Posted on 10/28/2017 2:57:56 PM PDT by TBP
The year 2017 is a milestone in both economic history and the history of economics. The Marx-inspired Red October coupe d’état took place in Russia one century ago. The 1st volume of Marx’s Capital, a Critique of Political Economy was published 150 years ago. David Ricardo’s Principles of Political Economy and Taxation was published 200 years ago.
Death Blow to Mercantilism
The bicentennial of Ricardo’s book is worth commemorating because this book finished a crucial debate over the merits of international trade. 18th Century Mercantilists believed that a nation could become wealthier through trade surpluses- by having exports greater than imports. Taxes on foreign goods create a surplus of exports over imports. 18th Century Economists David Hume and Adam Smith each demonstrated flaws in the economic nationalism advocated by Mercantilists. Hume demonstrated that trade surpluses just cause an inflow of money, gold back then, which makes exports more expensive. Smith proved that free trade can make all nations wealthier by allowing each nation to specialize in areas of absolute productivity advantage.
Smith and Hume dealt severe blows to Mercantilism, but Ricardo ended the debate between Mercantilists and Economists. Ricardo proved that free trade will make everyone wealthier by allowing each nation to specialize in areas of comparative productivity advantage. Ricardo pointed the way to both modern economic theory and prosperity. Ricardo’s Law of Comparative Advantage is an application of what economists now term Opportunity Cost. People who choose between goods according to the cost of not having some other real good maximize expected real wealth. The emergence of global trade in the modern world has raised productivity by allowing people to choose the most advantageous options, not just domestically.
The progress achieved from Ricardo’s insight has been limited by two factors. First, Mercantilism remains popular. Second, a third set of ideas emerged to challenge Ricardo. Smith and Ricardo both erred by thinking that the price of a good ultimately depends on labor content. Ricardo pointed the way out of this intellectual error (Opportunity Cost), but Karl Marx took a different path. Marx argued that since all value comes from labor, all profits come from exploiting labor. Marx’s initial critique of Smith-Ricardo political economy was published in 1867, with two additional volumes published posthumously. Marx argued that workers would overthrow capitalists to end misery brought on by capitalists paying them mere subsistence wages.
Problems with Marxism
Problems with Marxism were ascertained during a half-century of debate. In 1917 the leader of the Bolshevik faction of Marxists, Vladimir Lenin, admitted that the notion of capitalists exploiting workers in each in their own nations was wrong. Why did Lenin concede this point? Because it was obvious that wages and living conditions for workers in the most advanced industrial nations were rising.
Since wages in capitalist nations were obviously moving away from, not towards, subsistence levels, Marxists sought some new basis for justifying their belief in capitalist exploitation. Perhaps imperialist powers, like Belgium, France, and England, exploited workers in colonies. Is this theory plausible? No decent person could excuse abuses by the English, French, and especially Belgians, in their colonies.
Can Lenin’s revised Marxism explain capitalist development in the United States, Germany, or Sweden? Germany and the US accumulated capital for decades without colonies. How could the initial phases of German and American industrialization be the result of “surplus value” extracted from future colonies? Furthermore, Germany and the US acquired relatively small colonies, very small compared to ongoing industrialization in these nations. The U.S. acquired its’ colonies from the 1898 Spanish-American war. Why didn’t Spain develop more substantially while it had colonies?
Do the examples of France and the U.K. actually fit with Lenin’s imperialism theory? No. Industrial development in France and the U.K. began while these nations were just beginning to acquire colonies, and continued even after these colonies were lost around a half-century ago.
Experience over the past 200 years has also shown that Ricardo was right about Mercantilism, yet this repudiated theory remains popular today. Experience over the past 150 years has shown fatal flaws in both Marx’s original and Lenin’s revised version of Marxism, and the theoretical defects of Labor Value theory were completely exposed by Carl Menger in 1871.
The defects of Mercantilism and Marxism are hardly trivial. Red October created a wave of Marxist states, which perpetrated atrocities that dwarfed the abuses of French and Belgian colonials. Yet somehow Marxism is resurgent and popular in academia. Mercantilists stood in the way of the unprecedented economic progress achieved through globalization, yet Mercantilism is resurgent and popular in the White House. One century ago this year the rise of Bolshevism rose to threaten modern progress. Bolshevism drove many others into the extreme nationalist movements of Mussolini and Hitler. Now, a century later, the twin threats of Fascism and Marxism appear resurgent. What can we learn from the resurgence of Nationalism and Marxism? Those who have failed to learn the correct economic lessons of modern history may doom all of us to repeat its worst aspects.
