Excerpt from On the Principles of Political Economy and Taxation by David Ricardo. 1817.
 Detail, David Ricardo
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David Ricardo engraving courtesy of the Library of Congress, Prints and Photographs Division, LC-USZ62-99849

David Ricardo
Ricardo on Comparative Advantage

In Chapter 7, "On Foreign Trade," Ricardo uses trade between England and Portugal in cloth and wine to explain how it benefits Portugal to import cloth even if Portugal can produce cloth with less labor than England. Modern economists describe that by saying that England has a comparative advantage in producing cloth. Ricardo's example reads, "To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth."

CEE BIO of David Ricardo