Reply To: David Ricardo criticisms


Here are my thoughts.

1. This argument rests on a false premise. Tropical fruit can, in fact, be produced anywhere. Entrepreneurs in Norway, for example, could build greenhouses, import soil, install misting equipment, heaters, artificial lighting, and so on. The only reason they don’t do this is comparative advantage, i.e., their relative costs are too high compared to costs in tropical areas.

Of course, if the critic of comparative advantage means that there are cases in which one country has a natural resource unavailable in another country, say diamond deposits, then his criticism misses the point. The theory of comparative advantage addresses only cases in which various goods can be produced either domestically or in foreign lands because there is no difficulty in explaining why people in different countries who desire goods produced exclusively in other countries would trade with each other, selling what they produce domestically for what they cannot produce domestically. It is a more difficult case to analyze when the various goods can be produced either domestically or in foreign countries.

2. This arguments fails to recognize that entrepreneurs build the consequences of catastrophic events into their production costs. Including the costs associated with catastrophic events occurs in all lines of production. There is nothing distinctive about agriculture in this regard. If a manufacturing area is subject to earthquakes, then entrepreneurs will including re-building costs or the extra expense of sturdier construction into their costs. If an agricultural area is subject to drought, then entrepreneurs would include in their costs, the expenses of irrigation equipment and other drought mitigation. They would store some of their product during good times to have it available to sell during droughts. Alternatively, they could pool some of their income during good times to get them through droughts. In fact, other entrepreneurs would start up insurance companies to make the pooling more efficient.

3. This is a form of the old “infant industry” argument advanced in the late 18th century by Alexander Hamilton. It overlooks the fact that the corollary of free trade in goods is free movement of capital funding. Entrepreneurs in the world economy invest in technology and capital capacity that will be profitable. So, production of technology and capital capacity is also subject to comparative advantage. The entrepreneurs in the developed world have the expertise and the saving to invest right now. They will do so in underdeveloped areas if it is profitable. Witness western investment in China over the last 30 years.