This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
This will be shown to not be the case in this chapter.
- 2.
Paul Krugman, for example, has since becoming a New York Times columnist been one of the most refreshingly outspoken critics of regressive and doctrinaire domestic free-market policies. However, in a widely distributed essay written at the time of the NAFTA debate, Krugman demonstrated his mainstream economic bona fides by roundly critiquing “noneconomist intellectuals” like Robert Reich, Lester Thurow, and John Kenneth Galbraith. Krugman claimed that their writings were superficial as their ideas were not based on complex underlying mathematical models, and most importantly, as they did not accept the implications of Ricardo’s theory of comparative advantage, they were erroneous in their critiques of free trade (Krugman 1996). As a former mathematician, I have some sympathy for Krugman’s frustration with commentators who do not take mathematical modeling seriously, but strongly disagree with his notion that Ricardo’s theory provides indisputable proof, when its assumptions are satisfied, of the benefits of free trade—see discussion in text below. In fairness, Krugman’s position on trade has evolved since the writing of that essay to a point where he has become at least a lukewarm critic of the latest so-called free-trade deal, the Trans Pacific Partnership, and has highlighted the wage-productivity mismatch, that he dismissed as ignorant folly in his 1996 essay, as a central problem of the US economy (Krugman 2015, 2012).
- 3.
I maintain this hope because, as is noted in the text above, the Comparative advantage parable constitutes the core of every undergraduate class on international trade. This suggests that conventional interpretations, or misinterpretations, of Ricardo’s story may have a profound intellectual influence in framing widely held trade policy views. I think that this is true even though questions regarding the theoretical validity and scope of these older trade theories are increasingly irrelevant to applied policy in current international trade and finance, as this is dominated by capital mobility and exchange rate speculation, both excluded from models that focus on current account fundamentals like Ricardo’s comparative advantage parable (Blecker 1999).
- 4.
- 5.
Op. cit.
- 6.
A “price elasticity of demand” gives the percent increase in demand for a one percent decline in price, for a specific price and demand level. In a “fixed demand-elasticity specification,” the price elasticity of demand is fixed constant for price and demand levels.
- 7.
In the two-goods, two-country case, own-price elasticities may be substituted for cross-price elasticities (Baiman 2010b, Appendix A).
- 8.
- 9.
See, for example, Findlay (1995).
- 10.
See Marglin (1984) for an extensive discussion of this point that lower includes the development of variable coefficient Post-Keynesian models with more realistic lower factor substitution rates (MRTS < 1) that, as expected, generally respond to quantity- signals much more than the NC assumption of extensive free-market and free-trade price-signal response.
- 11.
- 12.
See Marglin (1984) op. cit.
- 13.
Lerner (1944).
- 14.
Taylor (2004, Chap. 7) shows that (contrary to the standard NC story) satisfaction of the Marshall-Lerner conditions will not in itself ensure “normal” trade flow response in the presence of large trade-induced output changes, as the derivation of these conditions assumes (like most of standard NC high theory) that “Say’s Law” or full employment holds at all times.
Bibliography
Baiman, R. (2006, Winter). Unequal exchange without a labor theory of prices: On the need for a global Marshall plan and a solidarity trading regime. Review of Radical Political Economics, 38(1), 71–89.
Baiman, R. (2010a, September). Toward a new political economy for the U.S. Review of Political Economics, 42(3), 362.
Baiman, R. (2010b). The infeasibility of free trade in classical theory: Ricardo’s comparative advantage parable has no solution. Review of Political Economy, 22(3), 419–437.
Baiman, R. (2011b). Eisenhower era income tax rates on the upper 10 % of families would immediately erase the federal deficit. Chicago Political Economy Group Working Paper 2011–2. Retrieved May, from http://www.cpegonline.org/workingpapers/CPEGWP2011-2.pdf
Baiman, R. (2014). Unequal exchange and the Rentier economy. Review of Radical Political Economy, 46(4), 536–557.
