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The Subject Matter Itself

January 16, 2004

Paul Craig Roberts raises an interesting point when he writes: "If Mateusz Machaj were correct that 'there is no difference between mobility of factors of production inside or outside a country,' there  would be no subject matter for international trade theory. All trade would be regional trade."

This is almost correct. As pointed out by Mises in Human Action: "It has been asserted that Ricardo's law was valid only for his age and  is of no avail for our time which offers other conditions. Ricardo saw the difference between domestic trade and foreign trade in differences in the mobility of capital and labor. If one assumes that capital, labor, and products are movable, then there exists a difference between regional and interregional trade only as far as the cost of transportation comes into play. Then it is superfluous to develop a theory of international trade as distinguished from national trade. Capital and labor are distributed on the earth's surface according to the better or poorer conditions which the various regions offer to production."

In other words, in the presence of complete factor mobility, there is no subject matter for international trade theory. International trade is a different case than regional trade, or, indeed, exchange in general, only when national borders restrict factor mobility — and that is precisely why Ricardo examined that case.

 

 

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