I basically agree, with some caveats, on both points. Chin's growth was certainly not according to the Washington Consensus textbook--bit, on the other hand, without the normalization of political relations with the US and without openness of the US market (and thus globalization) China would not be nearly where it is today.
East Asia practiced judo. It let the North Atlantics ruin themselves by rules they had invented to gain superiority. The East Asians never obeyed the rules.
«East Asia practiced judo. It let the North Atlantics ruin themselves by rules they had invented to gain superiority.»
Another interpretation is that North Atlantic corporate headquarters decided to make a lot of money fast (and destroy the unions) by exporting as many high-value-added jobs as possible away from atlantic areas with $10-20/h wages to east asian areas with $1-2/h wages and east asians gratefully accepted that flood of exported jobs. Many east asians are also building up their own corporations (Sony, Huawei, Samsung, TSMC, ...) to replace those of the atlantics, but the current upper-class and middle-class corporate headquarters of the atlantics do not care much as long that happens after they get theirs and retire in comfort or luxury and live off their passive income.
I have quote elsewhere D. Landes "The wealth and poverty of nations" (1998) here is a good description:
«That Dutch towns did not shrink more was because rents and food prices fell and some poor relief was available; this was a matter of public order if not of charity. Besides, Dutch wages still topped those in surrounding lands, in large part owing to the resistance of craft guilds, and this gap drew cheap labor from abroad to compete with the newly unemployed. Increasing hostility and conflict found an outlet in strikes, until nothing was left to strike about.
Some of this may remind readers of the conditions in the United States in the last quarter of the twentieth century. As branches of manufacturing have shrunk before foreign competition, enterprises have discharged redundant labor or moved to lower-wage areas. New workers cost less than old, as the airlines know only too well. Poor immigrants have kept coming. Unions have struck, sometimes only hastening plant closings or transfer of orders to cheaper suppliers. (Mutatis mutandis, one finds similar developments today in western Europe.)
So on Holland two centuries ago. The United Provinces pared and trimmed to meet the competition, but the best they could do was run in place. Many businessmen gave up the fight and retired to the country and to a life of passive investment. Incomes polarized between the rich few and the poor many, with a diminishing middle between them. Tax returns show that by the late 1700s, most wealthy Dutch were big landowners, high state officials, or rentiers. Gone were the prosperous enterprises of the "golden age": employers were now confined to the middle and lower ranks.»
I just want to add to the conversation by emphasizing a point already made — time and institutions matter when taking the principle of comparative advantage to the real world.
Ricardo’s comparative advantage model incorporates neither of those (institutions and time) — it is a static model that, I believe, was meant to describe the pattern of trade between England and Portugal (which should not have happened based on Smith’s absolute advantage trade model).
Asking the comparative advantage model to paint a realistic picture of how the world works across time is a tall order and a misguided use of economic models. For instance, institutions can, in time, foster or contribute to the development of new sources of comparative advantage. The very institutions can equally contribute towards deteriorating the comparative advantage or losing it altogether.
How exactly institutions change and how, in turn, they shape comparative advantage is a somewhat different but relevant topic. For example, inequality (be it trade-, technology-, power-induced, etc.) shapes institutions and, in time, has the potential of shaping the patterns of comparative advantage and trade.
England/Portugal trade is discussed in detail in the WoN. But, as I wrote before, Ricardo was not interested in discussing the way actual trade is conducted, He just wanted to show that country X can be more productive in both products X and Y than country B, and there would be still advantageous trade to have between A and B. How real trade is conducted is surely important, but it does not detract from Ricardo's theorem. (I agree with you.)
«Ricardo’s comparative advantage model incorporates neither of those (institutions and time)»
It is not a model but a theorem, and it is one of those useless theorems common in Economics where the authors have worked hard to find some special-case narrow assumptions which are the only ones under which those theorems can be proven.
The traditional Economics comparative advantage theorem for example requires perfect competition and thus perfect mobility of labor and capital across sectors in a country but zero mobility of labor across countries (and perfect mobility of capital IIRC) plus constant-costs. Pure propaganda.
BTW doing a simple search I found an interesting discussion of D. Ricardo's and J.S. Mill's quite different approaches and that the traditional Economics theorem is mostly based on the approach by J.S. Mill:
First, it should be taken into the context in which it was written (i.e., building on the work of Smith to explain what appeared to be an anomaly (a country absolutely more productive (England) trading with a less productive one (Portugal)).
