Comparative Advantage and Socialism

If you are a free market advocate, if you are opposed to excessive Government or you just are a Punk Anarchist which doesn’t support any form of authority, you must knowingly or unknowingly worship Adam Smith, and let’s Say… David Ricardo.

Anyone that studied International Economics, knows that each country must specialize in something.

Adam Smith said: Do what you do better!

But Ricardo replied: Even though you may the Best in some deed, maybe there’s some other quest you must pursue

After that, the Invisible Hand would do its magic and through international trade, Earth’s welfare would increase.

Let’s now narrow our vision, let’s focus on intranational trade, our everyday lives.

Just a simple example.

In country A, there are two professions: Fisher and Builder.

Let’s say John is a “10” fisher, but a “8” builder.

Adam is a “8” fisher, but only a “3” builder.

Both wannabe employees, Adam and John will first apply to be a Fisher, because they know they are good at it, so they may end up earning a higher wage.

And the captain of the ship, will obviously choose John, which is the better Fisher.

Therefore sadly, Adam will end up being a lousy builder.

So…the free market society, through its invisible hand will end up with total welfare (measured as production in this simple example assuming we can compare fishes with buildings) of 13!

The free society will exploit naturally the absolute advantages, trying first to employ the ones with the “best” absolute advantage, disregarding the possible job misallocations that that may lead to.

“A socialist society, through the visible hand of its benevolent dictator” would allocate the employees not to their decision (based on absolute advantages) but to society’s “greater good”, taking into account comparative advantages, achieving in this example a total welfare of 16!!

This is all great, but honestly my head could not feel peaceful with this socialist victory through efficiency. It was a true puzzle, which even asking some die-hard libertarians, I couldn’t get a better answer than: “Stop talkin about Unicorns, dumb ass”

But eventually I came up with a solution to this socialist victory puzzle.

Socialism wins clearly the (short-term) battle.

But Capitalism wins the war.

Why?

Imagine you know that you may excel at something, but eventually some crazy Government bureaucrat will tell you that you are more useful to society picking thrash off the streets.

Can you feel the frustration? Yap..

Who will try their best to excel at something ever again?

Hurray for Liberty and free markets (in this simple example).

Capitalism won by inter-temporal efficiency knock-out.

I guess David Ricardo can stop now rolling in his grave.