ABSTRACT
David Ricardo's perceived demonstration of a market-based, mutually beneficial, "comparative advantage" trade equilibrium between countries with different domestic factor-cost ratios has been part of the intellectual justification for free trade since its publication in 1817. Even economists critical of Neoclassical trade theory contend that the insights of Ricardo and Hume are among the most important principles that need to be taught to undergraduates and to students who get formal training in economics. This chapter accepts the assumptions of the basic classical model, and shows that its free trade conclusion is logically inconsistent. It constructs simple formal models of Ricardo's parable that include the workings of Hume's specie flow mechanism. This is an essential element of the story often left out of simple barter descriptions of comparative advantage. Ricardo's free trade solution, which provides: complete specialization, full employment, balanced trade, and balanced aggregate supply and demand will generally not exist.
