Sunday, July 23, 2017

Jerry Emanuelson’s Algebraic Proof of Ricardo’s Law of Association

Most likely in the summer of 1970, Jerry Emanuelson published a proof showing that if two people work at two tasks at relatively different rates, they can trade their labor for mutual gain, even if one of them does both tasks better than the other.  His work appeared in The Libertarian Connection #13.  It is known to economists as Comparative Advantage, and it was suggested by Adam Smith, but argued forcefully later (1817) by David Ricardo. However, the formal statement was not known outside of academic economics; and it was, of course, compelling to libertarians. So, Jerry worked out several pages of algebraic inequalities for our benefit. As of this posting, it remains a lost work.

The Libertarian Connection was modeled on the science fiction fanzine. For your subscription, you were allowed to contribute two pages of content. The publishers collated the submissions, copied them, and distributed them to the subscribers.  The magazine came out every six weeks.  Originally, it was mimeographed. Contributors sent their works on stencils. The LC eventually went to photo-offset.

My comments about LC for Rebirth of Reason here: http://rebirthofreason.com/Forum/GeneralForum/1211.shtml

In those early days, libertarianism was a very small set of people. Dale Haviland, a professional printer, produced the A is A Directory in 1971, which listed just about everyone who wrote an article for a libertarian magazine. He also produced a directory of those publications. That is what made Jerry Emanuelson’s proof important: it influenced a small group of people who themselves went on to become the Libertarian Party, Reason magazine, the Cato Institute, and much else. 

Ricardo’s Law of Comparative Advantage, also became famous.  Not only do libertarians know all about it …
… but even Paul Krugman accepts it:

You can find the original treatise On The Principles of Political Economy and Taxation
(London: John Murray, Albemarle-Street), by David Ricardo, 1817 (third edition, 1821) as a text file here:

You can find the algebraic statements for Comparative Advantage in Wikipedia https://en.wikipedia.org/wiki/Comparative_advantage  The bibliography of sources for that article includes these:
· MacDougall, G. D. A. (1951). “British and American exports: A study suggested by the theory of comparative costs. Part I.”. The Economic Journal. 61 (244). pp. 697–724.
· MacDougall, G. D. A. (1952). “British and American exports: A study suggested by the theory of comparative costs. Part II.”. The Economic Journal. 62 (247). pp. 487–521.
· Stern, Robert M. (1962). “British and American productivity and comparative costs in international trade”. Oxford Economic Papers. pp. 275–296.
· Balassa, Bela. (1963). “An empirical demonstration of classical comparative cost theory”. The Review of Economics and Statistics. pp. 231–238.
· Chipman, John S. (1965). “A Survey of the Theory of International Trade: Part 1, The Classical Theory”. Econometrica 33 (3): 477–519. Section 1.8, p.509.

The theory and its algebra were known, but not widely known to those with great interest in promoting free trade.

It is specifically inequality that makes Comparative Advantage be true.  The governing assumption is not that A is better than B, but that A and B produce what they trade at different comparative costs within their own economies. They have different opportunity costs. In order to maintain autarky (to produce all of their own goods themselves) they each must give up the opportunity to produce more of what they do better.  Even if Nation A or Person A is better at producing both items, it is still in the interests of both A and B to specialize and exchange, rather than attempting to produce everything for themselves.

If all things were equal this would not work. Or so it is claimed.  In fact, I believe that the economists have not considered an important aspect of human nature that supports trade: alleviation of boredom. Eventually, the carpenter buys a bookcase, rather than making one. He can do it cheaper and better, but he has done enough of it that making another costs marginal utility and brings diminishing returns.  This is an old fact. Ancient Greek cities that produced good local wines, exported them, even to other cities that produced good local wines. The wines tasted different, and the difference created value.  Ancient Greek towns named for their wine include Oinoanda in Lycia, Oinoe on the island of Ikaros, and Oiniadai in Akarnania. 

For much more see, for instance, “Ancient Greece and Wine” in Wikipedia
https://en.wikipedia.org/wiki/Ancient_Greece_and_wine
But see, also, modern Greece and wine here:

Erwin S. “Filthy Pierre” Strauss bought The Libertarian Connection from Sky and Natalee, and soon changed its masthead to The Connection.  Filthy is active in science fiction fandom. As neither Jerry nor I can find our archives, I wrote to him to see what his terms and conditions may be.

Jerry Emanuelson's homepage is called Future Science here: http://www.futurescience.com/

ALSO ON NECESSARY FACTS

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