Thursday, August 30, 2012

Absolute and Comparative Advantage

H. J. Huneycutt writes in Seeking Alpha HERE Shrinking U.S. Trade Gap No Fluke; Weakening Asian Export Subsidies The Reason
“The shrinking US trade gap is no fluke. You don't need a magical crystal ball or training in the "psychic arts" to have seen it coming. Rather, when Adam Smith penned The Wealth of Nations 236 years ago, this is exactly the type of result he might have predicted.
As most of you are aware, Smith's thesis was that free trade benefited all nations. If we all exported the products and services we produced most efficiently, and we imported the ones that others produced more efficiently, we'd all have greater wealth. It's a concept called comparative advantage and the logic behind it is difficult to counter.”
Mostly correct, except that Adam Smith’s argument was about what we call “absolute advantage”; the richer theory of “comparative advantage” came much later from David Ricardo’s ‘Principle of Political Economy’, 1819.


Post a Comment

<< Home