REVIEW & OUTLOOK (Editorial): Why Free Trade?
The air is thick with hyperbole, invented statistics and insults to the other guy's mother. Congress must be gearing up to debate Nafta. Perhaps before we get in too deep, it would be helpful to tune out the demagoguery and listen to what leveler heads say on the central issue here: free trade.</br></br>The first level head, Ronald Reagan, discusses Nafta nearby (see related article: "Tear Down the Trade Wall" -- WSJ Sept. 13, 1993). We'd like to talk about Adam Smith and David Ricardo, the great economists who laid the groundwork for our understanding of the West's spectacular rise to prosperity. Mr. Ricardo was a Jewish stockbroker who married a Quaker, made a fortune in the stock market and retired young to think about economics. Mr. Smith, the author of "The Wealth of Nations," needs no introduction.</br></br>Messrs. Smith and Ricardo first sketched out the idea that 200 years later remains an article of faith among economists. The idea is called comparative advantage. It says: Let us each specialize in the production of what we're good at, and then trade the fruits of our labor.</br></br>Consider Joe Sixpack, who makes his living fixing cars. With the money he earns, he pays other people to grow his food, assemble his refrigerator and program his Gameboy. Nobody would advise Mr. Sixpack to knock off early at the auto shop and grow his own corn. He can enjoy more of everything by fixing more cars, which is his comparative advantage.</br></br>Notice that it doesn't matter at all to Mr. Sixpack that his Gameboy was programmed in Japan and his frijoles were grown by a Mexican. Adam Smith put it this way: "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage."