David Ricardo: comparative advantage

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The Classical School by Callum Williams

"Friedman doctrine" OR "shareholder theory", bank run, banking crisis, basic income, Brexit referendum, British Empire, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Charles Babbage, complexity theory, Corn Laws, David Ricardo: comparative advantage, death from overwork, deindustrialization, Donald Trump, double entry bookkeeping, falling living standards, Fellow of the Royal Society, full employment, Gini coefficient, Gordon Gekko, greed is good, helicopter parent, income inequality, invisible hand, Jevons paradox, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, low skilled workers, Mahatma Gandhi, Martin Wolf, means of production, Meghnad Desai, minimum wage unemployment, Modern Monetary Theory, new economy, New Journalism, non-tariff barriers, Paul Samuelson, Post-Keynesian economics, purchasing power parity, Ronald Coase, secular stagnation, Silicon Valley, spinning jenny, The Wealth of Nations by Adam Smith, Thomas Malthus, universal basic income

Cambridge: Cambridge University Press. Bederman, Gail. “Sex, Scandal, Satire, and Population in 1798: Revisiting Malthus’s First Essay”. Journal of British Studies 47, no. 4 (2008): 768–795. Bernhofen, Daniel M., and John C. Brown. “Retrospectives: On the Genius Behind David Ricardo’s 1817 Formulation of Comparative Advantage”. Journal of Economic Perspectives 32, no. 4 (2018): 227–240. Blaug, Mark. “No History of Ideas, Please, We’re Economists”. Journal of Economic Perspectives 15, no. 1 (2001): 145–164. Blaug, Mark. “Say’s Law of Markets: What Did It Mean and Why Should We Care?” Eastern Economic Journal 23, no. 2 (1997): 231–235.

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“The Making of the Modern World”. In A. Macfarlane, ed., The Making of the Modern World, pp. 249–272. London: Palgrave Macmillan, 2002. Maddison, Angus. 1971. Class Structure and Economic Growth: India & Pakistan since the Moghuls. W. W. Norton. Maneschi, Andrea. “How Would David Ricardo have Taught the Principle of Comparative Advantage?” Southern Economic Journal (2008): 1167–1176. Marcus, Steven. 2017. Engels, Manchester, and the Working Class. London: Routledge. McGee, Robert W. “The Economic Thought of David Hume”. Hume Studies 15, no. 1 (1989): 184–204. Miller, Dale E. “Harriet Taylor Mill”. The Stanford Encyclopedia of Philosophy, (2019), https://plato.stanford.edu/entries/harriet-mill/ Mokyr, Joel. 2016.

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Ross Robertson argues that “although the Tableau Economique could well be translated into algebra, the physiocrats did not do this”. 6. In this quotation I have corrected a small typo. 7. David Ricardo is perhaps the exception here. You get neither mathematical models nor diagrammatic illustrations of what he is arguing. Instead you get lots of numerical examples, which are almost algebraic. Paul Krugman says that comparative advantage is an idea “grounded, at base, in mathematical models–simple models that can be stated without actually writing down any equations, but mathematical models all the same”. 8. Recall Hutcheson, Pufendorf and Smith’s discussion of economic value in the chapter on Smith. 9.

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, low-wage service sector, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Still, the US experience with the reshoring of production holds lessons for Britain and others as to how to become more competitive in high-end manufacturing, which in turn has implications for what drives growth and also a nation’s trade position. In the previous chapter, we learned what Adam Smith would say about governments trying to rebalance their economies. But what about the related issue of setting trade policy? What would David Ricardo advise governments to do in the face of these trends and a large and persistent trade deficit? Ricardo’s theory of comparative advantage David Ricardo’s theory of comparative advantage states that each country should produce and trade what it is relatively least bad at. Even if China can produce everything more cheaply, America should still produce what it is relatively better at, and so should China.

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An economist inspired by Adam Smith later became the father of international trade. In 1817 David Ricardo formalized the theory of comparative advantage that shows how every country benefits from free trade. This is true even if that country is worse than every other country in the world at producing everything. It should still focus on making what it was relatively less bad at, and specializing and trading would benefit it as well as the rest of the world. But, what if the result of trading on the basis of comparative advantage is that countries like America and Britain run persistent trade deficits, meaning that the value of the goods they import outstrips the value of their exports?

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The rejection of the protectionist Corn Laws in favour of opening up to the world economy marked the start of an era of globalization which contributed to Britain’s prosperity. It was at that time that the seminal work on international trade was penned by David Ricardo. Ricardo’s On the Principles of Political Economy and Taxation is considered to be one of the classics in economics. So, what would Ricardo make of the persistent trade deficits experienced by the UK as well as other deindustrialized nations such as the US? Ricardo’s theory of comparative advantage, whereby countries gain from trade even if they are less efficient in all production than their trading partners, has transformed the thinking around international trade and showed why there are significant benefits from globalization.

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Still, the US experience with the reshoring of production holds lessons for Britain and others as to how to become more competitive in high-end manufacturing, which in turn has implications for what drives growth and also a nation’s trade position. In the previous chapter, we learned what Adam Smith would say about governments trying to rebalance their economies. But what about the related issue of setting trade policy? What would David Ricardo advise governments to do in the face of these trends and a large and persistent trade deficit? Ricardo’s theory of comparative advantage David Ricardo’s theory of comparative advantage states that each country should produce and trade what it is relatively least bad at. Even if China can produce everything more cheaply, America should still produce what it is relatively better at, and so should China.

…

An economist inspired by Adam Smith later became the father of international trade. In 1817 David Ricardo formalized the theory of comparative advantage that shows how every country benefits from free trade. This is true even if that country is worse than every other country in the world at producing everything. It should still focus on making what it was relatively less bad at, and specializing and trading would benefit it as well as the rest of the world. But, what if the result of trading on the basis of comparative advantage is that countries like America and Britain run persistent trade deficits, meaning that the value of the goods they import outstrips the value of their exports?

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The rejection of the protectionist Corn Laws in favour of opening up to the world economy marked the start of an era of globalization which contributed to Britain’s prosperity. It was at that time that the seminal work on international trade was penned by David Ricardo. Ricardo’s On the Principles of Political Economy and Taxation is considered to be one of the classics in economics. So, what would Ricardo make of the persistent trade deficits experienced by the UK as well as other deindustrialized nations such as the US? Ricardo’s theory of comparative advantage, whereby countries gain from trade even if they are less efficient in all production than their trading partners, has transformed the thinking around international trade and showed why there are significant benefits from globalization.

Phil Thornton by The Great Economists Ten Economists whose thinking changed the way we live-FT Publishing International (2014)

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What you should take away While Ricardo’s theories may have dated, he will still hold a place in the economic firmament thanks to some of the ideas that he laid out some 200 years ago: • Comparative advantage: countries should specialise in what they are most efficient at producing and import goods they are less good at making. • The Ricardo effect: as wages rise, goods that are produced in a capital-intensive way become cheaper relative to those that were labour intensive, leading to greater demand for the former. • Ricardian equivalence: governments that borrow to stimulate economic growth will not succeed because people will realise they will have to pay higher taxes in the future to pay back the debt. Further reading Samuel Hollander, The Economics of David Ricardo (Heinemann, 1979).

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We will examine these issues in more detail in the chapter on Gary Becker. International economics and trade The economics of international trade occupied Samuelson’s thinking across the decades during which he was researching and writing. We saw (in Chapter 2) that he selected David Ricardo’s doctrine of comparative advantage as one proposition 184 The Great Economists in the social sciences that was both true and non-trivial. He made findings in many key areas of this complex subject that still hold significance today, drawing on his thinking about revealed preference and his welfare analysis.

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Further reading Samuel Hollander, The Economics of David Ricardo (Heinemann, 1979). David Ricardo, The High Price of Bullion, a Proof of the Depreciation of Bank Notes (1810). Chapter 2 • David Ricardo47 David Ricardo, Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815). David Ricardo, On the Principles of Political Economy and Taxation (1817). CHAPTER 3 Karl Marx– the fallen hero? 49 50 The Great Economists ‘From each according to his ability, to each according to his needs.’ Karl Marx, Critique of the Gotha Programme, 1875 Karl Marx. Just say his name and almost any listener will immediately conjure up a package of images and thoughts.

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes by Mark Skousen

Albert Einstein, banking crisis, behavioural economics, Berlin Wall, Bretton Woods, business climate, business cycle, creative destruction, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, foreign exchange controls, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, liberation theology, liquidity trap, low interest rates, means of production, Meghnad Desai, microcredit, minimum wage unemployment, money market fund, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, Post-Keynesian economics, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Solow, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, Tragedy of the Commons, unorthodox policies, Vilfredo Pareto, zero-sum game

From Smith to Marx The Rise and Fall of Classical Economics That able but wrong-headed man, David Ricardo, shunted the car of economic science on to a wrong line—a line, however, on which it was further urged toward confusion by his equally able and wrong-headed admirer, John Stuart Mill. —William Stanley Jevons (1965, li) The time between Adam Smith and Karl Marx was marked by the thrill of victory and the agony of defeat. The French laissez-faire school of Jean-Baptiste Say and Frederic Bastiat advanced the Smithian model to new heights, but it was not to last, as the classical model of Thomas Robert Malthus, David Ricardo, and John Stuart Mill took economics down into desperate straits.

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The classical gold/silver standard restrains the state from depreciating the currency and provides a stable monetary environment in which the economy may flourish. As we shall see, the classical model of Adam Smith would repeatedly come under attack over the centuries by friends and foes alike. Adam Smith and the Age of Economists Adam Smith was not perfect by any means. He led disciples David Ricardo and Thomas Malthus down the wrong road with his crude labor theory of value, his critique of landlords, his strange distinction between "productive" and "unproductive" labor, and his failure to recognize the fundamental principle of subjective marginal utility in price theory. But these are parenthetical deviations that were unfortunately magnified by the classical economists and distort his overwhelming positive contribution to economic science.

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His principal focus throughout his economic magnum opus was the "improvement" of the individual through "frugality and good conduct," saving and investing, exchange and the division of labor, education and capital formation, and new technology. He was more interested in increasing wealth than dividing it (in sharp contrast to his disciple David Ricardo). According to Adam Smith, even a powerful, sinister government cannot stop progress: "The uniform, constant, and uninterrupted effort of every man to better his condition ... is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration" (1965 [1776], 326; cf. 508).

The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor, and Why You Can Never Buy a Decent Used Car by Tim Harford

Alan Greenspan, Albert Einstein, barriers to entry, Berlin Wall, business cycle, collective bargaining, congestion charging, Corn Laws, David Ricardo: comparative advantage, decarbonisation, Deng Xiaoping, Fall of the Berlin Wall, George Akerlof, Great Leap Forward, household responsibility system, information asymmetry, invention of movable type, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, market design, Martin Wolf, moral hazard, new economy, Pearl River Delta, price discrimination, Productivity paradox, race to the bottom, random walk, rent-seeking, Robert Gordon, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, second-price sealed-bid, Shenzhen special economic zone , Shenzhen was a fishing village, special economic zone, spectrum auction, The Market for Lemons, Thomas Malthus, trade liberalization, Vickrey auction

Wilson is probably a better economist than I am. So I know when I’m beaten. Why write a book about economics when Professor Wilson could write a better one? The answer is comparative advantage. Because of comparative advantage, Professor Wilson hasn’t written a book about economics, and I’m fairly confident he never will. • 204 • B E E R , F R I E S , A N D G L O B A L I Z A T I O N We owe the idea of comparative advantage to the star of chapter one, David Ricardo. If Wilson and I shared David Ricardo as an agent, he might advise us as follows: “Tim, if you write biology books you are unlikely to get more than one sale per year of writing—the one your wife buys.

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This certainly makes us look at trade barriers in a new light. But it doesn’t prove that trade barriers cause any harm: after all, mightn’t the benefit of trade barriers to the American television manufacturing industry outweigh the harm to the American machine drill industry? David Ricardo’s theory of comparative advantage tells us that the answer is no. As we know, under free trade, both Chinese and American workers can quit work earlier than they could under restricted trade, having produced the same amount as before. The commonsense answer based on practical experience is also no: compare North Korea with South Korea, or Austria with Hungary.

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Removal of all trade barriers would deliver over 6 percent of world income. These are surely underestimates of the benefits, because they include only the most straightforward gains of bringing cheaper goods from world markets into protected markets: ergo, the straightforward application of David Ricardo’s theory of comparative advantage. Other advantages are likely, since, contrary to popular belief that trade is the friend of the multinational, free trade also destroys the scarcity power of big firms by subjecting them to international competition. It encourages the use of new ways of working and better technology.

A Little History of Economics by Niall Kishtainy

Alvin Roth, behavioural economics, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, carbon tax, central bank independence, clean water, Corn Laws, Cornelius Vanderbilt, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Dr. Strangelove, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, Great Leap Forward, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, low interest rates, market clearing, market design, means of production, Minsky moment, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, Phillips curve, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Solow, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

Prebisch wasn’t as radical as Frank but his idea still contradicted conventional economics. It was to do with the prices that poor countries are able to sell their goods for. The conventional view of trade was based on the theory of the nineteenth-century British economist David Ricardo. If nations specialise in the production of goods that they’re relatively better at making (in other words, in their comparative advantage) and trade with other nations, then all nations are made better off, said Ricardo. If Cuba found it easier to grow sugar than to make cars, then Cuba should sell sugar to America and buy American cars. Free trade would help poor countries like Cuba to achieve standards of living closer to those of the rich countries, so the theory went.

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New farming methods made it possible to produce a greater amount of food to feed the growing population in the cities. Then, as Manchester and towns like it filled with warehouses and factories, the basis of the country’s wealth shifted away from agriculture towards industry. People started to build up fortunes by investing in the industrial economy. One of them was David Ricardo (1772–1823), a leading British stockbroker (someone who trades in the stock market). After making himself a rich man, he turned to economics, displaying powers of logic never before seen in an economist. In the eighteenth century, boys from well-to-do families were tutored in Greek and Latin before going to university.

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There were thousands upon thousands of Fantines. Children were crippled by long hours of factory work and disease was everywhere. In Britain the poorest people could go to the ‘workhouse’ where they were given food and a bed, if they could stand the harsh conditions. Earlier we met Adam Smith and David Ricardo, who said that trade and competition led to prosperity. They knew that moneymaking wasn’t all good, but overall they believed that capitalism meant progress. A different group of thinkers completely despaired of the society around them. They looked at the squalor of the cities – the skinny, illiterate children and the workers spending their last pennies on drink to drown their sorrows – and thought that capitalism couldn’t be repaired.

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

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William Pitt the Younger, then Prime Minister, invited him to Downing Street and insisted that out of respect for Smith, the Cabinet stood while Smith sat and gave them advice. Smith established the usefulness of political economy, as the subject came to be called; it was a combination of philosophy, history, economic theory and some practical economic policy advice. The Certainties of David Ricardo The years which followed Adam Smith’s death in 1790 were turbulent for Europe. Britain had already lost its colonies in North America. The Rebels had issued a Declaration of Independence in the same year the Wealth of Nations was published and defeated the mother country in a series of decisive battles.

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With paper currency, there was no such guidance. Inflation soon followed. War helped to mitigate some of the effects by expanding economic activity, but inflation was ever present. The value of the paper pound fell in terms of the Dutch florin on the Amsterdam Stock Exchange. Had the Bank Issued Excess Currency? It fell to David Ricardo to open the debate on the causes of the depreciation of the pound. In a pamphlet called “On the High Price of Bullion,” the first that he wrote, he showed that the best way to measure how much excess paper currency the Bank of England had issued would be to work out the percentage depreciation of the pound on the foreign exchange from the time when the link with gold was broken.

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Ricardo’s pamphlet created controversy and Parliament appointed a committee to examine the problem. The report of the Parliamentary committee, called the Bullion Report, confirmed Ricardo’s calculation. After all, they were just confirming the basic truth of John Locke’s theory on inflation but expanded to include an international context. David Ricardo (1772–1823) was a most unusual man. If Adam Smith was a reclusive philosopher, Ricardo was a busy man of affairs – stockbroker, landowner and, in his last years, Member of Parliament. He had shown no interest in matters of philosophical speculation. From his activities in the stock market and as an agent who sold government debt – a loan-contractor, as the role was called – he made a vast fortune which made him a landowner in his later years.

Money and Government: The Past and Future of Economics by Robert Skidelsky

"Friedman doctrine" OR "shareholder theory", Alan Greenspan, anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, book value, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, fake news, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Glass-Steagall Act, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kondratiev cycle, labour market flexibility, labour mobility, land bank, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, long and variable lags, low interest rates, market clearing, market friction, Martin Wolf, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mobile money, Modern Monetary Theory, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, nudge theory, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, placebo effect, post-war consensus, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, technological determinism, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

Ricardo, D. (2005 (1810)), The High Price of Bullion, A Proof of the Depreciation of Bank Notes. In: P. Sraffa (ed.), The Works and Correspondence of David Ricardo (III) Pamphlets and Papers 1809–11. Indianapolis, Ind.: Liberty Fund, pp. 47–128. Ricardo, D. (2005 (1815)), The Works and Correspondence of David Ricardo (IV) Pamphlets and Papers 1815–1823. Indianapolis, Ind.: Liberty Fund. Ricardo, D. (2005 (1816)), The Works and Correspondence of David Ricardo (VII) Letters 1816–1818. Indianapolis, Ind.: Liberty Fund. Ricardo, D. (2005 (1817)), The Works and Correspondence of David Ricardo (I) On the Principles of Political Economy and Taxation. Indianapolis, Ind.: Liberty Fund. 452 Bi bl io g r a p h y Ricketts, L.

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Daunton, M. (2012), The politics of British taxation, from the Glorious Revolution to the Great War. In: B. Yun-Casalilla and P. K. O’Brien (eds.), The Rise of Fiscal States: A Global History, 1500–1914. Cambridge: Cambridge University Press, pp. 111–42. Davey, B. (2017), Specialisation and trade: David Ricardo versus Fredrich List. Credo. Available at: www.credoeconomics.com/specialisation-andtrade-david-ricardo-versus-frederich-list/ [Accessed 7 May 2018]. Davidson, P. (1978), Money and the Real World. 2nd edn. London: Palgrave Macmillan Davidson, P. (1999), The case for capital regulation. In: R. Skidelsky, M. Lawson, J. Flemming, M. Desai and P. Davidson, Capital Regulation: For and Against.

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For much of the period, and for many of the events covered by this book, Britain was the pacemaker and rulesetter for the global economy, an amazing achievement for a country with just 1 per cent of the world’s population (it went briefly up to 2 per cent in the 1850s). David Hume, Adam Smith, David Ricardo, John Stuart Mill, Alfred Marshall and John Maynard Keynes towered over the economics of their day; Britain was the first modern gold-standard nation, the first commercial society, and the first industrial nation. The City of London bestrode the world of international finance; the Victorian fiscal constitution provided a universal model of good government; and Britain possessed adequate hard power to enforce the rules of a liberal international trading order.

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Alan Greenspan, Albert Einstein, bank run, barriers to entry, behavioural economics, Bretton Woods, business cycle, butterfly effect, capital controls, carbon tax, Carmen Reinhart, central bank independence, collective bargaining, congestion pricing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, price elasticity of demand, price stability, prisoner's dilemma, profit maximization, public intellectual, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Vilfredo Pareto, Washington Consensus, white flight

In 1938, a young Paul Samuelson was challenged by Stanislaw Ulam, the Polish-American mathematician, to state one proposition in the social sciences that is both true and nontrivial. Samuelson’s answer was David Ricardo’s Principle of Comparative Advantage. “Using four numbers, as if by magic, it shows that there is indeed a free lunch—a free lunch that comes with international trade.”5 Ricardo’s demonstration, back in 1817, that specialization according to comparative advantage produces economic gains for all countries was as simple as it is powerful.6 The nontrivial nature of the principle is obvious by how often it is misunderstood, even among sophisticated commentators.

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Paul Samuelson, “The Past and Future of International Trade Theory,” in New Directions in Trade Theory, eds. A. Deardorff, J. Levinsohn, and R. M. Stern (Ann Arbor, MI: University of Michigan Press, 1995), 22. 6. David Ricardo, On the Principles of Political Economy and Taxation (London: John Murray, 1817), chap. 7. 7. Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy (New York: W. W. Norton, 2011), chap. 3. 8. David Ricardo, On the Principles of Political Economy and Taxation, 3rd ed. (London: John Murray, 1821), chap. 7, para. 7.17, http://www.econlib.org/library/Ricardo/ricP2a.html. 9. David Card, “The Impact of the Mariel Boatlift on the Miami Labor Market,” Industrial and Labor Relations Review 43, no. 2 (January 1990): 245–57; George J.

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The “theory of value” in economics is essentially a theory about price formation. If this question no longer seems foundational—or particularly interesting—for the contemporary reader, it is because it has been demystified by theoretical developments that cut through a thicket of confusion surrounding it. Classical economists such as Adam Smith, David Ricardo, and Karl Marx subscribed to the view that the costs of production determined value. If something costs more to produce, its price must be higher. Costs of production were, in turn, traced to wage payments made to workers, either directly in the activity in question or indirectly when labor was employed to produce the machines that were being used.

A Splendid Exchange: How Trade Shaped the World by William J. Bernstein

Admiral Zheng, asset allocation, bank run, Benoit Mandelbrot, British Empire, call centre, clean water, Columbian Exchange, Corn Laws, cotton gin, David Ricardo: comparative advantage, death from overwork, deindustrialization, Doha Development Round, domestication of the camel, double entry bookkeeping, Easter island, Eratosthenes, financial innovation, flying shuttle, Gini coefficient, God and Mammon, high-speed rail, ice-free Arctic, imperial preference, income inequality, intermodal, James Hargreaves, John Harrison: Longitude, Khyber Pass, low skilled workers, non-tariff barriers, Paul Samuelson, placebo effect, Port of Oakland, refrigerator car, Silicon Valley, South China Sea, South Sea Bubble, spice trade, spinning jenny, Steven Pinker, Suez canal 1869, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade liberalization, trade route, transatlantic slave trade, transcontinental railway, two and twenty, upwardly mobile, working poor, zero-sum game

David Sassoon, a Jewish merchant from Bombay whose ancestors hailed from Baghdad, seized the China opium trade from his larger English rivals in the wake of the legalization forced by the Second Opium War. His descendants would achieve distinction in the arts and business in England. From the Jewish Encsrlopedia. The issue of a wealthy Portuguese Jewish merchant family. David Ricardo formulated the law of comparative advantage, which demonstrated how all nations could benefit from trade. Richard Cobden, a textile printer by trade, became the foremost opponent of the corn laws. His exploitation of the transport and communication advances of the day-the railroad, telegraph, and penny post-finally led to repeal in 1846.

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Principles proved a worthy successor to Wealth of Nations; in the words of the historian David Weatherall, "Adam Smith explained what the capitalist system was. David Ricardo explained how the capitalist system works."6; Ricardo's famous chapter on foreign trade begins with this forthright statement, which turns mercantilism on its head: "We should have no greater value if, by the discovery of new markets, we obtained double the quantity of foreign goods in exchange for a given quantity of ours." Ricardo proceeded to describe the law of comparative advantage, in which he poses the following hypothetical situation. Imagine that it takes 120 Englishmen to produce a given quantity of wine and 100 to produce a given quantity of cloth, whereas it takes only eighty and ninety Portuguese, respectively, to produce the same quantities of wine and cloth.

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Fairlie, "The Corn Laws Reconsidered," Economic History Review 18, no. 3 (1965): 563. 60. Barnes, 72-73. This is not very different from the refusal of twenty-firstcentury Americans to drive fuel-efficient vehicles. 61. Ibid., 5-89. 62. David Weatherall, David Ricardo, A Biography (The Hague: Martinus Nijhoff. 1976), 1-3. 63. Ibid., 38-39; see also 69-71 for Waterloo loan. 64. David Ricardo, Principles of Political Economy and Taxation (London: Dutton, 1911), 77-93; quotation, 77. 65. In fact, John Stuart Mill described the principle much more clearly in his similarly titled Principles of Political Economy, published a generation later; and earlier writers of the seventeenth and eighteenth centuries, including Smith, Robert Torrens, and Henry Martyn, had described the concept in general terms.

Profiting Without Producing: How Finance Exploits Us All by Costas Lapavitsas

Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, borderless world, Branko Milanovic, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, computer age, conceptual framework, corporate governance, credit crunch, Credit Default Swap, David Graeber, David Ricardo: comparative advantage, disintermediation, diversified portfolio, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, false flag, financial deregulation, financial independence, financial innovation, financial intermediation, financial repression, Flash crash, full employment, general purpose technology, Glass-Steagall Act, global value chain, global village, High speed trading, Hyman Minsky, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, job satisfaction, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, London Interbank Offered Rate, low interest rates, low skilled workers, M-Pesa, market bubble, means of production, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, Network effects, new economy, oil shock, open economy, pensions crisis, post-Fordism, Post-Keynesian economics, price stability, Productivity paradox, profit maximization, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Solow, savings glut, Scramble for Africa, secular stagnation, shareholder value, Simon Kuznets, special drawing rights, Thales of Miletus, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, total factor productivity, trade liberalization, transaction costs, union organizing, value at risk, Washington Consensus, zero-sum game

Reuten, Geert, and Michael Williams, Value Form and the State, London: Routledge, 1989. Ricardo, David, The High Price of Bullion, in The Works and Correspondence of David Ricardo, vol. 3, ed. Piero Sraffa and Maurice Dobb, Cambridge: Cambridge University Press, 1951 (1810). Ricardo, David, Letters, in The Works and Correspondence of David Ricardo, vol. 6, ed. Piero Sraffa and Maurice Dobb, Cambridge: Cambridge University Press, 1951 (1810). Ricardo, David, On the Principles of Political Economy and Taxation, in The Works and Correspondence of David Ricardo, vol. 1, ed. Piero Sraffa and Maurice Dobb, Cambridge: Cambridge University Press, 1951 (1817). Rodrik, Dani, ‘The Social Cost of Foreign Exchange Reserves’, NBER Working Paper No. 11952, National Bureau of Economic Research, January 2006.

