David Ricardo: comparative advantage

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pages: 288 words: 89,781

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.

“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.

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.


pages: 453 words: 117,893

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.

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?

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.


pages: 374 words: 113,126

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?

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)

Alan Greenspan, availability heuristic, behavioural economics, Berlin Wall, bitcoin, Bretton Woods, British Empire, business cycle, business process, call centre, capital controls, Cass Sunstein, choice architecture, cognitive bias, collapse of Lehman Brothers, Corn Laws, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, double helix, endogenous growth, endowment effect, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, fixed income, Ford Model T, full employment, hindsight bias, income inequality, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, liquidity trap, loss aversion, mass immigration, means of production, mental accounting, Myron Scholes, paradox of thrift, Pareto efficiency, Paul Samuelson, Post-Keynesian economics, price mechanism, pushing on a string, quantitative easing, Richard Thaler, road to serfdom, Ronald Coase, Ronald Reagan, school vouchers, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Toyota Production System, trade route, transaction costs, unorthodox policies, Vilfredo Pareto, women in the workforce

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).

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.

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.


pages: 330 words: 77,729

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.

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.

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).


pages: 389 words: 98,487

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.

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.

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.


pages: 272 words: 83,798

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.

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.

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.


pages: 270 words: 73,485

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

3D printing, Alan Greenspan, bank run, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Glass-Steagall Act, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, market bubble, market clearing, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, Phillips curve, Post-Keynesian economics, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, subprime mortgage crisis, 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, Tobin tax, too big to fail, women in the workforce

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.

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.

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.

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.

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.


pages: 226 words: 59,080

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.

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.

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.


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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.

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.

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.


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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.

., ‘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.

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.


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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.

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.

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.


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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.

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.

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.


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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.

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.

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.


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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.

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.

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.


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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.

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.

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.


pages: 374 words: 111,284

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.

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.

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.


pages: 850 words: 254,117

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.

., 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

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.


pages: 403 words: 111,119

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.

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.

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.


pages: 354 words: 105,322

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.

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.

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.


pages: 258 words: 83,303

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.

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.

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.


pages: 202 words: 58,823

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.

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.

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.


pages: 502 words: 128,126

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.

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.

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.


pages: 334 words: 98,950

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.

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.

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.


pages: 347 words: 99,317

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.

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.

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.


pages: 484 words: 136,735

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. . . .

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.

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.”


pages: 290 words: 76,216

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.’

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.

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?


pages: 251 words: 69,245

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.

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.

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.

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.


pages: 606 words: 87,358

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.

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.

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.

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.

‘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.


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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.

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.

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.


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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.

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.

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.


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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.

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.

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).


pages: 462 words: 150,129

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.

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 ...

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’.


pages: 385 words: 111,807

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.

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.

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.


pages: 196 words: 53,627

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.

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.

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.


pages: 626 words: 167,836

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.

.… 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.

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.


pages: 614 words: 174,226

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.

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.

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.

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.

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.


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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.

‘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.

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.


pages: 447 words: 111,991

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’.

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.

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.


pages: 555 words: 80,635

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.

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.

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.

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.

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.


pages: 280 words: 74,559

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.

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.

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.


pages: 470 words: 130,269

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.

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.

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.


pages: 420 words: 124,202

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.

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.

., 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.


pages: 426 words: 83,128

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.

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.

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.


pages: 192

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.

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.


pages: 223 words: 10,010

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.

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.

‘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.


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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.

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.


pages: 470 words: 148,730

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.

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.

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.


pages: 72 words: 21,361

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.

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.


pages: 497 words: 144,283

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).

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.


pages: 482 words: 149,351

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.

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.

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.


pages: 339 words: 95,270

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.

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.

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.

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.

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.


pages: 414 words: 101,285

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.

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.

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.


pages: 767 words: 208,933

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.

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.

‘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.


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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.

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.

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.

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.


pages: 419 words: 109,241

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.”

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.

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.


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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.


pages: 603 words: 182,826

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.

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.”

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.”


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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.

(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)

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.


pages: 436 words: 76

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.

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.

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.


pages: 134 words: 41,085

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.

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.

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.


pages: 515 words: 142,354

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.

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.

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.


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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.

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.


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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.

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.

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.


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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.

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.

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.


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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

In other words, globalization is risky for our innovators, and we need to strengthen intellectual property protection and force emerging countries to do the same things we do. Free markets and free trade, we are lectured, are becoming a threat to our economic well-being, and Adam Smith’s and David Ricardo’s views that competition and comparative advantages will make all of us better off are too naive to be believed, and certainly not applicable to this complex and globalized economy. In fact, as the economy expands, Smith and Ricardo, far from becoming irrelevant, as DeLong and Froomkin assert, become more relevant than ever, the rationale for intellectual monopoly fades away, and we may look forward to a future in which we earn our living by trading ideas and creations – but without the intervention of government-enforced intellectual monopolies.

“Possession is nine-tenths of the law” is a truth in economics as well as in common parlance. Take the case of slavery. Why should people not be allowed to sign private contracts binding them to slavery? In fact economists have consistently argued against slavery – during the nineteenth century David Ricardo and John Stuart Mill engaged in a heated public debate with literary luminaries such as Charles Dickens, with the economists opposing slavery and the literary giants arguing in favor.28 The fact is that our labor cannot be separated from ourselves. For someone else to own our labor requires them to engage in intrusive and costly supervision of our personal behavior.

Even worse, we also could not find anything in the field of health economics addressing what, in our view, is an even more basic question: where do medical and pharmaceutical discoveries of high social value come from? This left us on our own, trying to figure out what a fundamental medical discovery or a truly innovative medicine was, a topic we know nothing about. Being two theoretical economists, we appealed to the law of comparative advantages to figure out whom to ask: doctors, medical doctors more precisely. Consulting a large number of medical journals leads to the pleasant discovery that the British Medical Journal, a most distinguished publication, P1: PDX head margin: 1/2 gutter margin: 7/8 CUUS245-09 cuus245 978 0 521 87928 6 April 29, 2008 15:51 The Pharmaceutical Industry 229 had decided to inaugurate its new series by helping us out.


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The Great Transformation: The Political and Economic Origins of Our Time by Karl Polanyi

agricultural Revolution, Berlin Wall, borderless world, business cycle, central bank independence, Corn Laws, currency manipulation / currency intervention, David Ricardo: comparative advantage, Fall of the Berlin Wall, full employment, inflation targeting, joint-stock company, Kula ring, land reform, land tenure, liberal capitalism, manufacturing employment, new economy, Panopticon Jeremy Bentham, price mechanism, profit motive, Republic of Letters, road to serfdom, Ronald Reagan, scientific management, the market place, The Wealth of Nations by Adam Smith, trade liberalization, trade route, trickle-down economics, Washington Consensus, Wolfgang Streeck, working poor, Works Progress Administration

Sporadic destitution had now grown into a torrent of misery. His own Villages of Union differed from Bellers’s mainly by being much larger, comprising 1,200 persons on as many acres of land. The committee calling for subscriptions to this highly experimental plan to solve the problem of unemployment included no less an authority than David Ricardo. But no subscribers appeared. Somewhat later, the Frenchman Charles Fourier was ridiculed for expecting day by day the sleeping-partner to turn up who would invest in his Phalanstère plan, which was based on ideas very similar to those sponsored by one of the greatest English experts on finance.

