Pareto on Ricardo and Bastable's Comparative Costs

Alberto Zanni
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Alberto Zanni: Università di Firenze - Dipartimento di Scienze Economiche

History of Economic Ideas, 2007, vol. 15, issue 2, 109-125

Abstract: In his 1896-1897 Cours, Pareto had generalized Ricardo’s comparative costs theory by adding the traders’ ophelimity. In the 1906 Manuale and the 1909 Manuel he used his more general theory to contrast Bastable’s thesis according to which all traders always gain from international trade even when the opening of the markets leads to a reduction in the world production of one of the traded goods. Pareto showed that this thesis was wrong when the terms of trade reduced the welfare of one of the traders. In such a case, assuming the traders’ rationality, markets would remain closed. Yet, the Italian economist never specified under what conditions this might happen. In the paper we claim that what he had in mind was Marshall’s and Edgeworth’s assumption according to which one of the traders has monopolistic power against the other. This is precisely one of the assumptions Pareto had used in the Cours when dealing with Mill-Marshall reciprocal demand curves.

Date: 2007
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