
Ricardo's Comparative Advantage After Two Centuries - Tomte
http://conversableeconomist.blogspot.com/2017/12/ricardos-comparative-advantage-after.html
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balance_factor
The example Ricardo gave for comparative advantage was Portuguese wine for
English cloth.

More than two centuries later, Joan Robinson reexamined comparative advantage
using Ricardo's original example. How had such trade affected the two
economies - Portugal staying a more agricultural society, whereas in England,
textiles served as one of the backbones for the country's industrialization.
The analysis Robinson came up with should be obvious - both countries did not
benefit by the trade of cloth for wine, it had been much more to England's
advantage, and Portugal would have been better off staving off free trade and
building up its textile and industrial base. The original example given for
the benefits of comparative advantage for all parties turned out to itself be
a fallacy.

~~~
UncleEntity
> British worsteds, bays and serges being exported to Portugal – the ‘cloth’
> from ‘England’ in Ricardo’s famous example – simply could not be paid for
> alone by the wine exports travelling in the other direction. Brazil, a
> Portuguese colony at the time, was responsible for a massive 40 per cent of
> the world’s new gold reserves in the eighteenth century (DeWitt 2002: 4). It
> was this that was used to settle the trade deficit resulting from the
> inadequacies of the wine trade.[0]

Simply put, the flaw in their argument is they treat Brazilian bullion not as
a trade good but as some magical thing. Portugal was able to consume more
English goods than their wine industry could supply _because_ they were also
able to dig gold out of the ground and use it to "settle the trade deficit".

Portugal chose to consume foreign goods instead of investing in domestic
production and this is somehow England's fault?

[0][http://www.tandfonline.com/doi/pdf/10.1080/13563467.2016.121...](http://www.tandfonline.com/doi/pdf/10.1080/13563467.2016.1216535)

~~~
kinghajj
> Portugal chose to consume foreign goods instead of investing in domestic
> production and this is somehow England's fault?

Huh? It's Portugal's fault, they could have imposed a tax on imported cloth to
change the domestic economic calculus to favor creation of a local textile
industry.

~~~
UncleEntity
That's not the argument they're making, they're saying that trade itself is
responsible for Portugal's "misfortune".

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quantumofmalice
Simplistic ricardian arguments for free trade ignore production dynamics over
time, the asymmetry between the mobility of labor and capital, productivity
infrastructure, global externalities such as ocean and atmospheric poisoning,
asymmetries in labor and environmental standards, etc.

I think at this point everyone capable of doing so understands that
international trade has benefits. I would prefer if the intellectual class in
the west recognized and reflected on the costs that the middle and lower
classes in the west, in particular, have paid for it.

~~~
paganel
> I would prefer if the intellectual class in the west recognized and
> reflected on the costs that the middle and lower classes in the west, in
> particular, have paid for it. reply

Cry me a river. Those lower and middle classes in the west were built on the
back of international trade, I mean back when said international trade was
mostly from Western nations to more undeveloped ones (of which my country was
then part of). One of the oldest (and most renowned) streets from the Eastern-
European capital from where I'm writing this comment is named after the German
city of Leipzig, which was providing most of the high-end merchandise back in
the 1600s and the 1700s. There's a reason why the West has all the palaces,
castles and other expensive stuff built from the 1400s up to the early 20th
century, which expensive stuff mainly lacks from the rest of the world, and
that reason is international trade. Asking us to stop international trade now
that we've started to approach the West in terms of expensive stuff is pure
hypocrisy (some would call it economic colonialism). Also, see Fernand
Braudel's books, especially his "The Mediterranean and the Mediterranean World
in the Age of Philip II"
([https://en.wikipedia.org/wiki/Fernand_Braudel#La_Méditerrané...](https://en.wikipedia.org/wiki/Fernand_Braudel#La_Méditerranée))

~~~
quantumofmalice
I know that is the standard history, I took economics at Berkeley and was
taught all that. I simply don't believe that's the major factor. I think
productive capacity and innovation are more important than international
trade, beyond a certain scale.

I do cry for the middle class and lower classes in the west, and for the beset
upon labor of the third world. It worries me greatly: my class lives very
well, but friends and family that didn't win the IQ lottery are falling apart.

~~~
wjnc
'The west' being US, I imagine? The Nordics and western Europe have a more
equal society with a much larger part of society getting by comfortably than
the US. Perusing HN I am often amazed at the implicit cultural differences
within the west. How your employer treats you (US: at will employment, more
like tenure in many western European countries), how we view (access to)
healthcare and -insurance, heck a hundred things that make our day to day way
of looking at the world vastly different.