Clearly, a society in which distribution depended upon the possession of such tokens of purchasing power was a construction entirely different from market economy. We are not dealing here, of course, with pictures of actuality, but with conceptual patterns used for the purposes of clarification. No market economy separated from the political sphere is possible; yet it was such a construction which underlay classical economics since David Ricardo and apart from which its concepts and assumptions were incomprehensible. Society, according to this layout, consisted of bartering individuals possessing an outfit of commodities—goods, land, labor, and their composites. Money was simply one of the commodities bartered more often than another and, hence, acquired for the purpose of use in exchange.

The irony is that today few even advocate the free flow of labor, and while the advanced industrial countries lecture the less developed countries on the vices of protectionism and government subsidies, they have been more adamant in opening up markets in developing countries than in opening their own markets to the goods and services that represent the developing world’s comparative advantage. Today, however, the battle lines are drawn at a far different place than when Polanyi was writing. As I observed earlier, only diehards would argue for the self-regulating economy, at the one extreme, or for a government run economy, at the other. Everyone is aware of the power of markets, all pay obeisance to its limitations.


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The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, classic study, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial engineering, financial innovation, financial intermediation, floating exchange rates, foreign exchange controls, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Glass-Steagall Act, Great Leap Forward, Hyman Minsky, inflation targeting, invisible hand, Japanese asset price bubble, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, low interest rates, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, no-fly zone, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, proprietary trading, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Solow, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

Adam Smith’s close friend, the chemist Joseph Black, said that while teaching at the University of Edinburgh, where students paid the professors in advance, he was ‘obliged to weigh [coins] when strange students come, there being a very large number who bring light guineas, so that I should be defrauded of many pounds every year if I did not act in self-defence against this class of students’.9 Counterfeiting continues today – indeed, coins are counterfeited more often than banknotes. The use of standardised coinage was a big step forward. Technology, however, did not stand still. As the English economist David Ricardo wrote in 1816: The introduction of the precious metals for the purposes of money may with truth be considered as one of the most important steps towards the improvement of commerce, and the arts of civilised life; but it is no less true that, with the advancement of knowledge and science, we discover that it would be another improvement to banish them again from the employment, to which, during a less enlightened period, they had been so advantageously applied.10 The drawback of using precious metals as money had been evident since at least the sixteenth century when the first European voyages across the Atlantic led to the discovery of gold and, especially, silver mines in the Americas.

Krawczyk, Jacek and Kunhong Kim (2009), ‘Satisficing Solutions to a Monetary Policy Problem’, Macroeconomic Dynamics, Vol. 13, pp. 46–80. Krugman, Paul (2011), ‘Mr. Keynes and the Moderns’, Vox, 21 June 2011. Kynaston, David (1994), The City of London: Vol 1: A World of Its Own, 1815–90, Chatto and Windus, London. Lainà, Patrizio (2015), ‘Proposals for Full-Reserve Banking: A Historical Survey from David Ricardo to Martin Wolf’, University of Helsinki, mimeo. Levitt, Steven and Stephen Dubner (2005), Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, William Morrow/Harper Collins, New York. Lewis, Michael (1989), Liar’s Poker, W. W. Norton, New York. —— (2014), Flash Boys: A Wall Street Revolt, W.

Along the way it included a massive expansion of trading in new and complex financial instruments, covering activities such as sub-prime mortgage lending. When I visited New York in December 2003, I found all the major banks worrying about whether they should either emulate Citigroup’s strategy of using its size to obtain a comparative advantage in funding costs or abandon the aim of global reach and try to become a niche player in particular markets. Inevitably, perhaps, when the crisis came it was Citi that required a large bailout. Although it fell from grace in dramatic fashion, the fact that it wasn’t allowed to fail vindicated the original strategy.


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Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

Airbus A320, Alan Greenspan, Albert Einstein, Albert Michelson, algorithmic trading, anti-fragile, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Bear Stearns, behavioural economics, Benoit Mandelbrot, bitcoin, Black Swan, Boeing 737 MAX, Bonfire of the Vanities, Brexit referendum, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, DeepMind, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, Dutch auction, easy for humans, difficult for computers, eat what you kill, Eddington experiment, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Goodhart's law, Hans Rosling, Helicobacter pylori, high-speed rail, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Jim Simons, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Kōnosuke Matsushita, Linda problem, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, military-industrial complex, Money creation, Moneyball by Michael Lewis explains big data, Monty Hall problem, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, nudge theory, oil shock, PalmPilot, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Phillips curve, Pierre-Simon Laplace, popular electronics, power law, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, reality distortion field, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Solow, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Suez crisis 1956, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, world market for maybe five computers, World Values Survey, Yom Kippur War, zero-sum game

From its very beginnings, useful economic theory has generally been of this kind. Adam Smith began The Wealth of Nations by illustrating the concept of the division of labour through a stylised description of a pin factory. There is no evidence that he was describing a real pin factory. In the early nineteenth century, David Ricardo proposed a model of international trade based on comparative advantage which continues to be among the central insights of economics. Two hundred and fifty years before Donald Trump’s presidency, Adam Smith had refuted the mercantilist view of foreign trade as a zero sum game in which one country gained at the expense of a weaker or foolish partner – trade could benefit both parties. 3 Ricardo developed Smith’s argument to show that a country that was more efficient than another country in producing everything could still benefit from trade with the less efficient country, and vice versa. 4 In the style of his times, he illustrated his thesis with a story based on a numerical example.

They were using these models as illustrations of principles of much more general applicability. Economics subsequently made advances through a whole series of small-world models of this type. Two decades after Smith, Thomas Malthus provided a notorious model of population and growth, which we discuss further in chapter 20 . In addition to his principle of comparative advantage, David Ricardo developed a model of economic rent: the amount received by the supplier of an input in excess of the amount necessary to ensure its supply (many people in the sports and financial services industries would surely work there for lower rewards than they currently receive). It is no longer fashionable to tell a story with illustrative calculations in the manner of Smith and Ricardo.

At first sight, the proposition that it is beneficial to trade with less efficient countries might seem counter-intuitive – as does, at first sight, the proposition that it is possible to trade with more efficient countries. But Ricardo’s model showed that trade can bring significant benefits whenever there are differences in capabilities either between individuals or between countries. A country’s absolute advantage in producing different goods and services was less important than its comparative advantage: in which sector or sectors was the country relatively more productive? The model does not enable us to forecast the volume of trade, but does help us understand why, in the absence of artificial impediment, trade has flourished between countries at very different stages of economic development.


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The New Division of Labor: How Computers Are Creating the Next Job Market by Frank Levy, Richard J. Murnane

Atul Gawande, business cycle, call centre, computer age, Computer Numeric Control, correlation does not imply causation, David Ricardo: comparative advantage, deskilling, digital divide, Frank Levy and Richard Murnane: The New Division of Labor, Gunnar Myrdal, hypertext link, index card, information asymmetry, job automation, knowledge economy, knowledge worker, low skilled workers, low-wage service sector, PalmPilot, pattern recognition, profit motive, Robert Shiller, Ronald Reagan, Salesforce, speech recognition, tacit knowledge, talking drums, telemarketer, The Wealth of Nations by Adam Smith, working poor

In this essay, Simon explained why predictions of mass unemployment would prove to be wrong. Borrowing from international trade theory, Simon invoked David Ricardo’s historic principle of comparative advantage. Simon began from the premise that society can always find uses for additional output (consider today’s unfulfilled demand for health care). Under this premise, computers and humans will both be used in producing this output, each in those tasks for which they have a comparative advantage. As Simon wrote: If computers are a thousand times faster than bookkeepers in doing arithmetic, but only one hundred times faster than stenographers in taking dictation, we shall expect the number of bookkeepers per thousand employees to decrease but the number of stenographers to increase.

