Monday, September 04, 2017

Smith/Ricardo Economics: Not Too Correct

Vox Day posts a few grafs from Steve Keen, an Aussie economist, wherein the Smith/Ricardo theory of specialization/comparative advantage is dismantled.

Key to the argument is that Ricardo erred when he failed to account machinery as 'capital,' and used only money in that category.  Yah, well, machines are (generally) function-specific which means that they are (generally) industry-specific, and they are (generally) portable.

The archetypal machines for cloth and wine manufacturing in Ricardo’s time included the spinning jenny and the wine press. It is stating the obvious that one cannot be turned into the other, but stating the obvious is necessary, because the easy conversion of one into the other was assumed by Ricardo, and has been assumed ever since by mainstream economic theory.

In fact, the relative mobility which Ricardo assumed for his ubiquitous concept of “capital” is the opposite of what applies to machinery. Machinery designed for one industry simply cannot move to any other, even in the same country; but machinery in one industry can (and frequently is) shipped between countries.

Thus, as Vox concludes:

Free trade is not always and inherently inimical. The important point is that, contra Ricardo and his mindless adherents, it is not always and inherently beneficial either.

Trump was elected for a reason, people.

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