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., ‘Electronic Finance: Reshaping the Financial Landscape Around the World’, Journal of Financial Research 22: 2002. 64 For a fuller analysis of the functioning and the form of world money in contemporary capitalism see Costas Lapavitsas, ‘Power and Trust as Constituents of Money and Credit’, Historical Materialism 14:1, 2006, pp. 129–54; and Costas Lapavitsas et al., Crisis in the Eurozone, London: Verso, 2012. 65 Marx, Capital, vol. 1, p. 242. 66 See, for instance, David Ricardo, Letters, in The Works and Correspondence of David Ricardo, vol. 6, ed. Piero Sraffa and Maurice Dobb, Cambridge: Cambridge University Press, 1951, pp. 64–5. 67 This view was clearly, and sharply, articulated by Thomas Tooke, An Inquiry into the Currency Principle, London: LSE Reprint Series, 1959. 68 John Maynard Keynes, The General Theory of Employment, Interest and Money, London: Macmillan, 1973. 69 The logical ordering of credit relations is examined in Itoh and Lapavitsas, Political Economy of Money and Finance, ch. 4, and is discussed in ch. 5. 70 See, for instance, Marx, Capital, vol. 3, ch. 30, 31, 32. 71—See, for instance, Steuart, An Inquiry into the Principles of Political Economy, vol. 3, book 4, part 2, ch. 8; and vol. 3, book 2, ch. 28. 72—Marx, Capital, vol. 1, p. 243. 73—Ibid., pp. 240–1. 74—See, for instance, Costas Lapavitsas, ‘Power and Trust as Constituents of Money and Credit’, Historical Materialism 14:1, 2006, pp. 129–54.

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For related arguments by the Monthly Review current, see John Bellamy Foster, ‘The Financialization of Capitalism’, Monthly Review 58:11, 2007; and John Bellamy Foster and Fred Magdoff, The Great Financial Crisis: Causes and Consequences, New York: Monthly Review Press, 2009. 3 Robert Pollin, ‘Contemporary Economic Stagnation in World Historical Perspective’, New Left Review 219, 1996, p. 115. 4 Giovanni Arrighi, ‘Financial Expansions in World Historical Perspective: A Reply to Robert Pollin’, New Left Review 224, 1997. 5 Karl Marx, Capital, vol. 3, London: Penguin/NLR, 1981, ch. 19. 6 For further discussion of this issue see also Costas Lapavitsas and Iren Levina, ‘Financial Profit: Profit from Production and Profit Upon Alienation’, Discussion Paper No. 24, Research on Money and Finance, May 2011. 7 David Ricardo, On the Principles of Political Economy and Taxation, in The Works and Correspondence of David Ricardo, vol. 1, ed. Piero Sraffa and Maurice Dobb, Cambridge: Cambridge University Press, 1951, ch. 6; also pp. 48–51. 8 James Steuart, An Inquiry into the Principles of Political Economy, vol. 1, book 2, ch. 4, in Works, Political, Metaphysical, and Chronological, of the Late Sir James Steuart, London: Routledge, 1995. 9 Ibid., vol. 1, book 2, ch. 8. 10 Karl Marx, Theories of Surplus Value, part 1, London: Lawrence & Wishart, 1969, ch. 1. 11 The significance of ‘profit upon alienation’ to Marx’s economics has generally escaped Anglo-Saxon Marxism in the post-war years, though the concept was certainly noticed by Roland L.

The Globalization Paradox: Democracy and the Future of the World Economy by Dani Rodrik

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Asian financial crisis, bank run, banking crisis, Bear Stearns, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, classic study, collective bargaining, colonial rule, Corn Laws, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, Doha Development Round, en.wikipedia.org, endogenous growth, eurozone crisis, export processing zone, financial deregulation, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, George Akerlof, guest worker program, Hernando de Soto, immigration reform, income inequality, income per capita, industrial cluster, information asymmetry, joint-stock company, Kenneth Rogoff, land reform, liberal capitalism, light touch regulation, Long Term Capital Management, low interest rates, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, Multi Fibre Arrangement, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, Paul Samuelson, precautionary principle, price stability, profit maximization, race to the bottom, regulatory arbitrage, Savings and loan crisis, savings glut, Silicon Valley, special drawing rights, special economic zone, subprime mortgage crisis, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tobin tax, too big to fail, trade liberalization, trade route, transaction costs, tulip mania, Washington Consensus, World Values Survey

Why would India want to sell textiles to England in return for British manufactures if India’s textiles in fact take more labor to produce and would cost India more than what it was buying in exchange? The hole in the argument was not filled until David Ricardo produced his famous example of trade between England and Portugal in cloth and wine in 1817, and conclusively established the principle of comparative advantage. It is unlikely that Indian producers face identical conditions to those that prevail in England. If, compared to England, Indian producers are more productive in textiles than they are in the types of goods that English manufacturers produce, textiles will cost less in India than those English goods.

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Could it be that ordinary people have a better intuitive sense of the complexity of the case for free trade than we give them credit for? In fact, powerful and elegant as it may be, the argument presented by Henry Martyn, David Ricardo, and others is not the whole story. Life as a trade economist would be pretty boring if it were so. Okay, maybe it’s not as much fun as being Mick Jagger, but I can assure you that doing international economics as a living entails a lot more than reaffirming the wonders of comparative advantage day after day. Every advanced student of trade learns that there are a lot of interesting twists and turns to the tale of gains from trade. A long list of requirements needs to be in place before we can reasonably be satisfied that free trade improves a society’s overall well-being.

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First, new technologies in the form of steamships, railroads, canals, and the telegraph revolutionized international transport and communications and greatly reduced trade costs starting in the early part of the nineteenth century. Second, the economic narrative changed as the ideas of free market economists like Adam Smith and David Ricardo finally got some traction. This led the governments of the world’s major economies to substantially relax the restrictions they placed on trade in the form of import taxes (tariffs) and explicit prohibitions. Finally, from the 1870s on, the widespread adoption of the gold standard enabled capital to move internationally without fear of arbitrary changes in currency values or other financial hiccups.

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, bank run, banks create money, Basel III, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, carried interest, clean tech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, Evgeny Morozov, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Glass-Steagall Act, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, independent contractor, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, John Bogle, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, margin call, Mark Zuckerberg, market bubble, means of production, military-industrial complex, Minsky moment, Money creation, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, Post-Keynesian economics, profit maximization, proprietary trading, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Robert Solow, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, Solyndra, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two and twenty, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, you are the product, zero-sum game

His Theory of Moral Sentiments and The Wealth of Nations were not contradictory but part of his deep analysis of what drives human behaviour and how societies organize themselves, and why some societies might grow in wealth more than others. Smith's analysis of ‘free markets' was closely tied to his understanding of production, and the need to limit rent-seeking behaviour. David Ricardo: Grounding Smith's Value Theory In the 1810s, another towering figure of the English classical economic school used the labour theory of value and productiveness to explain how society maintains the conditions which enable it to reproduce itself. David Ricardo came from a Sephardic Jewish family which originated in Portugal and moved to Holland before settling in England. Ricardo followed his father as a London stockbroker, although he was later estranged from his family after becoming a Unitarian.

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Quesnay, quoted in Steiner, ‘Wealth and power', p. 99. 16. Schumpeter, History of Economic Analysis, p. 230; Steiner, ‘Wealth and Power', p. 100. 17. Smith, The Wealth of Nations, Book IV, Introduction. 18. Ibid., Book I, ch. 1. 19. Ibid., Book V, ch. 1. 20. Ibid. 21. David Ricardo, The Works and Correspondence of David Ricardo, ed. P. Sraffa with the collaboration of M. H. Dobb, vol. 1: On the Principles of Political Economy and Taxation (Cambridge: University Press, 1951), p. 150. 22. Ibid., p. 151. 23. Karl Marx and Friedrich Engels, The Communist Manifesto (1848; London: Penguin Classics, 2010), ch. 1. 24.

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The most influential critic of all was Quesnay's contemporary, a man who had travelled in France and talked at length with him: Adam Smith. CLASSICAL ECONOMICS: VALUE IN LABOUR As industry developed rapidly through the eighteenth and nineteenth centuries, so too did the ideas of a succession of outstanding thinkers like Adam Smith (1723-90), David Ricardo (1772-1823) and Karl Marx (1818-83), a German who did much of his greatest work in England. Economists started to measure the market value of a product in terms of the amount of work, or labour, that had gone into its production. Accordingly, they paid close attention to how labour and working conditions were changing and to the adoption of new technologies and ways of organizing production.

Who's Your City?: How the Creative Economy Is Making Where to Live the Most Important Decision of Your Life by Richard Florida

Abraham Maslow, active measures, assortative mating, back-to-the-city movement, barriers to entry, big-box store, blue-collar work, borderless world, BRICs, business climate, Celebration, Florida, correlation coefficient, creative destruction, dark matter, David Brooks, David Ricardo: comparative advantage, deindustrialization, demographic transition, edge city, Edward Glaeser, epigenetics, extreme commuting, financial engineering, gentrification, Geoffrey West, Santa Fe Institute, happiness index / gross national happiness, high net worth, income inequality, industrial cluster, invention of the telegraph, Jane Jacobs, job satisfaction, Joseph Schumpeter, knowledge economy, knowledge worker, low skilled workers, megacity, new economy, New Urbanism, Peter Calthorpe, place-making, post-work, power law, Richard Florida, risk tolerance, Robert Gordon, Robert Shiller, Seaside, Florida, Silicon Valley, Silicon Valley startup, superstar cities, The Death and Life of Great American Cities, the strength of weak ties, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tyler Cowen, urban planning, World Values Survey, young professional

The Only Economic Unit That Matters We usually think about economic growth and development in terms of nation-states. The classical economists Adam Smith and David Ricardo both argued that nation-states are the geographic engines behind economic growth. As Ricardo famously theorized, discretely defined countries have incentive to specialize in different kinds of industries, which would allow them to gain and maintain “comparative advantage” over others.1 The first person to see this was the great urbanist Jane Jacobs, who is best known for her scathing critique of urban planning, The Death and Life of Great American Cities, and two other very important books, The Economy of Cities and Cities and the Wealth of Nations.2 In The Economy of Cities (1969) Jacobs refutes the long-standing theory that cities emerged only after agriculture had become sufficiently productive to create a surplus beyond what was needed to survive.

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As nearby farmland is revolutionized by city-created technology and innovation, rural dwellers move closer to town to assume jobs in urban industry. As the city generates more output, more money becomes available for civic and infrastructure improvement as well as for new technology and innovation to aid the city’s outlying areas. The comparative advantage that economist David Ricardo first identified in the eighteenth century still matters today, but national borders no longer define economies. Instead, the megaregion has emerged as the new natural economic unit. It is not an artifact of artificial political boundaries, like the nation-state or its provinces, but the product of concentrations of centers of innovation, production, and consumer markets.

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Jane Said The study of economic growth is an arcane field that until recently has paid little attention to the importance of location. In 1776 Adam Smith published The Wealth of Nations, which argued that specialization, efficiency, and division of labor are the cornerstones of modern economic growth.2 Later, David Ricardo’s theory of comparative advantage argued that not just firms but countries gain advantage by specializing in certain kinds of economic activity.3 The far-seeing urbanist Jane Jacobs agrees that specialization has its uses, but she focuses on an even more fundamental source of economic growth—what she terms expansion.

When More Is Not Better: Overcoming America's Obsession With Economic Efficiency by Roger L. Martin

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, autism spectrum disorder, banking crisis, Black Monday: stock market crash in 1987, butterfly effect, call centre, cloud computing, complexity theory, coronavirus, COVID-19, David Ricardo: comparative advantage, do what you love, Edward Lorenz: Chaos theory, financial engineering, Frederick Winslow Taylor, Glass-Steagall Act, High speed trading, income inequality, industrial cluster, inflation targeting, Internet of things, invisible hand, Lean Startup, low interest rates, Lyft, Mark Zuckerberg, means of production, Network effects, new economy, obamacare, open economy, Phillips curve, Pluto: dwarf planet, power law, Renaissance Technologies, Richard Florida, Ronald Reagan, scientific management, shareholder value, Silicon Valley, Snapchat, Spread Networks laid a new fibre optics cable between New York and Chicago, Tax Reform Act of 1986, The future is already here, the map is not the territory, The Wealth of Nations by Adam Smith, Tobin tax, Toyota Production System, transaction costs, trickle-down economics, two-sided market, uber lyft, very high income, Vilfredo Pareto, zero-sum game

A full 28 percent of American libraries from 1777 to 1790 held The Wealth of Nations.18 Hamilton made specific reference to the benefits of the division of labor in his 1791 Report on the Subject of Manufactures, lauding the “greater skill and dexterity naturally resulting from a constant and undivided application to a single object” and arguing that it “has the effect of augmenting the productive powers of labor, and with them, the total mass of the produce or revenue of a country.”19 Both Smith’s invisible hand and division of labor were embraced as the economic policy of the US was formulated in this seminal period. Markets were largely left free to establish efficient prices and quantities, and as US businesses grew, they used the division of labor to produce goods ever more efficiently for those unfettered markets. David Ricardo Four decades after Smith, David Ricardo took the efficiency idea further with his theory of comparative advantage, arguing in On the Principles of Political Economy and Taxation that, since it is more efficient for Portuguese workers to make wine, thanks to their natural endowment of sunny weather, and English workers to make cloth, due to the cooler climate in which they operate, each would be better off were they to focus on their area of advantage and trade with the other.20 The insights of Smith and Ricardo both reflected and drove the Industrial Revolution, which was as much about innovations in processes that reduced waste and increased productivity as it was about the application of new technologies.

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Consistent with the competition-policy argument above, this surrogation of bid-ask spreads for societally beneficial efficiency may sacrifice long-term benefits for a narrow, short-term efficiency goal. Similarly, in trade policy, most economists and policy makers believe, per David Ricardo’s theory of comparative advantage, that the more open a country’s markets are to international trade, the more efficient those markets—and, by extension, the domestic economy they support—will be. The proxy for openness is the tariff level; the lower, the better, with zero being the optimal level. The tool for achieving the ultimate goal for this surrogated proxy for efficiency is the free-trade agreement.

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Proxies and Their Lineage It is both important and only fair to note that, in the main, the fathers of the efficiency-oriented intellectual traditions would almost certainly not have taken their ideas as far as we have seen them taken. Adam Smith did not argue that labor divided more ways is always better. David Ricardo did not insist that more free trade agreements are always better. And most certainly W. Edwards Deming did not argue for the utter elimination of slack—in fact, he argued for the importance of maintaining an optimal level of slack. The exception might be the considerably more doctrinaire Frederick Winslow Taylor.

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

"World Economic Forum" Davos, Admiral Zheng, Alan Greenspan, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, Great Leap Forward, guns versus butter model, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, junk bonds, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low interest rates, low skilled workers, market clearing, Martin Wolf, mass immigration, Meghnad Desai, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, Savings and loan crisis, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, We are all Keynesians now, women in the workforce, working-age population, Y2K, Yom Kippur War

With the competitive pressures unleashed by globalization, unprofitable, poorly managed companies have no place to hide. COMPARATIVE ADVANTAGE AND ECONOMIC DISADVANTAGE Political arrangements can get in the way of economic opportunity and preserve economic rents for the lucky few. They create barriers to free trade, migration and capital flows. Since the 1980s, those barriers have slowly come down. The developed world is now trading with countries that, only a few years ago, were treated as strange lands. In analysing these new patterns of trade, economists routinely resort to the principles of comparative advantage famously described by David Ricardo in On the Principles of Political Economy and Taxation, published in 1817.

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Brazil and Russia are doing little better, with incomes per capita around 12 to 15 per cent of those in the US in recent times; in relative terms, this still leaves them in the position last held by Japan in 1960. India, meanwhile, remains extremely poor, with per-capita incomes less than 2 per cent of the US average.9 In previous centuries, workers in these countries had no access to global capital. Now they do. David Ricardo’s theory of comparative advantage no longer applies. His arguments were based on the assumption that factors of production could not travel across borders. The rapid growth of the emerging economies, however, depends critically on the ability of capital, in particular, to hop across borders with impunity. And so it has proved to be.

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Even if the economic cake grows bigger as a result of globalization, those who enjoyed big slices before may suddenly find themselves on an unwanted diet. The ‘enlightened’ political response to these challenges has been twofold. Economies in the developed world should become more ‘flexible’ and, therefore, more easily able to adapt to changing economic circumstances, consistent with the flexibility required by David Ricardo’s theory of comparative advantage. Meanwhile, investment in education should be increased, both in an attempt to produce more graduates and, also, to allow people to acquire new skills later in life. There’s nothing particularly wrong with these ideas, but it’s likely they promise too much. Flexibility is all very well, but, as argued in Chapter 5, it can just as easily mean pay cuts as pay increases.

The AI Economy: Work, Wealth and Welfare in the Robot Age by Roger Bootle

"World Economic Forum" Davos, 3D printing, agricultural Revolution, AI winter, Albert Einstein, AlphaGo, Alvin Toffler, anti-work, antiwork, autonomous vehicles, basic income, Ben Bernanke: helicopter money, Bernie Sanders, Bletchley Park, blockchain, call centre, Cambridge Analytica, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, Chris Urmson, computer age, Computing Machinery and Intelligence, conceptual framework, corporate governance, correlation does not imply causation, creative destruction, David Ricardo: comparative advantage, deep learning, DeepMind, deindustrialization, Demis Hassabis, deskilling, Dr. Strangelove, driverless car, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, everywhere but in the productivity statistics, facts on the ground, fake news, financial intermediation, full employment, future of work, Future Shock, general purpose technology, Great Leap Forward, Hans Moravec, income inequality, income per capita, industrial robot, Internet of things, invention of the wheel, Isaac Newton, James Watt: steam engine, Jeff Bezos, Jeremy Corbyn, job automation, job satisfaction, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Joseph Schumpeter, Kevin Kelly, license plate recognition, low interest rates, machine translation, Marc Andreessen, Mark Zuckerberg, market bubble, mega-rich, natural language processing, Network effects, new economy, Nicholas Carr, Ocado, Paul Samuelson, Peter Thiel, Phillips curve, positional goods, quantitative easing, RAND corporation, Ray Kurzweil, Richard Florida, ride hailing / ride sharing, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Solow, Rutger Bregman, Second Machine Age, secular stagnation, self-driving car, seminal paper, Silicon Valley, Silicon Valley billionaire, Simon Kuznets, Skype, social intelligence, spinning jenny, Stanislav Petrov, Stephen Hawking, Steven Pinker, synthetic biology, technological singularity, The Future of Employment, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, universal basic income, US Airways Flight 1549, Vernor Vinge, warehouse automation, warehouse robotics, Watson beat the top human players on Jeopardy!, We wanted flying cars, instead we got 140 characters, wealth creators, winner-take-all economy, world market for maybe five computers, Y2K, Yogi Berra

The essential idea is that even if one person (or country) is absolutely better and more efficient than another person (or country), at doing everything, it is better for both that the two should specialize in the activity at which they are relatively better and trade the surplus fruits of this activity for the surplus fruits of the other person (or country). Ever since the theory of comparative advantage was developed by David Ricardo in 1817, it has provided key insights into international trade. It has the hallmark of greatness: it is blissfully simple but utterly profound. Some AI enthusiasts (and economic pessimists) argue that in the new world, as regards humans on the one hand and robots and AI on the other, comparative advantage will cease to apply. This is certainly the contention of the futurist and AI expert Martin Ford. He says: “Machines, and particularly software applications, can be easily replicated.

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Admittedly, sometimes the switching of digital services between locations can have some surprising features. Recently, there has been a move to locate machines in colder climates – where the costs of keeping the servers cool are lower.29 Apparently, Iceland is a favorite location. Of course, the driver of international trade is differences in relative costs, as outlined by David Ricardo in his theory of comparative advantage 200 years ago. So, it will always be advantageous to trade rather than not to trade. Nevertheless, this principle does not establish the amount of trade that will be profitable (and desirable). And it may well be that in the new economic conditions, thinking in narrow terms and at the overall global level, a reduction in the amount of international trade would be beneficial.

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To this day, people who oppose technological developments are often branded “Luddites.” Nor was opposition to technological progress restricted only to those directly disadvantaged by it. In the third edition of his Principles of Political Economy and Taxation, published in 1821, the great economist David Ricardo added a new chapter, “On Machinery.”18 In it he said: “I am convinced that the substitution of machinery for human labour is often very injurious to the interests of the class of labourers.” There have been frequent echoes of this thinking throughout the subsequent 200 years. New jobs for old Great economist though Ricardo was, as things turned out, his pessimism was unjustified.

Basic Economics by Thomas Sowell

affirmative action, air freight, airline deregulation, Alan Greenspan, American Legislative Exchange Council, bank run, barriers to entry, big-box store, British Empire, business cycle, clean water, collective bargaining, colonial rule, corporate governance, correlation does not imply causation, cotton gin, cross-subsidies, David Brooks, David Ricardo: comparative advantage, declining real wages, Dissolution of the Soviet Union, diversified portfolio, European colonialism, fixed income, Ford Model T, Fractional reserve banking, full employment, global village, Gunnar Myrdal, Hernando de Soto, hiring and firing, housing crisis, income inequality, income per capita, index fund, informal economy, inventory management, invisible hand, John Maynard Keynes: technological unemployment, joint-stock company, junk bonds, Just-in-time delivery, Kenneth Arrow, knowledge economy, labor-force participation, land reform, late fees, low cost airline, low interest rates, low skilled workers, means of production, Mikhail Gorbachev, minimum wage unemployment, moral hazard, offshore financial centre, oil shale / tar sands, payday loans, Phillips curve, Post-Keynesian economics, price discrimination, price stability, profit motive, quantitative easing, Ralph Nader, rent control, rent stabilization, road to serfdom, Ronald Reagan, San Francisco homelessness, Silicon Valley, surplus humans, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, transcontinental railway, Tyler Cowen, Vanguard fund, War on Poverty, We are all Keynesians now

The leading classical economists understood that contractions in the money supply could create reduced production, and correspondingly increased unemployment, at a given time.{xxxvii} But this was not always clear to their readers, and the classical economists’ own attention was seldom focused in that direction. David Ricardo Among the followers of Adam Smith was the great classical economist David Ricardo, the leading economist of the early nineteenth century who, among other things, developed the theory of comparative advantage in international trade. In addition to his substantive contributions to economic analysis, Ricardo created a new approach and style in writing about economics. Adam Smith’s The Wealth of Nations was full of social commentary and philosophical observations, and closed with a strong suggestion that Britain should not try to hold on to its American colonies that were in rebellion the same year that his treatise was published.

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., pp. 80–81, 365; Adam Smith, The Theory of Moral Sentiments (Indianapolis: Liberty Classics, 1976), p. 337. {992} Adam Smith, The Wealth of Nations, p. 423. {993} Sir James Steuart, The Works, Volume I, pp. 4, 15, 73, 88. {994} Adam Smith, The Wealth of Nations, p. 435. {995} David Ricardo, The Works and Correspondence of David Ricardo, Volume VII: Letters 1816–1818, edited by Piero Sraffa (New York: Cambridge University Press, 1952), p. 372. {996} Vance Packard, The Waste Makers (New York: D. McKay, Co., 1960), p. 7. {997} Jean-Baptiste Say, A Treatise on Political Economy (Philadelphia: Grigg & Elliot, 1834), p. 137

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Modern economics is often dated from 1776, when Adam Smith wrote his classic, The Wealth of Nations, but there were substantial books devoted to economics at least a century earlier, and there was a contemporary school of French economists called the Physiocrats, some of whose members Smith met while traveling in France, years before he wrote his own treatise on economics. What was different about The Wealth of Nations was that it became the foundation for a whole school of economists who continued and developed its ideas over the next two generations, including such leading figures as David Ricardo (1772–1823) and John Stuart Mill (1806–1873), and the influence of Adam Smith has to some extent persisted on to the present day. No such claim could be made for any previous economist, despite many people who had written knowledgeably and insightfully on the subject in earlier times. More than two thousand years ago, Xenophon, a student of Socrates, analyzed economic policies in ancient Athens.{982} In the Middle Ages, religious conceptions of a “fair” or “just” price, and a ban on usury, led Thomas Aquinas to analyze the economic implications of those doctrines and the exceptions that might therefore be morally acceptable.

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

"Friedman doctrine" OR "shareholder theory", 3D printing, Alan Greenspan, Alvin Toffler, Anthropocene, Asian financial crisis, bank run, basic income, battle of ideas, behavioural economics, benefit corporation, Berlin Wall, biodiversity loss, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Cass Sunstein, choice architecture, circular economy, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, degrowth, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, Easter island, en.wikipedia.org, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, Future Shock, Garrett Hardin, Glass-Steagall Act, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, it is difficult to get a man to understand something, when his salary depends on his not understanding it, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, land reform, land value tax, Landlord’s Game, loss aversion, low interest rates, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, Minsky moment, mobile money, Money creation, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, ocean acidification, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, retail therapy, Richard Thaler, Robert Solow, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, Steve Ballmer, systems thinking, TED Talk, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, Tragedy of the Commons, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

Furthermore, according to Eugene Fama’s influential ‘efficient-market hypothesis’ of 1970, the price of financial assets always fully reflects all relevant information.9 Hence financial markets are ever adjusting but always ‘right’ – and their smooth operation should not be distorted by regulation. TRADE, which is win–win – so open your borders. David Ricardo’s nineteenth-century theory of comparative advantage demonstrates that countries should focus on what they are relatively good at doing and then trade: if they do, both parties will gain from it, no matter how unequal they are.10 Hence trade barriers should be dismantled because they only distort the efficient workings of the international market.

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Scripting the play In 1947, the year before Samuelson published his iconic Circular Flow diagram, a small laissez-faire band of wannabe economic scriptwriters – including Friedrich Hayek, Milton Friedman, Ludwig von Mises and Frank Knight – gathered in the Swiss resort of Mont Pèlerin to start drafting what they hoped would one day become the dominant economic story. Inspired by the pro-market writings of classical liberals such as Adam Smith and David Ricardo they established what they called a ‘neoliberal’ agenda. Its aim, they said, was to push back hard against the threat of state totalitarianism, which was spreading fast thanks to the growing reach of the Soviet Union. But that aim gradually morphed into a hard push for market fundamentalism, and the meaning of ‘neoliberal’ morphed along with it.

