Thread: Flat Black
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Old 12-17-2013, 01:34 PM   #184
whswhs
 
Join Date: Jun 2005
Location: Lawrence, KS
Default Re: Flat Black

Quote:
Originally Posted by Agemegos View Post
Tau Ceti has eight times the population density of Navabharata, which means more people bidding for each hectare of land, and it has 23 times the real per-capita income, which means more to bid with, and the real exchange rate is almost five. Rent for land to grow crops on on Tau Ceti could be hundreds of times the rent of land on Navabharata, in nominal terms.

But it really doesn't matter, because of one of perhaps the most fundamental and surprising results in economics: Ricardo's Law of Comparative Advantage. Prices don't matter. Only price ratios matter.

Tau Ceti is rich in capital and skilled labour, poor in land. Navabharata is the other way around. That means that the cost ratio between labour-intensive goods and capital-intensive goods is higher on Navabharata than on Tau Ceti. It is to the advantage of them on Tau Ceti to specialise in land-intensive goods and swap them for land-intensive goods; it is to the advantage of them on Navabharata to specialise in land-intensive goods and swap them for capital-intensive goods. If both types of goods are worth a lot of silver on Navabharata and not worth many écu on Tau Ceti it doesn't matter; the exchange rate will adjust. If the productivity of both land and capital are higher on Tau Ceti, so that the Tau Cetians can grow drugs on less land as well as producing photonic computers with less plant that still doesn't matter. Navabharatans will swap more drugs for a computer than Tau Ceti can get by reallocating resources from computer production to drug production. The exchange rate will adjust to make what is profitable in real goods profitable in money.
Yes. It turns out to be a very simple problem in convex bodies theory and linear programming, though it's rather impressive that Ricardo was able to work it out before those fields had really developed. But given some rather simple assumptions it's mathematically inescapable that gains from trade and specialization can occur.

Bill Stoddard
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