Yes, diminishing marginal utility plus increasing marginal production capability is the recipe for specialization and trade.
I think I agree with Eliezer (if I read correctly) that scarcity is the underlying motive—trade is only valuable if you want something and you can trade for it more easily/cheaply than you can produce it.
I think this is diminishing marginal returns of consumption, not production.
Yes, diminishing marginal utility plus increasing marginal production capability is the recipe for specialization and trade.
I think I agree with Eliezer (if I read correctly) that scarcity is the underlying motive—trade is only valuable if you want something and you can trade for it more easily/cheaply than you can produce it.