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Adam Smith, father of classical economic thinking, drew on the Physiocrats’ work, believing that a nation’s potential for wealth ultimately depended upon its climate and soil. But he also thought that the secret to productivity lay in the division of labour and so focused his attention on that. David Ricardo likewise believed that the ‘original and indestructible powers of the soil’ made scarce agricultural land a key determinant of economic value.17 But as new lands were cultivated in Britain’s colonies, he decided that land scarcity was no longer such a threat and so, like Smith, switched his attention to labour instead.

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis by James Rickards

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, blockchain, Boeing 747, Bonfire of the Vanities, Bretton Woods, Brexit referendum, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, driverless car, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, Glass-Steagall Act, global macro, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, low interest rates, machine readable, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Minsky moment, Money creation, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, operational security, Paul Samuelson, Peace of Westphalia, Phillips curve, Pierre-Simon Laplace, plutocrats, prediction markets, price anchoring, price stability, proprietary trading, public intellectual, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk free rate, risk-adjusted returns, Robert Solow, Ronald Reagan, Savings and loan crisis, Silicon Valley, sovereign wealth fund, special drawing rights, stock buybacks, stocks for the long run, tech billionaire, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, We are all Keynesians now, Westphalian system

Eugene Fama’s efficient markets hypothesis percolated in academic studies in the 1960s, yet only started to exert market influence in the 1970s with the options pricing model of Fischer Black, Myron Scholes, and Robert Merton. The Black-Scholes model enabled derivatives and leverage. David Ricardo’s theory of comparative advantage is two hundred years old, yet was first implemented in a widespread rules-based way after 1947 in the General Agreement on Tariffs and Trade. The link between money and gold was abandoned in stages from 1971 to 1973, concurrent with the rise of floating exchange rate regimes. In short, the herd’s cognitive map is relatively new.

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The modern theoretical case against ostensibly free trade is newer than the critique of efficient markets, with even less support among elite economists. Acquaintance with this critique is needed to understand why elites are defensive, and why the herd’s sense of dread is spreading. The theoretical foundation for free trade is found in the theory of comparative advantage articulated by David Ricardo in The Principles of Political Economy and Taxation (1817). It is no dishonor to Ricardo that his theory fails in conditions of globalization. His ideas were brilliant for their time, and advanced the then-young science of economics toward its classical phase. The same can be said of Sir Isaac Newton, whose ideas on celestial mechanics were surpassed by Albert Einstein’s relativity.

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Comparative advantage is a castle in the air—pleasant to imagine, yet totally unreal. Comparative advantage is the touchstone of the neoliberal consensus, the theoretical foundation for free trade, open capital accounts, and other facets of globalization. When David Ricardo, and earlier, Adam Smith, developed these free market and free trade ideas the world was on a gold standard; exchange rates were anchored to gold. Price comparisons were possible. In the absence of a gold standard or fixed exchange rates, how is the comparison to be made? In theory, floating fiat exchange rates allow comparisons and easy adjustment to terms of trade.

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization by Jeff Rubin

addicted to oil, air freight, banking crisis, Bear Stearns, big-box store, BRICs, business cycle, carbon footprint, carbon tax, collateralized debt obligation, collective bargaining, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, energy security, food miles, Ford Model T, hydrogen economy, illegal immigration, immigration reform, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Watt: steam engine, Jevons paradox, Just-in-time delivery, low interest rates, market clearing, megacity, megaproject, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit maximization, reserve currency, South Sea Bubble, subprime mortgage crisis, the market place, The Wealth of Nations by Adam Smith, trade liberalization, work culture , zero-sum game

What is the point of shutting down a coal-fired plant at home if another is opening up on the other side of the same planet? The answer to that question takes us back to David Ricardo’s theory of comparative advantage. Countries should do what they are best at. Just as everyone was better off when Portugal, rather than England, focused on turning grapes and sunlight into wine, the whole planet will be in better shape when the countries that are most efficient in burning carbon get to burn the most. That is where their comparative advantage lies in a world where emitting carbon carries an economic cost. What the Kyoto Accord failed to recognize is that in a world where greenhouse gas emissions are unevenly controlled, the right to emit suddenly becomes a source of huge comparative economic advantage.

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Money is generally more difficult to come by than frogs, so it was probably not a coincidence that the preeminent nineteenth-century economic theorist was a millionaire (in today’s dollars). David Ricardo had already made his fortune on the London Stock Exchange when he read Adam Smith’s The Wealth of Nations and became interested in the study of where wealth comes from. Ricardo’s idea of comparative advantage is very simple, and very persuasive. It goes something like this: if everybody does what they are best at, rather than what they are just good at, and does only that, everybody will be better off.

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North Americans and Australians are responsible for about 20 metric tonnes each per capita, while Britons weigh in at about 10 tonnes each (though the British emit more as a result of air travel than anyone else). The moral high ground is just not available to the world’s wealthiest countries. But as David Ricardo showed nearly two hundred years ago, the developed world does not have to be absolutely cleaner than their competitors to reclaim comparative advantage. They just have to exploit their lead in carbon management—in just the same way that the British exploited their lead in coal use. And the way to do that is by charging a tariff. It is surely one of the great ironies of the smaller world on the horizon that someone like Ricardo, whose name is often invoked in support of free trade, should furnish us with the idea of charging tariffs on imports, but the world has changed since the days when the items that dominated trade were cloth and wine.

Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bear Stearns, behavioural economics, Bernie Madoff, Brexit referendum, capital asset pricing model, cognitive bias, collapse of Lehman Brothers, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, delayed gratification, diversification, diversified portfolio, effective altruism, endowment effect, Eratosthenes, experimental subject, family office, George Akerlof, index fund, information asymmetry, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, loss aversion, market bubble, market clearing, money market fund, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, Philippa Foot, principal–agent problem, profit maximization, profit motive, Richard Thaler, search costs, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, trolley problem, ultimatum game

To act on such opportunities, even the best-informed investor must take a leap. Because a unique event cannot be understood as an abstraction to which simple rules apply, investing with a likelihood of beating the market requires, as Richard Zeckhauser argues, an engagement with the “unknown and unknowable.” Zeckhauser tells a story about the economist David Ricardo, who bought British government bonds before the Battle of Waterloo on a hunch that the Duke of Wellington and his Prussian allies would defeat Napoleon. What was the probability of such a victory? What previous battle could have served as a comparison? It was a river that the world would step in only once.

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Why Do We Work? Is work really a burden and retirement the reward at the end, the sooner the better? Plenty of evidence suggests that we’re not as eager to give up work as we might imagine or pretend. Consider the current global bull market in protectionism. Could this be a widespread failure to grasp David Ricardo’s two-hundred-year-old story of the wine maker from Portugal and the cloth maker from England, in which both countries benefit from trading? Of course, English vintners and Portuguese weavers may not benefit, but the gains from trade should be large enough to compensate the losers so that everyone ends up better off.17 The Ricardo solution would not satisfy U.S. workers left behind by the loss of manufacturing jobs.

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They’ll relax their reflexive commitment to the “best practices” of the purposeful realm: metrics, market efficiency, mathematical models, attributing expected returns to various risk factors, and analysis based on measures of risk and reward. Instead, they’ll accept that real opportunities are unique. Each one stands for itself. Individuals who have “on the spot” knowledge that cannot be fully transmitted to others need to be able to act. This was what David Ricardo did when he bought British government bonds on the eve of Waterloo, and what many other successful investors have done before and since. How can an institution take similar for-itself leaps without descending into recklessness? This, too, comes down to the specifics. There is, and there can be, no general answer.

Rule Britannia: Brexit and the End of Empire by Danny Dorling, Sally Tomlinson

3D printing, Ada Lovelace, Alfred Russel Wallace, anti-communist, anti-globalists, Big bang: deregulation of the City of London, Boris Johnson, Brexit referendum, British Empire, Bullingdon Club, Cambridge Analytica, centre right, colonial rule, Corn Laws, correlation does not imply causation, David Ricardo: comparative advantage, deindustrialization, disinformation, Dominic Cummings, Donald Trump, Edward Snowden, electricity market, en.wikipedia.org, epigenetics, Etonian, falling living standards, Flynn Effect, gentrification, housing crisis, illegal immigration, imperial preference, income inequality, inflation targeting, invisible hand, Jeremy Corbyn, knowledge economy, market fundamentalism, mass immigration, megacity, New Urbanism, Nick Leeson, North Sea oil, offshore financial centre, out of africa, Right to Buy, Ronald Reagan, Silicon Valley, South China Sea, sovereign wealth fund, spinning jenny, Steven Pinker, Suez canal 1869, Suez crisis 1956, The Wealth of Nations by Adam Smith, Thomas Malthus, University of East Anglia, Wayback Machine, We are the 99%, wealth creators

Quoted in Robinson, J. (1979) Aspects of Development and Underdevelopment, Cambridge: Cambridge University Press, p. 103. 8 Personal correspondence with Ann Pettifor, June 2018, director of Policy Research in Macroeconomics, author of The Production of Money (2017), London: Verso. 9 Dizikes, P. (2012) ‘Economists find evidence for famous hypothesis of “comparative advantage”’, MIT News, 20 June, http://news.mit.edu/2012/confirming-ricardo-0620. Note: Arnaud Costinot and David Donaldson, working at the Massachusetts Institute of Technology, tried to find proof that David Ricardo’s theory of comparative advantage worked. They dated Ricardo’s theory to 1817 and explained: ‘Neat as this explanation may seem, it is by definition hard to prove. If England does not make wine, and Portugal does not make cloth, it is very hard to say how efficiently they could produce those goods.

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Adam Smith, Thomas Malthus and James Mill are remembered now, perhaps unfairly, for talking about the magical invisible hand of the market (Smith), the problem of poor people having too much sex (Malthus), and how India was a basket case until the British arrived (Mill).5 Their ideas all had great influence, but none of those ideas have actually survived the test of time as much as those of their contemporary David Ricardo and his theories about free trade.6 David Ricardo, son of a Dutch stockbroker, was born in London in 1772. His grandest theory is now best remembered for a story about wine and wool in Portugal and England. Ricardo suggested that both countries would grow rich if Portugal concentrated on what it was best at – making wine – and England concentrated on wool and weaving that into clothing and carpets.

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In 1979, one of the first widely recognised female economists, Joan Violet Robinson, a professor at the University of Cambridge, explained: ‘In reality, the imposition of free trade on Portugal killed off a promising textile industry and left her with a slow-growing export market for wine, while for England, exports of cotton cloth led to accumulation, mechanization and the whole spiralling growth of the industrial revolution.’ When she wrote, Robinson was able to cite the evidence-based work of Sandro Sideri, unlike David Ricardo with his armchair (and evidence-free) theory of free trade.7 ‘Free trade benefiting all’ was and remains just a theory. It is not a truth. It is one of many classical economic theories that are unsubstantiated yet somehow still gain credence. People may say that the EU is about free trade, but it was initially as much about promoting peace and preventing war.

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang

"there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Albert Einstein, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, business cycle, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, export processing zone, falling living standards, Fellow of the Royal Society, financial deregulation, financial engineering, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

Modern free trade argument is based on the so-called Heckscher-Ohlin-Samuelson theory (or the HOS theory).* The HOS theory derives from David Ricardo’s theory, which I outlined in chapter 2, but it differs from Ricardo’s theory in one crucial respect. It assumes that comparative advantage arises from international differences in the relative endowments of ‘factors of production’ (capital and labour), rather than international differences in technology, as in Ricardian theory.9 According to free trade theory, be it Ricardian or the HOS version, every country has a comparative advantage in some products, as it is, by definition, relatively better at producing some things than others.† In the HOS theory, a country has comparative advantage in products that more intensively use the factor of production with which it is relatively more richly endowed.

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In particular, the manufacturers agitated for the abolition of the Corn Laws that limited the country’s ability to import cheap grains. Cheaper food was important to them because it could lower wages and raise profits. The anti-Corn Law campaign was crucially helped by the economist, politician and stock-market player, David Ricardo.Ricardo came up with the theory of comparative advantage that still forms the core of free trade theory. Before Ricardo, people thought foreign trade makes sense only when a country can make something more cheaply than its trading partner. Ricardo, in a brilliant inversion of this commonsensical observation, argued that trade between two countries makes sense even when one country can produce everything more cheaply than another.

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Ricardo’s theory is, thus seen, for those who accept the status quo but not for those who want to change it. The big change in British trade policy came in 1846, when the Corn Laws were repealed and tariffs on many manufacturing goods were abolished. Free trade economists today like to portray the repeal of the Corn Laws as the ultimate victory of Adam Smith’s and David Ricardo’s wisdom over wrong-headed mercantilism.19 The leading free trade economist of our time, Jagdish Bhagwati of Columbia University, calls this a ‘historic transition’.20 However, many historians familiar with the period point out that making food cheaper was only one aim of the anti-Corn Law campaigners.

Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity by Ha-Joon Chang

"there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Albert Einstein, banking crisis, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, business cycle, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, export processing zone, falling living standards, Fellow of the Royal Society, financial deregulation, financial engineering, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

Modern free trade argument is based on the so-called Heckscher-Ohlin-Samuelson theory (or the HOS theory).i The HOS theory derives from David Ricardo’s theory, which I outlined in chapter 2, but it differs from Ricardo’s theory in one crucial respect. It assumes that comparative advantage arises from international differences in the relative endowments of ‘factors of production’ (capital and labour), rather than international differences in technology, as in Ricardian theory.9 According to free trade theory, be it Ricardian or the HOS version, every country has a comparative advantage in some products, as it is, by definition, relatively better at producing some things than others.ii In the HOS theory, a country has comparative advantage in products that more intensively use the factor of production with which it is relatively more richly endowed.

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In particular, the manufacturers agitated for the abolition of the Corn Laws that limited the country’s ability to import cheap grains. Cheaper food was important to them because it could lower wages and raise profits. The anti-Corn Law campaign was crucially helped by the economist, politician and stock-market player, David Ricardo. Ricardo came up with the theory of comparative advantage that still forms the core of free trade theory. Before Ricardo, people thought foreign trade makes sense only when a country can make something more cheaply than its trading partner. Ricardo, in a brilliant inversion of this commonsensical observation, argued that trade between two countries makes sense even when one country can produce everything more cheaply than another.

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Ricardo’s theory is, thus seen, for those who accept the status quo but not for those who want to change it. The big change in British trade policy came in 1846, when the Corn Laws were repealed and tariffs on many manufacturing goods were abolished. Free trade economists today like to portray the repeal of the Corn Laws as the ultimate victory of Adam Smith’s and David Ricardo’s wisdom over wrong-headed mercantilism.19 The leading free trade economist of our time, Jagdish Bhagwati of Columbia University, calls this a ‘historic transition’.20 However, many historians familiar with the period point out that making food cheaper was only one aim of the anti-Corn Law campaigners.

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

"World Economic Forum" Davos, Alan Greenspan, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, classic study, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, eat what you kill, Edward Glaeser, electricity market, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, foreign exchange controls, full employment, geopolitical risk, George Akerlof, global rebalancing, Goodhart's law, Great Leap Forward, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, long and variable lags, Long Term Capital Management, low interest rates, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, military-industrial complex, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, Paul Volcker talking about ATMs, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, seminal paper, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, systems thinking, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

Raphael, Donald Winch, and Robert Skidelsky, Three Great Economists: Smith, Malthus, Keynes, 243. 7 See published speech: Gerard Debreu, “The Mathematization of Economic Theory,” American Economic Review 81:1 (March 1991): 1-7. 8 Also known as Knightian uncertainty after the American economist Frank Knight. See Frank Knight, Risk, Uncertainty, and Profit. 9 David Ricardo, “Essay on the Funding System,” in The Works of David Ricardo , 513-548. 10 David Viniar quoted in Emiko Terazono, “Bean in Barcelona,” Financial Times, August 26, 2009. 11 When asked by John Cassidy of the New Yorker how the theory of efficient markets had held up in the crisis, Chicago economist Eugene Fama responded, “I think it did quite well in this episode. . . .

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How could the most powerful and best-resourced government in the world have made so many ruinous mistakes? Much of what went wrong could be attributed to a pernicious interaction between academic economics and political ideology, which magnified each other’s faults and biases, like a pair of distorting mirrors. As a result, the classical economics of Adam Smith and David Ricardo were turned into the ludicrously exaggerated doctrines of efficient markets, rational expectations, and monetarist central banking that monopolized economic thinking in governments, regulatory institutions, and financial businesses worldwide. Part III concludes with the argument that new forms of economics, moving beyond the mathematical pedantry and ideological assumptions of rational expectations and efficient markets, need to be urgently invented if a reformed model of capitalism is to succeed.

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He then derived conditions under which these rational consumers would cut back their spending immediately to prepare for their future tax bills—and then assumed that these conditions would apply in a rational world. Finally, in a public-relations coup characteristic of the new economic orthodoxy, Barro claimed support for his theory from David Ricardo, regarded by many academics as the greatest economist of all time. Ricardo had written a paper in 1820 in which he discussed whether a government involved in war would be better off raising £20 million in taxes or the same amount in perpetual bonds, on which it would have to pay interest of 5 percent, or £1m, every year in the future.9 “In point of economy,” he concluded, “there is no real difference in either of the modes, for £20 million in one payment and £1 million per annum forever . . . are precisely of the same value.”

What's Wrong With Economics: A Primer for the Perplexed by Robert Skidelsky

additive manufacturing, agricultural Revolution, behavioural economics, Black Swan, Bretton Woods, business cycle, carbon tax, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, degrowth, disruptive innovation, Donald Trump, Dr. Strangelove, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mahbub ul Haq, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, Modern Monetary Theory, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, Phillips curve, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, sunk-cost fallacy, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, Tragedy of the Commons, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

But to model an open system as though it were a closed system ‘introduces a damaging rift between ontology and epistemology – i.e. between the way the social world actually is, and the way it is represented in economic models. Once in place, the rift cannot be healed.’4 Economists use many techniques to ‘close’ open systems, of which the following are the most important. First is ceteris paribus – working out the consequences of a particular change by ‘freezing’ the other variables specified in the model. David Ricardo’s Essay on Profits (1815) is an early explicit example of its use: ‘We will . . . suppose that no improvements take place in agriculture, and that capital and population advance in the proper proportion . . . that we may know what peculiar effects are to be ascribed to . . . the extension of agriculture to the more remote and less fertile land.’

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When neoclassical economists talk of the need for macroeconomics to be properly ‘microfounded’, they mean that it should be possible to explain patterns of behaviour by reference to individual intentions alone, that these patterns are nothing but the sum of such intentions. For example, GNP is merely the weighted average of all the individual transactions in the economy. However, it might make just as much sense to talk of ‘macro-founding’ microeconomics, that is, showing how individual intentions are shaped by individuals’ economic or social positions. David Ricardo and Karl Marx did just that with their theories of class interest. That one’s ‘position’ in society affects one’s choices is obvious to anyone not thoroughly trained in neoclassical economics. An anonymous friend of Donald Trump’s told CNN that ‘I always thought that once he understood the weight of the office, he would rise to the occasion.

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Economic rent was a price that had no basis in real cost but was purely a free lunch for the owners of land and money. The classic medieval unjust price was usury – taking interest on loans. Why was it unjust? Because it was seen as making money from money. Lending out money for which you had no use cost nothing and was therefore not entitled to a reward. Adam Smith and David Ricardo both accepted labour effort as an explanation of long-run or normal prices, in contradiction to ‘market prices’ which fluctuated round them: that is, they distinguished between the ‘natural’ price (the price of labour effort) and the market price. Smith posed the famous ‘diamond-water paradox’: why were diamonds so expensive and water so cheap, when diamonds were useless and water vital for life?

The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality by Branko Milanovic

Berlin Wall, Branko Milanovic, colonial rule, crony capitalism, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, endogenous growth, Fall of the Berlin Wall, financial deregulation, full employment, Gini coefficient, high net worth, illegal immigration, income inequality, income per capita, Joseph Schumpeter, means of production, open borders, Pareto efficiency, plutocrats, purchasing power parity, Simon Kuznets, very high income, Vilfredo Pareto, Washington Consensus, zero-sum game

—THOMAS POGGE, Professor of Philosophy and International Affairs, Yale University, author of World Poverty and Human Rights: Cosmopolitan Responsibilities and Reforms For N. and G. “To determine the laws which regulate this distribution [into wages, profits and rent], is the principal problem in Political Economy.” David Ricardo, Principles of Political Economy (1817) “Of the tendencies that are harmful to sound economics, the most seductive, and ... the most poisonous, is to focus on questions of distribution.” Robert E. Lucas, “The Industrial Revolution: Past and Future” (2004) Preface This book is about income and wealth inequality in history and today.

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Society, under early capitalism of the nineteenth century, seemed normally to divide into several quite distinct social classes: workers, who were selling labor and earning wages, and were relatively poor; capitalists, who owned capital and were earning profits, and were relatively rich; and landlords, who owned land and received rents, and were also rich. The distribution of income among these three classes was considered of crucial importance for determining the future of a society. English economist David Ricardo, one of the founders of the discipline of political economy, believed that the share of landlords would increase as greater population required more food, which would bring ever less fertile land into cultivation and raise rents. Prices of “wage goods” (food) and landlord’s rents would skyrocket.

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Vignette 1.10 Two Students of Inequality: Vilfredo Pareto and Simon Kuznets It may surprise the reader that there are few theories or theoretical insights into the formation and evolution in time of income distribution among individuals.1 This is even odder when we know that one of the pioneers of modern economics, David Ricardo, in his enormously influential Principles of Political Economy published in 1817, placed distribution at the center stage of economics. How did this happen? There may be at least two reasons. First, the distribution with which Ricardo was concerned was the so-called functional distribution of income, that is, how national income was divided into the incomes of large classes: profits for capitalists, rents for landlords, wages for workers.

Nuclear War and Environmental Catastrophe by Noam Chomsky, Laray Polk

Alan Greenspan, American Legislative Exchange Council, British Empire, cuban missile crisis, David Ricardo: comparative advantage, energy security, Higgs boson, Howard Zinn, interchangeable parts, invisible hand, Kwajalein Atoll, language acquisition, Malacca Straits, military-industrial complex, mutually assured destruction, Naomi Klein, nuclear ambiguity, Occupy movement, oil shale / tar sands, public intellectual, Ralph Nader, Ronald Reagan, South China Sea, The Wealth of Nations by Adam Smith, trade route, University of East Anglia, uranium enrichment, WikiLeaks

What he pretty much says is that, in England, if merchants and manufacturers preferred to import from abroad and sell abroad, they might make profit, but it would be bad for England. He says they’re going to have what sometimes is called a home bias—they’ll prefer to do business at home, so as if by an invisible hand, England will be saved the ravages of a global market.82 David Ricardo was even stronger. He said that he knows perfectly well that his comparative advantage theories would collapse if English manufacturers, investors, and merchants did their business elsewhere, and he said he hopes very much that this will never happen—that they’ll have, perhaps, a sentimental commitment to the home country—and he hopes this attitude never disappears.

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There isn’t that feeling now, and it may be objectively right. If we continue on the path of financialization of the economy and offshoring of production, there’s not going to be very much here for the working population. It’s kind of interesting if you look back at the classical economists, Adam Smith and David Ricardo. They were sort of aware of this—they didn’t put it in precisely these terms—but if you take a look at Adam Smith’s The Wealth of Nations, the famous phrase “invisible hand” appears once. It appears essentially in a critique of what’s going on right now. What he pretty much says is that, in England, if merchants and manufacturers preferred to import from abroad and sell abroad, they might make profit, but it would be bad for England.

The Great Convergence: Information Technology and the New Globalization by Richard Baldwin

"World Economic Forum" Davos, 3D printing, additive manufacturing, Admiral Zheng, agricultural Revolution, air freight, Amazon Mechanical Turk, Berlin Wall, bilateral investment treaty, Branko Milanovic, buy low sell high, call centre, Columbian Exchange, commoditize, commodity super cycle, David Ricardo: comparative advantage, deindustrialization, domestication of the camel, Edward Glaeser, endogenous growth, Erik Brynjolfsson, export processing zone, financial intermediation, George Gilder, global supply chain, global value chain, Henri Poincaré, imperial preference, industrial cluster, industrial robot, intangible asset, invention of agriculture, invention of the telegraph, investor state dispute settlement, Isaac Newton, Islamic Golden Age, James Dyson, Kickstarter, knowledge economy, knowledge worker, Lao Tzu, low skilled workers, market fragmentation, mass immigration, Metcalfe’s law, New Economic Geography, out of africa, paper trading, Paul Samuelson, Pax Mongolica, profit motive, rent-seeking, reshoring, Richard Florida, rising living standards, Robert Metcalfe, Robert Solow, Second Machine Age, Simon Kuznets, Skype, Snapchat, Stephen Hawking, tacit knowledge, telepresence, telerobotics, The Wealth of Nations by Adam Smith, trade liberalization, trade route, Washington Consensus

As it turned out, the new mental model was provided by a wealthy stockbroker named David Ricardo. In his 1817 book On the Principles of Political Economy and Taxation, Ricardo presented a streamlined view of the world that proved so useful and so seductive that it is still at the heart of today’s traditional thinking about globalization. His core simplifications were to take nations as the proper unit of analysis, to conceptualize international commerce as consisting only of trade in goods, and to view the direction of trade as driven by what he called “comparative advantage” (often referred to as competitive advantage in popular writing).1 In plain English, “comparative advantage” means that some nations are better at making some things than others.

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CHAPTER 6 Quintessential Globalization Economics The economics of globalization is an expansive subject, yet the really grand features of globalization—the history-changing outcomes—can be understood with just four sets of economic logic. The first set, and the baseline for all the rest, is David Ricardo’s notion of comparative advantage. The next two logical toolkits stem from theoretical advances made in the 1990s. One of these was pioneered by Paul Krugman with Tony Venables, Masahisa Fujita, and others. It is called the “new economic geography”—even though some people are inclined to dispute whether it is really new and others whether it is really geography.

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Paul Collier, The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done about It (Oxford: Oxford University Press, 2007), 3. PART II. EXTENDING THE GLOBALIZATION NARRATIVE 1. Karl Popper, The Open Universe: An Argument for Indeterminism (Totowa, NJ: Rowman and Littlefield, 1982); Stephen Hawking, The Grand Design (London: Bantam Books, 2011). 4. A THREE-CASCADING-CONSTRAINTS VIEW OF GLOBALIZATION 1. David Ricardo, On the Principles of Political Economy and Taxation (London: John Murray, 1817). 2. Andrew B. Bernard and Teresa C. Fort, “Factoryless Goods Producing Firm,” American Economic Review: Papers and Proceedings 105, no. 5 (May 2015): 518–523. 3. Korea is something of an exception to this as its heavy industries did develop behind protectionist walls.