If the effort is to make sense, the nation needs to understand what tasks humans will do at their work and the skills they will need to carry out these tasks effectively. We already have some answers. We have established that computers have a comparative advantage over people in carrying out tasks requiring the execution of rules, but people have the comparative advantage in recognizing complex patterns. We have also seen how complex pattern recognition is critical in two quite different kinds of tasks—optical recognition and physical movement (security guards, Simon’s “few vestigial ‘workmen’ ”) and tasks involving higher-order cognitive skills.

Each task involves some kind of information processing. But which kinds of information processing can computers do better than people? Answering this question is the key to understanding why Saltz has a thriving cardiology practice while Liffe traders aren’t trading any more. 16 CHAPTER 2 A first answer is that computers’ comparative advantage over people lies in tasks that can be described using rules-based logic: step-by-step procedures with an action specified for every contingency. “Rules-based logic” is not an everyday expression, but humans use rules to process information every day. Most of us learned arithmetic using such rules (“If the numbers in the 1’s column add to ten or more, carry the . . .”).


pages: 182 words: 53,802

The Production of Money: How to Break the Power of Banks by Ann Pettifor

Alan Greenspan, Ben Bernanke: helicopter money, Bernie Madoff, Bernie Sanders, bitcoin, blockchain, bond market vigilante , borderless world, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, clean water, credit crunch, Credit Default Swap, cryptocurrency, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, distributed ledger, Donald Trump, eurozone crisis, fiat currency, financial deregulation, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, green new deal, Hyman Minsky, inflation targeting, interest rate derivative, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land bank, Leo Hollis, light touch regulation, London Interbank Offered Rate, low interest rates, market fundamentalism, Martin Wolf, mobile money, Money creation, Naomi Klein, neoliberal agenda, offshore financial centre, Paul Samuelson, Ponzi scheme, Post-Keynesian economics, pushing on a string, quantitative easing, rent-seeking, Satyajit Das, savings glut, secular stagnation, The Chicago School, the market place, Thomas Malthus, Tobin tax, too big to fail

Back in 1694 the goal of the Bank of England was to mimic Holland in reducing the rate of interest paid by Dutch commercial firms, and to bring English interest rates into line with those that prevailed in the financially more advanced Netherlands. But this understanding of a system of bank money causing rates of interest to fall was lost in the classical economics of one David Ricardo (a financier). As a result, the theories of credit and associated bank-money policies lived on only, as Keynes put it, in ‘an underworld’ of scholars and activists. These included Henry Thornton, Thomas Malthus and Henry Dunning McLeod, and the sociologists Peter Knapp and Georg Simmel, who were not content to leave the question of the nature of money to the economists.

I would argue that first and foremost, we must demand the transformation of our financial systems, to render the finance sector servant, not master, of both domestic economies and the global economy. The management of financial flows would begin to end the asymmetry caused by the absolute advantage that finance has enjoyed over the comparative advantages of trade and labour. (While trade and labour invariably face barriers to movement – physical, economic and political – in our globalised economy, finance faces virtually no barriers. Finance, therefore, enjoys an absolute advantage over trade and labour.) There is a question of how to manage financial flows.


pages: 868 words: 147,152

How Asia Works by Joe Studwell

affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, foreign exchange controls, Gini coefficient, glass ceiling, Great Leap Forward, high-speed rail, income inequality, income per capita, industrial robot, Joseph Schumpeter, Kenneth Arrow, land reform, land tenure, large denomination, liberal capitalism, low interest rates, market fragmentation, megaproject, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Right to Buy, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, TSMC, urban sprawl, Washington Consensus, working-age population

The German view was put forward by the so-called Historical School, an informal affiliation of intellectuals that was the dominant force in the political economy and jurisprudence departments of German universities in the mid nineteenth century. The group held that the history of Britain showed that a successful developing state had to deploy protectionist industrial policies in order to nurture its manufacturers. The School rejected the newly fashionable pro-free market theories associated with Adam Smith and David Ricardo as inappropriate to Germany’s stage of development. Friedrich List, the group’s greatest luminary, contended that the free market evangelism emanating from Britain was motivated largely by opportunism based on the country’s global technological leadership. In an attack on the new profession of ‘economics’, he wrote: Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth.18 List’s views on development had formed while he was living in the United States between 1825 and 1832, when he had studied the arguments for a protectionist industrial policy to nurture ‘infant industries’ set out by Alexander Hamilton in his Report on the Subject of Manufactures submitted to Congress in 1791.

Each north-east Asian state bore out the truism set down by the Japanologists Kazushi Ohkawa and Henry Rosovsky when analysing the original Meiji lift-off: ‘If there had been no increase in the output of the traditional economy, there could hardly have existed any domestic market for the output of modern industry.’75 At the industrial policy-making level, what stands out with the benefit of hindsight is that there was almost no role played in Japan, Korea or Taiwan by economists. Meiji Japan blazed its trail by following the Prussian, and earlier American, model which rejected the modern classical economics that began with Adam Smith and David Ricardo. The framers of the Meiji revolution were trained in Germany and at Tokyo University’s law school, which focused not so much on law as on European-style public administration.76 There was a strong prejudice against the theoretical approach associated with modern economics, and in favour of practical problem-solving.

Tougher technologies were left to later in the learning process – for instance, there was no continuous casting of steel in phase one as the Koreans focused on the simpler, more upstream tasks. To start with, they built a single blast furnace. Once each construction phase was launched, POSCO moved at breakneck speed, building around the clock so as to start earning a return on precious investment capital as soon as possible. Construction speed ought to be a comparative advantage of the developing state, not least because of much lower health and safety standards. At Pohang, 24-hour building contributed to a construction cost per tonne of steel capacity that was one-quarter that of Brazil.106 A second driver of success was that there was constant checking of the technical advice being received.


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The Narrow Corridor: States, Societies, and the Fate of Liberty by Daron Acemoglu, James A. Robinson

Affordable Care Act / Obamacare, agricultural Revolution, AltaVista, Andrei Shleifer, bank run, Berlin Wall, British Empire, California gold rush, central bank independence, centre right, classic study, collateralized debt obligation, collective bargaining, colonial rule, Computer Numeric Control, conceptual framework, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Dava Sobel, David Ricardo: comparative advantage, Deng Xiaoping, discovery of the americas, double entry bookkeeping, Edward Snowden, en.wikipedia.org, equal pay for equal work, European colonialism, export processing zone, Ferguson, Missouri, financial deregulation, financial innovation, flying shuttle, Francis Fukuyama: the end of history, full employment, Glass-Steagall Act, Great Leap Forward, high-speed rail, income inequality, income per capita, industrial robot, information asymmetry, interest rate swap, invention of movable type, Isaac Newton, it's over 9,000, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Kula ring, labor-force participation, land reform, Mahatma Gandhi, manufacturing employment, mass incarceration, Maui Hawaii, means of production, megacity, Mikhail Gorbachev, military-industrial complex, Nelson Mandela, obamacare, openstreetmap, out of africa, PageRank, pattern recognition, road to serfdom, Ronald Reagan, seminal paper, Skype, spinning jenny, Steven Pinker, the market place, transcontinental railway, War on Poverty, WikiLeaks

As late as 1841, conservative politician and three-time prime minister Lord Stanley could observe, “When any man attempted to estimate the probable result of a county election in England, it was ascertained by calculating the number of the great landed proprietors in the county and weighing the number of occupiers under them.” Indeed, in rural England, big landowners controlled a sufficiently large fraction of the voting population that their control determined the outcome of an election. As in 1950s Chile, if an “occupier” went against his landlord, there was going to be trouble. The great British economist David Ricardo recognized this in 1824, writing, “It is the most cruel mockery to tell a man he may vote for A or B, when you know that he is so much under the influence of A, or the friends of A, that his voting for B would be attended with the destruction of him. It is not he who has the vote, really and substantially, but his landlord, for it is for his benefit and interest that it is exercised in the present system.”

