("comparative difficulty of production," in the passage) in a way that, depending on how read, could please both a WTO delegate concerned with economic efficiency and a distributionist protester from across the barricade.


Footnotes
1.

Outlook staff writers, "Accommodations Must Be Made," Washington Post, 9 July 2001, p. B02. Accessible online at http://www.washingtonpost.com/wp-dyn/articles/A64194-2001Jul28.html.

2.

Andrea Maneschi, Comparative Advantage in International Trade: A Historical Perspective, Cheltenham, U.K.: Edward Elgar, 1998, pp. 54-55.

3.

Ibid.


*Morgan Rose is a Ph.D. candidate in economics at Washington University in St. Louis, with research interests in industrial organization, corporate governance and economic history.

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