David Ricardo's On The Principles Of Political Economy And Taxation

David Ricardo’s work “On The Principles of Political Economy and Taxation” written in 1817 is the example of classical writings about economics. The point Ricardo makes in Chapter 7 “On Foreign Trade” is generally that trade is beneficial and a basis for trade is comparative advantage (1817). The essay states that comparative advantage can be a reason for international trade; however there are still problems with its implication in practice. To prove that this paper will first explain Ricardo’s comparative advantage theory. Second, it will provide an example of Kazakhstan and Russia for more explanation. Finally, there will be some counterarguments opposing comparative advantage theory.

Ricardo’s basic idea about the foreign trade is that it is beneficial and that all members can gain advantage if each country produces what it is specialized in (Ricardo 1817). He provides an example of Portugal and England producing both the cloth and the wine, which have to spent different amount of resources on the production of two given goods. If Portugal has to spent the labor of 80 people for one year on the production of the wine or 90 workers on the cloth, England may need 120 and 100 people for this. Although, Portugal has an absolute advantage, which means it requires less resources on both goods, it is better to produce the wine only and exchange it to the cloth from England, since England has comparative advantage in the cloth: if it uses 100 labor for the cloth, it loses 5/6