Monday, 13 May 2013

The metaphysical 'law' of Comparative Advantage - an assumption masquerading as a discovery

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[If you don't already know what the economic 'law' of Comparative Advantage is, then don't bother reading this.]

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What is interesting about Comparative Advantage is that it is a metaphysical assumption and not a discovery. In this it resembles evolution by Natural Selection.

What both Comparative Advantage and Natural Selection do is make a set of assumptions and then state that IF these assumptions hold, THEN such-and-such consequences WILL follow.

Neither are empirically 'true' - rather they are logically true in the sense that IF the assumptions do indeed hold, THEN certain outcomes WILL follow - but strictly this has nothing (and I mean nothing) necessarily to do with what happens in real life, what is empirically observable - what is real, consequential, important in terms of the world.

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Because we can never know for sure whether the assumptions of CA (or NS) hold, and even if we could know, there are an open-ended number of other processes at work in the real world, of unknown strength; such that EVEN IF comparative advantage was operating it could easily and often be small, weak, utterly swamped, invisible to observation, insignificant in real terms.

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So, Comparative Advantage is only 'true' by definition, but is not the kind of thing which can be tested. It certainly is not always true or important in practice, indeed it cannot be known whether or not CA is applicable in any specific situation.

In other words, CA was not discovered - it was devised; it is not empirical science it is metaphysics (i.e. potentially a framework of science), is is not a finding, it is an assumption.

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Yet economists persist is describing CA asif it was a discovery, asif it was testable, asif it is necessarily and empirically applicable and important in all situations!

All that can be said is that when CA is built-into an analysis or investigation, then such-and-such is the consequence of building-it-in.

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In principle, since it provides the framework for the subject; Comparative Advantage could never be disproved (nor proved) by anything that ever could be discoverable by economists - just as Natural Selection cannot ever be disproved (nor proved) by anything a biologist might discover.

To treat Comparative Advantage as part of the 'science' of economics is mistaken, a misunderstanding, just plain wrong - Comparative Advantage just is not that kind of a thing!

Comparative stands outside-of economics - it is part of philosophy.

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