Abstract
David Ricardo, born in 1772, was a prominent British intellectual. During his 51 years of life, Ricardo became one of the most influential economists of the 19th century, worked as a stock-trader, a businessman, a financier and a speculator, became rich when he had been disowned by his father for having married a non-Jewish woman, and even managed to be elected as a Member of Parliament. Ricardo's first encounter with economics was with the discovery of Smith's The Wealth of Nations. He wrote his first article, The High Price of Bullion, a Proof of the Depreciation of Bank Notes, at the age of 39. He introduces his theories on International Trade in his most famous work, the 1817 book On the Principles of Political Economy and Taxation.
These theories form what is today called the "Ricardian model".
The Ricardian model, or, as some economists also call it, the Ricardo-Haberler model, is considered by many economists, including Nobel-prize winner Paul Krugman, as the "simplest model" to explain why countries benefit from trade. Yet the model introduces a concept that is not always self-explanatory: the concept of comparative advantage.
Indeed, many economists and intellectuals (and even presidential candidate Ross Perot) often fail to make the difference between absolute advantage and comparative advantage. We can easily imagine a model with a country more productive than another country in two goods, and yet have the less productive country have a comparative advantage because it is cheaper in terms of the first country's own labor to produce one product rather than the other.
