From: TG
Sent: Sunday, October 23, 2016 10:04 AM
To: wblock@loyno.edu
Subject: Core Assumptions of Comparative Advantage
Professor Block, I recall that the most fundamental assumption of Ricardo’s Comparative Advantage model is that capital (factories and machines) are immobile. Ricardo himself even suggested that if one country should have an absolute advantage in the production of all goods, that both the labor and capital of the disadvantage nation should be transported there, to everyone’s benefit (Principles of Political Economy and Taxation, Ch. On Foreign Trade, paragraph 19). Isn’t this the crux of the modern protectionist argument: that yes, free trade benefits mankind by increasing the abundance of goods and services, but that it can ravage nations with high wages? If one were to draw an imaginary line around Flint, Michigan, and call it a country, one could easily see what free trade has done, there. TG
Dear TG: In my view, the plight of Flint, Detroit, and the rest of the rust belt has little or nothing to do with international trade. It is mainly, if not solely, a function of labor unionism, which boosted wage rages, coercively, way above productivity levels. As a result, there were runaway factories to the south. The south is just as much a part of the country as is Detroit. If international trade ruined the rust belt, why didn’t it do so for the south?
12:03 pm on October 23, 2016 Email Walter E. Block
