A Rational Reconstruction of Adam Smith’s Observation of Comparative Advantage

In The Wealth of Nations, Adam Smith describes a trade relation between the rich and poor countries that – in the post-Ricardian economics – we recognise as the operation of comparative advantage. The present paper develops a model that expresses Smith’s description of the trade relation in mathematical terms. The model lays out an approach to comparative advantage that is different from the approach David Ricardo adopted to formulate his famous model. Incidentally, the model in this paper reveals that comparative advantage is a more sophisticated concept than gleaned from the Ricardian model.