Thursday, June 01, 2017

Comparative Advantage

The theory of Comparative Advantage provides the back bone to Free Trade. That win-win is possible, rather than thinking you need to be better than others in order to win. Ricardo used wine and cloth to explain this idea. Even if Portugal can produce both wine and cloth cheaper than England, it makes sense to focus on relative strength.  Portugal, in choosing to focus its time would choose the thing it is best at. In his example wine. It wouldn't make sense to produce cloth just because it is better than England at it. It can buy the cloth it needs from England with the increased bounty it makes from wine. Win-win. We might think in categories and stories. Money's greatest strength, and greatest weakness, is it doesn't. It simplifies everything to a comparable number. Our greatest strength is that our categories help us build communities through common ground. Our greatest weakness is the unnecessary divisions those categories create, through our inability to see the world except through our own eyes.

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