Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

George Grote's manuscript essay on "Foreign trade"

Gehrke Christian, Department of Economics, University of Graz

This paper discusses a manuscript essay on “Foreign trade” by George Grote that he submitted to David Ricardo in March 1819. In this essay Grote sought to explain why, when and to what extent international exchange values deviate from relative amounts of embodied labour. For this purpose he constructed numerical examples with both absolute and comparative cost advantages, adopting first a real cost analysis and then an analysis in monetary terms. In addition, Grote also sought to provide an analysis of the effect of taxation on foreign trade. The present paper explains the origin, content and importance of Grote’s essay and relates it to the contributions to foreign trade theory of David Ricardo and of James and John Stuart Mill. It is shown that Grote closely followed Ricardo's rather than James Mill's exposition of the comparative advantage principle and that his reading of Ricardo's famous cloth-and-wine example agrees with the so-called “Sraffa-Ruffin interpretation”. Moreover, by noting that comparative advantage-based trade is incompatible with the labour theory of value Grote pointed to an inconsistency in Ricardo’s argument. A transcription of Grote’s manuscript essay is provided in the appendix.

Area: Eshet Conference

Keywords: Comparative advantage, Foreign trade, Labour theory of value, George Grote, David Ricardo, James Mill, John Stuart Mill

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