Comparative Advantage of Canadian Beef – EconLib

“By choosing an Agropur product you are choosing to promote and contribute to the Canadian economy.”

This statement appears on every milk container sold in the Great North. In one stroke, this company is choosing to attack both the free enterprise system as well as basic economic laws. It does this in two different ways.

First, consider buying any consumer item. Does it boost the economy? Well, yes, if you’re a Keynesian. Here the customer is the king. The entire economy revolves around the consumer. But economic science and common sense soon gave value to this economically illiterate idea. Who do you think can improve an economy: four big fat guys with beer bellies who can comfortably consume 10,000 calories a day, but can’t work their way out of the proverbial paper bag? Or four skinny fellows who thrive on 2000 calories a day and can work out all day? The former four can devour like crazy, but are too gross to produce much. For the latter group, the opposite is the case.

No, it is producers, not consumers, who drive economic growth and development. Production necessarily comes before consumption. You can have the former without the latter (not that you’d want to), but not the reverse. If the general public drank less milk, not more, the scarce capital could be devoted to mining, education, research, etc., and other such pursuits that enrich us all. On the other hand, we have no reason to doubt that actual practices in this regard are best.

Second, drink a given amount of milk that is claimed to be beneficial to Canada, but only if it is from domestic cows. This follows only if we ignore the benefits of specialization and the division of labor. Sometimes economic concepts are easier to understand if we exaggerate things. So, instead of focusing on buying only Canadian milk made in Canada, let’s consider that people in this country refuse to buy anything produced north of our southern border. Then we will be completely self-sufficient. Will it enrich us? You can only believe this if you never took Economics 101, failed the course, or “socially” passed it.

Why not? This is simply because foreigners can often produce some things cheaper and better than we can, and we can do the same for other items. For example, we’re better at maple syrup than Hawaiians, and they can mop the floor with us about pineapples.

So much for what economists call absolute advantage. But there are also comparative advantages. Even if Canadians are better (or worse) than other countries in producing both products in bilateral trade, sometimes it pays not to look inward like this milk company. Consider the following numerical example:

Good X Good Y GDP

Country A 100 50 150

Country B 10 40 50

No Trade 110 90 200

Trade 200 80 380

AX is ten times as efficient as B in (100 to 10) but only marginally better in producing Y (50 to 40). B is as good as A at X, but 80% efficient at producing Y. If no trade occurs, 110 Xs exist, for a total of 200 Ys (we assume these goods are additive); A’s GDP is 150, B’s 50, again for a total of 200. But if there is trade, then each country does not specialize in what is absolutely best (A wins in both cases), but rather according to its comparative advantage. Doubles on AX and produces 200 units, while doing the same on BY and produces 80 units. GDP has now increased by 280 units. Everyone wins.

Should this company cancel the message? Yes, if you support truth and economic efficiency; Not if you are for free speech.

By the way, this note, Canadian snowbirds. Without trade, there would be no winter vacations in the Bahamas or Florida. This would be a logical implication of Krishipur’s anti-free trade argument, if taken to its logical conclusion.

Walter E. Block is Harold E. Worth Distinguished Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and co-author (with Thomas DiLorenzo) of An Austro-Libertarian Critique of Public Choice.

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