Second, the theorem was certainly not meant to explain the intricacies and ramifications of modern international trade. However, its core concept (i.e., opportunity cost) remains meaningful for, partly, explaining trade patterns.
Sure Ricardo’s theorem and the models that were built on it have limitations — in terms of their scope and breadth or the assumptions underlying them. However, this does not mean that one should take it and use it ad litteram while ignoring its limitations. This is where the problems start coming in.
«the theorem was certainly not meant to explain the intricacies and ramifications of modern international trade. [...] However, this does not mean that one should take it and use it ad litteram while ignoring its limitations.»
But by “ignoring its limitations” it has been used ever since for political propaganda and that point is pretty much inseparable from it. The limitations are so severe and so obviously designed to achieve a given conclusion (like so much of "internally consistent" academic Economics) that it is useless but for propaganda.
«However, its core concept (i.e., opportunity cost) remains meaningful for, partly, explaining trade patterns.»
But there is no need of the "comparative advantage" theorem if all one wants to use is the notion of opportunity costs, which is an idea well known well before and beyond trade. But "comparative advantage" is not a mere application of the opportunity cost concept but also a morality tale.
The problem with the "comparative advantage" theorem that gives away it is just a propaganda hack is that it is about trade between two "countries": countries are a metaphysical concept and trade happens not between "countries" but among subjects who are market participants and the impacts of trade are both distributional and absolute on market participants not on "countries".
Therefore saying that both "countries" are better off because of trade under comparative advantage is misleading sophistry because "countries" cannot be better off or worse off, they are not subjects; the subjects are owners and professionals and workers ("masters", "trusties", "servants" in older and more sincere terminology) and the question is who among them becomes better off.
The "comparative advantage" theorem in effect posits two distinct markets for factors and one shared market for commodities and under various other absurd conditions the conclusion is that both markets benefit from taking into account opportunity costs. Which is a worthless conclusion even accepting the absurd conditions because:
* Of course in any market its participants take into account opportunity costs.
* It is meaningless to say that both markets benefit because markets/countries are just metaphysical concepts not subjects.
As a rule worthless hacks involving absurd conditions chosen astutely to reach a given point have a definite political goal, the propagandizing of a truthiness: for Economics as whole it is the main "parable" of JB Clark (that the income from ownership is exactly proportional to the "productivity" of that ownership) and for the "comparative advantage" theorem it is this:
That is to reward the UK oligarchs with the profits of high-value-added commodities and "generously" leave the smaller profits of low-value-added commodities to Portugal and other places.
D. Landes "The wealth and poverty of nations" (1998): "Today’s comparative advantage, we have seen, may not be tomorrow’s. [...] The gains from trade are unequal. As history has shown, some countries will do much better than others.
The primary reason is that comparative advantage is not the same for all, and that some activities are more lucrative and productive than others. (A dollar is not a dollar is not a dollar.) They require and yield greater gains in knowledge and know-how, within and without. [...] Comparative advantage is not fixed, and it can move for or against."
«reward the UK oligarchs with the profits of high-value-added commodities and "generously" leave the smaller profits of low-value-added commodities to Portugal and other places.»
And even a feudal noble from 19th century Japan understood very well the value added point, again from "The wealth and poverty of nations"
«"Of all things Western, what do you dread most?" asked the Satsuma daimyo Shimazu Nariakira of his councillors. European guns and ships, came the answer. "No," said the daimyo. "It is cotton cloth. Unless we begin preparing now, we shall soon be dependent on Westerners for our clothing." In an effort to prepare, the han began to distribute better cotton seeds, purchased better spindles and looms (not yet powered), built a manufactory near Kagoshima, and set unemployed samurai to work there. The result: cotton goods costing half as much as before. [...] In 1867, it opened a mechanized cotton mill.»
I spent years studying Ricardo pretty closely, and on balance I don't think I would say he had much of a take on class. His models (usually in the form of arithmetic examples) are sort of micro-macro, whole economies but with agents differentiated by ownership of factors of production. This aggregative approach is retained in Sraffa. But there are really no institutions to speak of, and values are set on the basis of timeless equilibria. I admire Ricardo's intellect and his willingness to go where his analysis leads (e.g. his switch on the "machinery" question), but I came to the conclusion that he's a dead end. Which is not to say that everything is cool with the neoclassical stuff that came later, but at least the formal incorporation of time is a step in the right direction, as is the incorporation of uncertainty in Keynes, and firms and market structure and and and.....
