I’m still hammering away on my next longer essay. Meantime, one recent article I noticed on the Mises Daily is something I’ve been meaning to ask you about.
I haven’t read in full Murray N. Rothbard’s An Austrian Perspective on the History of Economic Thought, which you can download here. The article is an extract from this work, linking Ricardo’s Law of Comparative Advantage to the Libertarian model of free trade. As some of you may recall, I made some heavy criticism back here of the social repercussions of applying Ricardo’s law to an insular society of long-established cottage industries, such as 19th century India. Yet Rothbard clearly sees value in its application to a globalized model.
What do you think of Ricardo’s Law, and how careful should organisations like the World Bank and the IMF be in its application to developing nations? Rothbard defends it like this:
Another implication of the law of comparative advantage is that no country or region of the earth is going to be left out of the international division of labor under free trade. For the law means that even if a country is in such poor shape that it has no absolute advantage in producing anything, it still pays for its trading partners, the people of other countries, to allow it to produce what it is least worst at.
In this way, the citizens of every country benefit from international trade. No country is too poor or inefficient to be left out of international trade, and everyone benefits from countries specializing in what they are most best or least bad at — in other words, in whatever they have a comparative advantage.
How much of a holy grail do you think should this theory be to supporting a global economy? Quite apart from its impact on developing countries, the goal of national specialization of industry seems to imply a corollary of loss of national independence. To the collectivist, this is probably something to be desired. But to the Libertarian?
Be Responsible - Be Free! 
You are correct it’s an article….
Globalization as we currently understand it is just another way for the already rich to exploit more people in more countries to make themselves even richer no matter what the social and environmental costs.
I think we need to stick with “methodological individualism” to understand the underlying principal, particularly as I get the impression that your (Oz and Kitler) current understanding is of a central planner enforcing the principal – which I agree would be eeeeevil.
The example which Rothbard gives in man, economy and state, is of a doctor who is also an excellent gardener, and a gardener, who is only half as good a gardener as the doctor, but who is willing to work for a fifth of what the doctor can earn from his medical practice. This also happens to be the best pay rate that the gardener can find.
The doctor, and the patients who are willing to buy medical services from him at the rate he asks, both benefit from him being able to spend the time on his medical practice.
Though the doctor is both an immeasurably better doctor, and twice as productive a gardener as his poor gardener is…
By the doctor concentrating on what he does best, and employing the gardener to do what the gardener is least bad at – the doctor is still benefiting at 2 1/2 times the earning by employing the gardener, even though the gardener is only half as productive in the garden as the doctor would be.
By concentrating on what he is least bad at, the gardener is earning, and he is freeing up the doctor to be more efficeint to his patients too.
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Now, to why I think that a central planner trying to apply the law of association / comparative advantage, is eeeeeeeeeevil.
Mises, in his “calculation in the socialist commonwealth, and later Hayek with his work on the “knowledge problem” have shown that Bureaucracies, like the IMF, national governments and even local councils; cannot calculate.
They are not subject to competitive free market pricing of the “factors of production”, such as land, labour, raw materials, machine tools etc which go into producing their goods and services.
They therefore have no way of assessing what the market demand is for goods of a certain type, what amount of land, labour or mechanization should be devoted to say Tea growing as opposed to say pineapple growing, or grazing goats.
the bureaucracy, with its access to stolen money (tax), and violent coercion (legal powers to send the cops or cops in the guise of bureaucrats in to arrest and prosecute those who disobey – and shoot them if they resist arrest), has no access to or interest in the simple tests of profit or loss, which tell the “entrepreneur” whether he has obeyed his customers wishes efficiently (and thus made a profit),
or, has used scarce goods which customers valued more highly – to make something which customers valued less highly – and therefore incurred a loss.
What can a central planner do which local entrepreneurs wouldn’t already be doing if they believed that it was in they’re interest?
The fact that a central planner is using:
1) money stolen from those already serving their customer’s wishes efficiently and thus making a profit
and,
2) using violent coercion to force people into doing something which, if they believed it was in their interest, they would be doing already.
suggest that the venture is a costly mistake before it has even started.
G’day Ian,
Yep, you’ve illustrated nicely what I referred to in the earlier article as “Ricardian vice” (as quoted from Schumpter). Sure, the output of goods and services is optimized when the doctor does nothing but practice medicine. But what if, say, Dr Dave here, on that basis, stopped blogging altogether, leaving such activities to the likes of JD and Andrew Bolt, and used the time instead back at his hospital doing what he does best (and far better than the aforementioned bloggers). And left his hunting and fishing to the professionals as well? How would that make Dave feel? Wouldn’t the loss of what he regarded as his leisure activities leave him less fulfilled? And possibly even, a worse doctor, as he now has no break in routine to make him feel refreshed? You have to consider the human element, which Ricardo does not – Oz
Kitler, could you put a post up please?
ta
Luton Ian when I can think of something interesting to say.
New post….
http://knottedprop.wordpress.com/2012/05/11/lords-of-acid/
As if further analyses of the scale of the problem we face were needed:-
http://hat4uk.wordpress.com/category/economics-living-in-the-past-no-hope-for-the-future/
Excellent read FB – though some of it reads like it was first delivered through a loud hailer on some university campus 😆
There’s also some intriguing references to stuff like social anthropology, neuroscience and cognitive behaviour therapy in analyzing the behaviour of the market; Izen, if you’re about, go check it out… sounds like it’s right up your alley – Oz
OK, something a bit funnier:
https://libertygibbert.wordpress.com/2012/05/14/parliament-on-a-knife-edge-part-v-i-did-not-have-sex-with-that-woman/
Odd, Must be something in the air….