They and Valenzuela (1978) tend to interpret the Frei program as disastrous, since the attack on clientelism undermined the ability to make deals when Allende came to power. Our interpretation sees it as a natural part of the Red Queen effect. Lord Stanley is quoted from Kitson-Clark (1951, 112), and David Ricardo is quoted from Ricardo ([1824], 1951–1973, 506). Kennedy’s speech launching the Alliance for Progress can be found at https://sourcebooks.fordham.edu/mod/1961kennedy-afp1.asp. The text of Allende’s Statute of Guarantees can be found at http://www.papelesdesociedad.info/IMG/pdf/estatuto_de_garantias_democraticas.pdf.

In The Medieval World, edited by Peter Linehan and Janet L. Nelson. London and New York: Routledge. Rhodes, Peter J. (2011). A History of the Classical Greek World: 478–323 BC. Oxford: Wiley-Blackwell. Ricardo, David ([1824] 1951–1973). “Defense of the Plan of Voting by Ballot.” In The Works and Correspondence of David Ricardo, edited by Maurice H. Dobb and Piero Sraffa, vol. 5. Cambridge: Cambridge University Press. Richards, John F. (1993). The Mughal Empire. New York: Cambridge University Press. Ritter, E. A. (1985). Shaka Zulu: The Biography of the Founder of the Zulu Nation. London: Penguin. Roach, Levi (2013).


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American Made: Why Making Things Will Return Us to Greatness by Dan Dimicco

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Alan Greenspan, American energy revolution, American Society of Civil Engineers: Report Card, Apollo 11, Bakken shale, barriers to entry, Bernie Madoff, California high-speed rail, carbon credits, carbon footprint, carbon tax, clean water, congestion pricing, crony capitalism, currency manipulation / currency intervention, David Ricardo: comparative advantage, decarbonisation, digital divide, driverless car, fear of failure, full employment, Google Glasses, high-speed rail, hydraulic fracturing, invisible hand, job automation, knowledge economy, laissez-faire capitalism, Loma Prieta earthquake, low earth orbit, manufacturing employment, Neil Armstrong, oil shale / tar sands, Ponzi scheme, profit motive, Report Card for America’s Infrastructure, rolling blackouts, Ronald Reagan, Savings and loan crisis, Silicon Valley, smart grid, smart meter, sovereign wealth fund, The Wealth of Nations by Adam Smith, too big to fail, uranium enrichment, Washington Consensus, Works Progress Administration

And free trade is supposed to make everyone richer, more equal, and improve global security because countries that are selling to each other aren’t likely shooting at one another. Free trade turns on the theory of comparative advantage, which says a country has an advantage in producing a commodity—it could be clothing, could be steel—if the opportunity costs of production are lower. Under the theory laid out nearly 200 years ago by British economist David Ricardo, countries could be pretty good at producing something (he used the examples of English textiles and Portuguese wine), but the country that is marginally better has the comparative advantage and should specialize in that thing. The idea is that everyone will gain and nobody will lose, because free trade ensures that the only transactions are mutually beneficial ones.

In the real world, we don’t have free trade. We’ve never had free trade. At best, we have managed trade. At worst, we have predatory and protectionist countries unfairly exploiting our belief in free trade to their advantage. When governments get involved and stack the deck in their own favor instead of letting comparative advantage rule, then you have distorted trade. Call it free trade all you like, but it isn’t so. My career has spanned a period when U.S. leaders have outright ignored sound trade policy in the name of free trade. When I started out as a young engineer in the 1970s, we were in conflict with Japan and Germany over steel and cars.

Yet even in 1955, when the United States negotiated the first post-occupation trade deal there, the Japanese did not act like a conquered people. American negotiators argued that Japan should cut its tariffs on auto imports because the United States was the world’s leading automaker, so it would be to Japan’s advantage to simply import U.S. cars and specialize in export goods wherein Japan had a comparative advantage. In response, Japan’s chief trade negotiator wrote, “If the theory of international trade were pursued to its ultimate conclusion, the United States would specialize in the production of automobiles and Japan in the production of tuna.”5 Japan said it would produce cars and package tuna while protecting and encouraging key domestic industries.


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Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, bond market vigilante , book value, borderless world, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, capital controls, Carl Icahn, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, disinformation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, Glass-Steagall Act, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, junk bonds, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, long and variable lags, Louis Bachelier, low interest rates, market bubble, Mexican peso crisis / tequila crisis, Michael Milken, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, planned obsolescence, plutocrats, Post-Keynesian economics, price mechanism, price stability, prisoner's dilemma, profit maximization, proprietary trading, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Savings and loan crisis, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, stock buybacks, 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 Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

"To be in business," said Frank Stronach, chair of Magna International, a Canadian auto-parts maker that has shifted its production to Mexico, "your first mandate is to make money, and money has no heart, soul, conscience, homeland" (quoted in Bilello 1992). This is very far from the constraints on capital flows imagined by David Ricardo (1911/1987, chapter 7), the founding father of modern free trade theory: Experience, however, shows that the fancied or real insecurity of capital, when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connections, and intrust himself, with all his habits fixed, to a strange government and new laws, check the emigration of capital.

Sober people, who will give for the use of money no MARKET MODELS more than a part of what they are likely to make by the use of it, would not venture into the competition. A great part of the capital of the country would thus be kept out of the hands which were most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it.^'' This provides an interesting gloss on the junk bond era. Or, as David Ricardo (1911/1987, Chapter 21), put it: To the question, "who would lend money to farmers, manufacturers, and merchants, at 5 per cent, per annum, when another borrower, having little credit would give 7 or 8?" I reply, that every prudent or reasonable man would. Because the rate of interest is 7 or 8 per cent, there where the lender runs extraordinary risk is this any reason that it should be equally high in those places where they are secured from such risks?

This is consonant with Keynes's highly aestheticized view of the world, his rebellion against what he called the extraordinary contraption of the Benthamite School, by which all possible consequences of alternative courses of action were supposed to have attached to them, first a number expressing their comparative advantage, and secondly another number expressing the probability of their following from the course of action in question; so that multiplying together the numbers attached to all the possible consequences of a given action and adding the results, we could discover what to do. In this way a mythical system of probable knowledge was employed to reduce the future to the same calculable status as the present (CU^XIV, p. 124).


Globalists: The End of Empire and the Birth of Neoliberalism by Quinn Slobodian

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, classic study, collective bargaining, David Ricardo: comparative advantage, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, full employment, Garrett Hardin, Greenspan put, Gunnar Myrdal, Hernando de Soto, invisible hand, liberal capitalism, liberal world order, Mahbub ul Haq, market fundamentalism, Martin Wolf, Mercator projection, Mont Pelerin Society, Norbert Wiener, offshore financial centre, oil shock, open economy, pattern recognition, Paul Samuelson, Pearl River Delta, Philip Mirowski, power law, price mechanism, public intellectual, quantitative easing, random walk, rent control, rent-seeking, road to serfdom, Ronald Reagan, special economic zone, statistical model, Suez crisis 1956, systems thinking, tacit knowledge, The Chicago School, the market place, The Wealth of Nations by Adam Smith, theory of mind, Thomas L Friedman, trade liberalization, urban renewal, Washington Consensus, Wolfgang Streeck, zero-sum game

The Ruhr Valley would become unbelievably crowded, and the Alps would empty out entirely: “One need not be a nationalist for such ­things to be undesirable.” Haberler proposed that he could prove that “­free trade is beneficial for all even when ­there is no freedom of migration and the ­peoples remain firmly rooted in their countries.”97 He did so by revisiting David Ricardo’s idea of comparative advantage but recasting it without the discredited ­labor theory of value. In his version, workers did not need to be mobile over national borders as long as prices ­were. If prices accurately reflected the relative supply and demand on markets, then t­ hese would guide entrepreneurs to the most efficient use of their resources.

