Comparative Advantage


Comparative Advantage
   The idea of “comparative advantage” is a principal component of the doctrine of free trade; it was articulated most coherently in The Principles of Political Economy, published in 1819 by the economist David Ricardo. Developing ideas on national economic specialization also discussed by Adam Smith in The Wealth of Nations, Ricardo argued that a national economy benefits most from international trade by specializing in the production of goods and services in which it enjoys an advantage in efficiency relative to other national economies.
   In an ideally free trading world economy, he maintained, each country would export the goods and services of which it is the most efficient producer, in terms of quality and price, but import those goods and services in which it is at a comparative dis advantage. The resulting international division of labor in a free trading world would therefore produce the highest quality goods and competitive prices. In practice, even governments nominally committed to free trade routinely protected industries in which they were less efficient as a result of the political costs imposed by uncompetitive domestic producers: electoral defeat at best, violent unrest at worst. Moreover, the doctrine was at odds with many of the economic motivations - ranging from privileged access to raw materials for industry to monopoly control of strategic materials crucial to survival in war - that prompted the Great Powers to seek overseas colonies.
   FURTHER READING:
    Peach, Terry. Interpreting Ricardo. Cambridge: Cambridge University Press, 1993;
    Sraffa, Piero, and M. H. Dobb. The Works and Correspondence of David Ricardo. 11 vols. Cambridge: Cambridge University Press, 1951–1973.
   CARL CAVANAGH HODGE

Encyclopedia of the Age of Imperialism, 1800–1914. 2014.

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