Comparative advantage is a useful idea to understand, but it doesn't get you very far in the real world of trade, as you know. That's a whole other discussion.
I get the sense of this review that the book in question is another version of the "Ricardian vice" critique. FWIW, my take is that theoretical speculation is OK, provided (1) it is aware of the assumptions being employed, and (2) it is truly in dialogue with empirical investigation. There is halting progress these days on both fronts.
«not to say that everything is cool with the neoclassical stuff that came later, but at least the formal incorporation of time is a step in the right direction»
But one of the central aspect of neoclassical and DSG models is the absence of time: "rational expectations" are the sophistry that eliminates the effects of time from Arrow-Debreu-Lucas style "microfounded" models; that avoids the possibility of multiple equilibria and path dependencies that would make it impossible to support the central truthiness of Economics (J.B. Clark's "parable" about the profits of ownership being the result of the productivity of ownership).
«as is the incorporation of uncertainty in Keynes, and firms and market structure and and and.....»
The uncertainty in Keynes has been thoroughly expunged from Economics again thanks to "rational expectations". However building upon Keynes and others I particularly like the work of H. Minsky on the economy as a set of interlocking balance sheets positions too, and that of M. Pettis on the path-dependent effects of balance sheet positions.
Sure some people have tried to work around the central truthiness of Economics by doing specialist work on firms, behaviouralism, market structure, but it is barely tolerated and only if it does not threaten the central truthiness of Economics (which is what for example institutionalism does).
Branko Milanović in this overly harsh review of my book Ricardo’s Dream mixes factual errors, misrepresentations with some insightful points. My full response is here. I look forward to his thoughts.
The trouble with Ricardo's approach is that it leaves out too much. Simplifications are ok, but they must be reasonably realistic. For example the comparative advantage idea leaves out time. It supposes that uone should do what one is good at for the moment – in all eternity. One should never learn to do new and more profitable things. But it's those countries that have learnt new things that have developed, the others have been stuck in unprofitable activities.
I have also a feeling, perhaps more learned people than I can refute it, that Ricardo dealt too much with quantities and rarely with qualities – because qualities are much more difficult to model. An exception here is of course his class analysis, of which the insistence of rentiers as a category apart should well be rescued from oblivion. So far I know the only one to treat rentiers as a category today is Brett Christophers. That's a pity.
«the insistence of rentiers as a category apart should well be rescued from oblivion.»
The late M. Gaffney treated economic rentierism with a marginalist neoclassical approach and blamed J.B. Clark for expunging the concept of economic rentierism from marginalism (by removing entirely capital theory from Economics):
Regarding globalization and the fact that ‘The story is told as if almost one billion people have not been brought out of abject poverty thanks to economic growth and globalization’. The lions share of credit for improving poverty levels goes to China and its policies, regardless of one calls it socialist or state-capitalist. China certainly is part of globalization but sort of on the receiving end, while it was driven by the imperialist west. Crediting globalization per se for poverty improvement is classical western misleading.
The term ‘liberal-left’ is a contradiction, there are no left liberals, but only liberals snd their whole arsenal of hypocrisy and latent fascism. It is an invention of western pseudo progressive bourgeois intellectuals who would seriously not even pass as social democrats in the classical sense
I doubt I will read this book, given the evident weaknesses described in this review. My beef with Ricardo is primarily that his "comparative advantage" story in support of "free trade" (scare quotes because this is a slogan, not an actually existing thing in the world -- ever) is static, based as it is upon presumably permanent national advantages in certain sectors (English wool and Portuguese wine). This premise is a nonsense in development economics, since there are plenty of sectors where permanent advantage is impossible, given the lurching progress of innovation. Maybe Ricardo himself intended something more subtle, but those who continue to misuse him to lionize "free trade" in order to justify current unequal terms of trade in the global system which extract from the periphery to the benefit of the metropole aren't doing him any favours.
As for the political dimension of the political economic problems posed by "hyperglobalization" well, they are inevitably national in their perspective since, for now, the nation is the locus of political contestation. Perhaps Branko's preference for a more "universal" perspective could come in time should global governance become a reality, but we are a long, long ways away from that, eh?