In one of his first published works, Mises asked as a young student in 1906 ­whether “En­glish and German workers may have to descend to the lowly standard of life of the Hindus and coolies to compete with them.”62 In 1919 he provided a mixed answer: on the one hand, in the world economy he ­imagined the Eu­ro­ pean worker would certainly earn less than he had become accustomed to. On the other hand, the “Hindus and coolies” of the world would earn more. Once one abandoned David Ricardo’s odd hesitation at expanding the scope of the spatial division of l­abor, Mises wrote, “then one sees a tendency prevail over the entire earth ­toward equalization of the rate of return on capital and of the wage of ­labor. Then, fi­nally, ­t here no longer are poorer and richer nations but only more densely and less densely settled and cultivated countries.”63 A W o r l d of W alls 43 The primary prob­lem was the most obvious one: the unwillingness of Eu­ro­pean workers to accept lower wages for the sake of ­either the higher law of liberalism or, as in Mises’s argument, the benefit of a distant, likely nonwhite, foreign worker.


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Hive Mind: How Your Nation’s IQ Matters So Much More Than Your Own by Garett Jones

behavioural economics, centre right, classic study, clean water, corporate governance, David Ricardo: comparative advantage, en.wikipedia.org, experimental economics, Flynn Effect, Gordon Gekko, greed is good, hive mind, invisible hand, Kenneth Arrow, law of one price, meta-analysis, prediction markets, Robert Gordon, Ronald Coase, Saturday Night Live, social intelligence, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tyler Cowen, wikimedia commons, zero-sum game

When it came to freer international trade, education did a better job predicting pro-market attitudes, for instance, so perhaps modern American schooling really does make you friendlier toward people in other countries or perhaps education helps people understand the Victorian-era economist David Ricardo’s unintuitive “law of comparative advantage,” the bedrock idea underlying the argument for free trade. But in general, IQ was a good predictor of pro-market attitudes, winning the IQ versus education race. Higher cognitive skills apparently help people think more like economists. And if economists genuinely have more information about the economy than the average person—I’ll leave that for you to decide—then higher cognitive skills mean better informed voters.

., 159–60 Pakistan: income-IQ relationship in, 44 Palestine: average cognitive ability score in, 169; average IQ score in, 169 Pande, Rohini, 129–30 paradox of IQ, 32; defined, 5, 6–7, 167 patience: Barro and Sala-i-Martin on, 77–79; and conformity, 13; in politics, 105, 111–16; Ramsey on, 71, 167; relationship to cooperation, 91, 92, 96, 110; relationship to IQ scores, 1, 65–66, 67–73, 80–81, 84, 91, 92, 96; and savings, 71–73, 74, 75, 77–79, 84; as virtue, 76–81 peer effects, 152; and IQ scores, 59–60, 146–47 perceptiveness, social: and IQ, 91–92, 94–96; relationship to cooperation, 91–92, 96, 110 Peri, Giovanni, 159–60 personality tests, 28–29, 151 Philippines: average cognitive ability score in, 9, 169; average IQ score in, 169; GDP per person and cognitive ability in, 9; lead exposure in, 49–50 Philips, Jennifer, 146 pie-growing, 108, 112; relationship to IQ scores, 3–4, 100, 101; vs. pie-grabbing approach, 2–4 PIRLS (Progress in International Reading Literacy Study), 6, 7–9, 46, 47, 170 PISA (Programme for International Student Assessment), 6, 7–9, 10, 45, 46, 47, 166, 170 Pleeter, Saul, 69 Poland: average cognitive ability score in, 169; average IQ score in, 47, 169; da Vinci Effect in, 47 politics: accountability of politicians, 130–31; and Coase Theorem, 108–9, 110, 111–13, 118, 166; corruption in, 1, 2, 84, 110–11, 117, 130, 162; epistocracy, 136–37, 162; government policies regarding IQ scores, 5, 50, 56, 58–59, 60, 62–64, 167; government promises, 114–16; government quality and IQ scores, 116–18, 129–31, 162; inflation temptation, 114–15; informed voters, 122–31, 136–37, 162, 165, 167; IQ scores of politicians, 118–19, 125; and long time horizons, 104–5; patience in, 105, 111–16; political attitudes and IQ scores, 127–29; political attitudes and social conformity, 132–34; political regimes, 105–6; prosperity and cooperation in, 105; relationship to immigration, 161–63; relationship to national standardized test scores, 1, 2; repeated prisoner’s dilemmas (RPDs) in, 105–6; and self-interest, 87; speech of politicians, 150; time inconsistency in government planning, 114–15 Portugal: average cognitive ability score in, 169; average IQ score in, 169 Potrafke, Niklas, 117, 166 poverty: and immigration, 161; and IQ scores, 1, 9, 43, 45, 56–57 Prescott, Ed: on time inconsistency in government planning, 114–15 prisoner’s dilemma, 86–94, 113, 116; as one-shot game, 89, 100–101, 104, 109; repeated prisoner’s dilemmas (RPDs), 88–94, 96–100, 103–6, 110, 176nn4, 10 productivity: as GDP per person, 7–9, 19; O-ring theory of, 139–47, 152, 153; relationship to cognitive skill levels, 165–66; relationship to division of labor, 151–52; relationship to education, 30–31; relationship to imitation, 144–46; relationship to IQ scores, 1, 2, 5, 8–9, 11, 12, 13, 34, 35–36, 40, 43, 57, 96, 146–47, 149, 152, 167–68; relationship to savings rate, 13, 76; relationship to wages, 30–31, 140–41, 144, 156 pro-market attitudes and IQ scores, 13, 83–84, 124–26, 127, 129 property rights, 105–6, 117, 118, 166 psychological testing firms, 39–40 public goods game, 94 public opinion: regarding economic policies, 123–26; vs. expert opinion, 121–22, 123–24; relationship to social conformity, 131–36; role of education in, 122–29; regarding toxicology, 121–22, 124 Putterman, Louis, 94 Qatar: average cognitive ability score in, 9, 169; average IQ score in, 169; GDP per person and cognitive ability in, 9 Qian, Rong: on East Asian savings rates, 80 Quimbo, Stella, 49 racism, 129 Ramsey, Frank: on imagination, 71; on mathematical theory of saving, 71–72, 84; on patience, 71, 167; Ramsey growth model, 71; on saving and investment, 71–72, 74, 77 Raven’s Progressive Matrices, 27, 35–36, 44, 58, 92, 99, 129; and Lynn’s databases, 39, 40; and MSCEIT, 33–34; as multiple choice, 20–21, 61; popularity of, 21; and verbal similarities tests, 51, 57; and vocabulary tests, 23, 33 reaction time studies, 27–28 reading tests, 1, 6, 7–9, 23, 37, 45, 46 reciprocity, 98–99, 177n13 relationship between measures: as modest/moderate, 23, 24–25, 28, 30, 32, 33, 47–48, 72, 97, 118, 119; as nearly/almost perfect, 22, 46, 172n6; as strong/robust, 22–23, 28, 46, 97, 117, 171n7; as weak, 23–24, 25, 27, 32, 33, 36, 66, 147, 152, 153–54 repeated prisoner’s dilemmas (RPDs), 88–94, 96–100, 103–6, 110, 176nn4, 10 reputation, 115–16 reverse digit span, 57, 70 Ricardo, David: on law of comparative advantage, 125 Rindermann, Heiner, 118–19, 129; on cognitive ability, 7–9, 46, 47, 166, 170, 171n5 Risk, 82 Roberts, Russ, 109 Romania: average cognitive ability score in, 169; average IQ score in, 169 Rosenstone, Steven J., 128 Russia: average cognitive ability score in, 169; average IQ score in, 169 Rustichini, Aldo, 92–93, 99 Sailer, Michael, 9, 47, 170 Sala-i-Martin, Xavier: Economic Growth, 76–79, 130; on international capital flows, 77–79; on patience, 77–79 Sass, Tim R., 60 SAT, 3, 4, 61, 100; relationship to cooperation, 96–97 Saudi Arabia: average cognitive ability score in, 169; average IQ score in, 169 savings rate: cross-country comparisons regarding, 72–73, 80–81; defined, 175n8; relationship to conformity, 73–74; relationship to investment, 13, 71–72, 74–76, 77–81; relationship to IQ scores, 13, 68, 71–73; relationship to patience, 71–73, 74, 75, 77–79, 84 Schmidt, Frank, 28 Schneider, Joel, 11, 40, 47–48 Scholastic Aptitude Test.


