Abstract
In this chapter we lead the reader through some of the important passages written by David Ricardo in the famous chapter “On Foreign Trade” in his book On the Principles of Political Economy and Taxation. We have a detailed look into Ricardo’s three paragraphs in which he developed the basis for international trade theory, using the numerical example of Portugal and England exchanging wine and cloth. Further aspects of his theory, his way of thinking and his methodology are also discussed. We follow closely Ricardo’s own words and interpret different parts of his brilliant contribution.
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Notes
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All quotes from David Ricardo’s chapter “On Foreign Trade” are from the original third edition, reprinted in Chap. 20 of this book.
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Foreign trade will indeed affect the rate of profit whenever the imported good lowers the real wage in a country (see Chap. 2 in this book).
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As the prices of the two exchanged quantities of goods are equal, the costs of production have to be equal. This implies a higher wage rate in Portugal: its relative wage rate has to equal 100/80.
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Quoted by Irwin (1996) p. 89.
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Gerber, T., Weder, R. (2017). David Ricardo’s “On Foreign Trade”: The Original Idea. In: Jones, R., Weder, R. (eds) 200 Years of Ricardian Trade Theory. Springer, Cham. https://doi.org/10.1007/978-3-319-60606-4_3
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