Introduction: Trade in Wine and Cloth

One of the great achievements of Ricardo was to turn the labor theory of value to the problem of trade. He himself came from a Sephardic family, forced to leave Spain, that made a living trading, winding uip in Great Britain. He knew exactly what he was talking about, and was able to discuss it all with the labor theory of value. His conclusions are as relevant today as they were in his own time, and as surprising to many.

Consider a land owner who has a surplus from his land. Almost all people in a Ricardian economy were working to grow food, but a few can be surported by the rich landowner for a year to work on other projects. These projects can support luxuries to be paid for by those who more than enough to sustain life. These capitalists advance a year's income or grain equivalent to workers producing either wine or cloth. Capitalists do the same thing in both Great Britain and Portugal, but on different terms. These two items were indeed traded between Great Britain and Portugal in Ricordo's time.

This game will allow every player to choose in what sector in which nation to invest his funds, getting back a return in bales of cloth or tonnes (a very big barrel) of wine in either Great Britain or Portugal. At the end of the year, the capitalist gets his product, pays his workers, and is in a position to exchange the product at home. That exchange rate will be the relative labor cost of the two items. Recollect from the beaver and deer case that no other price is stable in the production-driven labor theory of value.

Next we allow the capitalist to ship his product to the other nation. There he will find a different exchange price between cloth and wine. We allow the capitalist to exchange at home, ship abroad, exchange there, bring the resulting cargo home and exchange back again. Try different combinations and see where they get you. We allow chains of transactions up to six steps long.

Six steps to trade back to your starting point of production. At that point, any added amounts of the good you chose to produce originally are then absolute profit due to trading. We allow every player to make a series of moves, exchange or ship, and then measure how much you are ahead when you come home, at which point w feeze the turn. Then we can try again in a new turn, to see how you learn by doing.

Depending on how well we do, the table of underlying labor costs may be adjusted. There are some particularly important results that Ricardo drew out in the case where one nation is absolutely inefficient compared to the other. That is, if it takes more labor to produce both closth and wine in one nation than it does in the other. Play the game and see.

Where to Produce and What?

What Did We Learn?