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The Wikipedia article on Comparative Advantage contains the following sentence about it:

"That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them." Paul Samuelson.

But when one looks at exactly what Ricardo wrote, one can legitimately wonder why anyone in his right mind would ever have taken it seriously in the first place, because it appears to be entirely unworkable. Ricardo wrote this:

 "Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by regarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically while, by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal society of nations throughout the civilized world. It is this principle which determines that wine shall be made in France and Portugal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England.

In one and the same country, profits are, generally speaking, always on the same level; or differ only as the employment of capital may be more or less secure and agreeable. It is not so between different countries. If the profits of capital employed in Yorkshire, should exceed those of capital employed in London, capital would speedily move from London to Yorkshire, and an equality of profits would be effected; but if in consequence of the diminished rate of production in the lands of England, from the increase of capital and population, wages should rise, and profits fall, it would not follow that capital and population would necessarily move from England to Holland, or Spain, or Russia, where profits might be higher.

If Portugal had no commercial connexion with other countries, instead of employing a great part of her capital and industry in the production of wines, with which she purchases for her own use the cloth and hardware of other countries, she would be obliged to devote a part of that capital to the manufacture of those commodities, which she would thus obtain probably inferior in quality as well as quantity.

The quantity of wine which she shall give in exchange for the cloth of England, is not determined by the respective quantities of labour devoted to the production of each, as it would be, if both commodities were manufactured in England, or both in Portugal.

England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it her interest to import wine, and to purchase it by the exportation of cloth.

To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth.

Thus England would give the produce of the labour of 100 men, for the produce of the labour of 80."

Now look at the sentence and words I have underlined. Look at the qualificationsmay, might, probably! And look at the first sentence, "Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each." What kind of claim is it? It is most certainly not a factual claim. Neither is it a normative claim. Ask yourself how one would prove it or even provide evidence for it. Since the world has never had a system of perfectly free commerce, no factual evidence could ever be marshaled in support of it.

But perhaps the sentence is not a claim at all, but what mathematicians call an axiom--something presumed without proof. Then what does it mean for a country to do something? And if that can be answered, and I don't think it can, do countries naturally devote their capital and labor to such employments as are most  beneficial or that they believe are most beneficial? And what if their beliefs are erroneous? The royalty of many European countries once believed that the accumulation of precious metals was most beneficial, didn't they? Remember Mercantilism! But almost everyone today would agree that they were wrong. So first of all, this passage cited in support of comparative advantage rests on a premise that is . . . what?--I don't even know how to characterize it!

Second, putting the principle into effect depends upon a myriad of comparisons of data gathered from many countries. Has anyone ever gathered that data? How would one get it? From national governments and their central bankers? But they lie; ours does.

Would the data so gathered be static or changing? Would an economic decision made on today's data be valid tomorrow? And what if it would not? Would the presumed advantage ensue or not? Might what did ensue be a (catastrophic) disadvantage, as, for example, if a natural disaster struck a country other nations were relying upon for a somewhat essential product? Is this the kind of thing we should base economic decisions on? I think not.

Notice, too, that Ricardo's example is simplistic and unreal. It is an imaginary example. What would we make of this example if he had written, "imagine that the Seven Dwarfs made wine in Portugal." Would we have given the example any credence? Furthermore, it is impossible to derive a general principle from a single example. To do so commits the fallacy of hasty generalization, which any educated economist should have recognized.

In International Trade Theory and Policy, Steven M. Suranovic puts the matter this way:

 "The Ricardian model shows that if we want to maximize total output in the world then,

first, fully employ all resources worldwide;

second, allocate those resources within countries to each country's comparative advantage industries; (he doesnt say who would do the allocating)

and third, allow the countries to trade freely thereafter.

Notice the thereafter ! Then Mr. Suranovic goes on:

In this way we might raise the wellbeing of all individuals despite differences in relative productivities. In this description, we do not predict that a result will carry over to the complex real world. Instead we carry the logic of comparative advantage to the real world and ask how things would have to look to achieve a certain result (maximum output and benefits). In the end we should not say that the model of comparative advantage tells us anything about what will happen when two countries begin to trade; instead we should say that the theory tells us some things that can happen.

My, my, my! So talk about comparative advantage is Much Ado about Nothing. What has Paul Samuelson or any other economist been thinking? (9/28/2007)