The Unknowers: How Strategic Ignorance Rules the World by Linsey McGoey

Alan Greenspan, An Inconvenient Truth, anti-globalists, antiwork, battle of ideas, behavioural economics, Big Tech, Black Lives Matter, Branko Milanovic, British Empire, Cambridge Analytica, carbon tax, Cass Sunstein, Clive Stafford Smith, conceptual framework, Corn Laws, corporate governance, corporate raider, Credit Default Swap, David Ricardo: comparative advantage, Donald Trump, drone strike, en.wikipedia.org, European colonialism, fake news, Frances Oldham Kelsey, hiring and firing, Howard Zinn, income inequality, it is difficult to get a man to understand something, when his salary depends on his not understanding it, joint-stock company, junk bonds, knowledge economy, market fundamentalism, mass incarceration, Michael Milken, minimum wage unemployment, Naomi Klein, new economy, Nick Leeson, p-value, Paul Samuelson, Peter Thiel, plutocrats, post-truth, public intellectual, race to the bottom, randomized controlled trial, rent-seeking, road to serfdom, Robert Mercer, Ronald Reagan, Scientific racism, selective serotonin reuptake inhibitor (SSRI), Social Justice Warrior, Steven Pinker, Suez crisis 1956, The Chicago School, The Wealth of Nations by Adam Smith, union organizing, Upton Sinclair, W. E. B. Du Bois, Washington Consensus, wealth creators

‘The education of a libertarian’ (Cato Unbound, April 13). https://www.cato-unbound.org/2009/04/13/peter-thiel/education-libertarian. 26 Smith, Wealth of Nations. Ed. Spencer, 454. 27 M. Watson, 2017. ‘Historicising Ricardo’s comparative advantage theory, challenging the normative foundations of liberal international economy.’ New Political Economy 22(3): 257–272, 259. 28 https://larspsyll.wordpress.com/2017/04/19/david-ricardo-and-comparative-advantage-a-bicentennial-assessment/. 29 Ha-Joon Chang, Bad Samaritans, The Guilty Secrets of Rich Nations and the Threat to Global Prosperity (London: Random House, 2007), 47. 30 Eugene Wendler, Friedrich List (1789–1846): A Visionary Economist with Social Responsibility (Heidelberg: Springer, 2015), 4; see also David Levi-Faur, 1997.

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The rise of this new, neoclassical theory led to the popularity of an entirely different theory of income distribution than in Adam Smith or Maria Stewart’s era. It is known as the ‘marginal productivity theory of income distribution.’ This new theory hails from the late 19th century, a time when a new, neoclassical theory of economics began to displace the ideas of earlier classical economists such as Adam Smith and David Ricardo. The new generation of late 19th-century economists was strongly influenced by earlier scholars including Smith, but they differed from his theories in important ways, including when it comes to understanding how various goods and services obtain their value and their fluctuating price in any given market.

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‘As defence,’ he writes, ‘is of much more importance than opulence, the act of navigation is perhaps the wisest of all the commercial regulations in England.’26 His attitude to national security is yet another thing ignored today. Below, I explore reasons for this neglect, starting with a brief summary of an important methodological difference between Smith and David Ricardo, an economist who, far more so than Smith, developed influential theories of free trade still dominant in political economy textbooks today. FINE IN THEORY Ricardo was born a generation after Smith, and much like Smith, he hoped that curbing trade monopolies would lead England’s wealth to be distributed more fairly.

Singularity Rising: Surviving and Thriving in a Smarter, Richer, and More Dangerous World by James D. Miller

23andMe, affirmative action, Albert Einstein, artificial general intelligence, Asperger Syndrome, barriers to entry, brain emulation, cloud computing, cognitive bias, correlation does not imply causation, crowdsourcing, Daniel Kahneman / Amos Tversky, David Brooks, David Ricardo: comparative advantage, Deng Xiaoping, en.wikipedia.org, feminist movement, Flynn Effect, friendly AI, hive mind, impulse control, indoor plumbing, invention of agriculture, Isaac Newton, John Gilmore, John von Neumann, knowledge worker, Larry Ellison, Long Term Capital Management, low interest rates, low skilled workers, Netflix Prize, neurotypical, Nick Bostrom, Norman Macrae, pattern recognition, Peter Thiel, phenotype, placebo effect, prisoner's dilemma, profit maximization, Ray Kurzweil, recommendation engine, reversible computing, Richard Feynman, Rodney Brooks, Silicon Valley, Singularitarianism, Skype, statistical model, Stephen Hawking, Steve Jobs, sugar pill, supervolcano, tech billionaire, technological singularity, The Coming Technological Singularity, the scientific method, Thomas Malthus, transaction costs, Turing test, twin studies, Vernor Vinge, Von Neumann architecture

Let’s now explore what happens to human wages if these AIs become better than humans at every task. COMPARATIVE ADVANTAGE Adam Smith, the great eighteenth-century economist, explained that everyone benefits from trade if each participant makes what he is best at. So, for example, if I’m better at making boots than you are, but you have more skill at making candles, then we would both become richer if I produced your boots and you made my candles. But what if you’re more skilled at making both boots and candles? What if, compared to you, I’m worse at doing everything? Adam Smith never answered this question, but nineteenth-century economist David Ricardo did. This question is highly relevant to our future, as an AI might be able to produce every good and service at a lower cost than any human could, and if we turn out to have no economic value to the advanced artificial intelligences, then they might (at best) ignore us, depriving humanity of any benefits of their superhuman skills.

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But why should you read this particular book, given that its author is an economist and not a scientist or an engineer? One reason is that I will use economic analysis to predict how probable changes in technology will affect society. For example, the theories of nineteenth-century economists David Ricardo and Thomas Malthus provide insights into whether robots might take all of our jobs (Ricardo) and why the creation of easy-to-copy emulations of human brains might throw mankind back into a horrible pre-Industrial Revolution trap (Malthus). Economics also sheds light on many less-significant economic effects of an advanced AI, such as the labor-market consequences if sexbots cause many men to forgo competing for flesh-and-blood women.

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A profit-maximizing business would employ an e-Robin if the e-Robin brought the business more than $100,000 a year in revenue. After Moore’s law pushes the annual hardware costs of an e-Robin down to a mere $1, then a company would hire e-Robins as long as each brought the business more than $1 per annum. What happens to the salary of bio-Robin if you can hire an e-Robin for only a dollar? David Ricardo implicitly knew the answer to that question. Ricardo wrote that if it costs 5,000 pounds to rent a machine, and this machine could do the work of 100 men, the total wages paid to 100 men will never be greater than 5,000 pounds because if the total wages were higher, manufacturers would fire the workers and rent the machine.296 Applying Ricardo’s theory to an economy with emulations tells us that, if an emulation can do whatever you can do, your wage will never be higher than what it costs to employ the emulation.

The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class?and What We Can Do About It by Richard Florida

affirmative action, Airbnb, back-to-the-city movement, basic income, Bernie Sanders, bike sharing, blue-collar work, business climate, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbine, congestion charging, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, Donald Trump, East Village, edge city, Edward Glaeser, failed state, Ferguson, Missouri, gentrification, Gini coefficient, Google bus, high net worth, high-speed rail, income inequality, income per capita, industrial cluster, informal economy, Jane Jacobs, jitney, Kitchen Debate, knowledge economy, knowledge worker, land value tax, low skilled workers, Lyft, megacity, megaproject, Menlo Park, mortgage tax deduction, Nate Silver, New Economic Geography, new economy, New Urbanism, occupational segregation, off-the-grid, opioid epidemic / opioid crisis, Paul Graham, plutocrats, RAND corporation, rent control, rent-seeking, restrictive zoning, Richard Florida, rising living standards, Ronald Reagan, secular stagnation, self-driving car, Silicon Valley, SimCity, sovereign wealth fund, streetcar suburb, superstar cities, tech worker, the built environment, The Chicago School, The Death and Life of Great American Cities, the High Line, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, trickle-down economics, Tyler Cowen, Uber and Lyft, uber lyft, universal basic income, upwardly mobile, urban decay, urban planning, urban renewal, urban sprawl, white flight, young professional

Whereas the property tax taxes land and the structures on top of it, a land value tax taxes the underlying value of the land itself. In this way, it creates significant incentives for property owners to put that land to its most intensive use. The basic idea goes back to David Ricardo, who developed influential theories of free trade and comparative advantage in the early eighteenth century. Ricardo saw the unearned income that comes from land as pure waste. The most influential proponent of the land value tax was the late nineteenth-century economist Henry George. In his book Progress and Poverty, he argued that such a tax would not only make more effective use of land, but also raise wages, reduce inequality, and generate greater productivity.

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Cantillon divided the economy into two groups or classes.21 On the one hand there were laborers, who traded their work for wages that they used to purchase life’s necessities. On the other hand, there were the members of an advantaged class, but instead of Marx’s capitalists, Cantillon’s advantaged class was made up of landlords, who made their money off the rent they charged for the use of their land. Later, David Ricardo developed his own “law of rent” to describe the economic windfall that accrues to landlords simply by virtue of their owning land, or, as he put it, “that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.” In The Wealth of Nations, Adam Smith decried the selfish “indolence” of landlords.

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Richard Florida, “Bring on the Jets at Island Airport,” Toronto Star, December 17, 2013, www.thestar.com/opinion/commentary/2013/12/17/bring_on_the_jets_at_the_island_airport.html; Richard Florida, Charlotta Mellander, and Thomas Holgersson, “Up in the Air: The Role of Airports for Regional Economic Development,” Annals of Regional Science 54, no. 1 (2015): 197–214; Jordan Press, “Trudeau Government Says No to Expansion of Toronto Island Airport,” Toronto Star, November 21, 2015, www.thestar.com/news/canada/2015/11/27/trudeau-government-says-no-to-expansion-of-toronto-island-airport.html. 21. Hans Brems, “Cantillon Versus Marx: The Land Theory and the Labor Theory of Value,” History of Political Economy 10, no. 4 (1978): 669–678; Anthony Brewer, “Cantillon and the Land Theory of Value,” History of Political Economy 20, no. 1 (1988): 1–14; David Ricardo, “On Rent,” in On the Principles of Political Economy and Taxation (London: John Murray, 1821), chap. 2, available at www.econlib.org/library/Ricardo/ricP.html; Adam Smith, The Wealth of Nations, Bantam Classics Reprint (New York: Bantam, 2003 [1776]). 22. Ryan Avent, “The Parasitic City,” The Economist, June 3, 2013, www.economist.com/blogs/freeexchange/2013/06/london-house-prices; Noah Smith, “Piketty’s Three Big Mistakes,” Bloomberg View, March 27, 2015, www.bloombergview.com/articles/2015-03-27/piketty-s-three-big-mistakes-in-inequality-analysis.

Global Inequality: A New Approach for the Age of Globalization by Branko Milanovic

Asian financial crisis, assortative mating, Berlin Wall, bitcoin, Black Swan, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, centre right, colonial exploitation, colonial rule, David Ricardo: comparative advantage, deglobalization, demographic transition, Deng Xiaoping, discovery of the americas, European colonialism, Fall of the Berlin Wall, Francis Fukuyama: the end of history, full employment, Gini coefficient, Gunnar Myrdal, income inequality, income per capita, invisible hand, labor-force participation, liberal capitalism, low skilled workers, Martin Wolf, means of production, military-industrial complex, mittelstand, moral hazard, Nash equilibrium, offshore financial centre, oil shock, open borders, open immigration, Paul Samuelson, place-making, plutocrats, post scarcity, post-industrial society, profit motive, purchasing power parity, Ralph Nader, Robert Solow, Second Machine Age, seigniorage, Silicon Valley, Simon Kuznets, special economic zone, stakhanovite, trade route, transfer pricing, very high income, Vilfredo Pareto, Washington Consensus, women in the workforce

I have already mentioned that national accounts will become less relevant and that monetary policy may no longer be conducted by states. (And one can think in addition of the role that private monies such as Bitcoin may play.) But even essential economic concepts like comparative advantage, which is based on an implicit assumption of methodological nationalism, that is, of national accounting and immobility of some factors of production, may have to be revised. In a single market both wine and cloth would be, as in David Ricardo’s famous example, produced in Portugal because workers and machines would all move there (and none would stay in England). As the world changes and becomes more integrated, our ways of thinking and the tools we use to understand the world become obsolete.

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It was already present in Piketty’s earlier work on French inequality (2001a), which showed how inequality was affected by World War I and its aftermath. War reduces inequality through physical destruction of capital and inflation (creating real losses for creditors), resulting in a general decrease of income received from property. David Ricardo, in the famous chapter 31 of his Principles of Political Economy and Taxation (1817), proposed another channel, which has not been much explored, through which war reduces inequality. Government war spending, financed out of additional taxes paid by the rich, creates a greater demand for labor than does the normal consumption pattern of the rich.

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Feinstein (1988), however, has argued that English inequality was very high, but stable, for at least a century before the Industrial Revolution. Hence, Feinstein’s data do not show the upswing in the Kuznets curve that should in principle be coincidental with the Industrial Revolution. 26. Clark (2005) shows a doubling of English real wages between the time of publication of David Ricardo’s On the Principles of Political Economy and Taxation (1817) and Karl Marx’s Das Kapital (1867), with real wage growth continuing and accelerating into the latter part of the nineteenth century. Feinstein (1988) finds a slower but nevertheless perceptible increase. 27. The income level at which the Spanish peak occurred is similar to the British and American level of about $2,500 (in the same PPPs).

The Rational Optimist: How Prosperity Evolves by Matt Ridley

"World Economic Forum" Davos, 23andMe, Abraham Maslow, agricultural Revolution, air freight, back-to-the-land, banking crisis, barriers to entry, Bernie Madoff, British Empire, call centre, carbon credits, carbon footprint, carbon tax, Cesare Marchetti: Marchetti’s constant, charter city, clean water, cloud computing, cognitive dissonance, collateralized debt obligation, colonial exploitation, colonial rule, Corn Laws, Cornelius Vanderbilt, cotton gin, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, dematerialisation, demographic dividend, demographic transition, double entry bookkeeping, Easter island, Edward Glaeser, Edward Jenner, electricity market, en.wikipedia.org, everywhere but in the productivity statistics, falling living standards, feminist movement, financial innovation, flying shuttle, Flynn Effect, food miles, Ford Model T, Garrett Hardin, Gordon Gekko, greed is good, Hans Rosling, happiness index / gross national happiness, haute cuisine, hedonic treadmill, Herbert Marcuse, Hernando de Soto, income inequality, income per capita, Indoor air pollution, informal economy, Intergovernmental Panel on Climate Change (IPCC), invention of agriculture, invisible hand, James Hargreaves, James Watt: steam engine, Jane Jacobs, Jevons paradox, John Nash: game theory, joint-stock limited liability company, Joseph Schumpeter, Kevin Kelly, Kickstarter, knowledge worker, Kula ring, Large Hadron Collider, Mark Zuckerberg, Medieval Warm Period, meta-analysis, mutually assured destruction, Naomi Klein, Northern Rock, nuclear winter, ocean acidification, oil shale / tar sands, out of africa, packet switching, patent troll, Pax Mongolica, Peter Thiel, phenotype, plutocrats, Ponzi scheme, precautionary principle, Productivity paradox, profit motive, purchasing power parity, race to the bottom, Ray Kurzweil, rent-seeking, rising living standards, Robert Solow, Silicon Valley, spice trade, spinning jenny, stem cell, Steve Jobs, Steven Pinker, Stewart Brand, supervolcano, technological singularity, Thales and the olive presses, Thales of Miletus, the long tail, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, Tragedy of the Commons, transaction costs, ultimatum game, upwardly mobile, urban sprawl, Vernor Vinge, Vilfredo Pareto, wage slave, working poor, working-age population, world market for maybe five computers, Y2K, Yogi Berra, zero-sum game

If Oz catches two fish and swaps one for a hook from Adam, he only has to work two hours. If Adam makes two hooks and uses one to buy a fish from Oz, he only works for six hours. Both are better off than when they were self-sufficient. Both have gained an hour of leisure time. I have done nothing here but retell, in Stone Age terms, the notion of comparative advantage as defined by the stockbroker David Ricardo in 1817. He used the example of England trading cloth for Portuguese wine, but the argument is the same: England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time.

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It is hard to be sure given the patchy information that this is what happened to Mesopotamia and Egypt after 1500 BC, or India and Rome after AD 500, but it is pretty clear that it happened to China and to Japan in later centuries. As Greg Clark puts it, ‘In the preindustrial world, sporadic technological advance produced people, not wealth.’ The medieval collapse Robert Malthus and David Ricardo, though they were good friends, disagreed on much. But in one respect they were entirely aligned – that unchecked population could drive down the standard of living. Malthus: ‘In some countries, the population appears to have been forced, that is, the people have been habituated by degrees to live upon the smallest possible quantity of food ...

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The more people you tell about bicycles, the more people will come back with useful new features for bicycles – mudguards, lighter frames, racing tyres, child seats, electric motors. The dissemination of useful knowledge causes that useful knowledge to breed more useful knowledge. Nobody predicted this. The pioneers of political economy expected eventual stagnation. Adam Smith, David Ricardo and Robert Malthus all foresaw that diminishing returns would eventually set in, that the improvement in living standards they were seeing would peter out. ‘The discovery, and useful application of machinery, always leads to the increase of the net produce of the country, although it may not, and will not, after an inconsiderable interval, increase the value of that net produce,’ said Ricardo: all tends towards what he called a ‘stationary state’.

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

"there is no alternative" (TINA), Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, antiwork, AOL-Time Warner, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, Charles Babbage, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial engineering, financial innovation, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, Glass-Steagall Act, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, Great Leap Forward, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land bank, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Neal Stephenson, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, proprietary trading, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, scientific management, Scramble for Africa, search costs, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

His view of trade is known as the theory of absolute advantage; the idea that a country does not need to trade with another if it can produce everything more cheaply than can its potential trading partner. Indeed – our common sense tells us – why should it? But it should – according to the theory of comparative advantage, invented by David Ricardo (see Chapter 4). According to this theory, a country can benefit from international trade with another country, even when it can produce everything more cheaply than the other, like China could, compared to Britain, in the late eighteenth century – at least according to Qianlong’s view.

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The Classical school of economics – or, rather the Classical school of political economy, as the subject was then called – emerged in the late eighteenth century and dominated the subject until the late nineteenth century. Its founder is Adam Smith (1723–90), who we have discussed already. Smith’s ideas were further developed in the early nineteenth century by three near-contemporaries – David Ricardo (1772–1823), Jean-Baptiste Say (1767–1832), and Robert Malthus (1766–1834). The invisible hand, Say’s Law and free trade: the key arguments of the Classical school According to the Classical school, the pursuit of self-interests by individual economic actors produces a socially beneficial outcome, in the form of maximum national wealth.

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That did not work, so in 1838 the Daoguang Emperor, Qianlong’s grandson, appointed a new ‘drug czar’, Lin Zexu, to start a major crackdown on opium smuggling. In response, the British started the Opium War in 1840, in which China was pulped. Victorious Britain forced China into free trade, including of opium, with the Nanjing Treaty in 1842. A century of external invasions, civil war and national humiliation followed. David Ricardo challenges the Chinese Emperor – and Adam Smith: comparative vs. absolute advantages Given China’s eventual and ignominious adoption of free trade, people have made fun of Qianlong’s view on international trade; this backward despot simply didn’t understand that international trade is good. However, Qianlong’s view on international trade was actually in line with the mainstream view among European economists, including Adam Smith himself, at the time.

Let Them In: The Case for Open Borders by Jason L. Riley

affirmative action, business cycle, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, desegregation, Garrett Hardin, guest worker program, hiring and firing, illegal immigration, immigration reform, income inequality, labor-force participation, longitudinal study, low skilled workers, mass immigration, open borders, open immigration, RAND corporation, Ronald Reagan, school choice, Silicon Valley, trade liberalization, Tyler Cowen, W. E. B. Du Bois, War on Poverty, working poor, working-age population, zero-sum game

He further explained: “Population, when unchecked, increases in geometric ratio. Subsistence increases only in arithmetical ratio. A slight acquaintance with the numbers will show the immensity of the first power in comparison to the second.” Malthus’s limits theories were wrong, as contemporary economic giants like David Ricardo did not hesitate to tell him, and as Malthus himself acknowledged in later editions of his initial essay. During his own lifetime, his prediction that more people would tend to produce a drop in the standard of living was proved false. Population and living standards rose simultaneously, and continue to do so today.

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No self-respecting free-market adherent would ever dream of supporting laws that interrupt the free movement of goods and services across borders. But when it comes to laws that hamper the free movement of workers who produce those goods and services, too many conservatives today abandon their classical liberal principles. Adam Smith, J. C. L. Sismondi, David Ricardo, and John Stuart Mill give way to . . . Pat Buchanan. Some of us find this troubling. Among Democrats, there’s been much less restrictionist rhetoric, and not just because the political left tends to favor more liberal immigration policies. Strategically, the Democratic candidates have reasoned that it’s best to sit on the sidelines and let Republicans fight among themselves.

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And as domestic markets shrink, so does capital investment. By contrast, younger growing populations expand the market for goods and services. They also spur research and development. Domestic policies that encourage immigration help keep our population not only youthful but vibrant. Immigrants are giving the United States a distinct comparative advantage in human capital, which is no small matter in an increasingly globalized economy. YOU HAVE TO ADMIT IT’S GETTING BETTER In 2006, the U.S. population hit the 300 million mark, some thirty-nine years after surpassing 200 million in 1967. Our numbers have swelled by 30 percent since 1975, the biggest growth spurt in our history.

The Technology Trap: Capital, Labor, and Power in the Age of Automation by Carl Benedikt Frey

3D printing, AlphaGo, Alvin Toffler, autonomous vehicles, basic income, Bernie Sanders, Branko Milanovic, British Empire, business cycle, business process, call centre, Cambridge Analytica, Capital in the Twenty-First Century by Thomas Piketty, Charles Babbage, Clayton Christensen, collective bargaining, computer age, computer vision, Corn Laws, Cornelius Vanderbilt, creative destruction, data science, David Graeber, David Ricardo: comparative advantage, deep learning, DeepMind, deindustrialization, demographic transition, desegregation, deskilling, Donald Trump, driverless car, easy for humans, difficult for computers, Edward Glaeser, Elon Musk, Erik Brynjolfsson, everywhere but in the productivity statistics, factory automation, Fairchild Semiconductor, falling living standards, first square of the chessboard / second half of the chessboard, Ford Model T, Ford paid five dollars a day, Frank Levy and Richard Murnane: The New Division of Labor, full employment, future of work, game design, general purpose technology, Gini coefficient, Great Leap Forward, Hans Moravec, high-speed rail, Hyperloop, income inequality, income per capita, independent contractor, industrial cluster, industrial robot, intangible asset, interchangeable parts, Internet of things, invention of agriculture, invention of movable type, invention of the steam engine, invention of the wheel, Isaac Newton, James Hargreaves, James Watt: steam engine, Jeremy Corbyn, job automation, job satisfaction, job-hopping, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kickstarter, Kiva Systems, knowledge economy, knowledge worker, labor-force participation, labour mobility, Lewis Mumford, Loebner Prize, low skilled workers, machine translation, Malcom McLean invented shipping containers, manufacturing employment, mass immigration, means of production, Menlo Park, minimum wage unemployment, natural language processing, new economy, New Urbanism, Nick Bostrom, Norbert Wiener, nowcasting, oil shock, On the Economy of Machinery and Manufactures, OpenAI, opioid epidemic / opioid crisis, Pareto efficiency, pattern recognition, pink-collar, Productivity paradox, profit maximization, Renaissance Technologies, rent-seeking, rising living standards, Robert Gordon, Robert Solow, robot derives from the Czech word robota Czech, meaning slave, safety bicycle, Second Machine Age, secular stagnation, self-driving car, seminal paper, Silicon Valley, Simon Kuznets, social intelligence, sparse data, speech recognition, spinning jenny, Stephen Hawking, tacit knowledge, The Future of Employment, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, total factor productivity, trade route, Triangle Shirtwaist Factory, Turing test, union organizing, universal basic income, warehouse automation, washing machines reduced drudgery, wealth creators, women in the workforce, working poor, zero-sum game

A 1915 article published in Literary Digest confidently predicted that with electrification, it “will become next to impossible to contract disease germs or get hurt in the city, and country folk will go to town to rest and get well.”9 Edison himself was convinced that electricity would help us overcome the greatest hurdle to further progress: our need to sleep. Technology was the new religion of the people. There was the sense that there was no problem that technology could not solve. In hindsight, and in the light of the gains brought by technology, it is astounding to think that economists of the early nineteenth century like Thomas Malthus and David Ricardo did not believe that technology could improve the human lot. The technological virtuosity of the nineteenth and early twentieth centuries took some time to trickle down to the economics profession. But in the 1950s, Robert Solow, who would go on to win the Nobel Prize in Economics in 1987, found that virtually all economic advance over the twentieth century had been thanks to technology.

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.… It is a great national misfortune that the woollen spinner can, by means of machines, do ten times the work he could perform without them.20 As mechanization picked up in industry and agriculture, concerns over the so-called machinery question intensified over the course of the early nineteenth century. Among economists, David Ricardo argued that “the opinion entertained by the labouring class, that the employment of machinery is frequently detrimental to their interests, is not founded on prejudice and error, but is conformable to the correct principles of political economy.”21 His famous chapter On Machinery, which asserted that machines reduce the demand for undifferentiated labor and lead to technological unemployment, prompted a number of theoretical approaches to prove that such unemployment was only a short-term problem.22 Yet fear of machines, if anything, picked up over the following decades.

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As Americans in the middle and at the lower end of the income distribution became the prime beneficiaries of progress, inequality went into reverse. Along with every other industrialized nation, America saw the share of income accruing to people at the top, fall. It may be telling that unlike economists of the Industrial Revolution (like Thomas Malthus, David Ricardo, and Karl Marx) who were all fond of apocalyptic economic predictions, economists living in the aftermath of the Second Industrial Revolution were largely optimistic—perhaps overly so. In any event, the idea that industrialists grew rich on the misery of workers had evidently fallen out of fashion.

