The lessons of David Ricardo's model of trade
May account of David Ricardo's model comparative advantage in production as a cause of trade is almost surely the most arithmetic-y I'll make for #2017econ . And likely you didn't want to bother to work your way through them, if you weren't already familiar with them.
But I wanted to offer a relatively formal proof of the causes of exchange-- comparative advantage in production*-- and that voluntary exchange is mutually beneficial-- positive-sum. And the proof is one I recently taught to sixth graders, so I know it's accessible to the interested.
I wanted to do that because of the persistent US folklore that trade is at best constant-sum, with a rube losing out to a smartypants, and that stupidity and smarts are the cause of trade.
People and nations do not keep on making trades that instantaneously disadvantage them-- why would they?
And I have learned by reading the occasional comments of experienced confidence-game operators that people who want something for nothing and who think they're extra-smart are the natural marks of confidence artists.
The Ricardian model of trade brings us news that trade is not combat, that difference brings the opportunity for mutual gains-- and also brings change as it advantages specialization.
But beyond that, trade is really, REALLY not combat. Though the Vikings traveled with both weapons (to rob weaker villages) and trade goods (to interact with stronger ones), and though both weapons and trade goods were used as means of acquisition, combat abd trade are only very gross substitutes. They differ very fundamentally.
For one thing, trade brings mutual gains, combat not. Combat is at best constant sum, while trade is a positive-sum game.
For another, trade requires trust, as I remarked way back when. And even merely-strategic trust breeds relationship, that eventually brings realer trust.
The Friend, mathenatician, and peace theorist Lewis Fry Richardson noted robust trade as one of the factors that decrease the likelihood of war between nations.
I suspect it also helps in the development of diplomacy, which operates much like a form of trade itself.
* That is, where one party forgoes less production of other goods to make the trade good, than its trading partner(s).
Facebook posts incorporated:
The moral of David Ricardo's story
Trade is fundamentally cooperative, and breeds cooperation
But I wanted to offer a relatively formal proof of the causes of exchange-- comparative advantage in production*-- and that voluntary exchange is mutually beneficial-- positive-sum. And the proof is one I recently taught to sixth graders, so I know it's accessible to the interested.
I wanted to do that because of the persistent US folklore that trade is at best constant-sum, with a rube losing out to a smartypants, and that stupidity and smarts are the cause of trade.
People and nations do not keep on making trades that instantaneously disadvantage them-- why would they?
And I have learned by reading the occasional comments of experienced confidence-game operators that people who want something for nothing and who think they're extra-smart are the natural marks of confidence artists.
The Ricardian model of trade brings us news that trade is not combat, that difference brings the opportunity for mutual gains-- and also brings change as it advantages specialization.
But beyond that, trade is really, REALLY not combat. Though the Vikings traveled with both weapons (to rob weaker villages) and trade goods (to interact with stronger ones), and though both weapons and trade goods were used as means of acquisition, combat abd trade are only very gross substitutes. They differ very fundamentally.
For one thing, trade brings mutual gains, combat not. Combat is at best constant sum, while trade is a positive-sum game.
For another, trade requires trust, as I remarked way back when. And even merely-strategic trust breeds relationship, that eventually brings realer trust.
The Friend, mathenatician, and peace theorist Lewis Fry Richardson noted robust trade as one of the factors that decrease the likelihood of war between nations.
I suspect it also helps in the development of diplomacy, which operates much like a form of trade itself.
* That is, where one party forgoes less production of other goods to make the trade good, than its trading partner(s).
Facebook posts incorporated:
The moral of David Ricardo's story
Trade is fundamentally cooperative, and breeds cooperation