Economic tenet formulated by David Ricardo, also Law of Association

The law or principle of comparative advantage holds that under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage. Comparative advantage is the economic reality describing the work gains from trade for individuals, firms or nations, which arise from differences in their factor endowments or technological progress. In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. One does not compare the monetary costs of production or even the resource costs (labor needed per unit of output) of production. Instead, one must compare the opportunity costs of producing goods across countries.

David Ricardo


Explaining Commerce to the Commerce Secretary, by Colin Grabow, Inu Manak, 14 Dec 2017
Criticizes Commerce Secretary Wilbur Ross for his comments about the Korea-U.S. Free Trade Agreement, showing he "forgets some basic lessons of international trade"
"This example highlights an important element of comparative advantage. First, even if one country is the best at everything (in other words, has an absolute advantage), it is still better served by focusing on what it produces best, and importing the remaining items. Why? Because an absolute advantage does not necessarily equal a comparative advantage, as the latter is based on the opportunity cost of making one thing over another. ... Essentially, comparative advantage allows for greater investment in the thing you are good at, and in turn, makes you better at it over time."
Related Topics: Free Trade, David Ricardo
Is Free Trade Obsolete? Part 1, by Sheldon Richman, Future of Freedom, Apr 2004
Comments on a Paul Craig Roberts and Charles Schumer article arguing against free trade, introducing first the law of comparative advantage
"To explain this, we have to go back to one of the most important contributions to economic theory, David Ricardo's law of comparative advantage, which the late Murray Rothbard called 'indispensable to the case for free trade.' (According to Rothbard it was James Mill, not Ricardo, who first formulated the law.)"
Related Topics: Free Trade, Paul Craig Roberts
Is Free Trade Obsolete? Part 2, by Sheldon Richman, Future of Freedom, May 2004
After providing a numerical example of the law of comparative advantage, defends it from the argument that movable factors of production make the law no longer applicable
"Ricardo's law of comparative advantage, operating through the price system and the phenomenon of opportunity cost, induces people and groups to specialize in the production of things they are 'most best' at making and buy the rest of what they want from other people."
Related Topics: Free Trade, Paul Craig Roberts
Mises: Defender of Freedom, by George Reisman, Mises Daily, 29 Sep 2006
Describes several of Mises' contributions to economics theory and other areas, along with some personal reminiscences
"In a major elaboration of Ricardo's Law of Comparative Advantage ... Mises showed that a harmony of interests prevails in this case, too. For the existence of the janitor enables more talented people to devote their time to more demanding tasks, while their existence enables him to obtain goods and services that would otherwise be altogether impossible for him to obtain."
The Ricardian Law of Association, by Ludwig von Mises, Human Action, 1949
Chapter 8 "Human Society", section 4; discusses how all people benefit when they cooperate with each other and how the division of labor results in greater productivity
"Ricardo expounded the law of association in order to demonstrate what the consequences of the division of labor are when an individual or a group, more efficient in every regard, cooperates with an individual or a group less efficient in every regard. ... It is advantageous for the better endowed area to concentrate its efforts upon the production of those commodities for which its superiority is greater, and to leave to the less endowed area the production of other goods in which its own superiority is less."
Related Topic: Free Trade

The introductory paragraph uses material from the Wikipedia article "Comparative advantage" as of 18 Nov 2018, which is released under the Creative Commons Attribution-Share-Alike License 3.0.