The Division of Labor Under Homogeneity: A Critique of Mises and Rothbard

Even the most passionate defenders of free trade, such as Mises and Rothbard, claim that trade cannot occur under conditions of strict homogeneity of land, labor, and capital. We show that specialization, trade, and the division of labor can emerge even when resources are initially homogenous, due to “natural heterogeneity,” economies of scale, and learning. Perhaps no proposition in economic theory is better established than the idea of gains from trade. The insight that voluntary exchange is mutually beneficial was articulated as early as the 13th century by Richard of Middleton (de Roover 1963: 338), reaching its full expression in Ricardo’s ([1817] 1951) law of association, or the principle of comparative advantage. These insights are not always well understood, of course. The mercantilist view of trade suffers from what Mises (1966: 664) calls the “Montaigne fallacy,” the belief that trade benefits one party at the expense of the other. *Walter Block is Harold E. Wirth Eminent Scholar in Economics at Loyola University, New Orleans, 6363 St. Charles Avenue, New Orleans, LA 70118; e-mail: wblock@ loyno.edu. He is author of a dozen books and over 200 scholarly articles on economics, law, and political philosophy. Per Henrik Hansen is a Ph.D. Fellow in the Department of Economics, Copenhagen Business School, 2000 Frederiksberg, Denmark; e-mail: [email protected]. He is a former Mises Institute Fellow and a specialist in monetary economics. Peter G. Klein is Assistant Professor in the Division of Applied Social Sciences and Associate Director of the Contracting and Organizations Research Institute, 135 Mumford Hall, University of Missouri, Columbia, MO 65211; e-mail: pklein@ missouri.edu. His research focuses on entrepreneurship, industrial economics, and the economics of organizations and institutions. The authors are grateful to Laurence Moss (the editor) and two referees for insightful comments on a previous draft. The usual