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

90 percent rule, airline deregulation, Alan Greenspan, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, Dr. Strangelove, ending welfare as we know it, financial deregulation, financial engineering, financial innovation, fixed income, flag carrier, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Greenspan put, Growth in a Time of Debt, Ida Tarbell, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, It's morning again in America, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Les Trente Glorieuses, long and variable lags, Long Term Capital Management, low cost airline, low interest rates, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, Paul Samuelson, Philip Mirowski, Phillips curve, plutocrats, precautionary principle, price stability, profit motive, public intellectual, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, Savings and loan crisis, Silicon Valley, Simon Kuznets, starchitect, Steve Bannon, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus, We are all Keynesians now

The English economist William Petty, whom Karl Marx called the “founder of political economy,” made himself useful, first to the Commonwealth and then to King Charles II, by taking the measure of private wealth to inform and justify the state’s growing reliance on taxation.20 Partisans began to rely on the language of economics to muster public support for their views, and to shift government policy. The first great work of economics, published in 1776, was called The Wealth of Nations because Adam Smith had a recipe for increasing that wealth: free markets and free trade. A few decades later, in 1817, the economist David Ricardo sharpened the point, arguing that nations could prosper by abandoning production of some goods and focusing on areas of “comparative advantage.” The other stuff could then be imported. This insight electrified opponents of Britain’s Corn Laws, which limited imports of grain.* They spread Ricardo’s gospel using a new technology, the postage stamp, which facilitated distribution of a new magazine, The Economist.21 The 1846 decision by Prime Minister Robert Peel to end the Corn Laws is probably the first significant example of economists reshaping public policy.

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It was also the recipe Alexander Hamilton wrote down for the young United States in his famous “Report on Manufactures” in 1791. “By enhancing the charges on foreign articles,” Hamilton wrote, policy makers can “enable the national manufacturers to undersell all their foreign competitors.” Modern economics began as a protest movement against this idea, which was known as mercantilism. The British economist David Ricardo insisted nations would prosper by opening their borders to trade. He famously advised Portugal to focus on making wine and to buy its cloth from England. But Ricardo’s proof that trade was more efficient than protectionism only applied to a moment in time. A nation that followed Ricardo’s advice might remain a nation of winemakers, while a nation that invested in development might achieve greater prosperity.

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The Nobel laureate James Buchanan wrote in the Wall Street Journal that allowing evidence to contradict theory was a disgrace. For good measure, he described his ideological opponents as “a bevy of camp-following whores.” See Jonathan Schlefer, The Assumptions Economists Make (Cambridge: Harvard University Press, 2012), 4. 29. The idea that wages are set by social custom was propounded by early economists, notably David Ricardo, and remains, in my view, the most compelling theory of wage determination. For the argument that labor policies are a major driver of wage stagnation, see Frank S. Levy and Peter Temin, “Inequality and Institutions in 20th Century America,” 2007, MIT Department of Economics Working Paper 07-17. 30.

The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, behavioural economics, Bernie Madoff, biodiversity loss, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, electricity market, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Glass-Steagall Act, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low interest rates, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, military-industrial complex, minimum wage unemployment, moral hazard, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, price elasticity of demand, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, search costs, shareholder value, sugar pill, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

Since the latter must be beneficial as long as both individuals engage in trade voluntarily, we may be lulled into thinking that trade between nations is similarly unproblematic. We take up the story at this point assuming two countries (England and Canada), two industries (wheat and cloth) and one factor of production, labour. This parallels the demonstration of comparative advantage by David Ricardo in 1817, and for that reason is often called the Ricardian model of trade. Comparative advantage and the gains from trade Suppose that one unit of labour can produce 5 bushels of wheat or 10 yards of cloth in England; whereas one unit of labour can produce 100 bushels of wheat or 50 yards of cloth in Canada. These data are shown in Table 2.1 below. table 2.1 Labour’s productivity in England and Canada One unit of labour can produce: Wheat Cloth (bushels) (yards) England Canada 5 100 Opportunity cost of 1 yard of cloth 10 50 ½ a bushel of wheat 2 bushels of wheat Clearly, Canadian labour is more efficient in both industries; so Canada has an absolute advantage in both.

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What’s to say that the exchange rate will be at the appropriate level such that England’s exports of cloth will just pay for its imports of wheat? Exchange rates are influenced by many things. One of the most important is international flows of capital. When the principle of comparative advantage was discovered by David Ricardo in 1817, these flows of capital were of negligible importance. Now they are a dominant factor. They allow a country like the United States to run increasingly large trade deficits for decades. Beginning at around $200 billion in 1997, these trade deficits ballooned to nearly $1 trillion in 2006.11 That is a lot more imports than exports.

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Figure 8.3 shows that the monopsonist could 176 1.6 The returns to capital The distribution of national income between wages on the one hand and interest, profits and rents on the other is known as the ‘functional’ distribution of income. It was a major preoccupation of the classical economists. Indeed, David Ricardo called it ‘the principal problem in Political Economy’ (Glyn 2007). The classical economists explained it using an aggregate production function ­assuming two homogeneous factors of production – labour and capital. This aggregate model is still a key analytical tool in macroeconomics, and while it is largely absent from microeconomics, it does make an occasional cameo appear­ance – for ex­ample, when deriving the production possibility frontier, when explaining the benefits of trade, and when explaining the return to capital – our current concern.

The Evolution of Everything: How New Ideas Emerge by Matt Ridley

"World Economic Forum" Davos, adjacent possible, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, AltaVista, altcoin, An Inconvenient Truth, anthropic principle, anti-communist, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Boeing 747, Boris Johnson, British Empire, Broken windows theory, carbon tax, Columbian Exchange, computer age, Corn Laws, cosmological constant, cotton gin, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, cryptocurrency, David Ricardo: comparative advantage, demographic transition, Deng Xiaoping, discovery of DNA, Donald Davies, double helix, Downton Abbey, driverless car, Eben Moglen, Edward Glaeser, Edward Lorenz: Chaos theory, Edward Snowden, endogenous growth, epigenetics, Ethereum, ethereum blockchain, facts on the ground, fail fast, falling living standards, Ferguson, Missouri, financial deregulation, financial innovation, flying shuttle, Frederick Winslow Taylor, Geoffrey West, Santa Fe Institute, George Gilder, George Santayana, Glass-Steagall Act, Great Leap Forward, Greenspan put, Gregor Mendel, Gunnar Myrdal, Henri Poincaré, Higgs boson, hydraulic fracturing, imperial preference, income per capita, indoor plumbing, information security, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jane Jacobs, Japanese asset price bubble, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Khan Academy, knowledge economy, land reform, Lao Tzu, long peace, low interest rates, Lyft, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, means of production, meta-analysis, military-industrial complex, mobile money, Money creation, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, Necker cube, obamacare, out of africa, packet switching, peer-to-peer, phenotype, Pierre-Simon Laplace, precautionary principle, price mechanism, profit motive, RAND corporation, random walk, Ray Kurzweil, rent-seeking, reserve currency, Richard Feynman, rising living standards, road to serfdom, Robert Solow, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, scientific management, Second Machine Age, sharing economy, smart contracts, South Sea Bubble, Steve Jobs, Steven Pinker, Stuart Kauffman, tacit knowledge, TED Talk, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, twin studies, uber lyft, women in the workforce

That simply cannot be achieved by capital accumulation, which is why she (and I) refuse to use the misleading, Marxist word ‘capitalism’ for the free market. They are fundamentally different things. Adam Smith is no paragon. He got plenty wrong, including his clumsy labour theory of value, and he missed David Ricardo’s insight about comparative advantage, which explains why even a country (or person) that is worse than its trading partner at making everything will still be asked to supply something, the thing it or he is least bad at making. But the core insight that he had, that most of what we see in society is (in Adam Ferguson’s words) the result of human action but not of human design, remains true to this day – and under-appreciated.

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‘Peace will come to earth when the people have more to do with each other and governments less,’ he said, sounding like a member of the Tea Party. So pure was his support for free trade that Cobden even lambasted John Stuart Mill for briefly flirting with the idea that infant industries needed protection in their early years. He took the ideas of Adam Smith and David Ricardo and implemented them. The result was an acceleration of economic growth all around the world. There it is again, the peaceful co-existence in one head of causes embraced by today’s left and today’s right. Political liberation and economic liberation went hand in hand. Small government was a radical, progressive proposition.

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Between 1660 and 1846, in a vain attempt to control food prices by prescription, the British government had enacted an astonishing 127 Corn Laws, imposing not just tariffs, but rules about storage, sale, import, export and quality of grain and bread. In 1815, to protect landowners as grain prices fell from Napoleonic wartime highs, it had banned the import of all grain if the price fell below eighty shillings a quarter (twenty-eight pounds). This led to an impassioned pamphlet from the young theorist of free trade David Ricardo, but in vain (his friend and supporter of the Corn Law, Robert Malthus, was more persuasive). It was not until the 1840s, when the railways and the penny post enabled Cobden and John Bright to stir up a mass campaign against the laws on behalf of the working class, that the tide turned. With the famine in Ireland in 1845, even the Tory leader Robert Peel had to admit defeat.

Exponential: How Accelerating Technology Is Leaving Us Behind and What to Do About It by Azeem Azhar

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 23andMe, 3D printing, A Declaration of the Independence of Cyberspace, Ada Lovelace, additive manufacturing, air traffic controllers' union, Airbnb, algorithmic management, algorithmic trading, Amazon Mechanical Turk, autonomous vehicles, basic income, Berlin Wall, Bernie Sanders, Big Tech, Bletchley Park, Blitzscaling, Boeing 737 MAX, book value, Boris Johnson, Bretton Woods, carbon footprint, Chris Urmson, Citizen Lab, Clayton Christensen, cloud computing, collective bargaining, computer age, computer vision, contact tracing, contact tracing app, coronavirus, COVID-19, creative destruction, crowdsourcing, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, data science, David Graeber, David Ricardo: comparative advantage, decarbonisation, deep learning, deglobalization, deindustrialization, dematerialisation, Demis Hassabis, Diane Coyle, digital map, digital rights, disinformation, Dissolution of the Soviet Union, Donald Trump, Double Irish / Dutch Sandwich, drone strike, Elon Musk, emotional labour, energy security, Fairchild Semiconductor, fake news, Fall of the Berlin Wall, Firefox, Frederick Winslow Taylor, fulfillment center, future of work, Garrett Hardin, gender pay gap, general purpose technology, Geoffrey Hinton, gig economy, global macro, global pandemic, global supply chain, global value chain, global village, GPT-3, Hans Moravec, happiness index / gross national happiness, hiring and firing, hockey-stick growth, ImageNet competition, income inequality, independent contractor, industrial robot, intangible asset, Jane Jacobs, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John Perry Barlow, Just-in-time delivery, Kickstarter, Kiva Systems, knowledge worker, Kodak vs Instagram, Law of Accelerating Returns, lockdown, low skilled workers, lump of labour, Lyft, manufacturing employment, Marc Benioff, Mark Zuckerberg, megacity, Mitch Kapor, Mustafa Suleyman, Network effects, new economy, NSO Group, Ocado, offshore financial centre, OpenAI, PalmPilot, Panopticon Jeremy Bentham, Peter Thiel, Planet Labs, price anchoring, RAND corporation, ransomware, Ray Kurzweil, remote working, RFC: Request For Comment, Richard Florida, ride hailing / ride sharing, Robert Bork, Ronald Coase, Ronald Reagan, Salesforce, Sam Altman, scientific management, Second Machine Age, self-driving car, Shoshana Zuboff, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, software as a service, Steve Ballmer, Steve Jobs, Stuxnet, subscription business, synthetic biology, tacit knowledge, TaskRabbit, tech worker, The Death and Life of Great American Cities, The Future of Employment, The Nature of the Firm, Thomas Malthus, TikTok, Tragedy of the Commons, Turing machine, Uber and Lyft, Uber for X, uber lyft, universal basic income, uranium enrichment, vertical integration, warehouse automation, winner-take-all economy, workplace surveillance , Yom Kippur War

It is very, very spiky.3 The classic rationale for globalisation rests on the work of the economists Adam Smith and David Ricardo, whose theories both make the case for freer trade. In Smith’s argument, economic benefits arise from specialisation. If, instead of doing everything, we focus on doing one thing, we’ll be more productive. That extra productivity can be used to trade with another specialist. I grind the wheat, you do the baking; between us, we end up with a loaf of bread. In short, trading has generally been more productive than an emphasis on self-sufficiency. Writing in the early nineteenth century, David Ricardo developed Smith’s ideas to emphasise the importance of ‘comparative advantage’.

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And depriving poor countries of manufacturing income – as high-tech local manufacturing becomes the norm in Europe and America – could be even more ruinous. A chasm will emerge between the rich world, which has harnessed the power of exponential technology to meet its own needs, and the poor world, which has neither the capital nor the high-skill labour force to keep up. Let’s look first at commodities. As David Ricardo predicted, much of the developing world has played to its strengths by primarily exporting raw materials – to be developed into more complex products elsewhere. According to one recent history of the commodities trade, ‘Most African countries export commodities, and little else.’20 Africa’s economic fortunes have consistently risen and fallen in line with commodities prices – in the 1980s and 1990s, low commodity prices wreaked economic havoc in many sub-Saharan countries; through the 2000s, high growth rates in many African countries could partly be linked back to soaring commodity prices, themselves driven by growing Chinese demand for raw materials.

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Writing in the early nineteenth century, David Ricardo developed Smith’s ideas to emphasise the importance of ‘comparative advantage’. In Ricardo’s view, nations should export whatever they are relatively good at producing. If a country has extensive coal reserves, it should focus on producing and exporting coal; if a country is rich in arable crops, it should focus on producing and exporting food. Add to that the different economic opportunities present in different societies – poorer countries will be better at low-skilled work like assembly; richer ones at design and innovation – and you have a useful combination: by exchanging with each other, all countries become better off. Those of us born in the late twentieth century inhabit a world of global trade that Smith and Ricardo could only have dreamed of.

Open: The Progressive Case for Free Trade, Immigration, and Global Capital by Kimberly Clausing

"World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, active measures, Affordable Care Act / Obamacare, agricultural Revolution, battle of ideas, Bernie Sanders, business climate, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, carbon tax, climate change refugee, corporate social responsibility, creative destruction, currency manipulation / currency intervention, David Ricardo: comparative advantage, Donald Trump, fake news, floating exchange rates, full employment, gig economy, global supply chain, global value chain, guest worker program, illegal immigration, immigration reform, income inequality, index fund, investor state dispute settlement, knowledge worker, labor-force participation, low interest rates, low skilled workers, Lyft, manufacturing employment, Mark Zuckerberg, meta-analysis, offshore financial centre, open economy, Paul Samuelson, precautionary principle, profit motive, purchasing power parity, race to the bottom, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, Tax Reform Act of 1986, tech worker, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transfer pricing, uber lyft, winner-take-all economy, working-age population, zero-sum game

If Japan specializes in cars, and China in bicycles, then both countries can have more of both goods through international trade. These examples rely on comparative advantage rather than absolute advantage; gains from trade occur even when one country is better at everything, as long as its margin of superiority is not the same across all goods. These ideas are familiar to students of introductory economics. The main insights stretch back in time to David Ricardo’s 1817 work, On the Principles of Political Economy and Taxation. The Ricardian theory of trade is an oversimplified theory that neglects how gains from trade are distributed throughout society; this important issue is the topic of the next chapter.

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As articulated by East India Company director Thomas Mun, mercantilists seek for the country to sell more to “strangers” than consuming of theirs in value, so that the kingdom accumulates treasure.17 The mercantilist devotion to this doctrine has echoes in today’s debate surrounding the trade deficit. But the logic of David Ricardo’s theory of comparative advantage shows that, by specializing and trading, nations have access to a more diverse, cheaper set of goods. Every country can gain; there need be no losers. Going back to our simple example, when Japan makes cars and trades them for Chinese bicycles, both China and Japan end up with more products than if they each tried to make both products themselves.

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Figure 3.6: Economic Growth in China and India Has Been Spectacular Data source: World Development Indicators, World Bank. How Do Countries Compete? The gains from trade have been recognized for centuries. These gains hold even if wages differ across countries, and even if one country is more productive than its potential trading partners in making all things. This is the lesson of comparative advantage, an idea economist Paul Samuelson held up as exemplary of an economic insight that is both true and not immediately intuitive. Consider first a simple example of a self-sufficient household with two family members, Karen and Peter. Karen is better at both of the key household tasks, hunting and gathering, but she is four times better than Peter at hunting and only two times better at gathering.

Work in the Future The Automation Revolution-Palgrave MacMillan (2019) by Robert Skidelsky Nan Craig

3D printing, Airbnb, algorithmic trading, AlphaGo, Alvin Toffler, Amazon Web Services, anti-work, antiwork, artificial general intelligence, asset light, autonomous vehicles, basic income, behavioural economics, business cycle, cloud computing, collective bargaining, Computing Machinery and Intelligence, correlation does not imply causation, creative destruction, data is the new oil, data science, David Graeber, David Ricardo: comparative advantage, deep learning, DeepMind, deindustrialization, Demis Hassabis, deskilling, disintermediation, do what you love, Donald Trump, driverless car, Erik Brynjolfsson, fake news, feminist movement, Ford Model T, Frederick Winslow Taylor, future of work, Future Shock, general purpose technology, gig economy, global supply chain, income inequality, independent contractor, informal economy, Internet of things, Jarndyce and Jarndyce, Jarndyce and Jarndyce, job automation, job polarisation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Joseph Schumpeter, knowledge economy, Loebner Prize, low skilled workers, Lyft, Mark Zuckerberg, means of production, moral panic, Network effects, new economy, Nick Bostrom, off grid, pattern recognition, post-work, Ronald Coase, scientific management, Second Machine Age, self-driving car, sharing economy, SoftBank, Steve Jobs, strong AI, tacit knowledge, technological determinism, technoutopianism, TED Talk, The Chicago School, The Future of Employment, the market place, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, Turing test, Uber for X, uber lyft, universal basic income, wealth creators, working poor

What do the long run data of population growth, employment growth, hours of work, earnings per hour worked since the industrial revolution tell us? What do they actually show? Most people treat the Luddite fear of net job loss as a prediction that turned out wrong, but why they were wrong and how wrong were they? Given careful ceteris paribus conditions, the Luddites were correct, as indeed David Ricardo recognised in his essay ‘On Machinery’. According to a recent McKinsey Global Institute report, 50% of time spent on human work activities in the global economy could, theoretically, be automated today, though the current trend suggests a maximum of 30% by 2030, depending on speed. However, estimates of jobs at risk tell one nothing about net job outcomes.

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By the same token though, any reduction in this cost by the use of machinery opened up a brighter future: more output and therefore more money for less effort. The increase and improvement of machinery was inextricably linked both to the denial of satisfaction in work and to the promise of more and better consumption. Economists unanimously welcomed the dawn of the machine age. As David Ricardo explained in the first edition of his Principles of Political Economy and Taxation (1817): If, by improved machinery, with the employment of the same quantity of labour, the quantity of stockings could be quadrupled, and the demand for stockings were only doubled, some labourers would necessarily be discharged from the stocking trade; but as the capital which employed them was still in being, and as it was the interest of those who had it to employ it productively, it appeared to me that it would be employed on the production of some other commodity useful to society, for which there could not fail to be a demand; for I was, and am, deeply impressed with the truth of the observation by Adam Smith, that ‘the desire for food is limited in every man by the narrow capacity of the human stomach, but the desire of the conveniences and ornaments of building, dress, equipage, and household furniture, seems to me to have no limit’ And, then, as it appeared to me that there would be the same demand for labour as before, and that wages would be no lower, I thought that the labouring class would, equally with the other classes, participate in the advantage, from the general cheapness of commodities arising from the use of machinery.4 4 Principles, 3rd ed., ed.

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Collective Capabilities to Innovate Finally, the concept of social capabilities is discussed to explain the important role of societies in driving diversification and the transition into the Golden Age, and the empirical observation that countries differ significantly in their patterns and pace of innovations, and thus, in their net-­ jobs creation. Mainstream economic literature highlights differences in factor endowment, productive capacity, industrial structure and comparative advantages in explaining differences across countries as these factors determine cost structures and, therefore, which technologies and products are profitable. However, the more fundamental issue is what enables a society to create those institutions that allow labour markets to adjust to disruptive impact of process innovations, to mobilize creativity and entrepreneurial spirit, develop new products, industries and jobs, and to effectively trigger and manage economic transition.

Fully Automated Luxury Communism by Aaron Bastani

"Peter Beck" AND "Rocket Lab", Alan Greenspan, Anthropocene, autonomous vehicles, banking crisis, basic income, Berlin Wall, Bernie Sanders, Boston Dynamics, Bretton Woods, Brexit referendum, capital controls, capitalist realism, cashless society, central bank independence, collapse of Lehman Brothers, computer age, computer vision, CRISPR, David Ricardo: comparative advantage, decarbonisation, deep learning, dematerialisation, DIY culture, Donald Trump, double helix, driverless car, electricity market, Elon Musk, energy transition, Erik Brynjolfsson, fake news, financial independence, Francis Fukuyama: the end of history, future of work, Future Shock, G4S, general purpose technology, Geoffrey Hinton, Gregor Mendel, housing crisis, income inequality, industrial robot, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Isaac Newton, James Watt: steam engine, Jeff Bezos, Jeremy Corbyn, Jevons paradox, job automation, John Markoff, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Kuiper Belt, land reform, Leo Hollis, liberal capitalism, low earth orbit, low interest rates, low skilled workers, M-Pesa, market fundamentalism, means of production, mobile money, more computing power than Apollo, new economy, off grid, pattern recognition, Peter H. Diamandis: Planetary Resources, post scarcity, post-work, price mechanism, price stability, private spaceflight, Productivity paradox, profit motive, race to the bottom, rewilding, RFID, rising living standards, Robert Solow, scientific management, Second Machine Age, self-driving car, sensor fusion, shareholder value, Silicon Valley, Simon Kuznets, Slavoj Žižek, SoftBank, stem cell, Stewart Brand, synthetic biology, technological determinism, technoutopianism, the built environment, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, transatlantic slave trade, Travis Kalanick, universal basic income, V2 rocket, Watson beat the top human players on Jeopardy!, We are as Gods, Whole Earth Catalog, working-age population

Kevin Kelly When Capital Becomes Labour In 2011 the Economist, in circulation since 1843, posed its readers a question: ‘What happens when … machines are smart enough to become workers? In other words, when capital becomes labour?’ While early giants of classical political economy, such as Adam Smith and David Ricardo, did not view capitalist society as defined by conflict between classes, they did presume that labour would always remain distinct from ‘capital stock’, and that workers could never equate to human-made goods used in production such as machinery, tools and buildings. Yet nearly 250 years after Smith wrote The Wealth of Nations, the publication most committed to defending his legacy was now uncertain whether one of the central premises of his thinking would endure for much longer.

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That is, all the goods and services that are produced, sold and purchased. Given its centrality in any discussion of what kind of economic model is preferable, it’s easy to presume that the idea of GDP is as old as capitalism itself – that it was perhaps contrived by the likes of Adam Smith or David Ricardo. Yet to the contrary, it is a relatively recent development, devised by the economist Simon Kuznets in the 1930s in response to the Great Depression. It turns out that the central imperative of modern societies – that economic growth should be pursued as an end in itself – only started to reign supreme a century and a half after the Second Disruption began.

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Peter Diamandis A Finite World The issue of resource scarcity and depletion is, alongside climate change, one of the central challenges of our age. While the sun may furnish us with more energy than we can possibly use, minerals like lithium and cobalt – needed to store solar energy in any post-carbon system – are ultimately limited. Which means that for any comparative advantages renewable energy does possess, it ultimately suffers the same problem as fossil fuels: ours is a finite world and we are fast approaching its limits. Regardless of the experience curve for solar cells, LEDs and lithium-ion batteries, without more minerals to build them, our future will still be one defined by scarcity.

The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas by Janek Wasserman

"World Economic Forum" Davos, Abraham Wald, Albert Einstein, American Legislative Exchange Council, anti-communist, battle of ideas, Berlin Wall, Bretton Woods, business cycle, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, David Ricardo: comparative advantage, different worldview, Donald Trump, experimental economics, Fall of the Berlin Wall, floating exchange rates, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, housing crisis, Internet Archive, invisible hand, John von Neumann, Joseph Schumpeter, laissez-faire capitalism, liberal capitalism, low interest rates, market fundamentalism, mass immigration, means of production, Menlo Park, military-industrial complex, Mont Pelerin Society, New Journalism, New Urbanism, old-boy network, Paul Samuelson, Philip Mirowski, price mechanism, price stability, public intellectual, RAND corporation, random walk, rent control, road to serfdom, Robert Bork, rolodex, Ronald Coase, Ronald Reagan, Silicon Valley, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, union organizing, urban planning, Vilfredo Pareto, Washington Consensus, zero-sum game, éminence grise

Haberler was born to a well-to-do Austrian bureaucratic family with connections to the aristocracy in Liechtenstein, and his early work defended the gold standard and cast a jaundiced eye at index numbers, early statistical measures used to quantify the economy. Inspired by the Geist-Kreis, Haberler argued that spirit, or Geist, rather than statistical regularities, were at the core of economic activity and social science. He defended free trade using David Ricardo’s idea of comparative advantage and insisted that markets be allowed to self-correct after a downturn. This meant lower tariffs and lower wages and more international trade. People, goods, and capital all had to flow as if borders did not exist if worldwide conditions were to improve.19 By the mid-1930s, Haberler was probably the best-regarded member of the younger Austrian School, yet he had begun to modify his positions.

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Understanding these interactions may permit us to change our world for the better. 1 THE PREHISTORY AND EARLY YEARS OF THE AUSTRIAN SCHOOL In the orthodox telling of the Austrian School story, in the beginning was Carl Menger: “In 1871 Carl Menger founded the Austrian School in Vienna with his pathbreaking Principles of Economics.”1 His Principles offered a significant reformulation of core economic concepts like value, price, and production, contributing to an incipient transformation in economics called the marginal revolution. Alongside French, English, and American scholars, the Viennese thinker overturned a century of received wisdom from “classical” political economists such as Adam Smith and David Ricardo. In Vienna, Menger spawned a movement with his words. Historians of economic thought have noted, however, that an Austrian School of economics did not spring fully formed from Menger’s mind or from the pages of Principles. In fact, Principles was poorly distributed, found a limited readership, received middling reviews, and played a minor role in the vibrant economic discussions of the 1870s.

