Vox Day does it again.
The Failure of the Free Trade Champions
David Ricardo was not an economist in the modern professional sense. He was a stockbroker, a successful con artist who put Michael Milken and Bernie Madoff to shame, a politician who purchased his seat in the House of Lords with his ill-gotten gains, and a pamphleteer. His works were not written with an aim of better understanding the matter addressed, but were primarily written as extended opinion editorials meant to advocate specific political policies. Moreover, his arguments were so heavily biased toward his preconceived conclusions that Joseph Schumpeter was moved to describe the custom of economists creating hopelessly impractical theories on the basis of heavily biased simplifications as “the Ricardian Vice”.
Besides the Theory of Comparative Advantage, which Ricardo cribbed without attribution from “An Essay on the External Corn Trade”, a work that was published two years earlier by Robert Torrens, Ricardo’s two other theories of historical note are the labor theory of value, which you may recall is the logical foundation of Marxist economics, and a highly peculiar theory of wages and profit that concludes the rate of profit ultimately rests upon the price of corn.
Seriously. I’m not kidding.
In fact, despite its massive influence on economists, politicians and trade policy for the last two centuries, the Theory of Comparative Advantage was never mathematically modeled or put to a serious theoretical test for 134 years. And although it was initially claimed that a comparison of textile and automobile production in the U.S.A. versus the United Kingdom broadly confirmed the Ricardian Model, more stringent tests soon demonstrated that neither the model nor the theory on which it was based had much application to the real world.
In his landmark book, Free Trade Doesn’t Work, Ian Fletcher identified seven specific flaws in Ricardo’s version of comparative advantage, which consist of assumptions that do not necessarily hold in any given trade environment, and in many cases, do not apply at all. These seven dubious assumptions are:
Trade is intrinsically sustainable.
There are no external costs.
Production factors move easily between industries.
Trade does not increase income inequality.
Capital is not internationally mobile.
Short-term efficiency causes long-term growth.
Trade does not inhibit foreign productivity.
Of course David Ricardo is not the only economist cited by defenders of free trade. Another common right-wing reference is Henry Hazlitt, the Austrian economist whose Economics In One Lesson, published in 1946, is popular among homeschoolers for its clarity and brevity. Chapter 11 of that work, which is devoted to making the case for free trade, is easily the weakest chapter in the book, as it contains no less than 23 specific errors. Since this article is merely a contribution to an anthology and not a book in its own right, I shall restrict myself to pointing out seven of them.
Conservatives and libertarians have largely based their economic theory and non-ideologies on fallacies. A corn-based economy for corny economics.