Baiman, R. (2017a). The limits of free trade in neoclassical theory: From Hecksher-Ohlin to unequal exchange. Chapter in forthcoming The Global Free Trade Error: The Infeasibility of Ricardo’s Comparative Advantage Theory, by R. Baiman. New York: Routledge.
Baiman, R. (2017b). Globally sustainable and balanced International TradeBased on Exchange-Rate adjustment is mathematically unstable and therefore economically infeasible. Chapter in forthcoming The global free trade error: The infeasibility of Ricardo’s comparative advantage theory, by R. Baiman. New York: Routledge.
Blecker, R. (1999). Taming global finance. Washington, DC: Economic Policy Institute.
Carlsen, L. (2013, November 24). Under NAFTA Mexico suffered and the U.S. felt it’s pain. New York Times.
Chang, H.-J. (2002). Kicking away the ladder: Development strategy in historical perspective. London: Anthem Press.
Dornbusch, R., Fischer, S., & Samuelson, P. (1977). Comparative advantage, trade, and payments in a Ricardian model with a continuum of goods. American Economic Review, 67(5), 823–839.
Eatwell, J., & Taylor, L. (2000). Global finance at risk. New York: New Press.
Findlay, R. (1995). Factor proportions, trade, and growth. Cambridge, MA: MIT Press.
Krugman, P. (1996). Ricardo’s difficult idea. Published on MIT website: http://web.mit.edu/krugman/www/ricardo.htm. Downloaded 8/272015.
Krugman, P. (2012). Where the productivity went. The New York Times. Retrieved April 28, from http://krugman.blogs.nytimes.com/2012/04/28/where-the-productivity-went/
Krugman, P. (2015). TPP at the NABE. The New York Times. Retrieved March 11, from http://krugman.blogs.nytimes.com/2015/03/11/tpp-at-the-nabe/
Lerner, A. P. (1944). The economics of control. New York: Macmillan.
MacEwan, A. (1999). Neo-Liberalism or democracy? New York: Zed Books.
Marglin, S. (1984). Growth, distribution, and prices. Cambridge: Harvard University Press.
Pieper, U., & Taylor, L. (1998). The revival of the liberal creed: The IMF, The World Bank, and Inequality in a Globalized Economy. New York: CEPA Working Paper Series 1, WP 4. Retrieved January, from http://www.economicpolicyresearch.org/scepa/publications/workingpapers/1998/cepa0104.pdf
Ricardo, D. (1817). On the principles of political economy and taxation (3rd ed.). London: John Murray (1821).
Stiglitz, J. (2002). Globalization and its discontents. New York: W. W. Norton.
Stretton, H. (1999). Economics: A new introduction. New York: Pluto Press.
Taylor, L. (2004). Reconstructing macroeconomics: Structuralist proposals and critiques of the mainstream. Cambridge, MA: Harvard University Press.
Vernengo, M. (2000). What do undergrads really need to know about trade and finance. In R. Baiman, H. Boushey, & D. Saunders (Eds.), Political economy and contemporary capitalism. M.E. Sharpe: Armonk.
WTO. (2006). International trade statistics 2006. Washington, D.C, Retreived 5/31/2016 from: https://www.wto.org/english/res_e/statis_e/its2006_e/its2006_e.pdf.
Author information
Authors and Affiliations
Copyright information
© 2016 The Author(s)
About this chapter
Cite this chapter
Baiman, R.P. (2016). The International “Free Market” for Trade and Investment: Capital’s Global Power Play. In: The Morality of Radical Economics. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-45559-8_8
Download citation
DOI: https://doi.org/10.1057/978-1-137-45559-8_8
Published:
Publisher Name: Palgrave Macmillan, New York
Print ISBN: 978-1-137-45558-1
Online ISBN: 978-1-137-45559-8
eBook Packages: Economics and FinanceEconomics and Finance (R0)