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Even if Menger and the other marginalists saw their work as groundbreaking, a gradualist picture better characterizes the social scientific landscape.21 At the turn of the nineteenth century, political economy developed rapidly, primarily under the influence of Scottish and English scholars such as Adam Smith, Thomas Malthus, and David Ricardo. Their work introduced a new level of abstraction and theorization to questions of trade, industry, and exchange. These classical economists sought to explain the fundamental principles of human interaction: how human self-interest benefited society, how the division of labor led to greater productivity and wealth, how competition in the marketplace ensured the best prices and outcomes for producers and consumers.

The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention by William Rosen

Albert Einstein, All science is either physics or stamp collecting, barriers to entry, Charles Babbage, collective bargaining, computer age, Copley Medal, creative destruction, David Ricardo: comparative advantage, decarbonisation, delayed gratification, Fellow of the Royal Society, flying shuttle, Flynn Effect, fudge factor, full employment, Higgs boson, independent contractor, invisible hand, Isaac Newton, Islamic Golden Age, iterative process, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, Joseph Schumpeter, Joseph-Marie Jacquard, knowledge economy, language acquisition, Lewis Mumford, moral hazard, Network effects, Panopticon Jeremy Bentham, Paul Samuelson, Peace of Westphalia, Peter Singer: altruism, QWERTY keyboard, Ralph Waldo Emerson, rent-seeking, Robert Solow, Ronald Coase, Simon Kuznets, spinning jenny, tacit knowledge, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, three-masted sailing ship, transaction costs, transcontinental railway, zero-sum game, éminence grise

Ten men could each bake their own bread, weave their own cloth, and build their own houses, but if one became a baker, another a weaver, and a third a builder, the result would be more food, clothing, bricks … and trade. Smith’s theorems did a spectacular job of explaining the self-regulating character of a free market, in which prices and profits are forced by competition to the lowest possible level.* They inspired David Ricardo’s exposition, in 1817, of the principle of diminishing returns: his argument that the growth of the first decades of industrialization was certain to level off, as each successive improvement produced smaller results. Helped along by the inflation in food prices caused by the Napoleonic Wars, they even set the stage for Thomas Malthus’s Essay on the Principle of Population, with its famous argument that population always grows geometrically, food production arithmetically.

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Indeed, the Industrial Revolution was decades old before anyone realized that wealth was growing at all. The first edition of Malthus’s Essay on Population was published in 1798 and convinced nearly everyone that the hoofbeats of the horsemen of the Apocalypse could already be heard throughout England. In 1817, the English economist David Ricardo predicted2 that land rents would increase while wages would approach subsistence level, at precisely the moment when British farmland rents per acre started to plummet and the wages of laborers to explode. Partly this was evidence of the limits of accounting with very little data; Britain’s first census, inspired by Malthus, wasn’t conducted until 1800.

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., Technology in Western Civilization. 80 “a steam-loom weaver” Hills, Power from Steam, quoting Baines’s 1835 History of the Cotton Manufacture in Great Britain. 81 During the century and a half Clark, Farewell to Alms. CHAPTER ELEVEN: WEALTH OF NATIONS 1 nothing about the forging of iron David Warsh, Knowledge and the Wealth of Nations: A Story of Economic Discovery (New York: W. W. Norton, 2006). 2 David Ricardo predicted Clark, Farewell to Alms. 3 The second component, growth in capital Warsh, Knowledge and the Wealth of Nations. 4 Solow first assumed Ibid. 5 “the mass of persons with intermediate skills” Hobsbawm and Wrigley, Industry and Empire: from 1750 to the Present Day. 6 preindustrial Britain exhibited a fair bit F.

The Journey of Humanity: The Origins of Wealth and Inequality by Oded Galor

agricultural Revolution, Alfred Russel Wallace, Andrei Shleifer, Apollo 11, Berlin Wall, bioinformatics, colonial rule, Columbian Exchange, conceptual framework, COVID-19, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, deindustrialization, demographic dividend, demographic transition, Donald Trump, double entry bookkeeping, Easter island, European colonialism, Fall of the Berlin Wall, Francisco Pizarro, general purpose technology, germ theory of disease, income per capita, intermodal, invention of agriculture, invention of movable type, invention of the printing press, invention of the telegraph, James Hargreaves, James Watt: steam engine, Joseph-Marie Jacquard, Kenneth Arrow, longitudinal study, loss aversion, Louis Pasteur, means of production, out of africa, phenotype, rent-seeking, rising living standards, Robert Solow, Scramble for Africa, The Death and Life of Great American Cities, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Walter Mischel, Washington Consensus, wikimedia commons, women in the workforce, working-age population, World Values Survey

In 1798, Malthus published An Essay on the Principle of Population, in which he expressed his profound scepticism about these prevailing and, to his mind, naive views. He advanced the gloomy thesis that in the long run humanity could never prosper because any gains it made would ultimately be depleted by population growth. Malthus had considerable influence on his contemporaries. Some of the most prominent political economists of the period, including David Ricardo and John Stuart Mill, were profoundly swayed by his argument. Karl Marx and Friedrich Engels, on the other hand, assailed him for neglecting the role of class-ridden institutions in the prevalence of misery, while the fathers of the theory of evolution, Charles Darwin and Alfred Russel Wallace, credited his treatise with having a decisive influence on the development of their own highly influential thesis.

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Not surprisingly, South Koreans enjoyed per capita income levels twenty-four times higher than that of their northern neighbours in 2018, and a life expectancy eleven years longer in 2020; differences based on other measures of quality of life are no less drastic.[2] More than two hundred years ago, the British political economists Adam Smith and David Ricardo highlighted the importance of specialisation and trade for economic prosperity. Yet, as argued by the Nobel Prize–winning American economic historian Douglass North, a critical precondition for the existence of trade is the presence of political and economic institutions, such as binding and enforceable contracts, that enable and encourage it.

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On the one hand, the technological head start continued to stimulate advancement in both the rural and the urban sectors. But on the other, the comparative advantage in agriculture led societies to specialise in this sector specifically, slowing down urbanisation and the rapid technological progress that went with it, and delaying human capital formation and the onset of the demographic transition. As the importance of the urban sector to the development of new technologies intensified, the adverse effect of comparative advantage in the production of agricultural goods deepened and the technological advantages of an earlier onset of the Neolithic Revolution gradually faded away.

Kicking Awaythe Ladder by Ha-Joon Chang

Asian financial crisis, business cycle, central bank independence, classic study, clean water, colonial rule, Corn Laws, corporate governance, creative destruction, David Ricardo: comparative advantage, fear of failure, income inequality, income per capita, joint-stock company, joint-stock limited liability company, land bank, land reform, liberal world order, moral hazard, open economy, purchasing power parity, rent-seeking, scientific management, short selling, Simon Kuznets, tacit knowledge, The Wealth of Nations by Adam Smith, trade liberalization, Washington Consensus

However, Britain was also greatly helped in its project by the works of its classical economists such as Adam Smith and David Ricardo, who theoretically proved the superiority of laissez-faire policy, in particular free trade. According to Willy de Clercq, the European Commissioner for External Economic Relations during the early days of the Uruguay Round (1985-9): Only as a result of the theoretical legitimacy of free trade when measured against widespread mercantilism provided by David Ricardo, John Stuart Mill and David Hume, Adam Smith and others from the Scottish Enlightenment, and as a consequence of the relative stability provided by the UK as the only and relatively benevolent superpower or hegemon during the second half of the nineteenth century, was free trade able to flourish for the first time [in the late nineteenth century].2 This Liberal world order, perfected around 1870, was based on: laissezfaire industrial policies at home; low barriers to the international flows of goods, capital and labour; and the macroeconomic stability, both nationally and internationally, which was guaranteed by the Gold Standard and the principle of balanced budgets.

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For example, the construction of new rolling and slitting steel mills in America was outlawed, which forced the Americans to specialize in the low-valueadded pig and bar iron, rather than high-value-added steel products.207 Some historians argue that this kind of policy did not actually damage the US economy significantly at the time, as the country did not have comparative advantage in manufacturing.208 It seems reasonable to argue, however, that such policy would have become a major obstacle, if not an insurmountable barrier, to US industrial development if the country had remained a British colony beyond the early (mainly agrarian and commercial) stages of development.209 Third, exports from the colonies that competed with British products were banned.

The Cost of Inequality: Why Economic Equality Is Essential for Recovery by Stewart Lansley

"World Economic Forum" Davos, Adam Curtis, air traffic controllers' union, Alan Greenspan, AOL-Time Warner, banking crisis, Basel III, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Branko Milanovic, Bretton Woods, British Empire, business cycle, business process, call centre, capital controls, collective bargaining, corporate governance, corporate raider, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, Everybody Ought to Be Rich, falling living standards, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, Goldman Sachs: Vampire Squid, high net worth, hiring and firing, Hyman Minsky, income inequality, James Dyson, Jeff Bezos, job automation, job polarisation, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, Larry Ellison, light touch regulation, Londongrad, Long Term Capital Management, low interest rates, low skilled workers, manufacturing employment, market bubble, Martin Wolf, Mary Meeker, mittelstand, mobile money, Mont Pelerin Society, Myron Scholes, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, proprietary trading, Right to Buy, rising living standards, Robert Shiller, Robert Solow, Ronald Reagan, savings glut, shareholder value, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, Tyler Cowen, Tyler Cowen: Great Stagnation, Washington Consensus, Winter of Discontent, working-age population

How to divide the spoils of the economy—between employees (through wages and salaries) and the owners of business (through profits)—is one of the oldest issues of political economy. Indeed, the division of what economists call ‘factor shares’ has crucial implications for private enterprise economies. As one of the founding fathers of classical economics, David Ricardo—who made his own personal fortune from speculation—wrote in 1821, ‘The principal problem in Political Economy’ is to determine how ‘the produce of the earth … is divided among … the proprietor of the land, the owner of the stock or capital necessary for its cultivation and the labourers by whose industry it is cultivated’.59 The division of the national wealth between earnings and profits is in part an issue of social balance.

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The remedy lay in income redistribution in order to build demand and sustain growth. ‘If apportionment of incomes were such as to evoke no excessive savings, full constant employment for capital and labour would be furnished.’297 Although such theories were controversial and had been dismissed by classical political economists from David Ricardo onwards, Hobson’s work became influential in subsequent debates and anticipated in important respects the theories later developed by Keynes. Indeed, Keynes later described Hobson’s first book (which he co-authored with Arthur Mummery) published in 1889 as ‘an epoch in economic thought’.298 In 1926 Hobson had a big hand in a pamphlet, The Living Wage , published by the Independent Labour Party which called for an increase in working class purchasing power through redistributive taxation.

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‘And raising unemployment was an extremely desirable way of reducing the strength of the working classes’, he continued, ‘… what was engineered there, in Marxist terms, was a crisis of capitalism which created a reserve army of labour and has allowed the capitalists to make high profits ever since.’93 While the dole queues remained stubbornly high, business fortunes began to revive quickly after the state-induced recession of the early 1980s. The initial slump in share prices turned, after 1987, into the longest bull run in history. Economic and social disruption was also an inevitable consequence of the wider attempts to hasten the move to a service-and finance-based economy. The government believed that Britain’s comparative advantage lay in finance not manufacturing. Britain’s industrial base had been in slow decline ever since the early 1960s—the product of intensified competition from the developing world and a deteriorating record on productivity. Despite this erosion, manufacturing in 1979 remained at the heart of the economy.

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, benefit corporation, Black Swan, blood diamond, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, company town, compensation consultant, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Glass-Steagall Act, Gordon Gekko, Greenspan put, hiring and firing, Ida Tarbell, income inequality, independent contractor, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, Money creation, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, Paul Volcker talking about ATMs, pension reform, performance metric, Pershing Square Capital Management, pirate software, plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, prosperity theology / prosperity gospel / gospel of success, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, rolling blackouts, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, stock buybacks, subprime mortgage crisis, The Chicago School, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

Protectionism was avoided and even aggressively attacked when identified abroad. These nations didn’t experience an American-style stagnation of wages and offshoring of jobs. Instead, Australia and northern Europe pursued policies informed by the best and brightest trade economists of our age. Drawing on the theories of David Ricardo, for example, economists Paul Samuelson and Wolfgang F. Stolper had concluded as early as 1941 that international trade creates long-term losers as well as winners. So leaders abroad crafted remediation: a balance of clever mechanisms maximizing the gains from globalization and broadcasting those gains to families, while minimizing its harm to jobs and wages.

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Here is how David Cay Johnston, the tax specialist formerly with the New York Times, described the historical context of progressive taxation stretching back 2,300 years: “The Athenians jettisoned their flat tax, and with it tyranny in favor of a tax system based on ability to pay. From Aristotle to the Father of Capitalism, Adam Smith, the idea that taxes should be based on ability to pay has been at the core of the rise of Western civilization. John Stuart Mill, his father John Mill, David Ricardo, and every other leading worldly philosopher embraced this concept, which today is embodied in the progressive income tax, in which the higher your income, the greater portion of each additional dollar of income is paid in taxes.”11 The admiration of America’s Founding Fathers for economic justice and for the insights of Aristotle account for their vigorous support of the progressive tax principle.

…

In fact, academic researchers have determined that the American business community in toto has been debt free since 2004, when the corporate debt ratio fell below zero.13 Some undercapitalized banks, small businesses, and struggling manufacturing enterprises are hard pressed and indebted, but they’re the exception in an American business community flush with profits and cash three decades into the Reagan era. Economists talk about two types of extraordinary profits, named to honor economists David Ricardo and Joseph Schumpeter. Ricardian rents accrue to owners of fixed (nonreproduceable) resources, such as quite fertile land, oil, or gold deposits, while Schumpeterian rents flow to individuals or firms because of entrepreneurial insights in a risky or complicated environment—think of the early days of Bill Gates or Steve Jobs.

Good Economics for Hard Times: Better Answers to Our Biggest Problems by Abhijit V. Banerjee, Esther Duflo

3D printing, accelerated depreciation, affirmative action, Affordable Care Act / Obamacare, air traffic controllers' union, Airbnb, basic income, behavioural economics, Bernie Sanders, Big Tech, business cycle, call centre, Cambridge Analytica, Capital in the Twenty-First Century by Thomas Piketty, carbon credits, carbon tax, Cass Sunstein, charter city, company town, congestion pricing, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, decarbonisation, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, endowment effect, energy transition, Erik Brynjolfsson, experimental economics, experimental subject, facts on the ground, fake news, fear of failure, financial innovation, flying shuttle, gentrification, George Akerlof, Great Leap Forward, green new deal, high net worth, immigration reform, income inequality, Indoor air pollution, industrial cluster, industrial robot, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Jean Tirole, Jeff Bezos, job automation, Joseph Schumpeter, junk bonds, Kevin Roose, labor-force participation, land reform, Les Trente Glorieuses, loss aversion, low skilled workers, manufacturing employment, Mark Zuckerberg, mass immigration, middle-income trap, Network effects, new economy, New Urbanism, no-fly zone, non-tariff barriers, obamacare, off-the-grid, offshore financial centre, One Laptop per Child (OLPC), open economy, Paul Samuelson, place-making, post-truth, price stability, profit maximization, purchasing power parity, race to the bottom, RAND corporation, randomized controlled trial, restrictive zoning, Richard Thaler, ride hailing / ride sharing, Robert Gordon, Robert Solow, Ronald Reagan, Savings and loan crisis, school choice, Second Machine Age, secular stagnation, self-driving car, shareholder value, short selling, Silicon Valley, smart meter, social graph, spinning jenny, Steve Jobs, systematic bias, Tax Reform Act of 1986, tech worker, technology bubble, The Chicago School, The Future of Employment, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, total factor productivity, trade liberalization, transaction costs, trickle-down economics, Twitter Arab Spring, universal basic income, urban sprawl, very high income, War on Poverty, women in the workforce, working-age population, Y2K

Fifty-four percent of our respondents agreed that using higher tariffs to encourage producers to produce in the US would be a good idea. Only 25 percent disagreed. Economists mostly talk about the gains of trade. The idea that free trade is beneficial is one of the oldest propositions in modern economics. As the English stockbroker and member of Parliament David Ricardo explained two centuries ago, since trade allows each country to specialize in what it does best, total income ought to go up everywhere when there is trade, and as a result the gains to winners from trade must exceed the losses to losers. The last two hundred years have given us a chance to refine this theory, but it is a rare economist who fails to be compelled by its essential logic.

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Therefore, it makes sense that France should export wine to Scotland, and Scotland should export whisky to France. Where it gets confusing is when one country, like China today, looks like it’s pretty much better at producing everything than most other countries. Wouldn’t China simply swamp all markets with its products, leaving other countries with nothing to show for themselves? David Ricardo argued in 1817 that even if China (or in his era, Portugal) was more productive at everything, it could not possibly sell everything, because then the buyer country would sell nothing and would have no money to buy anything from China or anywhere else.7 This implied that not all industries in nineteenth-century England would shrink if there was free trade.

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THE PAINS FROM TRADE 1 “Steel and Aluminum Tariffs,” Chicago Booth, IGM Forum, 2018, http://www.igmchicago.org/surveys/steel-and-aluminum-tariffs. 2 “Import Duties,” Chicago Booth, IGM Forum, 2016, http://www.igm chicago.org/surveys/import-duties. 3 Abhijit Banerjee, Esther Duflo, and Stefanie Stantcheva, “Me and Everyone Else: Do People Think Like Economists?,” MIMEO, Massachusetts Institute of Technology, 2019. 4 Ibid. 5 The Collected Scientific Papers of Paul A. Samuelson, vol. 3 (Cambridge, MA: MIT Press, 1966), 683. 6 Ibid. 7 David Ricardo, On the Principles of Political Economy and Taxation (London: John Murray, 1817). 8 Paul A. Samuelson and William F. Stolper, “Protection and Real Wages,” Review of Economic Studies 9, no. 1 (1941), 58–73. 9 P. A. Samuelson, “The Gains from International Trade Once Again,” Economic Journal 72, no. 288 (1962): 820–29, DOI: 10.2307/2228353. 10 John Keats, “Ode on a Grecian Urn,” in The Complete Poems of John Keats, 3rd ed.

Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy by Erik Brynjolfsson

Abraham Maslow, Amazon Mechanical Turk, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, business cycle, business process, call centre, combinatorial explosion, corporate governance, creative destruction, crowdsourcing, David Ricardo: comparative advantage, driverless car, easy for humans, difficult for computers, Erik Brynjolfsson, factory automation, first square of the chessboard, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, general purpose technology, hiring and firing, income inequality, intangible asset, job automation, John Markoff, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Khan Academy, Kickstarter, knowledge worker, Loebner Prize, low skilled workers, machine translation, minimum wage unemployment, patent troll, pattern recognition, Paul Samuelson, Ray Kurzweil, rising living standards, Robert Gordon, Robert Solow, self-driving car, shareholder value, Skype, the long tail, too big to fail, Turing test, Tyler Cowen, Tyler Cowen: Great Stagnation, Watson beat the top human players on Jeopardy!, wealth creators, winner-take-all economy, zero-sum game

If wages can freely adjust, then the losers keep their jobs in exchange for accepting ever-lower compensation as technology continues to improve. But there’s a limit to this adjustment. Shortly after the Luddites began smashing the machinery that they thought threatened their jobs, the economist David Ricardo, who initially thought that advances in technology would benefit all, developed an abstract model that showed the possibility of technological unemployment. The basic idea was that at some point, the equilibrium wages for workers might fall below the level needed for subsistence. A rational human would see no point in taking a job at a wage that low, so the worker would go unemployed and the work would be done by a machine instead.

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By 2002 (the last year for which consistent data are available), that number had fallen to 1.79, a decline of nearly 14 percent. If, as these examples indicate, both pattern recognition and complex communication are now so amenable to automation, are any human skills immune? Do people have any sustainable comparative advantage as we head ever deeper into the second half of the chessboard? In the physical domain, it seems that we do for the time being. Humanoid robots are still quite primitive, with poor fine motor skills and a habit of falling down stairs. So it doesn’t appear that gardeners and restaurant busboys are in danger of being replaced by machines any time soon.

Connectography: Mapping the Future of Global Civilization by Parag Khanna

"World Economic Forum" Davos, 1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 9 dash line, additive manufacturing, Admiral Zheng, affirmative action, agricultural Revolution, Airbnb, Albert Einstein, amateurs talk tactics, professionals talk logistics, Amazon Mechanical Turk, Anthropocene, Asian financial crisis, asset allocation, autonomous vehicles, banking crisis, Basel III, Berlin Wall, bitcoin, Black Swan, blockchain, borderless world, Boycotts of Israel, Branko Milanovic, BRICs, British Empire, business intelligence, call centre, capital controls, Carl Icahn, charter city, circular economy, clean water, cloud computing, collateralized debt obligation, commoditize, complexity theory, continuation of politics by other means, corporate governance, corporate social responsibility, credit crunch, crony capitalism, crowdsourcing, cryptocurrency, cuban missile crisis, data is the new oil, David Ricardo: comparative advantage, deglobalization, deindustrialization, dematerialisation, Deng Xiaoping, Detroit bankruptcy, digital capitalism, digital divide, digital map, disruptive innovation, diversification, Doha Development Round, driverless car, Easter island, edge city, Edward Snowden, Elon Musk, energy security, Ethereum, ethereum blockchain, European colonialism, eurozone crisis, export processing zone, failed state, Fairphone, Fall of the Berlin Wall, family office, Ferguson, Missouri, financial innovation, financial repression, fixed income, forward guidance, gentrification, geopolitical risk, global supply chain, global value chain, global village, Google Earth, Great Leap Forward, Hernando de Soto, high net worth, high-speed rail, Hyperloop, ice-free Arctic, if you build it, they will come, illegal immigration, income inequality, income per capita, industrial cluster, industrial robot, informal economy, Infrastructure as a Service, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Isaac Newton, Jane Jacobs, Jaron Lanier, John von Neumann, Julian Assange, Just-in-time delivery, Kevin Kelly, Khyber Pass, Kibera, Kickstarter, LNG terminal, low cost airline, low earth orbit, low interest rates, manufacturing employment, mass affluent, mass immigration, megacity, Mercator projection, Metcalfe’s law, microcredit, middle-income trap, mittelstand, Monroe Doctrine, Multics, mutually assured destruction, Neal Stephenson, New Economic Geography, new economy, New Urbanism, off grid, offshore financial centre, oil rush, oil shale / tar sands, oil shock, openstreetmap, out of africa, Panamax, Parag Khanna, Peace of Westphalia, peak oil, Pearl River Delta, Peter Thiel, Philip Mirowski, Planet Labs, plutocrats, post-oil, post-Panamax, precautionary principle, private military company, purchasing power parity, quantum entanglement, Quicken Loans, QWERTY keyboard, race to the bottom, Rana Plaza, rent-seeking, reserve currency, Robert Gordon, Robert Shiller, Robert Solow, rolling blackouts, Ronald Coase, Scramble for Africa, Second Machine Age, sharing economy, Shenzhen special economic zone , Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, six sigma, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, Stuxnet, supply-chain management, sustainable-tourism, systems thinking, TaskRabbit, tech worker, TED Talk, telepresence, the built environment, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, Tim Cook: Apple, trade route, Tragedy of the Commons, transaction costs, Tyler Cowen, UNCLOS, uranium enrichment, urban planning, urban sprawl, vertical integration, WikiLeaks, Yochai Benkler, young professional, zero day

The growing depth of global cross-border trade and investment makes tug-of-war much more complex than in previous geopolitical eras. This evolution of economic integration from the nineteenth to the twenty-first century is best captured in the progression from the ideas of David Ricardo to those of Ricardo Hausmann. The English political economist David Ricardo is best known as the champion of comparative advantage over mercantilism, advocating industry specialization and free trade among nations. Today’s world economic structure goes far beyond Ricardo’s wildest imagination. As the Harvard economist Ricardo Hausmann maps out in his pathbreaking Atlas of Economic Complexity,*5 the global economy is like a game of Scrabble with millions of pieces (letters) distributed across countries (players) who work in teams to combine the pieces to make products (words).

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We do not see supply chains; rather, we see their participants and infrastructures—the things that connect supply to demand. What we can see, however, by tracing supply chains link by link is how these micro-interactions add up to large global shifts. We are witnessing the full consequences of Adam Smith’s free markets, David Ricardo’s comparative advantage, and Émile Durkheim’s division of labor: a world where capital, labor, and production shift to wherever is needed to efficiently connect supply and demand. If “the market” is the world’s most powerful force, supply chains bring markets to life. Supply chains and connectivity, not sovereignty and borders, are the organizing principles of humanity in the 21st century.

…

Becoming EU members has made these countries investment grade and more attractive for supply chains through giving them clear and reliable laws. The same is now happening with the ASEAN Economic Community of Southeast Asia and the pan-Asian Regional Comprehensive Economic Partnership, where economies are opening at their own pace to protect their comparative advantages and boost employment. The infrastructural and market integration under way within regions today makes them far more significant building blocks of global order than nations. Importantly, the geographies not knitting themselves together into collective functional zones—the Near East and Central Asia—are also generally where one finds the most failed states.

