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Quotation of the Day…

… is from pages 116-117 of Razeen Sally’s superb 2008 book, New Frontiers in Free Trade: Globalization’s Future and Asia’s Rising Role:

There are short-term (or static) gains from trade.  That is but the necessary preface for capital accumulation, economies of scale, and other long-run (or dynamic) gains, such as the transfer of technology and skills, and the competitive spur that comes from exposure to world-class practice.  This feeds into productivity gains, increases in real incomes, and economic growth.  Indeed, it is the dynamic gains from trade that [Adam] Smith and his contemporary David Hume emphasized.  They strongly linked free trade (broadly defined to include cross-border flows of capital and people) to domestic institutions and growth, all on the canvas of the long-run progress of commercial society.

DBx: The principle of comparative advantage is real, robust, and an important reason that individuals specialize and trade.  Also, the discovery of this principle is an impressive intellectual achievement.  But contrary to much uninformed commentary, the economic case for free trade does not rest exclusively upon comparative advantage.  As David Hume and Adam Smith understood, two persons identical in every way in their abilities to produce can still secure mutual gains by specializing and trading.


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