The true meaning of David Ricardo's four magic numbers

Abstract

The four numbers in David Ricardo's example of comparative advantage have been traditionally interpreted as unit labor coefficients in the production of wine and cloth in UK and Portugal. A recent interpretation suggests that they represent instead the labor needed to produce the amounts of wine and cloth actually traded. Ricardo's four numbers are shown to yield each country's gains from trade by simply subtracting two of the numbers from the other two. Since the numbers also indicate each country's comparative advantage, Ricardo established a close connection between comparative advantage and the gains from trade. © 2003 Elsevier B.V. All rights reserved.