1/22/2020

The Market Process Is Not an Intoxicated Ass

"Discussing Comparative Advantage Is Not Everyone’s Comparative Advantage

The minor mistakes include Cass’s claim that most economists, when they theorize about trade, disregard, or at least discount, the fact that comparative advantage is (to use his term) “endogenous.” In fact, however, all competent economists know full well that the pattern of comparative advantage changes frequently and is largely the product of legal, political, social, and economic institutions as well as of individuals’ conscious choices regarding their occupations. While economists typically hold the pattern of comparative advantage “fixed” in order to clearly demonstrate its elementary logic, no competent economist believes that comparative advantage is fixed in the real world, needing only to be “discovered.” Nor does any competent economist insist that comparative advantage is exogenously imposed by nature and impervious to human attempts to alter it.

Also contrary to Cass’s suggestion, all competent economists who support free trade understand and account for the significance of scale economies – that is, of opportunities that often arise for producers to lower per-unit costs of production by increasing the scale of their operations. From Adam Smith in 1776 to my late Nobel-laureate colleague James Buchanan in the 1980s and ‘90s, economists have explicitly recognized the large role that economies of scale frequently play in trade, and that trade plays in affecting conditions for economies of scale."