Entrepreneurship, knowledge and employment

Overcoming Absolute and Comparative Advantage: A Reappraisal of the Relative Cheapness of Foreign Commodities As the Basis of International Trade

Morales Meoqui Jorge, Independent

The paper proves that the cloth traded in the famous numerical example in chapter 7 of the Principles cost less money to produce in England than in Portugal, despite the fact that it could be made with less quantity of labour in the latter. Consequently, Portugal had no cost advantage, in money, over England in the production of cloth. This novel interpretation of the numerical example refutes the widespread belief that David Ricardo proposed there a new law, principle or rule for international specialisation, known as comparative advantage. He rather used the same rule for specialisation as Adam Smith in the Wealth of Nations. Thus, the popular contraposition of Smith’s absolute versus Ricardo’s comparative cost advantage has to be dismissed.

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Keywords: comparative advantage, absolute cost advantage, David Ricardo, Adam Smith, classical rule for specialisation

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