International Economics

This chapter is divided in two sections, both dealing with different aspects of international trade from an Austrian perspective. In Sect. 5.1, we analyze Ricardo’s Law of Comparative Advantage (also known as “Law of Association”) in order to critically respond to the analysis offered by Taleb (Antifragile: things that gain from disorder. Random House, New York, 2012). The latter points to the invalidity of the model, since it does not assume price variability, thus exposing it to grave systemic consequences due to abrupt changes in relative prices. Our critique is based on the approach taken by Ludwig Von Mises (Human action – a treatise on economics. The Scholar’s edition. Ludwig Von Mises Institute, Auburn, 1949) on the same subject. The Ricardian model is viewed from a praxeological perspective. We maintain that Taleb’s critique, although correct in invalidating Ricardo’s analysis, not only does not harm but even reaffirms Ricardo’s original conclusion pointing to the advantages of cooperation in general, and international free trade in particular. In Sect. 5.2, we offer a critique of the theory of the deterioration in the terms of trade, developed by Raúl Prebisch and Hans Singer. As an example of the theory’s shortcomings, the case of Argentina’s import substitution model is analyzed. Thus, we demonstrate how a misunderstanding of the influence of price variability in international trade may lead to the mistaken conclusion that protectionist measures must be adopted and enforced in order to achieve growth and prosperity.