Tue Mar 28th, 2006 at 08:35:13 AM EST
My attention was recently drawn to this article by William Pfaff.
It is free trade as theoretically envisaged by the 18th century economist David Ricardo, stripped of the economic, social and political constraints that for two centuries kept trade from functioning the way Ricardo expected.
He said that states should exploit their comparative advantages in resources or manufacturing. Trading in those complementary advantages would produce reciprocal gain. It's win-win - as Ricardo would not have said.
This is a relatively simple-minded theory, but in practice it has generally worked out, if not to the advantage of all concerned.
Ricardo, however, had a second theory, which he called the "iron law of wages." You do not hear much about the iron law, in part because you wouldn't want to hear about it, and also because experience has seemed to prove it untrue. But times are changing.
The iron law of wages is also simple and logical. It says that wages will tend to stabilize at or about subsistence level. That seemed inevitable to Ricardo, since while workers are necessary, and so have to be kept alive, they have no hope of any better treatment since they are infinitely available, replaceable, and generally interchangeable.
Ricardo's wage theory has seemed untrue. The supply of competent workers in a given place is not unlimited; neither workers nor industry are perfectly mobile, and labor demonstrated in the 19th and 20th centuries that it could mobilize and defend itself. The iron law of wages would seem to function only if the supply of labor is infinite and totally mobile.
Unfortunately that day, for practical purposes, has now arrived, thanks to globalization.
Now that the supply of labour massively outstrips demand is it inevitable that the Iron Law will apply? Are we doomed to a global serf class ruled by global merchant aristocracy or are we merely passing through a stormy part of the progression to a capitalist free-market utopia where everyone is prosperous, fat and happy?