83
In 1819, a crowd of 80,000 gathered
in Manchester, England, to protest
against the Corn Laws, which kept the
price of wheat high by limiting imports.
The protest was brutally suppressed.
Ricardo vigorously opposed the
Corn Laws, despite being a wealthy
landowner himself. He claimed that
the laws would make Britain poorer,
and developed a theory that has
become the mainstay for all those
wishing to justify free trade
between countries.
Comparative advantage
Adam Smith (p.61) had pointed out
that the climate differences between
Portugal and Britain meant they
would benefit from trade. A worker
in Portugal could produce more wine
than a worker in Britain, who in turn
could produce more wool than a
worker in Portugal. Any person or
state able to produce more per unit
of resources than a competitor is
said to have an “absolute advantage.”
Smith said that both Britain and
Portugal would profit most by
specializing in what they did best
and trading the surplus. Ricardo’s
contribution was to extend Smith’s
argument to examine whetherSee also: Protectionism and trade 34–35 ■ Market integration 226–31 ■ Dependency theory 242–43 ■
Exchange rates and currencies 250–55 ■ Asian Tiger economies 282–87 ■ Trade and geography 312
THE AGE OF REASON
countries would benefit from
specializing and trading when one
party had an absolute advantage in
both goods. Would it be worth
trading if one country could produce
both more wine and more wool per
worker than the other country?
Another way of looking at this is
to consider whether a person who is
better at making both hats and
shoes than someone else should split
his time between the two jobs or
choose one job and then trade with
the less-skilled worker, who makes
the other product (see diagram, left).
Suppose that the superior worker
is 20 percent better at making hats,
but 50 percent better at making
shoes—it will be in the interest of
both of them if he works exclusively
at making shoes (the product he
really excels in), and the inferior man
works in making hats (the product
he is least bad at making).
The logic behind this argument
has to do with the relative costs of
making a product in terms of the
amount of production time taken or
lost. Because the superior worker is
so good at making shoes, the cost of
his making hats is high—he would ❯❯Worker B is not
better than Worker
A at anything, but
he is better at
making hats than
shoes. If he makes
hats, he will have
a competitive
advantage and can
trade with Worker
A for shoes.If Worker A is
20 percent better
at making hats
but 50 percent
better at making
shoes, he should
focus on shoes.
That is the most
profitable way
to use his time.
50% 20%