pages: 242 words: 68,019

Why Information Grows: The Evolution of Order, From Atoms to Economies by Cesar Hidalgo

Ada Lovelace, Albert Einstein, Arthur Eddington, assortative mating, business cycle, Claude Shannon: information theory, David Ricardo: comparative advantage, Douglas Hofstadter, Everything should be made as simple as possible, Ford Model T, frictionless, frictionless market, George Akerlof, Gödel, Escher, Bach, income inequality, income per capita, industrial cluster, information asymmetry, invention of the telegraph, invisible hand, Isaac Newton, James Watt: steam engine, Jane Jacobs, job satisfaction, John von Neumann, Joi Ito, New Economic Geography, Norbert Wiener, p-value, Paul Samuelson, phenotype, price mechanism, Richard Florida, Robert Solow, Ronald Coase, Rubik’s Cube, seminal paper, Silicon Valley, Simon Kuznets, Skype, statistical model, Steve Jobs, Steve Wozniak, Steven Pinker, Stuart Kauffman, tacit knowledge, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, working-age population

When discussing the competitiveness of nations in his book On Competition, Porter remarked: According to standard economic theory, factors of production—labor, land, natural resources, capital, infrastructure—will determine the flow of trade. A nation will export those goods that make most use of the factors with which it is relatively well endowed. This doctrine, whose origins date back to Adam Smith and David Ricardo and that is embedded in classical economics, is at best incomplete and at worst incorrect. . . . Contrary to conventional wisdom, simply having a general work force that is high school or even college educated represents no competitive advantage in modern international competition. To support competitive advantage a factor must be highly specialized to an industry’s particular needs—a scientific institute specialized in optics, a pool of venture capital to fund software companies. . . .

For a discussion on adaptability see also Walter Powell, “Neither Market nor Hierarchy: Network Forms of Organization,” in Michael J. Handel, ed., The Sociology of Organizations: Classic, Contemporary, and Critical Readings (Thousand Oaks, CA: Sage Publications, 2003), 104–117. 16. As the sociologist Walter Powell noted, “Networks . . . possess some degree of comparative advantage in coping with an environment that places a premium on innovation and customized products” (ibid.). Networks are more adaptable than hierarchies because partnerships and coalitions are a faster means of adaptability than internal development (see Michael E. Porter and Mark B. Fuller, “Coalitions and Global Strategy,” Competition in Global Industries 1, no. 10 [1986]: 315–343), but also because they are better at communicating information that is crucial for the members of a regional cluster to learn about changes in markets and technologies. 17.


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The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton by Colin Read

Abraham Wald, Albert Einstein, Bayesian statistics, Bear Stearns, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, discovery of penicillin, discrete time, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, floating exchange rates, full employment, Henri Poincaré, implied volatility, index fund, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market clearing, martingale, means of production, moral hazard, Myron Scholes, Paul Samuelson, price stability, principal–agent problem, quantitative trading / quantitative finance, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Solow, Ronald Reagan, shareholder value, Sharpe ratio, short selling, stochastic process, Thales and the olive presses, Thales of Miletus, The Chicago School, the scientific method, too big to fail, transaction costs, tulip mania, Works Progress Administration, yield curve

He took these insights to unexpected heights that redefined economics and finance in ways that still remain relevant today. The Kiel School Before the First World War, our understanding of economics took one of two forms. For some, the analysis was rhetorical and straddled the boundary between politics and economics. The political economy of Karl Marx (1818–1883), John Stuart Mill (1806–1873), David Ricardo (1772–1823), or even Adam Smith (1723–1790) treated such topics as trade, economic systems, and the ownership of resources and the means of production with unsophisticated graphical tools and with the strength of philosophical argument and logic. Alternatively, others, most notably Léon Walras (1834–1910), Antoine Augustin Cournot (1801–1877), Francis Ysidro Edgeworth (1845–1926), and Irving Fischer (1867–1947), enhanced our understanding of individual markets by introducing to the discipline increasingly sophisticated mathematical tools. 16 The Times 17 While the insights of these early great minds in economics remain valid today, their theories were not sufficiently rigorous and analytic to answer questions in modern finance.

The strength of his interpretation, though, is that it does not rely at all on pricing models for the underlying security. It is simply a natural implication of no arbitrage opportunities. While the Black-Scholes approach was static, in that it gives the option price at a fixed point in time, Merton’s intuition and comparative advantage was in looking at dynamic systems as processes. In his treatment, interest rates can change, and the equation also permitted dividends, as a percentage of the stock price. But, while Merton’s derivation is the most elegant and general of the three approaches, and while he was encouraged to publish his results immediately, he declined to do so until Black and Scholes had successfully published their derivation.


pages: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, book value, Branko Milanovic, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, carbon tax, central bank independence, centre right, circulation of elites, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation coefficient, David Ricardo: comparative advantage, demographic transition, distributed generation, diversification, diversified portfolio, European colonialism, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, Future Shock, German hyperinflation, Gini coefficient, Great Leap Forward, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Arrow, low interest rates, market bubble, means of production, meritocracy, Money creation, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, Paul Samuelson, pension reform, power law, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Robert Solow, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, Suez canal 1869, Suez crisis 1956, The Nature of the Firm, the payments system, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, twin studies, very high income, Vilfredo Pareto, We are the 99%, zero-sum game

It is important to realize, however, that the economic and social transformations of the late eighteenth and early nineteenth centuries were objectively quite impressive, not to say traumatic, for those who witnessed them. Indeed, most contemporary observers—and not only Malthus and Young—shared relatively dark or even apocalyptic views of the long-run evolution of the distribution of wealth and class structure of society. This was true in particular of David Ricardo and Karl Marx, who were surely the two most influential economists of the nineteenth century and who both believed that a small social group—landowners for Ricardo, industrial capitalists for Marx—would inevitably claim a steadily increasing share of output and income.2 For Ricardo, who published his Principles of Political Economy and Taxation in 1817, the chief concern was the long-term evolution of land prices and land rents.

