ABSTRACT
Nearly two hundred years on, the Torrens-Ricardo Principle of Comparative Advantage is still widely admired within the profession, and appears prominently in many elementary textbooks and in most treatises on international trade. However, careful inspection of the Principle, either in the mildly disparate formulations of Torrens (1815: 264-5) and Ricardo (1817: 135) or in any later formulation, reveals that it relies on restrictive assumptions about preferences and technology in each trading country, assumptions that are always implicit, never explicit. Specifically, the Principle rests on the assumption that in autarkic equilibrium each country consumes all commodities, at least incipiently. Our purpose is to make good this claim and to reformulate the Principle in sufficient generality to accommodate alternative assumptions about preferences and technology. In our reformulation the emphasis is on marginal rates of substitution in consumption, not on the traditional ratios of marginal labour costs in production. Thus our restatement concerns not merely the proper display of the Torrens-Ricardo Principle but rather its essential content. It is shown in effect that, in existing formulations, the supply side is assigned a role that it cannot always sustain. That two classical economists overlooked this point can be understood, but the same indulgence cannot be extended to the authors of neo-classical textbooks.1
