Free Trade

From: T
Sent: Friday, December 22, 2017 11:58 AM
Subject: Subject: Economists Warn of Trump Trade War

Dr. Block, Ricardo seems to indicate that mobility of capital would have a detrimental effect on the living standards of persons remaining in the country with high relative wages…unless they were willing to emigrate. “Under such circumstances the wine and cloth should both be made in Portugal, and therefore that the capital and labor of England…should be removed to Portugal for that purpose. (Principles of Political Economy and Taxation, On Foreign Trade, p95).” He also seems to defend his immobility of capital assumption that is at the core of his theory of comparative advantage with the following: “Experience, however, shows that the fancied or real insecurity of capital, when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connections, and entrust himself, with all his habits fixed, to a strange government and new laws, check the emigration of capital.” It seems that the immobility of capital assumption does not hold up well in the context of modern economies and the transnational corporate model. My question for you is this: How do I rebut the protectionist argument that, in lieu of modern capital mobility, free trade will result in the emigration of America’s capital until such point that the U.S.’s wages will achieve parity with the rest of the world? Thanks again. T

Dear T: Land, too, is capital. It is a bit difficult to move land from one country to another, even in this modern day. “… wine and cloth should both be made in Portugal?” If this every started to occur, prices in England would fall, and thus become competitive, at least insofar as its comparative advantage is concerned. Moreover, praxeologically, we know that trade is necessarily beneficial, at least in the ex ante sense, otherwise it simply would not occur. Portugal may have an absolute advantage over England in both goods, but not a comparative advantage. Let’s leave protection to Pat Buchanan, and other economic ignoramuses.


10:03 pm on December 27, 2017