by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Writers at National Review Online are engaging in verbal fisticuffs over the merits of free markets. Veronique de Rugy comes down on the pro-free-market side. She also offers us a great reminder of the concept of comparative advantage.
McCarthy writes that “Comparative advantage is yet another reductive philosophical construct with little real-world application.” And in an attempt to prove his accusation, he asserts that the principle of comparative advantage is violated or rendered inapplicable to reality by individuals who work to improve their skills.
McCarthy, to put it bluntly, writes nonsense — and nonsense that proves that he isn’t familiar with the economics of the concept.
First, comparative advantage isn’t a “reductive philosophical construct”; it is, instead, an application of arithmetic. If some economic entity — say, Jim — can produce a peach by giving up fewer hats than Jane gives up when she produces a peach, Jim has a comparative advantage over Jane at producing peaches (and Jane has a comparative advantage over Jim at producing hats). To put the matter in more familiar language, Jim’s cost of producing peaches is lower than is Jane’s. Between them, a larger number of both peaches and hats are produced if Jim specializes at producing peaches and Jane specializes at producing hats.
Unless McCarthy is prepared to argue that arithmetic is a “reductive philosophical construction with little real-world application,” neither has any business asserting that the principle of comparative advantage suffers from any such practical irrelevance.