A few more things about Ricardo. (1) He basically worked with what we would now call representative agent models of the economy. If you don't like these models in modern macro, the same criticisms apply to DR. (2) His theory of rent on the intensive margin is very interesting! Generalizing beyond discrete linear production options isn't easy, but I think it requires nonconvex production sets. (Not sure of this, but I haven't seen a "well-behaved" NC model that captures it.) (3) Marx in V3 of Capital wanted to argue that Ricardo's rent theory supported the labor theory of value once monopoly in land ownership was eliminated. He tried to deal with intensive rent (where rent remains in any theory of the production process), but his argument is highly flawed. In KM's defense, he never intended his notes to be published; that was Engel's idea after his death. I wonder how many of us have worked through the long discussion of rent in V3? That was important for my first (failed) dissertation.
«Marx in V3 of Capital wanted to argue that Ricardo's rent theory supported the labor theory of value once monopoly in land ownership was eliminated.»
There is no "labor theory of value" to support in the works of KM or most other "classicals": that value *is* only the labor of free workers is a definition (not a theory) adopted as a starting point, not as a conclusion.
The argument mentioned I guess was about the "transformation problem" that is the claim that under certain conditions most "exchange values" (commodity prices) are proportional to "values" (labor content).
The transformation problem is the movement from prices=labor values to prices=prices of production, i.e. historically a movement from small commodity producing market economy to capitalism. It is in vol. 3.
Yes, the East Asians were the only ones who were able to profit from – not "free trade" in itself, but from Europeans and Americans adherence to free trade while th East Asians themselves practiced strict state-governed developmentalism.
Other parts of the world (Africa, West Asia and Latin America) have also lost from it, because they were not strong enough to practice developmentalism in the face of the Free Trade regime.
So one cannot say that the East Asians obeyed the thesis of comparative advantage. They mobilized whatever they had to invest in what they *couldn't do* for the moment but needed to *learn" to do.
«from Europeans and Americans adherence to free trade while th East Asians themselves practiced strict state-governed developmentalism.»
«let the North Atlantics ruin themselves»
This is unfortunately the usual fantasy based on the absurd assumption that “Europeans” and “Americans” are useful concepts because those are uniform groups.
They are not: the middle-class and the upper-class of Europe and USA have not ruined themselves but have enjoyed booming incomes and wealth for 4 decades thanks to shrinking wages and rising property and share profits obtained by sacking the local $10-20/h working-class of Europe and USA and hiring in their place the $1-2/h working-class of the global labor market, whether by immigration or offshoring.
Several east-Asian countries (Japan first, then Korea-south and China-Taiwan) have done or are doing the same.
J Cowley "The New Stateman" (2014-11) summarized this as: “Miliband’s [...] might have to accept before long – or the electorate will force him to – that Europe’s social-democratic moment, if it ever existed, is fading into the past.”
Thank you for having reviewed this book in enough detail to avoid that any serious reader makes the mistake of reading it (I agree that the history of Brazil in the Napoleonic era, when the monarchy moved there under the protection of the British, and its aftermath is fascinating but there are other sources on it). As Ken Rogoff recently remarked, the 20th percentile in the US may have suffered in relative terms from globalisation, but they remain vastly richer than the Italian 20th percentile, not to mention the vast majority of the population in the rest of the world, something which the author I suppose simply ignores. I guess the entire book can be taken as a unwitting confirmation of the validity of Keynes’ famous quote on the power of ideas of economists and political philosophers, namely, when they are wrong or misunderstood.
I basically agree, with some caveats, on both points. Chin's growth was certainly not according to the Washington Consensus textbook--bit, on the other hand, without the normalization of political relations with the US and without openness of the US market (and thus globalization) China would not be nearly where it is today.
East Asia practiced judo. It let the North Atlantics ruin themselves by rules they had invented to gain superiority. The East Asians never obeyed the rules.
«East Asia practiced judo. It let the North Atlantics ruin themselves by rules they had invented to gain superiority.»
Another interpretation is that North Atlantic corporate headquarters decided to make a lot of money fast (and destroy the unions) by exporting as many high-value-added jobs as possible away from atlantic areas with $10-20/h wages to east asian areas with $1-2/h wages and east asians gratefully accepted that flood of exported jobs. Many east asians are also building up their own corporations (Sony, Huawei, Samsung, TSMC, ...) to replace those of the atlantics, but the current upper-class and middle-class corporate headquarters of the atlantics do not care much as long that happens after they get theirs and retire in comfort or luxury and live off their passive income.
