Originally published on Medium on June 26, 2019.
Comparative advantage is an important concept in economics. It explains why, in general, it is advantageous for folks to cooperate even if some people are better at nearly everything. The gist of the idea is that there is often an opportunity cost to doing an activity (you aren’t doing something else that is potentially more valuable to you). Thus, even if you can do something better than someone else, they may be able to do it at a lower opportunity cost, and it may be worth your while to pay them to do it instead.
This becomes particularly interesting when thinking about the distribution of resources in society. Under absolute advantage thinking, if I do something that produces value X and you do something that produces value Y, then I deserve X worth of society’s value and you deserve Y. We can trade to adjust the exact content of the value, but the proportion of the value is directly related to the value produced by an individual. An alternate way about thinking about the distribution of resources in society is that they should be more equal or based on need. As Marx said, “From each according to his ability, to each according to his needs.” For the purpose of this essay, I will assume we are aiming for proportional distribution but will question the common thinking about what proportional means.
Thinking about comparative advantage provides yet another way of thinking about distribution. Before I get into the details, a caveat: the explanation I am about to go into uses a counterfactual world. In reality, we don’t have access to the counterfactual world, so what follows will not be an explanation of how to actually execute this alternate distribution scheme. What I present here is a principle for evaluating options, not a policy in its own right.
With that caveat, how does comparative advantage give us another option when it comes to distributing the value produced by society? Imagine two worlds. In the first, I produce X and you produce Y, where X is greater than Y. In the second world, I produce X and you produce Y, but I am only able to produce X because we trade in a way that frees me up from doing an activity that only produces Y value.
In the first world, if we want distribution to be proportional to production, you get value Y and I get value X. The total value produced by that two person society is the sum of our independent production decisions.
In the second world, if we had acted as independent agents, then the total value created would have been 2Y. It is only because we cooperated that I was able to produce X. Your comparative advantage allowed us to produce a value X+Y for society. Thus, we both deserve credit for the excess value created by cooperation (X-Y). The portion of society’s value that I deserve is something less than X and yours is something more than Y. This difference is not a wealth transfer. It is a fair distribution of the value created by choosing to collaborate.
Once you start thinking about things this way, the idea of comparative advantage and its impact on distribution and allocation of credit starts appearing everywhere!
(This builds on but does not directly reflect some ideas developed in Ryan Muldoon’s Social Contract Theory for a Diverse World: Beyond Tolerance.)