The Value of Tennis Is More Productive Than Fly Fishing

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The value of tennis that matters, not how good he is at flyfishing. The wages and the prices steer people into the activities that theyr relatively best at. You don't just take the job that pays the most money; you take theJob that's most rewarding. That includes both the non monetary and the monetary aspects of the job.

Russ Roberts, host of EconTalk, does a monologue this week on the economics of trade and specialization. Economists have focused on David Ricardo's idea of comparative advantage as the source of specialization and wealth creation from trade. Drawing on Adam Smith and the work of James Buchanan, Yong Yoon, and Paul Romer, Roberts argues that we've neglected the role of the size of the market in creating incentives for specialization and wealth creation via trade. Simply put, the more people we trade with, the greater the opportunity to specialize and innovate, even when people are identical. The Ricardian insight masks the power of market size in driving innovation and the transformation of our standard of living over the last few centuries in the developed world.