This theory leaves a crucial question unanswered. If Bouncy is better at producing food
and Big at producing cloth there is no problem, but suppose one country is better at
producing both goods? The mercantilists could still argue that under free trade the less
efficient country would be driven out of both food and textile production, and would
sink into poverty, so inefficient countries must avoid trade at all costs. In 1817, in his
Principles of Political Economy and Taxation, David Ricardo came up with an elegant
demonstration of why that was not the case. Trade is beneficial, he argued, even if one
country is more efficient than its trading partners at producing all goods. If we rerun the
example, but make the Bouncy better at producing both food and cloth, the countries
are still richer with trade than without.