The Ups and Downs of Ricardian Equivalence This long and tumultuous history of public debt, from the tranquil rentiers of the eighteenth and nineteenth centuries to the expropriation by inflation of the twentieth century, has indelibly marked collective memories and representations. The same historical experiences have also left their mark on economists. For example, when David Ricardo formulated in 1817 the hypothesis known today as “Ricardian equivalence,” according to which, under certain conditions, public debt has no effect on the accumulation of national capital, he was obviously strongly influenced by what he witnessed around him. At the moment he wrote, British public debt was close to 200 percent of GDP, yet it seemed not to have dried up the flow of private investment or the accumulation of capital.

I welcome input from readers of the book or website, who can send comments and criticisms to piketty@ens.fr. Introduction 1. The English economist Thomas Malthus (1766–1834) is considered to be one of the most influential members of the “classical” school, along with Adam Smith (1723–1790) and David Ricardo (1772–1823). 2. There is of course a more optimistic school of liberals: Adam Smith seems to belong to it, and in fact he never really considered the possibility that the distribution of wealth might grow more unequal over the long run. The same is true of Jean-Baptiste Say (1767–1832), who also believed in natural harmony. 3.


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The Fair Trade Scandal: Marketing Poverty to Benefit the Rich by Ndongo Sylla

"there is no alternative" (TINA), British Empire, carbon footprint, corporate social responsibility, David Ricardo: comparative advantage, deglobalization, degrowth, Doha Development Round, Food sovereignty, global value chain, illegal immigration, income inequality, income per capita, invisible hand, Joseph Schumpeter, labour mobility, land reform, market fundamentalism, mass immigration, means of production, Mont Pelerin Society, Naomi Klein, non-tariff barriers, offshore financial centre, open economy, Philip Mirowski, plutocrats, price mechanism, purchasing power parity, Ronald Reagan, Scientific racism, selection bias, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, transatlantic slave trade, trickle-down economics, vertical integration, Washington Consensus, zero-sum game

According to Magnusson, describing Smith as someone with mercantilist leanings is only problematic if he is considered as a supporter of laissez-faire and the inventor of the doctrine of comparative advantage. He argues that Smith’s ‘productive theory’ was never developed with a view to producing the comparative advantage doctrine, as Smith had doubts about its relevance given the context of his time. The principle of comparative advantage The comparative advantage doctrine first appeared under the pen of Robert Torrens before being popularised by David Ricardo. It provides the main argument in favour of free trade and the international division of labour based on specialisation. To understand the comparative advantage logic, one has to approach it from the perspective of the notion of absolute advantage.

To justify the benefits of free trade, Ricardo developed the idea of comparative advantage. He gave the example of cloth and wine to show that although England was less competitive than Portugal on each of these products taken in isolation, it was still in the country’s interest to maintain trade relations with Portugal. The example chosen by Ricardo distorted reality (at the time, England was more competitive than Portugal from an industrial point of view – see Hudson, 2009). It is his counterintuitive conclusion, however, that grabs the attention. Nowadays, in the field of family economics, comparative advantage is also used to justify the domestic division of labour: even if men can be more efficient at the market and in household chores, the economic rationale recommends that they specialise in market activities while women specialise in ‘domestic 65 Sylla T02779 01 text 65 28/11/2013 13:04 the fair trade scandal production’.

According to the traditional theory of international trade (the Heckscher–Ohlin– Samuelson model in particular), the international trade of goods is a substitute for the movement of labour. With international openness and given the differences in factor endowment (land, labour, capital, etc.), countries will tend to specialise in the production and export of goods for which they have a comparative advantage. Thus, in countries where labour is the abundant factor, which is the case for developing countries, exports will include a strong labour component, especially unskilled. In contrast, in countries where capital is the abundant factor, as is the case for developed countries, exports will contain a strong capital component.


pages: 209 words: 80,086

The Global Auction: The Broken Promises of Education, Jobs, and Incomes by Phillip Brown, Hugh Lauder, David Ashton

active measures, affirmative action, An Inconvenient Truth, barriers to entry, Branko Milanovic, BRICs, business process, business process outsourcing, call centre, classic study, collective bargaining, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, deindustrialization, deskilling, disruptive innovation, Dutch auction, Ford Model T, Frederick Winslow Taylor, full employment, future of work, glass ceiling, global supply chain, Great Leap Forward, immigration reform, income inequality, industrial cluster, industrial robot, intangible asset, job automation, Jon Ronson, Joseph Schumpeter, knowledge economy, knowledge worker, low skilled workers, manufacturing employment, market bubble, market design, meritocracy, neoliberal agenda, new economy, Paul Samuelson, pensions crisis, post-industrial society, profit maximization, purchasing power parity, QWERTY keyboard, race to the bottom, Richard Florida, Ronald Reagan, shared worldview, shareholder value, Silicon Valley, sovereign wealth fund, stem cell, tacit knowledge, tech worker, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, transaction costs, trickle-down economics, vertical integration, winner-take-all economy, working poor, zero-sum game

Arguably everyone wants these things from a job but the difference with Generation Y is they’ll talk with their feet when their needs are not fulfilled.”15 From Bloody Wars to Knowledge Wars This evolutionary model of an inexorable shift from physical to mental labor is not limited to the changing occupational structure within North America or Europe. It extends to include the relationship The False Promise 19 between nation-states based on the principles of free trade and comparative advantage. David Ricardo, a nineteenth-century English political economist, argued the case for free trade, believing that rich and poor nations alike could gain from trading with each other as long as they specialized in products for which they had an advantage. The rise of the global knowledge economy was believed to remove much of the source of conflict and strife between nations.

Inside-Out Economic Development It wasn’t supposed to be like this. Emerging economies where expected to concentrate on the bodywork and slowly evolve toward more heady activities moving through the stages of economic development.24 But the quality-cost revolution challenges established ideas about the evolutionary model of economic progress and comparative advantage, lending support to Alexander Gerschenkron, a Russian-born economic historian at Harvard University. He argued against much of the literature in development economics in the 1960s by claiming that relative economic backwardness may not prevent emerging economies from leapfrogging more established economic competitors by finding substitutes for what are often seen as the prerequisites for achieving global quality standards.25 One of the advantages of backwardness is that there is no legacy of industrialism, as companies, regions, and nations can rapidly incorporate new technologies and business practices while taking advantage of low labor costs.

In part, an assumed sense of common fate associated with national economic development reflects the experience of the developed economies of the past, where economic innovation and social progress were assumed to march to the same beat.27 As we will show, the economic fates of those living in America and other developed economies have also diverged, perhaps in a less visible way, but its consequences are no less problematic. National economic performance in much of the expert literature is explained in terms of path dependence. This highlights historical, social, and institutional sources of comparative advantage to explain differences in national economic performance.28 Differences in social foundations are believed to explain why, for example, Germany has maintained a competitive advantage in high-end engineering. The high quality of its technical education is organized through the dual system of workplace and college training, and high trust relations within the Mittelstadt sector of small and medium-sized family-dominated companies encourage sharing ideas, technologies, and organizational know-how that contribute to competitive advantage.


