[marketcorrection] Don Boudreaux: A Dangerous Misunderstanding

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Posted by Don Boudreaux:
A Dangerous Misunderstanding
http://marketcorrection.powerblogs.com/posts/1206823220.shtml


   2 October 2007
   Mr. Thomas Palley
   www.ThomasPalley.com
   Dear Mr. Palley:
   Thanks for including me on your distribution list. But I dispute your
   claim that the principle of comparative advantage applies only when
   capital is immobile. You mistake an assumption typically made to
   render the explanation of comparative advantage clearer as being a
   condition necessary for the principle to hold in reality.
   Like other real-world happenings, capital mobility does indeed change
   the specific pattern of comparative advantage. It does not, however,
   nullify the principle. If it does - if, as you assert, capital
   mobility makes comparative advantage "obsoleteâ - then the principle
   of comparative advantage would be useless for explaining the pattern
   of specialization and trade within national or local economies, where
   capital has long been mobile.
   Of course, comparative advantage has always helped to determine the
   pattern of specialization and trade between Brooklyn and Queens no
   less than it has always helped to determine the pattern of trade
   between America and other countries. And this helpfulness does not
   diminish as capital mobility increases.
   Sincerely,
   Donald J. Boudreaux
   Chairman, Department of Economics
   George Mason University