International Trade - Theory and Policy, 2010a

In the first part of the passage, Torrens considers a case in which the cost of producing corn, in terms of
labor and capital usage, is the same in England as it is in Poland. He points out that producers could
afford to sell both English and Polish corn at the same low price. However, since it would cost additional
resources to transport the corn from Poland to England (expense of carriage), it makes intuitive sense that
corn should be produced in England, rather than imported, since Polish corn would wind up with a higher
price than English corn in the English market.
He continues by suggesting that this conclusion is erroneous. Why? Suppose England were to remove
some capital (and labor) from the production of corn and move it into the production of manufactured
goods. Suppose further that England trades this newly produced quantity of manufactured goods for corn
with Poland. This outcome would be better for England if the amount of corn that Poland is willing to
trade for the manufactured goods is greater than the amount of corn that England has given up
producing. If the excess corn that Poland is willing to trade is sufficiently large, then it may be more than
enough to pay for the transportation costs between the two countries. Torrens’s final point is that this
trading outcome may be superior for England even if the lands of England should be superior to the lands
of Poland—in other words, even if corn can be more efficiently produced in England (i.e., at lower cost)
than in Poland.
This is the first explicit description of one of the major results from the theory of comparative advantage.
It reflects Torrens’s understanding that a country might conceivably benefit from free trade while
reducing or eliminating production of a good it is technologically superior at producing.
Saylor URL: http://www.saylor.org/books
Saylor.org
120