The Finance Curse: How Global Finance Is Making Us All Poorer by Nicholas Shaxson

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Airbnb, airline deregulation, Alan Greenspan, anti-communist, bank run, banking crisis, Basel III, Bear Stearns, benefit corporation, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, British Empire, business climate, business cycle, capital controls, carried interest, Cass Sunstein, Celtic Tiger, central bank independence, centre right, Clayton Christensen, cloud computing, corporate governance, corporate raider, creative destruction, Credit Default Swap, cross-subsidies, David Ricardo: comparative advantage, demographic dividend, Deng Xiaoping, desegregation, Donald Trump, Etonian, export processing zone, failed state, fake news, falling living standards, family office, financial deregulation, financial engineering, financial innovation, forensic accounting, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global supply chain, Global Witness, high net worth, Ida Tarbell, income inequality, index fund, invisible hand, Jeff Bezos, junk bonds, Kickstarter, land value tax, late capitalism, light touch regulation, London Whale, Long Term Capital Management, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, megaproject, Michael Milken, Money creation, Mont Pelerin Society, moral hazard, neoliberal agenda, Network effects, new economy, Northern Rock, offshore financial centre, old-boy network, out of africa, Paul Samuelson, plutocrats, Ponzi scheme, price mechanism, proprietary trading, purchasing power parity, pushing on a string, race to the bottom, regulatory arbitrage, rent-seeking, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, Savings and loan crisis, seminal paper, shareholder value, sharing economy, Silicon Valley, Skype, smart grid, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, special economic zone, Steve Ballmer, Steve Jobs, stock buybacks, Suez crisis 1956, The Chicago School, Thorstein Veblen, too big to fail, Tragedy of the Commons, transfer pricing, two and twenty, vertical integration, Wayback Machine, wealth creators, white picket fence, women in the workforce, zero-sum game

In it he declared, ‘The growing obsession in most advanced nations with national competitiveness should be seen, not as a well-founded concern, but as a view held in the face of overwhelming contrary evidence. And yet it is clearly a view that people very much want to hold.’ Krugman raked through various things ‘national competitiveness’ might possibly mean: trade surplus, terms of trade, labour costs, David Ricardo’s (very different) concept of comparative advantage, or simply the question of national power and global economic heft. He concluded that – being as charitable as possible – the concept boiled down to ‘a funny way of talking about productivity’. Not relative to other countries, mind, just plain old productivity. ‘If we can teach undergraduates to wince when they hear someone talk about “competitiveness”, we will have done our nation a great service,’ he continued.

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Language has proved a fabulous tool for bamboozlement here. One is the standard confusion that conflates the market competitiveness of firms and the ‘competitiveness’ of nations: two very different things. Others think it is something to do with the nineteenth-century British economist David Ricardo’s similar-sounding, but very different, concept of ‘comparative advantage’ – a concept that suggests that a country should focus on nurturing its most productive strengths and trade with other nations to import the goods and services in sectors where it is relatively weaker. Or take the very British idea of ‘UK plc’ – a term that reimagines the whole economy as a business.

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See for instance Ha-Joon Chang, Economics, especially the sections ‘Britain: the pioneer of protectionism’ and ‘The United States: Champion of protectionism’, pp.61–4. See also Dani Rodrik’s Straight Talk on Trade: Ideas for a Sane World Economy, Princeton Press, 2017, especially p.210, which draws the distinction between the two main arguments for trade: first, David Ricardo’s that trade encourages specialisation and efficiency and delivers benefits through imports; second, the mercantilist position – that the benefits come from exports creating jobs. 2. For a country with such a large financial centre relative to its population, Britain has nearly the lowest rate of investment among large industrial economies.

Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace by Matthew C. Klein

Alan Greenspan, Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, Berlin Wall, Bernie Sanders, Branko Milanovic, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, collective bargaining, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, deglobalization, deindustrialization, Deng Xiaoping, Donald Trump, Double Irish / Dutch Sandwich, Fall of the Berlin Wall, falling living standards, financial innovation, financial repression, fixed income, full employment, George Akerlof, global supply chain, global value chain, Great Leap Forward, high-speed rail, illegal immigration, income inequality, intangible asset, invention of the telegraph, joint-stock company, land reform, Long Term Capital Management, low interest rates, Malcom McLean invented shipping containers, manufacturing employment, Martin Wolf, mass immigration, Mikhail Gorbachev, Money creation, money market fund, mortgage debt, New Urbanism, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, open economy, paradox of thrift, passive income, reserve currency, rising living standards, Robert Shiller, Ronald Reagan, savings glut, Scramble for Africa, sovereign wealth fund, stock buybacks, subprime mortgage crisis, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, Wolfgang Streeck

As Smith put it back in 1776, “It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. . . . If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage” rather than pay extra for a locally made version.3 David Ricardo was born half a century after Smith. Whereas Smith was a Scottish academic moral philosopher, Ricardo was a Jewish financier who had become so wealthy after betting correctly on the outcome of the Battle of Waterloo that he was able to buy a seat in Parliament. After reading Wealth of Nations, Ricardo decided to spend his leisure time writing about economics and published On the Principles of Political Economy and Taxation in 1817.

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Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 2 vols., ed. Edwin Cannan (London: Methuen, 1904), vol. 1, bk. 1, chap. 1, available at https://oll.libertyfund.org/. 2. R. H. Coase, “The Nature of the Firm,” Economica 4, no. 16 (November 1937): 386–405. 3. Smith, Wealth of Nations, vol. 1, bk. 4, chap. 2. 4. David Ricardo, On the Principles of Political Economy and Taxation, 3rd ed. (London: John Murray, 1821), chaps. 7, 27, available at https://oll.libertyfund.org/. 5. Ricardo, Principles, chap. 7. 6. Cameron Hewitt, “Brits on the Douro: A Brief History of Port,” Rick Steves’ Europe, https://www.ricksteves.com/watch-read-listen/read/articles/the-history-of-port. 7.

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Hamilton’s insight was that countries could only capture the productivity gains from the division of labor by rejecting the concept at the international level. The benefits of internal economic diversity were incompatible with national specialization. It was a rebuttal to Ricardo before the theory of comparative advantage had even been written. Hamilton admitted that Americans might want to focus on farming in a world with perfect free trade and zero regulations. He was quick to point out, however, that in the real world, “the United States cannot exchange with Europe on equal terms.” American exports were discriminated against even though the United States levied few tariffs on imports.

The State and the Stork: The Population Debate and Policy Making in US History by Derek S. Hoff

affirmative action, Alan Greenspan, Alfred Russel Wallace, back-to-the-land, British Empire, business cycle, classic study, clean water, creative destruction, David Ricardo: comparative advantage, demographic transition, desegregation, Edward Glaeser, feminist movement, full employment, garden city movement, Garrett Hardin, George Gilder, Gregor Mendel, Gunnar Myrdal, guns versus butter model, Herman Kahn, immigration reform, income inequality, income per capita, invisible hand, It's morning again in America, Jane Jacobs, John Maynard Keynes: technological unemployment, Joseph Schumpeter, labor-force participation, Lewis Mumford, manufacturing employment, mass immigration, New Economic Geography, new economy, old age dependency ratio, open immigration, Paul Samuelson, peak oil, pensions crisis, profit motive, public intellectual, Ralph Waldo Emerson, road to serfdom, Robert Solow, Ronald Reagan, scientific management, Scientific racism, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, Tragedy of the Commons, trickle-down economics, urban planning, urban sprawl, W. E. B. Du Bois, wage slave, War on Poverty, white flight, zero-sum game

Less ambiguously, the Malthusian framework was a pillar of classic economics.71 Indeed, economist Ralph Hess was correct when he wrote nearly a century ago, “A combination of the Malthusian doctrine of population and the Ricardian theory of rent [the economic return to land] constitutes the foundation of modern theories of economic welfare and wealth distribution.”72 Moreover, conservative presumptions about the limited efficacy of social reform are rooted in Malthusian population doctrine. Englishman David Ricardo, the towering figure in classical economics most famous for developing the theory that nations ought to specialize in exports in which they have a “comparative advantage,” challenged Malthus’s late-career work on economic value but extended his basic model of demographically induced scarcity. Ricardo refined the Malthusian formula that workers are doomed to perpetual poverty into an “iron law of wages”: the cost of labor is that which allows workers to survive without either an increase or decrease in their numbers.

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The marginalists anticipated the mathematical emphasis of today’s economics by devising new quantitative methods of analyzing the subjective and psychological variables surrounding human decision-making.7 As we have seen, a theory of diminishing returns, espoused most starkly by Malthus and best by his contemporary David Ricardo, was central to classical economics.8 Examining their predominantly nonindustrial world through an agricultural lens, the classical economists observed that newer land brought under cultivation yields less than older and better land—diminishing returns to a factor of production, often shortened to simply diminishing returns.

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I flatten a complicated and uneven process. Ricardo struggled with Malthus’s theories, especially those regarding the nature of rent and surplus—and his friendly critique of them identified virtually all of the key issues in the classical theoretical tradition. See The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the collaboration of M. H. Dobb (Cambridge: Cambridge University Press, 1951), esp. vol. 1, On the Principles of Political Economy and Taxation (reprint of 3d, 1821 edition), chap. 32, and vol. 2, Notes on Malthus. Marx—who must be regarded as a classical economist—had nothing but contempt for Malthus. 72.

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It by Ian Goldin, Mike Mariathasan

air freight, air traffic controllers' union, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, biodiversity loss, Bretton Woods, BRICs, business cycle, butterfly effect, carbon tax, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, digital divide, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, Eyjafjallajökull, failed state, Fairchild Semiconductor, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, Glass-Steagall Act, global pandemic, global supply chain, global value chain, global village, high-speed rail, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, precautionary principle, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, risk free rate, Robert Solow, scientific management, Silicon Valley, six sigma, social contagion, social distancing, Stuxnet, supply-chain management, systems thinking, tail risk, TED Talk, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, Tragedy of the Commons, transaction costs, uranium enrichment, vertical integration

We are most grateful to an anonymous referee for suggesting this introduction for the book. 2. See David Ricardo, 1817, On the Principles of Political Economy, and Taxation (London: John Murray). Ricardo argued that two countries should specialize in producing goods and services in which they have a comparative advantage in terms of labor productivity. This amounts to saying that two parties should produce whichever goods or services have the lower marginal or opportunity costs in relation to others. Ricardo’s theory of comparative advantage shows that as long as the parties specialize according to their relative efficiencies, they will both benefit from trade—even if one party has an absolute efficiency advantage in producing the goods and services traded.

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Foreigners do not share a common history, background, or nationality, and laws, borders, and other restrictions separate global citizens. But whether we live in Manhattan, Moscow, or Mumbai, we are connected by an increasingly dense and complex web of overlapping and intertwined links. These are both physical and virtual and have allowed us to take the principle of comparative advantage to levels that David Ricardo could not have imagined when he was writing his path-breaking insights on global development in 1817.2 Although many are critical of globalization, few would deny the gains from integration and exchange. In this book we focus on neglected aspects of accelerated integration, notably the systemic risks that arise from globalization.

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The geographical choices we make when we globalize are, like so many other factors today, sources of uncertainty. GLOBALIZATION: A DOUBLE-EDGED SWORD Advocates of unfettered globalization point to the positive impacts of expanding flows of goods, services, money, people, information, and culture, which enables every one of us to benefit from exploiting our comparative advantage. Yet critics point to the shortcomings of globalization and the dangers associated with this simplistic view. In this book we recognize that globalization is a double-edged sword that can be a force for progress as well as a source of great harm. There are numerous reasons to be concerned about globalization.

Liberalism at Large: The World According to the Economist by Alex Zevin

"there is no alternative" (TINA), activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, anti-communist, Asian financial crisis, bank run, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, business cycle, capital controls, carbon tax, centre right, Chelsea Manning, collective bargaining, Columbine, Corn Laws, corporate governance, corporate social responsibility, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, desegregation, disinformation, disruptive innovation, do well by doing good, Donald Trump, driverless car, Edward Snowden, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, Gini coefficient, Glass-Steagall Act, global supply chain, guns versus butter model, hiring and firing, imperial preference, income inequality, interest rate derivative, invisible hand, It's morning again in America, Jeremy Corbyn, John von Neumann, Joseph Schumpeter, Julian Assange, junk bonds, Khartoum Gordon, land reform, liberal capitalism, liberal world order, light touch regulation, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, means of production, Michael Milken, Mikhail Gorbachev, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, new economy, New Journalism, Nixon triggered the end of the Bretton Woods system, no-fly zone, Norman Macrae, Northern Rock, Occupy movement, Philip Mirowski, plutocrats, post-war consensus, price stability, quantitative easing, race to the bottom, railway mania, rent control, rent-seeking, road to serfdom, Ronald Reagan, Rosa Parks, Seymour Hersh, Snapchat, Socratic dialogue, Steve Bannon, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade liberalization, trade route, unbanked and underbanked, underbanked, unorthodox policies, upwardly mobile, War on Poverty, WikiLeaks, Winter of Discontent, Yom Kippur War, young professional

McCulloch, The Literature of Political Economy: A Classified Catalogue, London 1845, p. 80. 16.‘How few of us there were, who, five years ago, believed that, in seeking repeal, we were also seeking the benefit of the agriculturalists!’ Richard Cobden, Speeches on Questions of Public Policy, London 1870, Vol. II, p. 98. 17.Wilson, Influences of the Corn Laws, p. 95. 18.David Ricardo, Works of David Ricardo, eds. Pierro Sraffa and M. H. Dobb, Vol. IV, Cambridge 1951, p. 197. 19.Ibid., 17–18, 37. There was a religious, millenarian dimension to Wilson’s conception of free trade. Its optimism about economic growth, however, was a departure from evangelical expectations: see Hilton, The Age of Atonement, pp. 54, 69, 246–47. 20.Wilson sympathized.

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He and his older brother were apprenticed instead to a hatmaker, a business their father eventually bought them. It was during this period, from ages sixteen to nineteen, that Wilson seems to have read most of the authors on whom he would later draw as editor. Adam Smith, James Mill, Thomas Tooke, David Ricardo and the Frenchman Jean-Baptiste Say supplied a mix of moral philosophy and political economy.8 The title he later chose for his paper indicates how far these fields of inquiry overlapped. ‘Economist’ had yet to acquire its modern meaning; its sense was ‘the economizer’, he who does not waste money and manages resources efficiently.

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‘I think you have lost sight of one gain to the aristocratic land-lords … the political power arising out of the present state of their tenantry – and political power in this country has been pecuniary gain.’13 Whatever its flaws, however, the pamphlet proved strategically invaluable. The League and the Leeds Mercury (a leading voice of provincial Whiggism) reprinted it. Cobden praised Wilson for ‘labouring to prove to the Landlords that they may safely do justice to others without endangering their own interests.’14 J. R. McCulloch, the chief disciple of David Ricardo, called it ‘one of the best and most reasonable of the late tracts in favour of unconditional repeal’.15 It was even quoted by certain Tories, then the party of protection, including the prime minister Sir Robert Peel. Such was its power to transform debate and attract formerly committed foes of free trade in the countryside that, for a time, even Cobden adopted its language.

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them by Nouriel Roubini

"World Economic Forum" Davos, 2021 United States Capitol attack, 3D printing, 9 dash line, AI winter, AlphaGo, artificial general intelligence, asset allocation, assortative mating, autonomous vehicles, bank run, banking crisis, basic income, Bear Stearns, Big Tech, bitcoin, Bletchley Park, blockchain, Boston Dynamics, Bretton Woods, British Empire, business cycle, business process, call centre, carbon tax, Carmen Reinhart, cashless society, central bank independence, collateralized debt obligation, Computing Machinery and Intelligence, coronavirus, COVID-19, creative destruction, credit crunch, crony capitalism, cryptocurrency, currency manipulation / currency intervention, currency peg, data is the new oil, David Ricardo: comparative advantage, debt deflation, decarbonisation, deep learning, DeepMind, deglobalization, Demis Hassabis, democratizing finance, Deng Xiaoping, disintermediation, Dogecoin, Donald Trump, Elon Musk, en.wikipedia.org, energy security, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, eurozone crisis, failed state, fake news, family office, fiat currency, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, future of work, game design, geopolitical risk, George Santayana, Gini coefficient, global pandemic, global reserve currency, global supply chain, GPS: selective availability, green transition, Greensill Capital, Greenspan put, Herbert Marcuse, high-speed rail, Hyman Minsky, income inequality, inflation targeting, initial coin offering, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of movable type, Isaac Newton, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, knowledge worker, Long Term Capital Management, low interest rates, low skilled workers, low-wage service sector, M-Pesa, margin call, market bubble, Martin Wolf, mass immigration, means of production, meme stock, Michael Milken, middle-income trap, Mikhail Gorbachev, Minsky moment, Modern Monetary Theory, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Mustafa Suleyman, Nash equilibrium, natural language processing, negative equity, Nick Bostrom, non-fungible token, non-tariff barriers, ocean acidification, oil shale / tar sands, oil shock, paradox of thrift, pets.com, Phillips curve, planetary scale, Ponzi scheme, precariat, price mechanism, price stability, public intellectual, purchasing power parity, quantitative easing, race to the bottom, Ralph Waldo Emerson, ransomware, Ray Kurzweil, regulatory arbitrage, reserve currency, reshoring, Robert Shiller, Ronald Reagan, Salesforce, Satoshi Nakamoto, Savings and loan crisis, Second Machine Age, short selling, Silicon Valley, smart contracts, South China Sea, sovereign wealth fund, Stephen Hawking, TED Talk, The Great Moderation, the payments system, Thomas L Friedman, TikTok, too big to fail, Turing test, universal basic income, War on Poverty, warehouse robotics, Washington Consensus, Watson beat the top human players on Jeopardy!, working-age population, Yogi Berra, Yom Kippur War, zero-sum game, zoonotic diseases

However, globalization in its modern sense began around 1820. Europeans, worn down by Napoleonic wars over territory, embraced trade as a civilized way to produce wealth. Pax Britannica ensued, emboldened by Adam Smith, David Ricardo, and other brilliant advocates of freewheeling economic development and free trade. Ricardo presented the first formal argument about the benefits of free trade based on producing goods where comparative advantage favors them. World War I ended robust trade and the first era of globalization. Europeans slid back into their old way of handling international gripes: armed conflict. Millions died over what essentially were land disputes among waning aristocrats.

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The earliest inventors used springs and coils to make mechanical devices mimic movements by humans or animals.24 Meaningful devices that help humans perform tasks proliferated with the industrial revolution in the late eighteenth century. The prospects of machines doing work soon spawned conflict, most famously with the Luddites, who smashed knitting looms. Mill owner William Horsfall paid the ultimate price for automating work. He was shot dead in 1812 while heading home from the Huddersfield town center.25 Economist David Ricardo recognized the handwriting on the wall by 1821, thinking seriously about the “influence of machinery on the interests of the different classes of society.” In 1839, Thomas Carlyle (who famously called economics “the dismal science”) fretted about the “demon of mechanism” and its prospects for “oversetting whole multitudes of workmen.”26 Around the same time, Karl Marx took aim.

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Aimed at unskilled and low-skilled workers who lose jobs because of trade, TAA programs don’t get much respect from skeptics. “Trade Burial Assistance” is what cynics call it. There is simply no easy way to replace jobs lost to trade. Proponents of basic trade theory have a naive answer to this controversy. They argue that when a rich country trades freely with a poor country, each one will pursue its comparative advantage. The poorer country might become a manufacturing giant while the richer country becomes a services giant; in the poor country, wages will go higher, while in the rich country, skilled workers’ wages will go higher but those of unskilled workers will fall together with their jobs. Data does show net increases in overall output across importing and exporting economies generally.

Hopes and Prospects by Noam Chomsky

air traffic controllers' union, Alan Greenspan, Albert Einstein, banking crisis, Bear Stearns, Berlin Wall, Bretton Woods, British Empire, capital controls, colonial rule, corporate personhood, Credit Default Swap, cuban missile crisis, David Ricardo: comparative advantage, deskilling, en.wikipedia.org, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Firefox, Glass-Steagall Act, high-speed rail, Howard Zinn, Hyman Minsky, invisible hand, liberation theology, market fundamentalism, Martin Wolf, Mikhail Gorbachev, Monroe Doctrine, moral hazard, Nelson Mandela, new economy, nuremberg principles, one-state solution, open borders, Plutonomy: Buying Luxury, Explaining Global Imbalances, public intellectual, Ralph Waldo Emerson, RAND corporation, Robert Solow, Ronald Reagan, Savings and loan crisis, Seymour Hersh, structural adjustment programs, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, trade liberalization, uranium enrichment, Washington Consensus

The reason is that English capitalists would prefer to invest and purchase in the home country, so as if by an “invisible hand,” England would be spared the ravages of economic liberalism. The other leading founder of classical economics, David Ricardo, drew similar conclusions. Using his famous example of English textiles and Portuguese wines, he concluded that his theory of comparative advantage would collapse if it were advantageous to the capitalists of England to invest in Portugal for both manufacturing and agriculture. But, he argued, thanks to “the natural disinclination which every man has to quit the country of his birth and connections,” and “fancied or real insecurity of capital” abroad, most men of property would “be satisfied with the low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations,” feelings that “I should be sorry to see weakened,” he added.

…

Afaf Lutfi Al-Sayyid Marsot, Egypt in the Reign of Muhammad Ali (Cambridge: Cambridge University Press, 1984). For more extensive discussion, on to post–WWII Egypt, see World Orders, chap. 2. 7. Basil Davidson, The Black Man’s Burden: Africa and the Curse of the Nation-State (New York, London: Times Books, 1992). 8. Adam Smith, Wealth of Nations, bk. IV, chap. II. David Ricardo, Principles of Political Economy, cited by Dean Baker, Gerald Epstein, and Robert Pollin, eds., Globalization and Progressive Economic Policy (Cambridge: Cambridge University Press, 1998), editors’ introduction. 9. José Antonio Ocampo, “Rethinking the Development Agenda,” MS, 2001, based on paper at the American Economic Association annual meeting, January 2001. 10.

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The terror and repression increased under the rule of the National Guard and the Duvalier dictatorships while the elite prospered, isolated from the country they were helping to rob. When Reagan took office, USAID and the World Bank instituted programs to turn Haiti into the “Taiwan of the Caribbean” by adhering to the sacred principle of comparative advantage: Haiti was to import food and other commodities from the United States while working people, mostly women, toiled under miserable conditions in U.S.-owned assembly plants. As the World Bank explained in a 1985 report, in this export-oriented development strategy domestic consumption should be “markedly restrained in order to shift the required share of output increases into exports,” with emphasis placed on “the expansion of private enterprises,” while support for education should be “minimized” and such “social objectives” as persist should be privatized.

A World Without Work: Technology, Automation, and How We Should Respond by Daniel Susskind

"World Economic Forum" Davos, 3D printing, agricultural Revolution, AI winter, Airbnb, Albert Einstein, algorithmic trading, AlphaGo, artificial general intelligence, autonomous vehicles, basic income, Bertrand Russell: In Praise of Idleness, Big Tech, blue-collar work, Boston Dynamics, British Empire, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, computer age, computer vision, computerized trading, creative destruction, David Graeber, David Ricardo: comparative advantage, deep learning, DeepMind, Demis Hassabis, demographic transition, deskilling, disruptive innovation, Donald Trump, Douglas Hofstadter, driverless car, drone strike, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, fake news, financial innovation, flying shuttle, Ford Model T, fulfillment center, future of work, gig economy, Gini coefficient, Google Glasses, Gödel, Escher, Bach, Hans Moravec, income inequality, income per capita, industrial robot, interchangeable parts, invisible hand, Isaac Newton, Jacques de Vaucanson, James Hargreaves, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Joi Ito, Joseph Schumpeter, Kenneth Arrow, Kevin Roose, Khan Academy, Kickstarter, Larry Ellison, low skilled workers, lump of labour, machine translation, Marc Andreessen, Mark Zuckerberg, means of production, Metcalfe’s law, natural language processing, Neil Armstrong, Network effects, Nick Bostrom, Occupy movement, offshore financial centre, Paul Samuelson, Peter Thiel, pink-collar, precariat, purchasing power parity, Ray Kurzweil, ride hailing / ride sharing, road to serfdom, Robert Gordon, Sam Altman, Second Machine Age, self-driving car, shareholder value, sharing economy, Silicon Valley, Snapchat, social intelligence, software is eating the world, sovereign wealth fund, spinning jenny, Stephen Hawking, Steve Jobs, strong AI, tacit knowledge, technological solutionism, TED Talk, telemarketer, The Future of Employment, The Rise and Fall of American Growth, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, Travis Kalanick, Turing test, Two Sigma, Tyler Cowen, Tyler Cowen: Great Stagnation, universal basic income, upwardly mobile, warehouse robotics, Watson beat the top human players on Jeopardy!, We are the 99%, wealth creators, working poor, working-age population, Y Combinator

It would assuredly bring to them ruin by depriving them of employment, thus making them beggars.”13 Then there is the tragedy of Anton Möller, who had the bad luck to invent the ribbon loom in 1586—bad luck because rather than simply refuse a patent, the city council in his hometown of Danzig is said to have responded to his triumph with an order that he be strangled, hardly the warm reception that we reserve for today’s entrepreneurs.14 But it was not only workers and the state who were anxious. As time passed, economists also started to take the threat of automation seriously. As noted before, it was Keynes who would popularize the term “technological unemployment” in 1930. But David Ricardo, one of the founding fathers of economics, struggled with this issue more than a century before him. In 1817, Ricardo published his great work, Principles of Political Economy and Taxation. Within four years of publication, though, he released a fresh edition with a new chapter, “On Machinery.”

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Others say Möller was drowned in the Vistula River by a rabble of weavers who feared the competition. I first came across this story in Ben Seligman, Most Notorious Victory: Man in an Age of Automation (New York: Free Press, 1966). 15.  The first edition was published in 1817, the third edition, with the new chapter, in 1821. See David Ricardo, Principles of Political Economy and Taxation (New York: Prometheus Books, 1996). 16.  “Automation and Anxiety,” Economist, 25 June 2016; and Louis Stark, “Does Machine Displace Men in the Long Run?,” New York Times, 25 February 1940. 17.  For President Obama’s farewell speech, see Claire Cain Miller, “A Darker Theme in Obama’s Farewell: Automation Can Divide Us,” New York Times, 12 January 2017.

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The most influential institutes and think tanks—from the IMF to the World Bank, from the OECD to the International Labour Organization—have relied on it to decide which human endeavors are at risk of automation.34 Mark Carney, the governor of the Bank of England, has echoed it in a warning of a “massacre of the Dilberts”: new technologies, he believes, threaten “routine cognitive jobs” like the one that employs Dilbert, the cubicle-bound comic strip character.35 President Obama similarly warned that roles “that are repeatable” are at particular risk of automation.36 And large companies have structured their thinking around the idea: the investment bank UBS claims that new technologies will “free people from routine work and so empower them to concentrate on more creative, value-added services”; the professional services firm PwC says that “by replacing workers doing routine, methodical tasks, machines can amplify the comparative advantage of those workers with problem-solving, leadership, EQ, empathy, and creativity skills”; and Deloitte, another professional services firm, reports that in the UK “routine jobs at high risk of automation have declined but have been more than made up for by the creation of lower-risk, non-routine jobs.”37 Magazine writers and commentators have also popularized the concept.

