Ricardo’s Theory of International Trade

Over the last few weeks, I have been examining a “typical” industrial cycle. For sake of simplification, I have assumed the world was a single capitalist nation. In order to do this, I have abstracted the effects on the industrial cycle of the division of the capitalist world into different countries and currencies. But in reality, the capitalist world has always been divided into many nations and currencies. Therefore, no theory of real industrial cycles and crises can be complete without a theory of international trade and exchange rates.

Our starting point will be the theory of international trade put forward by the great English classical economist David Ricardo (1772-1823). The Ricardian theory of international trade is called by the modern bourgeois economists the theory of comparative advantage.

The theory of comparative advantage dominates the theory of international trade taught in the universities to this day. It forms the basis of the claim of neoliberal economists that free trade operates to the advantage of every nation, the capitalistically advanced nations as well as the capitalistically underdeveloped or oppressed nations. It is, therefore, particularly popular among neoliberal economists such as the followers of Milton Friedman. For reasons that will become apparent in the coming weeks, bourgeois economists inspired by the theories of John Maynard Keynes tend to be more critical of “comparative advantage” and “free trade” in general.

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