At 19:43 21/11/2003 -0500, you wrote:
Thanks for this. Would that more common sense or more readers of the old economists who turn out not to be so non-sensensical as they seem from others who have an agenda and mis-quote them.
I would be curious from the others on the list about this.
Ray
<<<< Excerpt from the New Internationalist's "No-Nonsense Guide to Globalization": (NI Publications Ltd, UK 2002, pp. 14-15)
<<When people talk about globalization today they're still talking
mostly about economics, about expanding international trade in goods
and services based on the concept of comparative advantage. This
theory [of free trade] was first developed in 1817 by the British
economist David Ricardo in his "Principles of Political economy and
Taxation" . Ricardo wrote that nations should specialize in producing
goods in which they have a natural advantage and thereby find their
market niche. He believed this would benefit both buyer and seller
but only if certain conditions were maintained, such as
(1) that trade between partners must be balanced so that one country
doesn't become indebted and dependent on another
>>>>He never said this. He said that "that trade between partners becomes balanced " -- that is, automatically. But, in Ricardo's day, currency had value (that is, was backed by gold). He would never have dreamed of the day that government central banks would decline to back their currencies money with value on demand (it doesn't necessarily have to be gold). Today, currency has no value, except as much as the confidence that people have in their respective governments to maintain printing to sensible quantities. Exchange rates and trade balances are thus now complicated by all sorts of political factors besides trade. Hence we have currency speculators (rather than the more benign currency arbitragers.) Even so, trade deficits/surpluses will always correct themselves sooner or later anyway (as America's present large trade deficit will have to) or a country's currency will seriously deflate/inflate sooner or later or there'll be a mixture of the two. Reality (that is, of a fair comparison of value) is always restored. America is poised on that dilemma right now and its deficit may end relatively smoothly (albeit with major effects on patterns of employment) or more drastically (with major effects on unemployment).
<<<<
and
(2) that investment capital must be anchored locally and not allowed to
flow from a high wage country to a low-wage country.
>>>>He would never have said this. It is quite at variance with everything he wrote. He would, of course, have suggested that it is better for a country if its inhabitants invested at home -- but only if the rate of return was good enough.
However, I have great sympathy with New Internationalist's worries because I, too, believe that modern economies are in danger of ending in stalemate with extremes of prosperity between different countries. But this will not be due to free trade. It will be due to the fact that as one country loses some of its skills to another it must either upgrade its existing skills to a new levels or find new skills (making products or supplying services which are tradable). Not all developed countries will necessarily be able to do this.
If we stop free trade and adopt protectionism then all countries will suffer economic recession -- as happened in the case of all the developed countries the 1920/30s. We will all spiral downwards quite quickly -- that is, many millions of individuals will suffer within their working careers in all those countries which previously had freely traded.
If we continue with free trade (or what is only partial free trade as at present) then new skills are continously selected for, and some countries, groups or regions will spiral downwards gradually over the course of several lifetimes and some will increase their prosperity. We have already seen two clear examples of highly prosperous, liberal and highly cultured civilisations -- the Islamic and the Chinese -- cutting themselves off from trade ('accidentally' and by diktat respectively, in the 16th and the 15th centuries respectively) and sinking downwards over the course of centuries, their trade and cultures being overtaken by western Europe and, latterly, America. Since Deng Xiaoping, China seems to have recovered its former doctrine; Islam has not because it has the much more difficult task of reversing a succession of ijtihads made by clerics. (Ijtihads are to be contrasted with fatwa. The latter are edicts [by individual clerics] made to suit existing exigencies and have immediate results [or may fail]; the former are more subtle doctrinal interpretations of the Koran [by individual clerics of great scholastic repute] which have unforeseeable long-term effects. Two of the more important successions of ijtihads are to do with Islamic laws of inheritance and attitudes to western science.)
Keith Hudson
Keith Hudson, Bath, England, <www.evolutionary-economics.org>
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