It’s one of the great contributions of economic science to human understanding and yet it remains one of the least understood concepts. The law of association shows that it is in everyone’s interest to expand human cooperation as much as possible. FULL ARTICLE by Abhinandan Mallick
Source link: http://blog.mises.org/13833/the-law-of-association/
The Law of Association
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The law of association is clearly advantageous in the case of comparative advantage, where one party has a relative advantage in producing one good, while the other party has a relative advantage in producing another good. Yet even if the parties were identical, it would remain advantageous to specialize, so as to reap the advantage of the economies of scale, whole losing the disadvantages of working on two enterprises.
“With the incorporation of money, the expanding market and division of labor brought into existence as a consequence of man and nature’s diversity and inequality further evolves. As knowledge and skills of particular professions are built, this inequality intensifies through specialization.”
I’d like to know what this was supposed to say? The first ‘sentence’ is not a sentence and I’d like to understand it. Perhaps a transcription error?
Thank you! AND – thank you for a well-written article.
It’s saying that humans are inherently unequal and the advent of money allows us to better utilize our own individual inequalities for the maximum benefit of ourselves and the market as a whole.
How did the rest of the conversation go with the French woman?
Unfortunately, soon after I finished giving my account, my flight was announced!
@ J. Murray, that’s a much clearer way of saying what I meant. Of course the diversity of land, in the distribution of natural resources and pre-existing capital also directs factor allocation in the same way. Mises quite colourfully sums up these necessary conditions for the Law of Association as; “the manifoldness of nature which makes the universe a complex of infinite varieties.”
“Life is a zero-sum game, they say. There can hardly be a more tiresome or economically illiterate statement than this.”
Your scholarship, your analysis, your articulation brilliantly demonstrates its flaw.
This essay is a tour de force. Thank you for it.
You where able to explain the whole law of comparative advantage using numbers without the aid of pen and paper in a manner that an economically illiterate person can easily understand during a casual conversation!? By itself that is a remarkable feat.
About the heaven vs hell story, I found so many versions of it on the internet including ones – long spoons, long forks, elbows that cannot be bent, long chop-sticks one told by rabbis, one told by a parent, one told by preachers, one told by God, one told by a Buddhist monk and so on. Apparently it has a universal appeal to it. Still I am curious to know about its origins. Seems like an old story that has been with us for a long time.
I tried posting the links here, but it would not submit when I tried.
“You where able to explain the whole law of comparative advantage using numbers without the aid of pen and paper in a manner that an economically illiterate person can easily understand during a casual conversation!?”
I’m afraid you’re giving me too much credit there. I neglected to mention, but in fact I did quickly nip out a pen and notebook! On the heaven and hell story, I remember it being told to me at school when I was younger, but don’t know of its roots either, though it is quite interesting.
Your comment is awaiting moderation.
That is what you get for trying to insert too many hyperlinks.
Bravo! Thank you for this OUTSTANDING presentation. I especially appreciate your casting of the analysis in terms of relative differences in opportunity costs. I would like to learn more about this specific character of the law of association (i.e. beyond the basic analysis).
Also, for those interested in learning more about the real world manifestation of the law of association, I recently happened across this footnote in “Foundations of the Market Price System”, Milton M. Shapiro, p. 32:
“Probably the best single work on the history and nature of the market division of labor, which traces it back to earliest recorded times, is Jane Jacobs’ The Economy of Cities (New York: Vintage Books, 1970). Although Jacobs’ main focus is on the city as the vital center of civilization throughout history, she also analyzes the impact of trade and specialization on the world division of labor.”
This is one of the best articles I’ve seen on the topic. Especially framing it in terms of opportunity costs. It’s been taught this way but always in a lazy way in universities, and only emphasised to a limited degree by Austrians like Rothbard. The idea that opportunity costs increasingly decrease in the specialised product (thus increasing for the other) is a great way to explain how wealth is created throughout the system.
I read it as opportunity costs increasingly INCREASE in the specialized product.
“The rich businessmen and productive capitalists are precisely the ones with the greatest productive inequalities, and thereby the most contrasting opportunity costs in comparison to individuals who are presently less able to contribute to production.”
and
“Even those who do not work in industries that are flourishing as a result of increasing productivity because of capital accumulation, specialized knowledge, and workforce skills are directly reaping the benefits of this increase in society’s wealth. Their real income increases as the opportunity costs of their productive trading partners increase, explaining, for instance, why a barber in Chicago can earn more than one in Costa Rica.”
But maybe I misunderstand what you mean by “in the specialized product”. If so, please disregard.
I’d like to thank everyone for the comments made so far and would like to make 2 suggestions in case anybody happens to read:
1. Try asking the same question to your friends, acquaintances or someone you just started talking to on a train or coffee shop etc!
2. I’d like to highly recommend people read the late Manuel Ayau’s book “Not a Zero Sum Game,” the reading of which partly inspired me to write this article. Mr Ayau achieved many great things, and among them is this gem.
I bet the woman got bored very quickly. I have been reading your blog posts for a while now and you over complicate everything. Brevity, Abhi does not seem to be your friend
Ah, come on now Sanjay! There’s no need to be so negative. Perhaps she fooled me but she seemed positively engaged at the time.You are right though, I do need at times to cut down on my waffling and overcomplication. The original presentation of this essay was done algebraically, before I scrapped it and boiled the essence down to the version you see now.Though for intuitive reasons I often like the generality of an algebraic treatment, it runs contrary to the aims of the article.
It’s important to explain the why to avoid sounding dogmatic.
The picture is not a static one.
Do you agree with Freidrich Hayek on the need for a minimal safety net when a person’s previous competitive advantage is no longer valid and in a world of specialization, he/she has to train much longer to gain a new competitive advantage?
Abhinandan,
Please do not be offended and maybe I’m just plain dumb, but I’m afraid I must agree with Sanjan. I feel I could have understood e=mc2 better.
Even Einstein said “If you can’t explain it to a six year old, you don’t understand it yourself.”
Is there really a respected Law of Association or is it a frivolous law like Murphy’s Law?
I have reviewed your Law Firm Blog. You gave me lots of important law information. I will apply this topic in my firm. I have enjoyed reading it.
Thanks
Watson
“ Chad Wuertz”
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