I have quote elsewhere D. Landes "The wealth and poverty of nations" (1998) here is a good description:
«That Dutch towns did not shrink more was because rents and food prices fell and some poor relief was available; this was a matter of public order if not of charity. Besides, Dutch wages still topped those in surrounding lands, in large part owing to the resistance of craft guilds, and this gap drew cheap labor from abroad to compete with the newly unemployed. Increasing hostility and conflict found an outlet in strikes, until nothing was left to strike about.
Some of this may remind readers of the conditions in the United States in the last quarter of the twentieth century. As branches of manufacturing have shrunk before foreign competition, enterprises have discharged redundant labor or moved to lower-wage areas. New workers cost less than old, as the airlines know only too well. Poor immigrants have kept coming. Unions have struck, sometimes only hastening plant closings or transfer of orders to cheaper suppliers. (Mutatis mutandis, one finds similar developments today in western Europe.)
So on Holland two centuries ago. The United Provinces pared and trimmed to meet the competition, but the best they could do was run in place. Many businessmen gave up the fight and retired to the country and to a life of passive investment. Incomes polarized between the rich few and the poor many, with a diminishing middle between them. Tax returns show that by the late 1700s, most wealthy Dutch were big landowners, high state officials, or rentiers. Gone were the prosperous enterprises of the "golden age": employers were now confined to the middle and lower ranks.»
An excellent review. Thank you, Prof. Milanović.
I just want to add to the conversation by emphasizing a point already made — time and institutions matter when taking the principle of comparative advantage to the real world.
Ricardo’s comparative advantage model incorporates neither of those (institutions and time) — it is a static model that, I believe, was meant to describe the pattern of trade between England and Portugal (which should not have happened based on Smith’s absolute advantage trade model).
Asking the comparative advantage model to paint a realistic picture of how the world works across time is a tall order and a misguided use of economic models. For instance, institutions can, in time, foster or contribute to the development of new sources of comparative advantage. The very institutions can equally contribute towards deteriorating the comparative advantage or losing it altogether.
How exactly institutions change and how, in turn, they shape comparative advantage is a somewhat different but relevant topic. For example, inequality (be it trade-, technology-, power-induced, etc.) shapes institutions and, in time, has the potential of shaping the patterns of comparative advantage and trade.
England/Portugal trade is discussed in detail in the WoN. But, as I wrote before, Ricardo was not interested in discussing the way actual trade is conducted, He just wanted to show that country X can be more productive in both products X and Y than country B, and there would be still advantageous trade to have between A and B. How real trade is conducted is surely important, but it does not detract from Ricardo's theorem. (I agree with you.)
Thank you.
«Ricardo’s comparative advantage model incorporates neither of those (institutions and time)»
It is not a model but a theorem, and it is one of those useless theorems common in Economics where the authors have worked hard to find some special-case narrow assumptions which are the only ones under which those theorems can be proven.
The traditional Economics comparative advantage theorem for example requires perfect competition and thus perfect mobility of labor and capital across sectors in a country but zero mobility of labor across countries (and perfect mobility of capital IIRC) plus constant-costs. Pure propaganda.
BTW doing a simple search I found an interesting discussion of D. Ricardo's and J.S. Mill's quite different approaches and that the traditional Economics theorem is mostly based on the approach by J.S. Mill:
https://mpra.ub.uni-muenchen.de/45745/1/MPRA_paper_45745.pdf
I do not think the theorem is useless.
First, it should be taken into the context in which it was written (i.e., building on the work of Smith to explain what appeared to be an anomaly (a country absolutely more productive (England) trading with a less productive one (Portugal)).
Second, the theorem was certainly not meant to explain the intricacies and ramifications of modern international trade. However, its core concept (i.e., opportunity cost) remains meaningful for, partly, explaining trade patterns.
Sure Ricardo’s theorem and the models that were built on it have limitations — in terms of their scope and breadth or the assumptions underlying them. However, this does not mean that one should take it and use it ad litteram while ignoring its limitations. This is where the problems start coming in.
Thanks for the link to the paper.
