Today’s edition of the Washington Times published a letter that I sent in response. Here it is :
Not only does William Hawkins misunderstand the principle of comparative advantage, but he incorrectly suggests that it is the lone pillar supporting the case for free trade (“Economic theory ignores reality,” Letters, Monday).
Adam Smith didn’t know about comparative advantage when he wrote “The Wealth of Nations,” but his case for free trade remains powerful. Smith explained that free trade expands the size of markets, making possible capital investments and greater specialization of workers.
These investments, along with the improved skills that highly specialized workers learn, increase output and wages. Confining economic activity to the nation keeps the market artificially small and, thereby, reduces opportunities for output-expanding investment and specialization.
Smith also explained a danger that Mr. Hawkins who wants government to pick economic “champions” overlooks: “The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary
attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”
DONALD J. BOUDREAUX