The Demystification of David Ricardo's Famous Four Numbers

Abstract

The paper offers the first interpretation of David Ricardo’s famous numerical example fully compatible with the primary source. It claims that the sole purpose of the four numbers was to illustrate that the relative value of commodities made in different countries is not determined by the respective quantities of labour devoted to their production. This exception results from unequal ordinary profit rates between countries because capital does not move across national borders as easily as it does within the same country. Likewise, the paper also debunks some entrenched myths about the numerical example. It shows that Ricardo did not leave the terms of trade indeterminate; that the purpose of the four numbers was not about measuring the gains from trade; and lastly, that Portugal had no productivity advantage over England. All of this contradicts the way scholars have interpreted Ricardo’s numerical example since the mid-nineteenth century.

Keywords: comparative advantage, David Ricardo, gains from trade, international trade theory, classical rule for specialization

JEL Classification: B12, B17, F10