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savanaly
I have a longtime bookmark which I frequently return to and reread which is
about Ricardo, comparative advantage and its legacy. An essay by Paul Krugman
called Ricardo's Difficult Idea. [0] I think it might make for a good
companion reading piece for this blog post.

[0]
[http://web.mit.edu/krugman/www/ricardo.htm](http://web.mit.edu/krugman/www/ricardo.htm)

~~~
nabla9
Krugmans own work in The New Trade Theory adds some missing pieces in the
trade theory.

[http://marginalrevolution.com/marginalrevolution/2008/10/wha...](http://marginalrevolution.com/marginalrevolution/2008/10/what-
is-new-tra.html)

[https://krugman.blogs.nytimes.com/2008/10/15/about-the-
work/](https://krugman.blogs.nytimes.com/2008/10/15/about-the-work/)

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lucas_membrane
Funny thing about this comparative advantage thing. The example Ricardo gives
is 2 countries and 2 products. What do we find when we consider n countries
and m products? Does every country have a productive place in a competitive
world?

Of course, if we can apply comparative advantage to n countries and m
products, we can also apply it to n people and m products. Does each person
have a productive place when n is 7 billion? If we cannot show that, then the
2 country example is not relevant to our world either.

~~~
jvm
Every country has a production frontier. Trade can only improve that frontier.

There's a completely different question you are raising of whether there are
zero marginal product workers. One could ask if people are made ZMP by trade.
Of course, there have always been ZMP workers (an extreme example might be
someone who is quadripelegic and has mental health issues), but trade could
still be a factor in increasing their number. I would say with a cursory
empirical look, in the cases where one could make the argument (e.g., high
unemployment countries in Europe), it looks a lot more like this is caused by
poor local policies rather than by trade.

In general, the model is focused on production not full employment (which
there are different models for), and it's not clear to me why we would
optimize on a single KPI here.

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cousin_it
(Retracted)

The theory of comparative advantage assumes that capital cannot move between
countries. That's the key assumption, without it the theory falls completely.
And in the modern world it's very far from true. I'm reminded of John von
Neumann's remark about physicists studying "dry water" (a mathematical model
of water that assumes zero viscosity but is oh so beautiful).

~~~
Eliezer
I would ordinarily just ignore this, but I know you and you've said a sensible
thing that one time, so what do you mean by this?

~~~
cousin_it
Retracted, thanks for making me look at this more closely!

My comment referred to paragraphs 7.17-7.19 here
[http://www.econlib.org/library/Ricardo/ricP2a.html](http://www.econlib.org/library/Ricardo/ricP2a.html)
but now I see the assumption doesn't need to be as strong, and attacking it
isn't fruitful anyway. The right way to test the theory of comparative
advantage is to look at real world patterns of imports and exports, and it
seems like the theory accounts for at least a significant part of these
patterns.

------
taw55
A case against the concept of comparative advantage:

[https://americanaffairsjournal.org/2017/08/ricardos-vice-
vir...](https://americanaffairsjournal.org/2017/08/ricardos-vice-virtues-
industrial-diversity/)

~~~
UncleEntity
> This is a confusion of monetary capital (which Ricardo, as a stockbroker by
> trade, knew intimately) with the physical machinery in factories (about
> which he knew very little). Yes, monetary capital moves easily in search of
> a profit—today, even internationally. But machinery is specific to each
> industry, and the crucial machines in one industry cannot simply “move” to
> another without loss of productivity.

> In fact, the relative mobility which Ricardo assumed for his ubiquitous
> concept of “capital” is the opposite of what applies to machinery. Machinery
> designed for one industry simply cannot move to any other, even in the same
> country; but machinery in one industry can (and frequently is) shipped
> between countries.

Yet if one doesn't make a distinction between "monetary capital" and "physical
capital" this whole argument falls apart. Reallocation of malinvested capital
is the cornerstone of a market economy and leads to a more overall efficient
system. If someone makes a bad bet and fails in their entrepreneurial endeavor
their "capital" will be liquidated and used in a (hopefully) more efficient
manner.

~~~
taw55
But they clearly are distinct forms of capital.

~~~
UncleEntity
Unfortunately not distinct enough to base your whole argument upon...

My theory is if one can demonstrate how the distinction between "monetary
capital" and "physical capital" doesn't cause other parts of the economy
theory to become false then the underlying argument is probably false.

And one can safely assume that anyone who quotes Schumpeter is probably wrong.

~~~
taw55
Are you an economist?

