The modern orthodoxy tells that it is enough for everyone to look for own interests, and the common matters will self-organize themselves.

You only have to stop and think about that for a minute or two to realise what a bizarre and surreal view of the world it is.

... but if its Ricardo, the answers are, yes, the argument has massive relevance, and, no, it does not exist in a world of free flows of financial wealth ... or, in other words, in a world of unfettered accumulation of financial obligations across international boundaries.

The difference between Ricardo's argument and the neoclassical revision of Ricardo's argument that the traditional marginalism now relies on is that the neoclassical revision of the argument is only very loosely anchored to reality. Not only are the core assumptions of the argument not observed in the real world ... we are still waiting for a credible case that they could be established in the real world.

Ricardo's argument is, on the other hand, far more robust.

Obviously anyone who applies the theory of comparative advantage to the policy of unfettered financial flows currently pursued by transnational corporations and their bought and paid for political henchmen is a bullshit artist. Ricardo's argument is restricted to balanced trade in finished goods between two nations capable of self-sufficiency. Thus the kind of "trade" deals being pursued under Doha, or in the US under the NAFTA-model of corporate wealth agreement, have no right to appeal to the model of comparative advantage. They are simply efforts to increase the economic leverage of transnational corporations by eliminating regulation of their exercise of economic power.

However, if Ricardo's argument is taken seriously, it provides a set of goals for the operation of the establishment of new trade institutions that could offer mutually beneficial trade, in particular between low-income and high-income nations, that is not available under current trade institutions.


Utsukushikereba sore de ii

Apparently, there is one.

The economist Paul Craig Roberts notes that the comparative advantage principles developed by David Ricardo do not hold where the factors of production are internationally mobile.

He wrote this on Thursday, Aug. 7, 2003

[...] Economists assume that the substitution of foreign labor for U.S. labor is the benevolent workings of free trade. But what is being traded when U.S. employers move jobs out of the country? Many of our imports are products made for American markets by U.S. firms.

Economists mistake the free movement of factors of production for free trade. Raised on the theory of comparative advantage, economists know that free trade is mutually beneficial. They dismiss without thought any concerns that seem to call free trade into question. The case for free trade has been unassailable for so long that economists have overlooked that today's circumstances do not comply with the assumptions of the theory.

The gains from trade flow from each country focusing on what it can do best and trading for other goods. The idea that there are comparative advantages in production is based on countries having different endowments of immobile factors of production. When the theory was developed, agricultural output was an important component of Gross Domestic Product, and a country's advantages resided in its climate and geography.

David Ricardo discovered the principle of comparative advantage in the early 19th century. Ricardo recognized that the principle did not hold if all factors of production are internationally mobile. Mobile factors of production would migrate to countries that had the greatest absolute advantages. Those countries would gain, and all others would lose.

Climate and geography cannot migrate, but capital and technology can. Today, absolute advantage resides in an abundant supply of cheap and willing labor. Now that Asia is safe for capitalism, capital and technology flow to countries where labor costs are lowest.

The global mobility of factors of production is a new development. Until recent years, it was not safe for capital and technology to migrate outside North America, Western Europe and Japan. No first-world country had an absolute advantage in labor cost.

The collapse of world socialism changed circumstances overnight. U.S. labor now faces direct competition in global labor markets. The excess supply of labor in these markets will drive down wages, salaries and employment in the United States. As the dollar is likely to lose value under pressure from our growing trade deficit, the decline in wages will not be compensated by a decline in prices, and U.S. living standards will fall.[...]

Although his criticisms of Bush often seem to align him with the political left, Roberts continues to praise Ronald Reagan and to endorse many of Reagan's policies, arguing that "true conservatives" were the "first victims" of the neoconized Bush administration.[2] He has said that many supporters of George W. Bush "are brownshirts with the same low intelligence and morals as Hitler's enthusiastic supporters."

[...]

Roberts is seriously dismayed by what he considers the disregard of the Republican party for the US constitution. He has even voiced his regret that he ever worked for it, avowing that, had he known what it would become, he would never have contributed to the Reagan Revolution

I strongly recommend his latest book: "Bad Samaritans".

I've been waging an (unsuccessful) campaign to get him to participate online as do so many other economists. He pleads lack of time.

Perhaps a few emails of encouragement from other fans of his work might help. His email is on his faculty bio page, if you want to try...

Policies not Politics
---- Daily Landscape

Also, long range trade until the Antiquity was pretty much restricted to luxury goods (now, really, wine is a luxury) ; did trade have an impact on the average joe ?

Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant.