Efficiency Matters Even More in the Information Age: Considering the Allocative Dimension of Price

It is rare for many neoclassical economists to come close to a consensus. The superior ability of market exchange to promote economic welfare compared to autarky is one such unusual point of near agreement. The claim that more open economies perform much better than closed economies over the long haul is supported by both theory and evidence. At the dawn of the discipline of economics, there was already an appreciation for the value of specialization, division of labor, and exchange in Adam Smith’s Wealth of Nations.1 For his part, David Ricardo (1817) formulated the theory of comparative advantage in which nations benefit themselves and their trading partners by producing that which they do best and then buying all their other needs from nations that can supply these at a much lower price. The Atlantic economies of the nineteenth century thrived and converged in their economic performance during that first era of global economic integration as they permitted the free flow of goods, capital, and migrants across their borders.2 Moreover, the stark contrast in the anemic growth of nations during the interwar years, when markets were closed to each other, compared to the post-World War II period of more open markets also attests to the value of international trade. Note, too, the numerous regional and bilateral trade agreements negotiated and ratified during this period (e.g., European Common Market, NAFTA, MERCOSUR, ASEAN, APEC).