Production of Commodities by means of Labour - A Theory of International relations

Since (at least) Ricardo, international trade has been perceived as a positive-sum-gain – any partner involved in the international activity of exchange would be at the end better off, no matter how bad was its previous economic position. The Ricardian principle of comparative advantages (RPCA) allows to explain why this would be so. Though the principle is still perceived as being a non-trivial-truth-for-certain, the paper discusses critically its actual implementation in a dynamic multisectoral production model of a pure labour economy. Though abstract, the features of the model seem sufficiently realistic: differentiated sectors, with different technological, demand, and productivity levels; unemployment threats, demand constraints, uneven dynamics of all the above variables. If the unit of analysis is the individual country, rather than the international system as a whole, and if the PPP is adopted to fix the exchange rate, we show that the RPCA assures only a static “once for all” drop of the level of prices. It may not assure gains from trade in other seven (out of eight) variables examined. Employment, productivity, per capita income and their respective rates of change, plus the rate of inflation, may turn out after trade worse than they would have been without trade. Hence, the RPCA is in many respects inconclusive as a win-win principle. An individual country may specialize according to its comparative advantages (to be more precise, according to its comparative costs) and still arm its economy. Static as well as dynamic losses from trade are just a possibility as they are static and dynamic gains