Comparative and Absolute Advantages

Sample Term Paper

Words 957

David Ricardo was an 18th and 19th century champion of free trade (the majority of this work in on this issue) but also wrote about the value of labor in his “labor theory of value” (which would influence Karl Marx” Ricardo argued that wages are and should be determined by the price of food – which is in turn determined by the cost of producing that food, which is in turn determined by the amount of labor that is involved in the food; in other words. (This may seem to be a somewhat circular argument, but can also be explained in a more linear way: Labor determines value.)

Ricardo argued for the value of specialization, although he was referring to nations rather than workers, and believed that specialization combined with a truly open marketplace would create a situation in which not only are products cheaper (having been stripped of the false price inflation produced by various forms of protectionism), but workers are more skilled and products are better made because they have been forced to compete openly and so improve their skills so that they compete with the best that each country has to offer.

Ricardo is perhaps best known today for an example that he developed with mathematical precision and even elegance that proved that it was economically advantageous for England to produce and trade cloth while Portuguese workers made wine as long as both countries traded perfectly freely – and even though Portugal could produce both products more cheaply. Russell develops this idea, which is logically counter-intuitive for most of us, demonstrating that trade is in and of itself of value, a value that can cancel out the fact that sometimes a nation trades with another that produces a particular product at a higher cost.

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