Saturday, November 22, 2008

Mystery Claim from India

Sundara’ writes in Timepass (21 November) HERE:

Why TATA is branded as an Indian company?’, which contains this paragraph:

According to Adam Smith's absolute advantage in any trade that involves more than one country, it can be seen that one country gains and the other lose. Thus the countries which exports raw materials and basic services and imports high tech service which are costlier than then exports the country does. Thus the company holds the brand identity of India to the world thus acting as a gateway to the country. From my point of view this is the main reason for the company to branded as an Indian company.

Whatever the meaning of the paragraph intended by its author, ‘Sundara’, the reference to Adam Smith on ‘absolute advantage’ is mystifying. Smith never said anything about trade making one country gain and its trading partner lose.

Partners in trade always have the option to decline to trade because trade is voluntary. If it isn’t voluntary because for some reason a partner has had the right to veto a transaction taken away, then it isn’t ‘trade’; it's some kind of criminal extortion, which in Smith’s presentation was subject to the intervention of the justice system.

Parties only volunteer to engage in exchange transactions because they believe at that moment that the trade makes them better off in some way. This does not exclude the possible reaction afterwards of 'buyers' or 'sellers' regret.

What the parties gain from a specific exchange is not decided by the money price that they pay or receive; hence looking at cash equivalents alone is futile. The money price is only one element in a transaction and in supply and demand theory, all other elements are held constant.

Apart from this, I still have no idea what ‘Sundara’ is talking about.



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