David Ricardo
Ricardian theory of international trade

Between 1500 and 1750 most economists advocated mercantilism, which promoted the idea of international trade for the purpose of earning bullion by running a trade surplus with other countries. Ricardo challenged the idea that the purpose of trade was merely to accumulate gold or silver. With " comparative advantage " Ricardo argued in favour of industry specialisation and free trade. He suggested that industry specialization combined with free international trade always produces positive results. This theory expanded on the concept of absolute advantage.

Ricardo suggested that there is mutual national benefit from trade even if one country is more competitive in every area than its trading counterpart and that a nation should concentrate resources only in industries where it has a comparative advantage, that is in those industries in which it has the greatest efficiency of production relative to its own alternative uses of resources, rather than industries where it holds a competitive edge compared to rival nations. Ricardo suggested that national industries which were, in fact, mildly profitable and marginally internationally competitive should be jettisoned in favour of the industries that made the best use of limited resources—the assumption being that subsequent economic growth due to better resource use would more than offset any short-run economic dislocation which would result from closing mildly profitable and marginally competitive national industries.

Ricardo attempted to prove theoretically that international trade is always beneficial. Paul Samuelson called the numbers used in Ricardo's example dealing with trade between England and Portugal the "four magic numbers". "In spite of the fact that the Portuguese could produce both cloth and wine with less amount of labour, Ricardo suggested that both countries would benefit from trade with each other".

As for recent extensions of Ricardian models, see Ricardian trade theory extensions.
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