thought, which argues for even more governmental intervention in the market. Social Darwinists had a different take on the utilitarian justification for free markets. They argued that economic competition produced human progress. If governments were to interfere in this process, they would also unintentionally be impeding human progress. Weak firms must be weeded out by competition, they claim. The basic problem underlying the views of the social Darwinist, however, is the fundamental normative assumption that survival of the fittest means survival of the best. That is, whatever results from the workings of nature is necessarily good. The fallacy, which modern authors call the naturalistic fallacy , implies, of course, that whatever happens naturally is always for the best. Free Trade and Utility: David Ricardo Adam Smith's major work, the Wealth of Nations, in fact, was primarily aimed at showing the benefits of free trade. There he wrote: It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not make his own shoes but buys them from the shoemaker... What is prudence in the conduct of every family can scarce be folly in that of a great kingdom. 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. Adam Smith's point here is simple. Like individuals, countries differ in their ability to produce goods. One country can produce a good more cheaply than another and it is then said to have © Copyright Virtual University of Pakistan
51 Business Ethics –MGT610 VU an "absolute advantage" in producing that good. These cost differences may be based on differences in labor costs and skills, climate, technology, equipment, land, or natural resources. Suppose that because of these differences, our nation can make one product for less than a foreign nation can, and suppose the foreign nation can make some other product for less than we can. Then clearly it would be best for both nations to specialize in making the product each has an "absolute advantage" in producing, and to trade it for what the other country has an "absolute advantage" in producing. It was Ricardo's genius to realize that both countries could benefit from specialization and trade even though one can make everything more cheaply than the other. Specialization increases the total output of goods countries produce, and through trade all countries can share in this added bounty. Ricardo's ingenious argument has been hailed as the single "most important" and "most meaningful" economic discovery ever made. Some have said it is the most "surprising" and "counterintuitive" concept in economics. It is, without a doubt, the most important concept in international trade theory today and is at the heart of the most significant economic arguments people propose today when they argue in favor of globalization. Ricardo makes a number of
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