«the theorem was certainly not meant to explain the intricacies and ramifications of modern international trade. [...] However, this does not mean that one should take it and use it ad litteram while ignoring its limitations.»
But by “ignoring its limitations” it has been used ever since for political propaganda and that point is pretty much inseparable from it. The limitations are so severe and so obviously designed to achieve a given conclusion (like so much of "internally consistent" academic Economics) that it is useless but for propaganda.
«However, its core concept (i.e., opportunity cost) remains meaningful for, partly, explaining trade patterns.»
But there is no need of the "comparative advantage" theorem if all one wants to use is the notion of opportunity costs, which is an idea well known well before and beyond trade. But "comparative advantage" is not a mere application of the opportunity cost concept but also a morality tale.
The problem with the "comparative advantage" theorem that gives away it is just a propaganda hack is that it is about trade between two "countries": countries are a metaphysical concept and trade happens not between "countries" but among subjects who are market participants and the impacts of trade are both distributional and absolute on market participants not on "countries".
Therefore saying that both "countries" are better off because of trade under comparative advantage is misleading sophistry because "countries" cannot be better off or worse off, they are not subjects; the subjects are owners and professionals and workers ("masters", "trusties", "servants" in older and more sincere terminology) and the question is who among them becomes better off.
The "comparative advantage" theorem in effect posits two distinct markets for factors and one shared market for commodities and under various other absurd conditions the conclusion is that both markets benefit from taking into account opportunity costs. Which is a worthless conclusion even accepting the absurd conditions because:
* Of course in any market its participants take into account opportunity costs.
* It is meaningless to say that both markets benefit because markets/countries are just metaphysical concepts not subjects.
As a rule worthless hacks involving absurd conditions chosen astutely to reach a given point have a definite political goal, the propagandizing of a truthiness: for Economics as whole it is the main "parable" of JB Clark (that the income from ownership is exactly proportional to the "productivity" of that ownership) and for the "comparative advantage" theorem it is this:
https://blissex.wordpress.com/wp-content/uploads/2022/03/poliuktradeempireasymm.jpg
https://blissex.wordpress.com/wp-content/uploads/2022/03/poliuktradebuyempiregoods.jpg
That is to reward the UK oligarchs with the profits of high-value-added commodities and "generously" leave the smaller profits of low-value-added commodities to Portugal and other places.
D. Landes "The wealth and poverty of nations" (1998): "Today’s comparative advantage, we have seen, may not be tomorrow’s. [...] The gains from trade are unequal. As history has shown, some countries will do much better than others.
The primary reason is that comparative advantage is not the same for all, and that some activities are more lucrative and productive than others. (A dollar is not a dollar is not a dollar.) They require and yield greater gains in knowledge and know-how, within and without. [...] Comparative advantage is not fixed, and it can move for or against."
«reward the UK oligarchs with the profits of high-value-added commodities and "generously" leave the smaller profits of low-value-added commodities to Portugal and other places.»
And even a feudal noble from 19th century Japan understood very well the value added point, again from "The wealth and poverty of nations"
«"Of all things Western, what do you dread most?" asked the Satsuma daimyo Shimazu Nariakira of his councillors. European guns and ships, came the answer. "No," said the daimyo. "It is cotton cloth. Unless we begin preparing now, we shall soon be dependent on Westerners for our clothing." In an effort to prepare, the han began to distribute better cotton seeds, purchased better spindles and looms (not yet powered), built a manufactory near Kagoshima, and set unemployed samurai to work there. The result: cotton goods costing half as much as before. [...] In 1867, it opened a mechanized cotton mill.»
I spent years studying Ricardo pretty closely, and on balance I don't think I would say he had much of a take on class. His models (usually in the form of arithmetic examples) are sort of micro-macro, whole economies but with agents differentiated by ownership of factors of production. This aggregative approach is retained in Sraffa. But there are really no institutions to speak of, and values are set on the basis of timeless equilibria. I admire Ricardo's intellect and his willingness to go where his analysis leads (e.g. his switch on the "machinery" question), but I came to the conclusion that he's a dead end. Which is not to say that everything is cool with the neoclassical stuff that came later, but at least the formal incorporation of time is a step in the right direction, as is the incorporation of uncertainty in Keynes, and firms and market structure and and and.....
Comparative advantage is a useful idea to understand, but it doesn't get you very far in the real world of trade, as you know. That's a whole other discussion.