All this foundational economic theory seems to be the topic de jour. it is a matter of some conflict between two ‘warmists’, Michael Tobias and William Connelly. One seems to be arguing that economic principles are abstract concepts that can be changed to adjust the society you want to build, Connelly takes the line that they are descriptive of an inherent process and you cannot just change the intergenerational discount rate at whim…
The issue of Riccardo and comparative benefit was part of this, see here for a continuation of the argument –
http://scienceblogs.com/stoat/2012/05/on_getting_out_more.php
Yes the link to the analysis is interesting, I have also read the Mise and Krugman stuff behind all this. I must admit that i feel none the wiser about economics and still hold the view that Mandlebrot has undermined just about ALL of the basis for economic theory…
What I did glean from all this reading was a possible insight into human social progress. I discovered who, and why, economics was dubbed the ‘dismal science’. –
http://www.victorianweb.org/authors/carlyle/kennedy1.html
It is some comfort to know that those now regarded as the bastions of conservative thought were once vilified as radical liberals. Economists like Adam Smith and Riccado assumed all persons were economic actors with the labour theory of value. This was obviously a direct attack on the slave trade. After all once you consider Negros as workers who knows where it would end… Women in banking !!!
Izen commented: “[…]and still hold the view that Mandlebrot has undermined just about ALL of the basis for economic theory…”
You are not alone in that, The late Luwig Lachmann, and his close colleague GLS Shackle followed an increasingly nihilistic line.
I disagree, and I’ll use a simple analogy with an after dinner speaker; I don’t know what subject he is going to cover or how he is going to cover it, but that does not falsify the existence of propositional logic, syntax or a grammar.
Similarly with economics. I don’t know what an individual with a credit card is going to buy with the card; but that does not falsify the existence of subjective desires, Their ranking by that individual in order of preference, the forgoing of the lower ranked desires in order to fulfil the higher ranked, each purchase that they make, they value higher than keeping the money …
I agree that most economic forecasting makes astrology look respectable (much of that forecasting comes from applying logical positivist methodology, in particular the idea of the predictive value of a theory – to a subject which has no numerical constants), however that does not prevent there being theory which:
Applies to all voluntary human action, everywhere and throughout history.
I wonder which is more complex, the world’s economy and markets, or the earth’s climate (we’re not doing AGW today, OK?). It’s a serious question. Both are incredibly complex systems, with myriad forcings, many of which we don’t understand, and some of which we’re probably not even aware. No-one has developed a model of either that has withstood observational falsification. The best we’ve yet come up with are micro-models with a greatly simplified set of input parameters, which work on a relatively isolated small scale – Oz
As for economic modelling it does work it’s what the father in law does for a living usually on a localized scale he’s the reason why ESPN in the USA got started he proved that the economic model was sustainable ie idiots paying a premium for sports TV channels, the health care company Kaiser Permanente found a sound economic basis for it’s operations. On a small scale you can prove what works or doesn’t unless you rely on a young daughter to map locations for a new restaurant chain and she decides to move the pretty pins to different locations on the map.
@- Luton Ian
“…I’ll use a simple analogy with an after dinner speaker; I don’t know what subject he is going to cover or how he is going to cover it, but that does not falsify the existence of propositional logic, syntax or a grammar.”
I have encountered a number of after dinner speakers who seem to deploy all three qualities with extreme frugality…
@- “Similarly with economics. I don’t know what an individual with a credit card is going to buy with the card; but that does not falsify the existence of subjective desires, Their ranking by that individual in order of preference, the forgoing of the lower ranked desires in order to fulfil the higher ranked, each purchase that they make, they value higher than keeping the money …”
I think all those attributes are open to dispute. The existence of subjective desires is an unfalsifiable conjecture. That they could be ranked in simple ordinal sequence is an assumption that they have a definite, simple value which is comparable to other ‘subjective preference’ in some meaningful way. That spending is an expression of people subjectively increasing the value of what they own {product instead of money} when their purchase may be forced, constrained, impulse or any other pattern of advert imposed behaviour without any reference to the monetary value…
But the idea that subjective preferences can be arranged in any simple ‘order of preference, seems the big error. Why not assume that preferences are variable with multi-factor interactions that are non-linear rendering the concept of a simple heirachy profoundly wrong.
@- “… however that does not prevent there being theory which:
Applies to all voluntary human action, everywhere and throughout history.”
Love the grammar, or is it syntax. I don’t know whether it was intentional, accidental or Freudian to use ‘theory’ whithout specifying singular or plural. There are certainly a multitude of theories that apply to all voluntary human action, everywhere and throughout history. Many are mutually exclusive, some are directly contradictory.
@- Ozboy
“I wonder which is more complex, the world’s economy and markets, or the earth’s climate (we’re not doing AGW today, OK?). It’s a serious question.”
Serious answer, the world economy. While weather is chaotic, climate is constrained directly by the thermodynamics, unlike economics and human social systems which are only loosely molded by the requirement to balance energy/enthalpy.
Thanks for that Izen – I’m not sure I agree but, at a minimum, it’s consistent with what has gone before – Oz