Friday, March 05, 2010

Ricardo's Perversion of Adam Smith

Germane, if a bit abstruse. Reduced, the question is this: when "world trade" is "free," is the actual effect to reduce the relative average wealth of US citizens?

The important logical question that the Ricardians have to answer is this: Does the level of rising global wealth come at the benefit or the expense of the wealthiest nations? The important empirical question is this: What is the rate of increase in U.S. national wealth per capita compared to the rate of increase in global wealth per capita? Those who are intellectually honest enough to contemplate answering those straightforward questions of applied theory instead of retreating to the safety of the abstract will soon recognize that the Comparative Advantage is a fundamentally incorrect doctrine and the Ricardian case for free trade is strictly dependent upon circumstances that do not apply to many situations, presently including that of the United States.

That from Vox in affirmation of this (quoted in his post):

Adam Smith is commonly regarded as the father of modern economics. Free traders claim he is also the father of free trade and credit him with the first systematic attack on government regulation of trade ever written. This is true as far as it goes. This is not to say, however, that Adam Smith was a free trader in the same sense that the term is promoted today. Since David Ricardo and the Austrians took hold of it, the term has acquired a dimension and a purpose that was, to paraphrase Smith, no part of his intention. Or, in any event, it was no part of his definition.

Smith used the term "absolute advantage," which is a helluvalot different from "comparative advantage," the bastardization introduced by Ricardo.

Vox would argue that, indeed, the average income in the US has been stagnant, or declining, under the influence of "free trade."

It is, after all, labor-substitution.

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