I get the sense of this review that the book in question is another version of the "Ricardian vice" critique. FWIW, my take is that theoretical speculation is OK, provided (1) it is aware of the assumptions being employed, and (2) it is truly in dialogue with empirical investigation. There is halting progress these days on both fronts.
«not to say that everything is cool with the neoclassical stuff that came later, but at least the formal incorporation of time is a step in the right direction»
But one of the central aspect of neoclassical and DSG models is the absence of time: "rational expectations" are the sophistry that eliminates the effects of time from Arrow-Debreu-Lucas style "microfounded" models; that avoids the possibility of multiple equilibria and path dependencies that would make it impossible to support the central truthiness of Economics (J.B. Clark's "parable" about the profits of ownership being the result of the productivity of ownership).
«as is the incorporation of uncertainty in Keynes, and firms and market structure and and and.....»
The uncertainty in Keynes has been thoroughly expunged from Economics again thanks to "rational expectations". However building upon Keynes and others I particularly like the work of H. Minsky on the economy as a set of interlocking balance sheets positions too, and that of M. Pettis on the path-dependent effects of balance sheet positions.
Sure some people have tried to work around the central truthiness of Economics by doing specialist work on firms, behaviouralism, market structure, but it is barely tolerated and only if it does not threaten the central truthiness of Economics (which is what for example institutionalism does).
Excellent review, which is say, I agree.
Not enough!
Branko Milanović in this overly harsh review of my book Ricardo’s Dream mixes factual errors, misrepresentations with some insightful points. My full response is here. I look forward to his thoughts.
https://www.natdyer.com/a-reply-to-branko-milanovics-review-of-ricardos-dream/
The trouble with Ricardo's approach is that it leaves out too much. Simplifications are ok, but they must be reasonably realistic. For example the comparative advantage idea leaves out time. It supposes that uone should do what one is good at for the moment – in all eternity. One should never learn to do new and more profitable things. But it's those countries that have learnt new things that have developed, the others have been stuck in unprofitable activities.
I have also a feeling, perhaps more learned people than I can refute it, that Ricardo dealt too much with quantities and rarely with qualities – because qualities are much more difficult to model. An exception here is of course his class analysis, of which the insistence of rentiers as a category apart should well be rescued from oblivion. So far I know the only one to treat rentiers as a category today is Brett Christophers. That's a pity.
«the insistence of rentiers as a category apart should well be rescued from oblivion.»
The late M. Gaffney treated economic rentierism with a marginalist neoclassical approach and blamed J.B. Clark for expunging the concept of economic rentierism from marginalism (by removing entirely capital theory from Economics):
* "Neo-classical economics as a strategem against Henry George" https://www.masongaffney.org/publications/K1Neo-classical_Stratagem.CV.pdf
* "Keeping land in capital theory" https://www.masongaffney.org/publications/K2008_Keeping_Land_in_Capital_Theory.pdf
* "Stabile on 'Henry George's influence on John Bates Clark'": https://www.masongaffney.org/publications/K9-StabileHGInfluenceonJBClarkMGComments.CV.pdf
* various authors: "Rent Unmasked: How to Save the Global Economy and Build a Sustainable Future (Essays in Honor of Mason Gaffney)" https://cooperative-individualism.org/hodgkinson-brian_review-of-fred-harrison-etal-rent-unmasked-2016-nov.pdf
Two brief remarks on an otherwise excellent post.
Regarding globalization and the fact that ‘The story is told as if almost one billion people have not been brought out of abject poverty thanks to economic growth and globalization’. The lions share of credit for improving poverty levels goes to China and its policies, regardless of one calls it socialist or state-capitalist. China certainly is part of globalization but sort of on the receiving end, while it was driven by the imperialist west. Crediting globalization per se for poverty improvement is classical western misleading.
The term ‘liberal-left’ is a contradiction, there are no left liberals, but only liberals snd their whole arsenal of hypocrisy and latent fascism. It is an invention of western pseudo progressive bourgeois intellectuals who would seriously not even pass as social democrats in the classical sense
I doubt I will read this book, given the evident weaknesses described in this review. My beef with Ricardo is primarily that his "comparative advantage" story in support of "free trade" (scare quotes because this is a slogan, not an actually existing thing in the world -- ever) is static, based as it is upon presumably permanent national advantages in certain sectors (English wool and Portuguese wine). This premise is a nonsense in development economics, since there are plenty of sectors where permanent advantage is impossible, given the lurching progress of innovation. Maybe Ricardo himself intended something more subtle, but those who continue to misuse him to lionize "free trade" in order to justify current unequal terms of trade in the global system which extract from the periphery to the benefit of the metropole aren't doing him any favours.
