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Revisiting the Law of Comparative Advantage

January 16, 2004

I cannot decipher what Craig Roberts is saying. But this I know: the case for specialization and trade in no way requires factor immobility; nor does the theory of comparative advantage require factor immobility for its applicablity.  What Ricardo or Mill or Mises or anyone else said is ultimately immaterial; the theory of comparative advantage applies regardless of how mobile or immobile factors of production might be.

Here's one real-world example. I can walk faster than my secretary. She's a good deal older than I am and has unusually short legs.  And yet, whenever I need papers hand-delivered across campus to the office of the Dean or the Provost, I send my secretary on these missions.

The reason I send my secretary, rather than deliver the papers myself, is that the value of what I can accomplish at my computer in the time that I otherwise would spend walking across campus is higher than is the value of what my secretary could accomplish at her computer in the time that it takes her to walk across campus and back.

This case is a perfect (and perfectly unstylized) example of comparative advantage at work.  I specialize in department-chairing tasks in my office while among my secretary's specialized tasks is the hand-delivering of documents. This specialization occurs (and is worthwhile) despite the fact that I have what textbooks would call an absolute advantage both in department-chairing tasks and in hand-delivering documents.

Most importantly for the current discussion, nothing resembling factor immobility is in play here.  There is no factor immobility that creates, on the one hand, a comparative advantage for my secretary in hand-delivering documents and, on the other hand, a comparative advantage for me in performing those tasks that I perform in my office as Deparment Chairman.

My comparative advantage at doing what I do, and my secretary's comparative advantage at doing what she does, owes nothing to factor immobility.

The theory of comparative advantage is far more general, far more potent, than Craig Roberts portrays it to be.

 

 

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