Smithean or Ricardian?

Under the Smithean view, gains from trade are a result of specialization. When individuals are able to concentrate their efforts on learning a few tasks well, rather than many tasks minimally, they are much more productive. Specialization plays a large role in developing substantial economies—the assembly line practically revolutionized America’s. In contrast to Smith, the Ricardian view holds that gains from trade are the result of comparative advantage. People produce the goods they are best equipped and skilled to produce and trade for those goods that they are not as well equipped to produce. These two views have different implications for public policy concerning trade. Competitive advantage could eventually lead to “losers” as the trade network expands. Those with greater competitive advantage will force those with less to produce in areas which they are not as well equipped. Those with the most advantages win while others lose. With specialization, as the network expands, the gains from trade increase, because expanding the network increases specialization, leading to greater productivity.

If politicians hold the Smithean view of the gains from trade, it would follow that they would support policies that promote international trade. However, there is much controversy associated with this department, which leads to the conclusion that many politicians hold a Ricardian view. Or, perhaps people do not realize the gains that can be achieved through trade because of specialization. If tariffs were removed, some imports would become cheaper and the money saved could be reinvested into capital and equipment, or labor, which would lead to increased productivity in that industry (Smithean view). However, if the Ricardian view is at the forefront, the tariffs that are in place are seen as “leveling the playing field.” Those with greater comparative advantage cannot drive those with less out of business.

So where does that leave us? Which views should be the one that dictates policy? Should specialization trump comparative advantage? Or visa versa? Ludwig von Mises advocates that the greatest productivity results when the means of production are privately owned and able to move freely to where they will be best employed. This leads me to believe that government regulation of international trade should be minimal, just enough to protect private property rights and enforce contracts. As the trading network expands, the means of production will continue to be employed in their most productive areas and prosperity will result.