As for the political dimension of the political economic problems posed by "hyperglobalization" well, they are inevitably national in their perspective since, for now, the nation is the locus of political contestation. Perhaps Branko's preference for a more "universal" perspective could come in time should global governance become a reality, but we are a long, long ways away from that, eh?
A few more things about Ricardo. (1) He basically worked with what we would now call representative agent models of the economy. If you don't like these models in modern macro, the same criticisms apply to DR. (2) His theory of rent on the intensive margin is very interesting! Generalizing beyond discrete linear production options isn't easy, but I think it requires nonconvex production sets. (Not sure of this, but I haven't seen a "well-behaved" NC model that captures it.) (3) Marx in V3 of Capital wanted to argue that Ricardo's rent theory supported the labor theory of value once monopoly in land ownership was eliminated. He tried to deal with intensive rent (where rent remains in any theory of the production process), but his argument is highly flawed. In KM's defense, he never intended his notes to be published; that was Engel's idea after his death. I wonder how many of us have worked through the long discussion of rent in V3? That was important for my first (failed) dissertation.
«Marx in V3 of Capital wanted to argue that Ricardo's rent theory supported the labor theory of value once monopoly in land ownership was eliminated.»
There is no "labor theory of value" to support in the works of KM or most other "classicals": that value *is* only the labor of free workers is a definition (not a theory) adopted as a starting point, not as a conclusion.
The argument mentioned I guess was about the "transformation problem" that is the claim that under certain conditions most "exchange values" (commodity prices) are proportional to "values" (labor content).
The transformation problem is the movement from prices=labor values to prices=prices of production, i.e. historically a movement from small commodity producing market economy to capitalism. It is in vol. 3.
Yes, the East Asians were the only ones who were able to profit from – not "free trade" in itself, but from Europeans and Americans adherence to free trade while th East Asians themselves practiced strict state-governed developmentalism.
Other parts of the world (Africa, West Asia and Latin America) have also lost from it, because they were not strong enough to practice developmentalism in the face of the Free Trade regime.
So one cannot say that the East Asians obeyed the thesis of comparative advantage. They mobilized whatever they had to invest in what they *couldn't do* for the moment but needed to *learn" to do.
That was the secret of their success.
«from Europeans and Americans adherence to free trade while th East Asians themselves practiced strict state-governed developmentalism.»
«let the North Atlantics ruin themselves»
This is unfortunately the usual fantasy based on the absurd assumption that “Europeans” and “Americans” are useful concepts because those are uniform groups.
They are not: the middle-class and the upper-class of Europe and USA have not ruined themselves but have enjoyed booming incomes and wealth for 4 decades thanks to shrinking wages and rising property and share profits obtained by sacking the local $10-20/h working-class of Europe and USA and hiring in their place the $1-2/h working-class of the global labor market, whether by immigration or offshoring.
Several east-Asian countries (Japan first, then Korea-south and China-Taiwan) have done or are doing the same.
J Cowley "The New Stateman" (2014-11) summarized this as: “Miliband’s [...] might have to accept before long – or the electorate will force him to – that Europe’s social-democratic moment, if it ever existed, is fading into the past.”
Thank you for having reviewed this book in enough detail to avoid that any serious reader makes the mistake of reading it (I agree that the history of Brazil in the Napoleonic era, when the monarchy moved there under the protection of the British, and its aftermath is fascinating but there are other sources on it). As Ken Rogoff recently remarked, the 20th percentile in the US may have suffered in relative terms from globalisation, but they remain vastly richer than the Italian 20th percentile, not to mention the vast majority of the population in the rest of the world, something which the author I suppose simply ignores. I guess the entire book can be taken as a unwitting confirmation of the validity of Keynes’ famous quote on the power of ideas of economists and political philosophers, namely, when they are wrong or misunderstood.
Dr Branko. I am on slightly different track but some similarities in my thesis.
https://3rdworldecon.substack.com/p/heterodox-economics-and-theory-of