… is from pages 284-285 of 1998 economics Nobel laureate Amartya Sen’s 2016 paper “Adam Smith and Economic Development,” which is chapter 17 in Ryan Patrick Hanley, ed., Adam Smith: His Life, Thought, and Legacy (2016):
Even if all countries had the same mixture of resources, they could still greatly benefit from trade through specialization in different types of production. The benefits of trade do not depend only on the contingent circumstances of the different countries (in particular, having divergent availability of natural resources), and the people of the world can greatly benefit from more trade even if there were exactly the same natural resources everywhere. The benefits of specialization, economies of scale, and skill formation create and expand opportunities for trade and exchange. To the the benefits of specialization in some field, a country does not have to be, [Adam] Smith’s reasoning indicated, blessed with a preexisting resource base giving it a natural advantage: specialization creates its own resource base, through skill formation and learning, as well as economies of large scale.
DBx: Yes. And of course it isn’t a surprise that this reality was understood by Adam Smith.
When thinking of individual human beings, no one ever supposes that the task that each individual will specialize in as an adult is determined exclusively by the inchoate raw talents that that individual possesses at birth. We understand that most persons – at least in the modern world – consciously exert effort to change their skill mix (by, for example, going to college to earn a degree in accounting or nursing) – meaning, to change their comparative advantage from what it would ‘naturally’ be to something different.
Because countries are but collections of individuals, why anyone would suppose that each country’s comparative advantage is determined exclusively by its endowment of inanimate resources – and that that comparative advantage doesn’t change as the strivings, exertions, experiences, and discoveries of individuals change – is most mysterious.
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UPDATE: A treasured patron of Cafe Hayek sent this gem of a note in reaction to the above post:
Antwerp is not a diamond center because of its diamond mines.