With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don't Pay Enough by Peter Barnes

adjacent possible, Alfred Russel Wallace, banks create money, basic income, Buckminster Fuller, carbon tax, collective bargaining, computerized trading, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, diversified portfolio, driverless car, en.wikipedia.org, Fractional reserve banking, full employment, Glass-Steagall Act, hydraulic fracturing, income inequality, It's morning again in America, Jaron Lanier, Jevons paradox, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, land reform, Mark Zuckerberg, Money creation, Network effects, oil shale / tar sands, Paul Samuelson, power law, profit maximization, quantitative easing, rent-seeking, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, Stuart Kauffman, the map is not the territory, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, Upton Sinclair, Vilfredo Pareto, wealth creators, winner-take-all economy

In addition to deindustrialization, three other long-term phenomena gained momentum after 1980: globalization, automation, and deunionization. Globalization. Since the early 1800s, economists have argued that trade is good and more trade is better. Their rationale is the theory of comparative advantage. As David Ricardo reasoned, if England could make textiles more efficiently than Portugal, and Portugal could make wine more efficiently than England, then both countries—including their workers—would benefit by trading woolens for port. But trading in physical goods is one thing and globalization is something else: it is the integration of separate national economies into a single world economy.

Owning the Earth: The Transforming History of Land Ownership by Andro Linklater

agricultural Revolution, Alan Greenspan, anti-communist, Anton Chekhov, Ayatollah Khomeini, Bear Stearns, Big bang: deregulation of the City of London, British Empire, business cycle, colonial rule, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, electricity market, facts on the ground, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, full employment, Gini coefficient, Glass-Steagall Act, Google Earth, Great Leap Forward, income inequality, invisible hand, James Hargreaves, James Watt: steam engine, John Perry Barlow, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kibera, Kickstarter, land reform, land tenure, light touch regulation, market clearing, means of production, megacity, Mikhail Gorbachev, Mohammed Bouazizi, Monkeys Reject Unequal Pay, mortgage debt, Northern Rock, Peace of Westphalia, Pearl River Delta, plutocrats, Ponzi scheme, profit motive, quantitative easing, Ralph Waldo Emerson, refrigerator car, Right to Buy, road to serfdom, Robert Shiller, Ronald Reagan, spinning jenny, Suez canal 1869, The Chicago School, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, three-masted sailing ship, too big to fail, trade route, transatlantic slave trade, transcontinental railway, ultimatum game, wage slave, WikiLeaks, wikimedia commons, working poor

For the life and career of Spencer Perceval, see Andro Linklater, Why Spencer Perceval Had to Die: The Assassination of a Prime Minister (New York and London: Bloomsbury, 2012). The transition was made obvious in: The far-reaching nature of David Ricardo’s theory, most completely advanced in The Principles of Political Economy, and Taxation (1817), of the comparative advantage enjoyed by one means of production over another, where each employs equal quantities of capital and labor, tends to obscure its important context: Ricardian economics is grounded in rural, rather than mercantile, capitalism. His definition of rent as “that portion of the produce of the earth which is paid to the landlord [by the tenant] for the use of the original and indestructible powers of the soil” also applies to industrial production, as do his theories on taxation—that a tax on the economic rent, or unearned increase in value, of land cannot be passed on.

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His younger and less fortunate son, the future prime minister Spencer Perceval, only got the job of Surveyor to the Meltings of the Mint, worth a paltry one hundred pounds a year. Almost seamlessly, the three rural divisions passed into the classic structure of free-enterprise business—shareholders, managers, workers. The transition was made obvious in David Ricardo’s Principles of Political Economy and Taxation, his pioneering work in 1817 on the laws of profit and value in a free-enterprise economy. In it he equated the providers of the three basic elements of industrial production—capital, machinery, and labor—with “the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated.”

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There would be an enhanced two-way trade between the colonies and the home country, and where Australia was concerned, the chance of opening up a three-way network exporting cereals to China, Chinese tea to Britain, and British manufactures to Australia. Wakefield’s analysis of the colonies’ economic potential was grounded in the theories of the era’s two preeminent free-market economists, David Ricardo and Thomas Malthus. Ricardo’s theories on profit made it clear that the high price of British property rendered its purchase an inefficient use of capital compared with investing it in cheaper, productive land elsewhere. Malthus’s stark warning of overpopulation focused more closely on the wastage of labor in the unemployed poor: “Increase the demand for agricultural labour by promoting cultivation, and with it consequently increase the produce of the country, and ameliorate the condition of the labourer, and no apprehensions whatever need be entertained of the proportional increase of population.”

The Innovation Illusion: How So Little Is Created by So Many Working So Hard by Fredrik Erixon, Bjorn Weigel

Airbnb, Alan Greenspan, Albert Einstein, American ideology, asset allocation, autonomous vehicles, barriers to entry, Basel III, Bernie Madoff, bitcoin, Black Swan, blockchain, Blue Ocean Strategy, BRICs, Burning Man, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, classic study, Clayton Christensen, Colonization of Mars, commoditize, commodity super cycle, corporate governance, corporate social responsibility, creative destruction, crony capitalism, dark matter, David Graeber, David Ricardo: comparative advantage, discounted cash flows, distributed ledger, Donald Trump, Dr. Strangelove, driverless car, Elon Musk, Erik Brynjolfsson, Fairchild Semiconductor, fear of failure, financial engineering, first square of the chessboard / second half of the chessboard, Francis Fukuyama: the end of history, general purpose technology, George Gilder, global supply chain, global value chain, Google Glasses, Google X / Alphabet X, Gordon Gekko, Greenspan put, Herman Kahn, high net worth, hiring and firing, hockey-stick growth, Hyman Minsky, income inequality, income per capita, index fund, industrial robot, Internet of things, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kevin Kelly, knowledge economy, laissez-faire capitalism, low interest rates, Lyft, manufacturing employment, Mark Zuckerberg, market design, Martin Wolf, mass affluent, means of production, middle-income trap, Mont Pelerin Society, Network effects, new economy, offshore financial centre, pensions crisis, Peter Thiel, Potemkin village, precautionary principle, price mechanism, principal–agent problem, Productivity paradox, QWERTY keyboard, RAND corporation, Ray Kurzweil, rent-seeking, risk tolerance, risk/return, Robert Gordon, Robert Solow, Ronald Coase, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, Steve Ballmer, Steve Jobs, Steve Wozniak, subprime mortgage crisis, technological determinism, technological singularity, TED Talk, telemarketer, The Chicago School, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, transportation-network company, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, uber lyft, University of East Anglia, unpaid internship, Vanguard fund, vertical integration, Yogi Berra

While it was not a novel idea in the late 1980s or early 1990s to begin contracting out parts of the supply chain to affiliated partners, the scale and sophistication of the fragmented networks that evolved from the early 1990s changed the texture of corporate globalization. For centuries, trade had broadly conformed to the standard wine-for-cloth thesis developed by David Ricardo in the early nineteenth century. Countries exchanged final goods with each other. Various endowments and advantages of countries (absolute or comparative) largely defined the actual composition of that trade. In this version of globalization, concentration of production was stronger than fragmentation, and specialization broadly followed the pattern of geographic concentration.

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(Matt Taibbi) (i) see also Dodd–Frank Act; New York Stock Exchange Wall Street Journal, on compliance officers (i) wealth see rich people Wells, H.G. (i) Wells Fargo (i) Western Europe, GDP figures (i), (ii) WhatsApp (i) Whyte, William, The Organization Man (i), (ii) Williams, Richard (i) Williamson, Oliver (i)n16 Wilson, Sloan, The Man in the Gray Flannel Suit (i) wine-for-cloth thesis (David Ricardo) (i) Winston, Clifford (transportation expert) (i), (ii)n21 withering (i), (ii) see also creative destruction Woodward, Bob (i) work, vs. labor (i) world trade see global trade World Trade Organization (WTO) (i), (ii) WorldCom (i) Wozniak, Steve (i) Xerox, Palo Alto Research Center (PARC) (i) Zingales, Luigi (i), (ii), (iii) Zuckerberg, Mark (i), (ii)

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Every organization needs internal bureaucracy – and bureaucracy is not the same thing as managerialism – but the combination of bureaucracy and a far higher degree of production specialization made it difficult to dismantle the old to make space for the new. The better you get at doing something, the more it costs to stop doing it and start doing something else. While the principle of specialization is about honing the absolute or comparative advantages of an individual, company, or economy, the world of innovation is based on the destruction of something you are currently doing. Nokia, for instance, did not fail because it was bad at producing mobile handsets. Nokia failed because it competed in a market that others were contesting. In a way, Nokia’s fortunes were squandered because it was remarkably good at what it was doing: it ran one of the most efficient production networks in the telecom sector.

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

Alan Greenspan, Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, Bletchley Park, business cycle, California gold rush, Charles Babbage, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Dr. Strangelove, Dutch auction, Edward Lloyd's coffeehouse, electricity market, equity premium, equity risk premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, Fairchild Semiconductor, financial innovation, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, George Akerlof, George Gilder, Goodhart's law, Great Leap Forward, greed is good, Gunnar Myrdal, haute couture, Helicobacter pylori, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, junk bonds, Kenneth Arrow, Kevin Kelly, knowledge economy, Larry Ellison, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Michael Milken, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, Phillips curve, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, proprietary trading, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, Stuart Kauffman, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, work culture , yield curve, yield management

In the late eighteenth and nineteenth centuries, economists established a durable method of analysis for understanding production for exchange. Adam Smith's principal work, The Wealth of Nations) described the division of labor. David Ricardo, who became a writer and member of the British Parliament after successful speculation in bonds, laid out the principle of comparative advantage fifty years later. The effectiveness of an economic system is determined by its efficiency in exploiting comparative advantage and the division oflabor. The Colombe d'Or For two hundred years, European artists have been attracted to the bright light and brilliant scenery of the south of France.

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But the phrase is unfortunate. In everyday language, rent is what we pay for land and buildings. To use the term economic rent when we talk of oil is puzzling, and the usage becomes even stranger when applied to Coca-Cola, Madonna, and the Harvard Business School. The explanation is historical. When David Ricardo (the nineteenthcenturyeconomist behind the principle ofcomparative advantage) introduced the concept, the economy was mainly agricultural. Ricardo's model explained how the rent of land was determined. The land of England could be ordered from best to worst, from the fertile fen lands ofLincolnshire to the acid moors of Dartmoor.

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This benefit from exchange illustrates the principle of comparative advantage. Comparative advantage dictates that we should focus on what we do best, rather than on what we do better than other people. For exceptionally talented people like Braque, there may be more things they do better than other people than there are hours in the day. And for others, there may be little or nothing that { 86} John Kay they do better than other people. Comparative advantage requires us to look at our own relative performance in different activities. Both Braque and Raux benefit from following comparative advantage. Braque gets more time for his art, and Raux gets great pictures.

The Wake-Up Call: Why the Pandemic Has Exposed the Weakness of the West, and How to Fix It by John Micklethwait, Adrian Wooldridge

Admiral Zheng, Affordable Care Act / Obamacare, air traffic controllers' union, Alan Greenspan, basic income, battle of ideas, Berlin Wall, Bernie Sanders, bike sharing, Black Lives Matter, Boris Johnson, carbon tax, carried interest, cashless society, central bank independence, contact tracing, contact tracing app, Corn Laws, coronavirus, COVID-19, creative destruction, David Ricardo: comparative advantage, defund the police, Deng Xiaoping, Dominic Cummings, Donald Trump, Etonian, failed state, Fall of the Berlin Wall, Future Shock, George Floyd, global pandemic, Internet of things, invisible hand, it's over 9,000, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jeremy Corbyn, Jones Act, knowledge economy, laissez-faire capitalism, Les Trente Glorieuses, lockdown, McMansion, military-industrial complex, night-watchman state, offshore financial centre, oil shock, Panopticon Jeremy Bentham, Parkinson's law, pensions crisis, QR code, rent control, Rishi Sunak, road to serfdom, Ronald Reagan, school vouchers, Shoshana Zuboff, Silicon Valley, smart cities, social distancing, Steve Bannon, surveillance capitalism, TED Talk, trade route, Tyler Cowen, universal basic income, Washington Consensus

His father, James Mill, was a believer in “liberty,” “reason,” and “effort,” all of which were being frustrated by the establishment—and he raised his son to be “a reformer of the world.”18 John Stuart’s godfather was Jeremy Bentham, who pioneered the utilitarian idea that every institution should be measured by how well it advanced the greatest happiness of the greatest number, and he was surrounded by radicals such as David Ricardo, the economist who invented the notion of “comparative advantage,” and John Wade, the compiler of The Extraordinary Black Book, which listed all the nepotistical abuses of government, rotten boroughs, sinecures, and all. John Stuart Mill’s focus was on ideas, particularly on liberty, the title of his most famous work, though he did spend three years as Liberal MP for Westminster in 1865–68, driving the Tories mad by describing them as “the stupid party.”

Adam Smith: Father of Economics by Jesse Norman

active measures, Alan Greenspan, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Cornelius Vanderbilt, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, electricity market, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial engineering, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Glass-Steagall Act, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, low interest rates, market bubble, market fundamentalism, Martin Wolf, means of production, mirror neurons, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, public intellectual, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Solow, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

The effect of this narrowing was to make the analysis simpler and more tractable; Malthus was able to theorize more generally by making radical assumptions about deep aspects of human nature and abstracting away from incidental features, anecdote and individual cases. Less than a decade after Adam Smith’s death, he had taken a first step towards what we now think of as homo economicus. A further step was taken twenty years later by David Ricardo. Ricardo is best known today for one very brilliant and counter-intuitive idea: the principle of comparative advantage. It is not hard to see how, if two countries each have lower costs in different areas of production, they can both gain from trading with each other: this is a basic Smithian insight. But Ricardo took the idea much further. In his Principles of Political Economy (1817), he pointed out that, in theory at least, it can be mutually advantageous for two countries to trade with each other even if one of them has lower costs than the other in every single product.

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It is interesting to note that Michel Foucault associates ‘homo oeconomicus’ as a cultural phenomenon with Ricardo and not Smith, and with a post-Kantian awareness of human limitations and the fact of scarcity: ‘Homo oeconomicus is not the human being who represents his own needs to himself, and the objects capable of satisfying them; he is the human being who spends, wears out, and wastes his life in evading the imminence of death.’ Foucault, The Order of Things: An Archaeology of the Human Sciences, repr. Routledge 2002 Principle of Comparative Advantage: David Ricardo, On the Principles of Political Economy, and Taxation, John Murray 1817, Ch. 7, ‘On Foreign Trade’ Jevons on market exchange and equilibrium: W. S. Jevons, The Theory of Political Economy, Macmillan 1888, Ch. 4 ‘Higgling’: see WN I.v.4; for Edgeworth’s overall critique of Walras, see his ‘Review of Léon Walras, Éléments d’économie politique pure’, Nature, 40.1036, September 1925 Transformation of political economy into economics: although Alfred Marshall is often credited with the shift in name, it is worth noting that he and Mary Paley Marshall had already scouted the change eleven years earlier, in their book The Economics of Industry of 1879 Effect of mathematical and physical models on economics: see Philip Mirowski, More Heat than Light, Cambridge University Press 1989 Politics as epiphenomenon: the exact relations between politics and economics in Marx’s thought remain a matter of scholarly debate.

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In his simple worked example, if England is more efficient at producing cloth than wine, and Portugal more efficient at producing wine than cloth, then it can make sense for them to trade with each other, even if Portugal is in fact able to produce both cloth and wine at lower cost than England. Why? Because trading with each other frees up resources in both countries to produce more of the product in which it has a comparative advantage: in this case, cloth for England and wine for Portugal. Production in both countries is thereby maximized. In effect, Ricardo had taken the Smithian theory of exchange and looked more closely and systematically at its effects on production. But, again, Ricardo’s thought operates through processes of abstraction, at two levels.

The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

"there is no alternative" (TINA), "World Economic Forum" Davos, Alan Greenspan, bank run, banking crisis, barriers to entry, battle of ideas, behavioural economics, Berlin Wall, Bretton Woods, business cycle, buy and hold, capital controls, carbon tax, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Great Leap Forward, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low interest rates, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

TRADITIONAL ARGUMENTS FOR THE BENEFITS OF ECONOMIC INTEGRATION There is a long-standing argument that closer economic integration would lead to faster economic growth, based on the idea that larger markets lead to increases in standards of living as a result of economies of scale (that is, unit costs of production decrease as the scale of production increases) and taking advantage of comparative advantage (that is, there are efficiency gains from having each country specialize in the country’s relative strengths). These notions date back to the late 18th and early 19th centuries, in the works of two of the great classical economists, Adam Smith7 and David Ricardo.8 But there are several flaws in applying Smith’s and Ricardo’s analyses of largely agrarian 18th- and early 19th-century economies to Europe at the beginning of the 21st century.

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Greater economic integration—or, I should say, certain forms of economic integration—may, as we shall see later, impede the ability of different countries to realize societal well-being by advancing their own conceptions of what the state should do and how it should do it.10 In the days of Adam Smith and David Ricardo, the economic role of the state was very limited; today, it is far more important—partly because of changes in the structure of the economy itself, and partly because increases in standard of living have led some societies to demand more of these collective goods provided by government. Indeed, advances in our standards of living largely result from our creation of a learning society11—of advances in technology and knowledge—which themselves are in the nature of public goods, goods that have to be collectively provided: all individuals can benefit from such advances.12 Markets by themselves will not result in efficient levels of investment in research and learning; they may not even result in learning and research going in the right direction.

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There are a myriad of detailed issues in which different conceptions of how the economy functions play out, not just the macroeconomic issues of austerity and inflation previously discussed. One aspect of the neoliberal agenda entails privatization. There are strong arguments that governments should focus their attention on those areas where they have a comparative advantage, leaving the private sector to run the rest. Though this principle makes theoretical sense, in practice determining where the government has a comparative advantage is difficult. Experiences around the world have shown a variety of outcomes. Perhaps the most efficient steel companies in the world in the 1990s were the government-run firms in Korea and Taiwan, and there is little evidence that the privatization of the Korean company, POSCO (demanded by the IMF in its 1997 financial rescue), led to improved efficiency.

The End of Work: Why Your Passion Can Become Your Job by John Tamny

Albert Einstein, Andy Kessler, Apollo 13, asset allocation, barriers to entry, basic income, Bernie Sanders, cloud computing, commoditize, David Ricardo: comparative advantage, do what you love, Downton Abbey, future of work, George Gilder, haute cuisine, income inequality, Jeff Bezos, knowledge economy, Larry Ellison, Mark Zuckerberg, Palm Treo, Peter Thiel, profit motive, Saturday Night Live, Silicon Valley, Stephen Hawking, Steve Ballmer, Steve Jobs, There's no reason for any individual to have a computer in his home - Ken Olsen, trickle-down economics, universal basic income, upwardly mobile, Yogi Berra

It’s an economy that allowed Danny Meyer’s Eleven Madison Park to hire a “coffee director” who personally prepares diners’ twenty-four-dollar cups of coffee at their tables.21 This kind of wealth also allows individuals to concentrate on what they do best, what the nineteenth-century economist David Ricardo called “comparative advantage.” Each of us does what he’s good at while “importing” everything else from others. The fruits of one’s labor are exchangeable for everything one needs. Meyer recalls that before the restaurant boom he “had always noticed how many servers seemed to apologize for their work, with remarks like: ‘I’m actually an actor.

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I wrote good prospecting letters and was able to get meetings with a lot of rich people, but I ignored the advice from management to find an existing team to work with. That was the direction that Goldman PCS was heading in, and it would have benefited someone like me, who lacked quantitative skills. Why not join a team so that I could focus on getting prospects in the door while more numerate but shyer team members formulated asset-allocation pitches? Comparative advantage works in all walks of life. Instead, I foolishly went it alone, expecting people to entrust the fruits of their life’s work to a kid in his twenties with no real financial and market knowledge. I was good at getting meetings but had little interest in the actual Goldman products. Rather, I remained interested in policy.

The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger by Marc Levinson

air freight, anti-communist, barriers to entry, Bay Area Rapid Transit, British Empire, business cycle, call centre, collective bargaining, conceptual framework, David Ricardo: comparative advantage, deindustrialization, deskilling, Edward Glaeser, Erik Brynjolfsson, flag carrier, full employment, global supply chain, intermodal, Isaac Newton, job automation, Jones Act, knowledge economy, Malcom McLean invented shipping containers, manufacturing employment, Network effects, New Economic Geography, new economy, oil shock, Panamax, Port of Oakland, post-Panamax, Productivity paradox, refrigerator car, Robert Solow, South China Sea, trade route, vertical integration, Works Progress Administration, Yom Kippur War, zero-sum game

Once the world began to change, it changed very rapidly: the more organizations that adopted the container, the more costs fell, and the cheaper and more ubiquitous container transportation became.13 The third intellectual stream feeding into this book is the connection between transportation costs and economic geography, the question of who makes what where. This connection might seem self-evident, but it is not. When David Ricardo showed in 1817 that both Portugal and England could gain by specializing in making products in which they had a comparative advantage, he assumed that only production costs mattered; the costs of shipping Portuguese wine to England and English cloth to Portugal did not enter his analysis. Ricardo’s assumption that transportation costs were zero has been incorporated into economists’ models ever since, despite ample real-world evidence that transportation costs matter a great deal.14 Economists have devoted serious effort to studying the geographic implications of transport costs only since the early 1990s.

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Stiroh, “Information Technology and Growth,” American Economic Review 89, no. 2 (1999): 109–115. 13. Paul M. Romer, “Why, Indeed, in America? Theory, History, and the Origins of Modern Economic Growth,” Working Paper 5443, NBER, January 1996. 14. David Ricardo, The Principles of Political Economy and Taxation (London, 1821; reprint, New York, 1965), pp. 77–97. Richard E. Caves and Ronald W. Jones point out that the widely taught Heckscher-Ohlin model, which shows that a country has a comparative advantage in producing goods that make more intensive uses of its more abundant factor of production, assumes that transport costs will not affect trade; see their World Trade and Payments: An Introduction, 2nd ed.

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By deciding where to employ their vessels, the big ship lines had the power to determine which ports succeeded and which struggled. In some cases, that choice was made for unavoidable reasons; not all ports had the depths required to handle the biggest ships. In other cases, though, ship lines joined with government officials and private port operators to change comparative advantage. The list of the world’s largest containerports around the turn of the century is instructive. Of the twenty ports handling the greatest number of containers in 2003, seven had seen little or no container traffic in 1990, and three of those seven had not even existed before. These new ports, by and large, were privately managed, and in some cases privately financed.

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

activist fund / activist shareholder / activist investor, Alan Greenspan, algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Black-Scholes formula, book value, Brownian motion, business cycle, buy and hold, buy low sell high, buy the rumour, sell the news, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, currency risk, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, global macro, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, junk bonds, late capitalism, law of one price, Long Term Capital Management, low interest rates, managed futures, margin call, market clearing, market design, market friction, Market Wizards by Jack D. Schwager, merger arbitrage, money market fund, mortgage debt, Myron Scholes, New Journalism, paper trading, passive investing, Phillips curve, price discovery process, price stability, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Thaler, risk free rate, risk-adjusted returns, risk/return, Robert Shiller, selection bias, shareholder value, Sharpe ratio, short selling, short squeeze, SoftBank, sovereign wealth fund, statistical arbitrage, statistical model, stocks for the long run, stocks for the long term, survivorship bias, systematic trading, tail risk, technology bubble, time dilation, time value of money, total factor productivity, transaction costs, two and twenty, value at risk, Vanguard fund, yield curve, zero-coupon bond

For example, a haircut cannot easily be exported, and it is likely to remain cheaper in a poorer country even if iPad prices converge. 5 Soros (2010), “Financial Markets,” in The Soros Lectures, PublicAffairs, New York. CHAPTER 12 Managed Futures Trend-Following Investing Cut short your losses … and let your profits run on. —David Ricardo (1772–1823) … big money was not in the individual fluctuations but in … sizing up the entire market and its trend. —Jesse Livermore David Ricardo’s imperative, which has survived two centuries, suggests an attention to trends.1 Trends are also at the heart of the century-old statement by the legendary trader Jesse Livermore, and trends continue to play an important role for active investors.

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Efficiently Inefficient Markets: The idea that markets are inefficient but to an efficient extent. Competition among professional investors makes markets almost efficient, but the market remains so inefficient that they are compensated for their costs and risks. Active investment by those with a comparative advantage: A limited amount of capital can be invested with active managers who can beat the market using a few economically motivated investment styles. This idea underlying the book provides a framework for understanding why certain strategies work and how securities are priced. OVERVIEW TABLE II.

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Each lane moves approximately equally fast because lane-switchers ensure a relatively even number of cars in each lane. However, the lanes don’t move exactly equally fast because of the “cost” of switching lanes and the evolving traffic situation. Lane speeds probably tend to reach an efficiently inefficient level where switching lanes hardly helps, but doing so still makes sense for those with comparative advantages in lane switching—although frequent lane switching and high speed increase the risk of driving, just as frequent trading and high leverage increase the risk in financial markets. The economic mechanisms of an efficiently inefficient market are fundamentally different from those of neoclassical economics, as seen in table I.1.

Against Intellectual Monopoly by Michele Boldrin, David K. Levine

accounting loophole / creative accounting, agricultural Revolution, barriers to entry, business cycle, classic study, cognitive bias, cotton gin, creative destruction, David Ricardo: comparative advantage, Dean Kamen, Donald Trump, double entry bookkeeping, en.wikipedia.org, endogenous growth, Ernest Rutherford, experimental economics, financial innovation, Great Leap Forward, Gregor Mendel, Helicobacter pylori, independent contractor, informal economy, interchangeable parts, invention of radio, invention of the printing press, invisible hand, James Watt: steam engine, Jean Tirole, John Harrison: Longitude, Joseph Schumpeter, Kenneth Arrow, linear programming, market bubble, market design, mutually assured destruction, Nash equilibrium, new economy, open economy, PalmPilot, peer-to-peer, pirate software, placebo effect, price discrimination, profit maximization, rent-seeking, Richard Stallman, Robert Solow, seminal paper, Silicon Valley, Skype, slashdot, software patent, the market place, total factor productivity, trade liberalization, Tragedy of the Commons, transaction costs, Y2K