James C.W. Ahiakpor wrote: >But behind such language, the classics had >individuals in mind. (I do too.) Thus, Ricardo >illustrates the comparative advantage principle >in the same chapter by noting that "Two men can >both make shoes and hats, and one is superior to >the other in both employments [i.e. absolute >cost advantage]; but in making hats, he can only >exceed his competitor by one-fifth or 20 per >cent., and in making shoes he can excel him by >one-third or 33 per cent.; -- will it not be >for the interest of both, that the superior man >should employ himself exclusively in making >shoes, and the inferior man in making hats?" (Works, 1: 136n). But of course, this only makes sense in the (usual) case that the man could be fully employed at either profession. But if, on the other hand, he could only find partial employment at both, he would pursue both, and pursue them up until the point that he could find full employment at one of them. So once again, in this example (as in all Ricardo's examples) full employment is implicit. It is only the possibility of full employment in one trade that even allows the idea of comparative advantage to arise. What is true for the lone craftsman is true for the nation. If Portugal had an absolute advantage in both wine and cloth, but could only employ half the population in one or the other, then she would pursue both up to the point of full employment, just as in the case of the lone craftsman you cited above. >And I'd like to note again that, contrary to >John Medaille's assertion, Ricardo's >illustration does not require (a) that there be >full employment of labor or (b) that there be a >balance of trade between countries for the benefits to accrue. Do I take it then that we have reached agreement at least on the third point, that Ricardo assumed that capital is confined to national boundaries? As to point (a), I think you will find that all the examples Ricardo uses are like the one you just cited; if you re-write them into "partial employment," they will not work. Hence, full employment is implicit in all his examples. (By the way, the term "full employment" applies to all economic resources, not just labor.) As to point (b), Ricardo addresses this specifically, using fluctuations in currency to balance or end the trade. But this is all somewhat beside the point. Are you saying that Ricardo is saying that negative trade balances can be prolonged indefinitely at an advantage to the negatively balanced party? But certainly you are not saying that because nobody would say that so you must be saying something else and I am just not understanding what you are saying. So let me ask directly,"Do you believe that an over-all negative trade balance can be indefinitely prolonged without doing harm to the country?" > And scarcity is not a synonym for "full employment." I don't recall saying that. I do recall saying that it is only the particular scarcity of full employment that allows the pursuit of comparative, rather than absolute, advantage. >Instead of dealing with the question whether any >of the classical principles I listed assumed >full employment for their validity, Medaille >responded with: "They are all pieces of the >over-riding economic theology of liberalism, >namely the near-mystical belief in a >self-regulating, self-adjusting utopia that >required no intervention by the government or >any other social institution. This was the >reigning orthodoxy of England from the Reform >Act of 1832 until the Long Depression of the 1870's and 80's." > >No, these principles are relevant to economies >of today as well, and they derive from David >Hume (1752), Adam Smith, Jeremy Bentham, J.-B. >Say, David Ricardo, Henry Thornton, J.S. Mill, >to list just the major formulators. They were >carried into the 20th century most >consistently by Alfred Marshall (Principles, >1920 and Money, Credit and Commerce, >1923). There are variations of these principles >also in the works of R.G. Hawtrey, Irving >Fisher, and A.C. Pigou (before >1949). Reference: Chapters 4, 5, 9 and 10 of >Classical Macroeconomics (Routledge 2003), which >include direct quotations from these authors. I have no problem with the list of names, and could add a dozen more. Nor do I doubt that many of the ideas are still fashionable, whether or not they are right or wrong. But I do not see how the list of names or the currency of the ideas forms a counter-argument to what I said. In fact, it is precisely because of the currency of these antique ideas that you still hear the constant cry that was heard then: "Get the govmint out of _____________ (whatever)!" They are expressing precisely the thought that I (and many others) identified: the theological belief that the economic order is independent of the political and social orders and that it will work perfectly only if left alone by these other orders. J. B. Clark was speaking for a long intellectual tradition when he claimed that the economy was responding to "deep acting natural law" which would find its balance only if left alone. John C. Medaille