Talk:Absolute advantage

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Enragedeconomist (talk) 10:57, 7 September 2010 (UTC)

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Untitled[edit]

example 2[edit]

Something seems deleted from the last sentence in example 2. Elfalem (talk) 00:54, 10 May 2010 (UTC)

Origine of the idea "absolute advantage"[edit]

The present article holds that it is Adam Smith who inaugurated the idea of "absolute advantage". But this assertion is doubtful for several reasons.

(1)The article or those original sources like articles listed in the References all name The Wealth of Nations as the textual source of the idea, but Smith himself does not seem to have argued that the absolute advantage induces foreign trade. If he has, please cite the precise text in the Wealth of Nations.

(2)Smith uses the word "absolute advantage" two times in the Wealth of Nations (IV.7.104 and IV.7.112), but in a very different sense from that used in the International trade theory. See, for example, http://www.econlib.org/library/Smith/smWN17.html#IV.7.102.

(3)John Stuart Mill seems to have started to compare the comparative advantage explanation to the absolute advantage explanation. See Principles Book 3. Chap. 17 Paragraph 5. Quotation is from "Essays on some Unsettled Questions of Political Economy, Essay I." http://www.econlib.org/library/Mill/mlP46.html#Bk.III,Ch.XVII III.17.5 He did not referred explicitly it was Adam Smith who introduced the idea of absolute advantage, but the scholars after Mill made up a tradition that it was Smith that started the absolute advantage explanation.

(4)Smith may have known and understood that trade occurs in the state of comparative advantage and even if one country has absolute advantage for all commodities it produces. See the Wealth of Nations, Book Ⅰ, Chapter 1 Paragraph 4. http://www.econlib.org/library/Smith/smWN1.html. Here Smith compared three nations: Poland, France and England.

Two citations from there: "But though the poor country, notwithstanding the inferiority of its cultivation, can, in some measure, rival the rich in the cheapness and goodness of its corn, it can pretend to no such competition in its manufactures;..." "The corn-lands of England, however, are better cultivated than those of France, and the corn-lands of France are said to be much better cultivated than those of Poland. But though the poor country, notwithstanding the inferiority of its cultivation, can, in some measure, rival the rich in the cheapness and goodness of its corn, it can pretend to no such competition in its manufactures; ..." If we translate Smith's text into a more modern numerical example, it seems Smith wanted to say that the situation is like Table Ⅰ.

Table Ⅰ. Productivity of two sectors for each country

Poland France England
Agriculture 1 2 5
Manufacture 1 4 20

This table can be transformed to a more ordinary table (Table Ⅱ) which compares the amounts of labor necessary to produce one unit of products.


Table Ⅱ. Amount of labor necessary to produce one unit of products

Poland France England
Agriculture 100 50 20
Manufacure 100 25 5

This is clearly the case of comparative advantage. Poland has absolute advantage neither in agriculture nor in manufacture. If Smith was thinking that the absolute advantage makes trade possible, he would have denied the possibility of trade neither between France and Poland nor between France and England. But, as I have shown in the above citation, Smith was apparently thinking of an international trade between these countries.