This morning’s In Our Time was about one of the founding fathers of economics, David Ricardo. Part of the programme dealt with his theory of comparative advantage which is still taught in economics departments today and is a founding pillar of the benefits of free trade. His exposition of the theory used as an example the economies of Spain and England.

In his thought experiment he assumed that Spain’s economy had an advantage in the production of wine and England in the production of wool (avoid thoughts of hot sun and wet grass). He then applied some made up production numbers assuming no trade.

Then using these “magic numbers” and some algebra he demonstrated the total amount of wine and wool produced would be increased if the two countries traded with each other.

It was interesting in two respects.

Firstly, in his exposition used maths to demonstrate the truth of his theorem. This sat well with his broader drift away from the economics of Adam Smith which were always set within a political and social context. Ricardo wanted to identify the natural forces driving the economy stripped of any moralistic assumptions of what ought to be the case.

This may have been the first steps towards trying to make economics a science, a process that later economists pursued even more self consciously as they aimed to achieve the successes of the physical sciences and notably physics at the start of the twentieth Century.

The second respect was the “random” choice of Portugal, wine, England and Wool. In fact this trade had been subject to a treaty for circa 100 years which was much to the detriment of Portugal. In essence producing a commodity, wine has much less potential for the development of a manufacturing industry than the production of wool and all its potential for spin offs (ignore pun).

I doubt Ricardo was engaged in some Machiavellian plot to create an intellectual theory to justify advantageous terms of trade. He may have been one of the first to consciously or otherwise provided an intellectual framework to justify terms of trade which advantage the strong and disadvantage the weak.

The theory of competitive advantage may well be true, and the sum total of wealth may well be increased by trade. However, the question that needs to be asked is, cui bono? To whom does that additional wealth go? Increasing global GDP is all very well but it needs to think how this will impact on real people. Specifically, following Ricardo, wine makers in Britain and sheep farmers in Spain. The fact that “the economy” is better off is of little comfort to them.

In Our Time is consistently interesting and stimulating. The link above takes you to this episode, it is worth a listen.