Annals of Comparative Advantage

In my last post I talked about two interesting things I learned from John Reader’s Africa: A Biography of a Continent. I also mentioned that the book is sometimes infuriatingly superficial or wrongheaded in its treatment of science or economics. Let’s look at an example:

During the 16th century the Portuguese expanded their empire to include territories spread around the globe from South America to the Spice Islands of the Far East. Best estimates suggest that up to 10,000 Portuguese were working abroad at any one time. Ten thousand, when the population of Portugal was only around 1 million, and large numbers were continuously leaving to replace those who died abroad. The empire imposed a drain on manpower and resources that Portugal could not sustain–and the empire collapsed. The wonder is not that it collapsed, a history concluded, “but that it flourished for exactly a century and lasted as long as it did.” (383)

First, is ten thousand out of a million (1% of the population) really so high? For comparison, today about 10% of the population of the Philippines are working overseas. But more importantly, you should do the activity with the highest return! Reader described the Portuguese Empire as largely a series of trading missions that paid taxes on their return.

Trade flourished and the merchants prospered. It has been estimated that returns were hardly ever less than 50 per cent and sometimes as high as 800 per cent….between 1450 and 1458…the traffic yielded from five to seven times the invested capital. (339)

In an economic sense you don’t need to worry about “manpower” for other activities. What exactly was Reader worried about? If 1% of Americans went to work in Silicon Valley, the result wouldn’t be a dangerous draining of “manpower and resources” (= Labor and Capital) away from other activities. When you have prices, resources tend towards their highest-valued allocations. Saying “lots of resources went to this really high-valued activity” does not explain the collapse of an empire.

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