The Legacy of Adam Smith and David Ricardo

Economists have long understood the principle of comparative advantage. Here is how the great economist Adam Smith put the argument:

It is a maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbours, and to purchase with a part of its produce, or what is the same thing, with the price of part of it, whatever else they have occasion for.

This quotation is from Smith’s 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations, which was a landmark in the analysis of trade and economic interdependence.

Smith’s book inspired David Ricardo, a millionaire stockbroker, to become an economist. In his 1817 book, Principles of Political Economy and Taxation, Ricardo developed the principle of comparative advantage as we know it today. His defence of free trade was not a mere academic exercise. Ricardo put his economic beliefs to work as a member of the British Parliament, where he opposed the Corn Laws, which restricted the import of grain.

The conclusions of Adam Smith and David Ricardo on the gains from trade have held up well over time. Although economists often disagree on questions of policy, they are united in their support of free trade. Moreover, the central argument for free trade has not changed much in the past two centuries. Even though the field of economics has broadened its scope and refined its theories since the time of Smith and Ricardo, economists’ opposition to trade restrictions is still based largely on the principle of comparative advantage.

B. Translate from Russian into English.

1. Сравнительное преимущество – основополагающий принцип свободной торговли.

2. Преподаватель объяснил разницу между видимым и невидимым экспортом и импортом.

3. Всемирная торговая организация была учреждена в 1995 году в целях развития свободной торговли.

4. Ограничение внешней торговли может касаться не только экспорта, но и импорта.

5. Введение ограничений на импорт иностранной продукции – средство защиты отчественного производителя, исползуемое правительствами многих стран.