On Monday, August 16, 1999 5:54 PM J. R. Molloy <jr@shasta.com> wrote:
> From: Brent Allsop <allsop@fc.hp.com>
> >What is "the law of comparative advantage?" or where
> >can I find out more about it?
>
> The law of comparative advantage shows why the international division of
> labour is beneficial to all. It states that every country can improve
> its welfare by specialising in the most efficient lines of production
> open to them, those in which they have a comparative advantage. The most
> efficient lines of production are those in which a country's
> productivity relative to others is greatest. This is commonly
> misunderstood to mean those lines of production in which a country is
> more efficient than all others. If this were true then some countries
> could conceivably have a comparative advantage in nothing, whereas, in
> reality every country has a comparative advantage in something, as they
> must be more efficient in some lines of production than others. For
> example a very inefficient country in a two-country two-commodity
> universe may be half as productive as the other country in producing one
> commodity and only a quarter as productive in the other. Its comparative
> advantage would lie in producing the commodity in which it had half the
> productivity of the other country. The law of comparative advantage
> means that even a country least efficient at producing everything will
> benefit from free trade. This is because it allows the inefficient
> country to specialise in what it is relatively poor at producing rather
> than in what it is *very* poor at producing.
I've never heard the phrase "comparative advantage," though this sounds just like von Mises' "law of association," which states something like all parties benefit from division of labor. The specific analogy he used, I think in _Human Action_, was of a secreatary and a lawyer.
Let's say the lawyer is a better typist -- say, she types twice as fast -- and a better lawyer than her secreatary. Also, she can make $200/hour lawyering versus $12/hour typing. Ceterus paribus, she is better off paying the secreatary to do the typing -- even the overtime -- so she can make that $200 per hour.
I believe the same reasoning could be applied to groups, such as firms or nations.
At least one socialist I knew, Deedra Merope, claimed (in _The Connection_ a few years ago) that this law seemed fine when there're two parties to trade, but she claimed it had not been proven for greater than two parties. I don't recall her line on this or how she would have ramify her case, but I imagine one could break each trade into two parties, since at any given time, usually only two parties are dealing with each other. E.g., I buy bread from the baker made from grain which she bought from the farmer grown on land she leased from the bank, etc. The market would seem to be reducible to such one on one trades for the most part -- even if lots of them happen in parallel.
Anybody else have any comments on this?
Cheers!
Daniel Ust
http://mars.superlink.net/neptune/