Pity Protectionists for Having Nothing to Work with but Misinterpretation and Illogic

by Don Boudreaux on October 21, 2018

in Adam Smith, Myths and Fallacies, Trade

Here’s a letter to the American Conservative:

One of my blog’s readers – Mr. Stefan Kløvning – alerted me to your favorable tweet yesterday of a link to a 2003 article in your pages by one R.B. Calco titled “The Misunderstood Adam Smith.” The title is appropriate as Calco’s understanding of Adam Smith is deeply flawed.

For example, consider Calco’s assertion that “Smith operated under the assumption that everybody, yes, even capitalists, was [sic] fundamentally patriotic….” This assertion is nonsense; Smith’s Wealth of Nations is filled with observations that contradict it. Here’s just one: “A merchant, it has been said very properly, is not necessarily the citizen of any particular country. It is in a great measure indifferent to him from what place he carries on his trade; and a very trifling disgust will make him remove his capital, and together with it all the industry which it supports, from one country to another.”*

No less flawed is Calco’s understanding of comparative advantage. Especially egregious is this passage: “While the dull, pencil-headed, pocket calculator logic of Comparative Advantage works fine for the textbook laboratory example of two nations and two products, it falls apart entirely the minute real-world constraints or considerations are introduced. It becomes absurd when you attempt to factor ‘comparative advantage’ across three nations and three products, let alone the hundreds of nations and millions of products of the real world. Try it – you will lose your mind.”

The most charitable interpretation of this bizarre passage is that Calco leaps from the fact that introductory demonstrations of comparative advantage are often done by reckoning costs directly in terms of forgone units of real outputs – how many more fish would Ann have caught had she not produced that additional banana? – to the conclusion that costs can only be reckoned directly in terms of forgone units of real outputs. Calco doesn’t realize the relevance of the reality that, in our real world of countless outputs, inputs, producers, and consumers, costs are reckoned in monetary terms – and that so reckoned it is quite easy for individuals in the economy to compare the costs of many different options for acquiring desired goods. Try it – you will not lose your mind because you perform this calculation regularly.

Protectionists have no revered economists to call their own. Nor do they have any coherent principles or theories on which to build their case that greater abundance springs from government-contrived scarcities. So I suppose it’s understandable that protectionists continue to struggle both to claim Adam Smith as one of their own and to demonstrate the alleged inapplicability to reality of the principle of comparative advantage. Yet these struggles are as likely to succeed as are efforts to draw triangular circles or to roast kosher pigs.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* Book III, chapter iv (and page 426 of the 1981 Liberty Fund edition).

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