A country like the US can produce nearly anything affordably, and thus trade imports are not necessary.
You could say exactly the same thing about the Soviet Union or China, yet they didn't have a very high standard of living. What matters is not what you can produce, but what you can produce best. Unless you can do everything better than anyone else anywhere in the world, then imports are absolutely necessary. And those lazy domestic workers who want to whine about not having jobs while not being willing to compete for them are just asking you to carry them by paying higher prices.
Maybe the problem is, the more free trade fails the more people demand an alternative. What’s needed is fair trade, not free trade. If the system were running right, if China weren’t allowed to dump their exports and deny our imports, things might be a little different. But they’re not. So maybe YOU guys are the ones that are saying free trade works, its just never been done right.
If you let Big Agriculture import cheap labor, you’ll regret it.
To be a successful seller, you need buyers who are willing and ABLE to buy your product.
Depends what you buy. People buy from me to make money from the things I sell.
It would be wonderful to have free trade.
It would be wonderful for everyone to love each other.
It would be wonderful to occasionally have a glass of ice in Hell.
The biggest thing we should have learned is that Economics isn’t a real science at all. It is akin to Astrology or reading chicken entrails.
When Paul Krugman is considered a respected economist, you know that it is phoney science.
“Ricardo proved that free trade will make everyone wealthier...”
Well that’s completely proved wrong.
Actually, it’s been proven true over and over through history.
“Actually, it’s been proven true over and over through history.”
Lol, We’ve had “free trade” for decades:
The US is 20 Trillion in debt,continuously run trade deficits with everyone, real wages are down, and the only hope young people have today for a prosperous future is to get a gov job.
Nice try.
Smith proved that free trade can make all nations wealthier by allowing each nation to specialize in areas of absolute productivity advantage.
Only if the trading partners are peaceful. If one partner develops an advantage in some strategic area, like rare earth minerals, it may spell trouble.
What David Ricardo misses is that he doesn’t include social costs of factories leaving the shores.
We are entangled in the support of millions of displaced workers, which, if such costs were included, he would not have the same outcome. He ignored those costs. But a nation cannot.
Everybody has to be a little of each. That's what "trade" is about.
The business buys the effort (product) that the laborer sells and buyscapital items to make a product, so that a surplus of product can be made and sold.
One becomes richer by saving and investing, rather than by spending.
“I content that any nation that tries to practice Smithsonian free trade is THIS world, will shortly cease to exist.”
which is EXACTLY what globalist want and exactly why they want borderless “free trade” of both goods and people.
“Free market economics not only works, but works extremely well.”
How do you know this?
Can you cite an example of free market economics?
“Mercantilism is alive and well and supported by some FReepers. Mercantilism is the opposition to free trade advocated by Adam Smith.”
Utter ignorance!
Mercantilism is practiced by, and has always been practiced by every nation-state, empire and tribe in the history of man.
Smithsonian Free Trade has never existed in human history. You, and everyone else has never seen it.
And, if a nation opens their markets freely...no obstructions whatsoever, in any fashion, they will cease to exist in a decade or less as the Mercantilists pick their bones.
And feed on their children.
“Ricardo proved that free trade will make everyone wealthier...”
Oh, that’s a damnable lie.
There has never been free trade. It’s completely unproven, one way or the other.
“Smith proved that free trade can make all nations wealthier by allowing each nation to specialize in areas of absolute productivity advantage.”
Adam Smith never proved shit.
He wrote an economic theory that has never been tried. And it will never be tried.
The entire world are Mercantilists. You think there’s some magic that will change them all at once, overnight?
That’s a delusion.
Based on the 2017 Index of Economic Freedom Hong Kong, with its extremely low tax rates, minimal regulations on businesses, and highly capitalist system of economics, ranks as 89.8% economically free, which is the highest rating in the world.
Singapore ranks second and is 88.6% free. The country imposes no tariffs, and there are few restrictions on investments. Singapore features strong private property rights.
Australia, which ranks as 81.0% free, has very low tariffs and strong private property rights. The government provides businesses with lots of flexibility and does not constrict them with overly complicated regulations or licensing procedures.
| Investopedia http://www.investopedia.com/ask/answers/040915/what-are-some-examples-free-market-economies.asp#ixzz4wrigctUt
So true.
The author makes one of the two classic blunders:
Marxism is wrong, ergo Ricardo must be right.
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