A Brief History of the Concept of Comparative Advantage
By Morgan Rose
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.
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.
Andrea Maneschi, Comparative Advantage in International Trade: A Historical Perspective, Cheltenham, U.K.: Edward Elgar, 1998, pp. 54-55.
Ibid.