International Trade, Free Trade, and Paul Craig Roberts

Over at Mises.org there is an ongoing discussion about an op-ed piece written by Paul Craig Roberts and Charles Schumer in the NY Times, and available here. (Thanks to Cap'n Arbyte for the link.) Actually, the discussion starts well before that, as Roberts had written about comparative vs. absolute advantage in respect to international trade back in March, and William Anderson replied via an article at Mises.org. The gist of Roberts' argument is that we have entered into a new era where the conditions in which comparative advantage holds true, no longer apply. Roberts may very well have a valid point, but it is not because of absolute advantage or free trade. Rather, there may be real long term problems because of trade restrictions.

Ricardo's law of comparative advantage makes the assumption that factors of production are immobile. That is, labor, capital and land will not just move from one nation to another. That is fine. Einstein's special theory of relativity states that relativity holds with the assumptions of a linear non-accelerated case. Does this mean that relativity does not hold in the case of a star orbiting a black hole? No. The theory of relativity has been generalized and shown to hold true in all cases. Likewise, Ricardo's law of comparative advantage has likewise been shown to hold in the more generalized case, where factors of production are mobile.

Roberts then clarifies his argument - the generalization holds true in regional trade, but does not hold in international trade. What then is the difference between regional trade and international trade? Under free trade there is no difference. The defintion of 'free trade' implies that trade between Buffalo, NY and Toronto Canada should be no different to the traders than between Buffalo and Cleveland, OH. Cleveland and Toronto are similar distances from Buffalo, the only real difference is that Toronto lies across an international border.

Differences show up when the trading nations have their own nationalized currency and legal tender laws, tariffs, outright bans on trading certain goods or services, and various regulations on product qualities. Now, instead of looking at Ricardo for comparative advantage, we should look at Adam Smith's work on the mercantile system, or look at any Austrian economists' work on state interventions in the economy. Here we find that the restrictions on trade will work to the detriment of the nation. The endeavors that would, under a free market, be in comparative advantage may be so restricted that there is no advantage in pursuing them. Also, endeavors that are disadvantaged appear to be profitable. Thus the citizens pursue activities that do not create maximum advantage, and these activities find little demand in international trade.

The United States has a real problem in international trade, which will most likely get worse. The problems are a result of a nationalized fiat currency, taxation, and regulations. In short the problems are not because of free trade, but rather because of government intervention in the lives of individual Americans.

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David, Here's something

David,

Here's something similar --

http://www.townhall.com/columnists/paulcraigroberts/pcr20030828.shtml

Regards, Don

You can still find the

You can still find the original op-ed on the IHT:
http://www.iht.com/articles/123898.htm

That's the one I linked to in my own response.

The debate goes back a very

The debate goes back a very long time. Back in October I searched around and found 12 earlier articles that were written by or in response to Roberts. I linked them all chronologically here:
http://arbyte.us/blog_archive/2003/10/Globalization.html

His message hasn't changed much.

Thanks for the links, Cap'n.

Thanks for the links, Cap'n.

Thanks, Don

Thanks, Don

The problem, on both sides

The problem, on both sides of the argument, is that the degree factor mobility isn't a given. It is heavily influenced by the government. Government subsidies to the export of capital, and government interventions to make overseas investments artificially profitable, make capital more mobile than it would be in a free market.

If investors have to fully internalize the costs of long-distance transportation, the risks of nationalization, etc., they might well find that the current extent of overseas investment doesn't pay on a free market.