pages: 1,205 words: 308,891

Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

"Friedman doctrine" OR "shareholder theory", Airbnb, Akira Okazaki, antiwork, behavioural economics, big-box store, Black Swan, book scanning, British Empire, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, classic study, clean water, Columbian Exchange, conceptual framework, correlation does not imply causation, Costa Concordia, creative destruction, critique of consumerism, crony capitalism, dark matter, Dava Sobel, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, Deng Xiaoping, do well by doing good, Donald Trump, double entry bookkeeping, electricity market, en.wikipedia.org, epigenetics, Erik Brynjolfsson, experimental economics, Ferguson, Missouri, food desert, Ford Model T, fundamental attribution error, Garrett Hardin, Georg Cantor, George Akerlof, George Gilder, germ theory of disease, Gini coefficient, God and Mammon, Great Leap Forward, greed is good, Gunnar Myrdal, Hans Rosling, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, immigration reform, income inequality, interchangeable parts, invention of agriculture, invention of writing, invisible hand, Isaac Newton, Islamic Golden Age, James Watt: steam engine, Jane Jacobs, John Harrison: Longitude, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labor-force participation, lake wobegon effect, land reform, liberation theology, lone genius, Lyft, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, means of production, middle-income trap, military-industrial complex, Naomi Klein, new economy, Nick Bostrom, North Sea oil, Occupy movement, open economy, out of africa, Pareto efficiency, Paul Samuelson, Pax Mongolica, Peace of Westphalia, peak oil, Peter Singer: altruism, Philip Mirowski, Pier Paolo Pasolini, pink-collar, plutocrats, positional goods, profit maximization, profit motive, public intellectual, purchasing power parity, race to the bottom, refrigerator car, rent control, rent-seeking, Republic of Letters, road to serfdom, Robert Gordon, Robert Shiller, Ronald Coase, Scientific racism, Scramble for Africa, Second Machine Age, secular stagnation, seminal paper, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, spinning jenny, stakhanovite, Steve Jobs, tacit knowledge, TED Talk, the Cathedral and the Bazaar, The Chicago School, The Market for Lemons, the rule of 72, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, total factor productivity, Toyota Production System, Tragedy of the Commons, transaction costs, transatlantic slave trade, Tyler Cowen, Tyler Cowen: Great Stagnation, uber lyft, union organizing, very high income, wage slave, Washington Consensus, working poor, Yogi Berra

Irish population has never recovered its level in 1845, unless you include the tens of millions of Irish descendants in land-rich places abroad, such as my father’s family. Malthus was confirmed. Diminishing returns on labor applied to fixed land would always be immiserizing, said the Malthus of 1798. The notion was taken up with grim enthusiasm by other classical economists, such as David Ricardo and Karl Marx. True, Malthus in later editions, beginning in 1803, as the historian of economic thought Ross Emmett has argued, believed that a rational restraint on procreation could permit some modest growth of income. “Biology could never be conquered,” Emmett writes, “but within the right institutional context, reason could interrupt its career.”

Jews in Holland in the seventeenth century suffered no locking up in ghettos at night, as, for example, in Venice or Frankfurt at the time; no expropriations and expulsions, as in 1290 in England—an England supposed, especially by Englishmen with scant knowledge of other places, to be the nursery of every free institution. In England the practicing Jews (“practicing” lets out David Ricardo and Benjamin Disraeli) were not entirely emancipated to serve in Parliament until 1861. The earliest significant case of religious toleration was in Hungarian Transylvania, whose Diet in the town of Torda declared in 1568 that “no one is permitted to threaten to imprison or banish anyone because of their teaching, because faith is a gift from God.”5 The act would have applied even to a Unitarian, such as Thomas Aikenhead of Edinburgh or, secretly, Isaac Newton of Cambridge, had they had the good fortune to live in Transylvania.

“Jews are conspicuously underrepresented in the pantheon of great inventors before the modern industrial age. Jewish traditional culture was inherently backward-looking and conservative and thus did not encourage revolutionary ideas and thinking outside the box.”4 Well, except for Marx and Freud, David Ricardo and Georg Cantor, George Gershwin and Lenny Bruce—who nonetheless make Mokyr’s point, having invented ideas, not machines. A similar point can be made about the origins of the French Enlightenment in the debate between the ancients and the moderns, or of the Scottish Enlightenment in the ending of Calvinist rule.


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Makers by Chris Anderson

3D printing, Airbnb, Any sufficiently advanced technology is indistinguishable from magic, Apple II, autonomous vehicles, barriers to entry, Buckminster Fuller, Build a better mousetrap, business process, carbon tax, commoditize, company town, Computer Numeric Control, crowdsourcing, dark matter, David Ricardo: comparative advantage, deal flow, death of newspapers, dematerialisation, digital capitalism, DIY culture, drop ship, Elon Musk, factory automation, Firefox, Ford Model T, future of work, global supply chain, global village, hockey-stick growth, hype cycle, IKEA effect, industrial robot, interchangeable parts, Internet of things, inventory management, James Hargreaves, James Watt: steam engine, Jeff Bezos, job automation, Joseph Schumpeter, Kickstarter, Lean Startup, manufacturing employment, Mark Zuckerberg, means of production, Menlo Park, Neal Stephenson, Network effects, planned obsolescence, private spaceflight, profit maximization, QR code, race to the bottom, Richard Feynman, Ronald Coase, Rubik’s Cube, Scaled Composites, self-driving car, Sheryl Sandberg, side project, Silicon Valley, Silicon Valley startup, Skype, slashdot, South of Market, San Francisco, SpaceShipOne, spinning jenny, Startup school, stem cell, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, supply-chain management, the long tail, The Nature of the Firm, The Wealth of Nations by Adam Smith, TikTok, Tragedy of the Commons, transaction costs, trickle-down economics, vertical integration, Virgin Galactic, Whole Earth Catalog, X Prize, Y Combinator

In this future, the pendulum of manufacturing will swing back to the most nimble developed countries, despite their relatively expensive labor. Globalization and communications flattened the world once, drawing manufacturing to low-cost labor in the developing world, a process first observed in the nineteenth century by David Ricardo as the triumph of “comparative advantage.” Now we are flattening it again, but along a different dimension. Thanks to automation, labor costs are a small and shrinking fraction of the cost of making something. For electronics, they can be just a few percent. At that point, other factors, from transportation costs to time, start to matter more.

But agricultural technologies just allowed us to feed more people more easily. There was something different about the machines that allowed us to make products that improved our quality of life, from clothes to transportation. For one thing, people around the world wanted such goods, so they drove trade. Trade, in turn, drove the engine of comparative advantage, so that countries did what they could do best and imported the rest, which improved everyone’s productivity. And that, in turn, drove growth. As went the cotton mills of Manchester, so went the world economy. The Second Industrial Revolution The term industrial revolution itself was coined in 1799 by Louis-Guillaume Otto, a French diplomat, in a letter reporting that such a thing was under way in France (revolutions were much in vogue).16 Revolution was also, perhaps unsurprisingly, the term used to describe the industrial changes by Friedrich Engels, whose capitalist critiques in the mid-1800s helped lead to Marxism.

In a sense, this is just the extreme of the specialization that Adam Smith originally recognized in The Wealth of Nations as the key to an efficient market. People should do only what they do best, he said, and trade with others who make other specialized goods. No one person or town should try to do it all, since a society can do far more collectively with an efficient division of labor—comparative advantage plus trade equals growth. What was good in the eighteenth century is even better in the twenty-first, now that specialists have access to global supply chains for their commodity input materials and global consumer markets for their niche output products. Nearly thirty years ago, two MIT professors, Michael Piore and Charles Sabel, predicted this transition in a book titled The Second Industrial Divide.


Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Pérez

agricultural Revolution, Alan Greenspan, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, business cycle, capital controls, commoditize, Corn Laws, creative destruction, David Ricardo: comparative advantage, deindustrialization, distributed generation, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, Ford Model T, full employment, Hyman Minsky, informal economy, joint-stock company, Joseph Schumpeter, junk bonds, knowledge economy, late capitalism, market fundamentalism, military-industrial complex, new economy, nuclear winter, offshore financial centre, post-industrial society, profit motive, railway mania, Robert Shiller, Sand Hill Road, satellite internet, scientific management, Silicon Valley, Simon Kuznets, South Sea Bubble, Suez canal 1869, technological determinism, The Theory of the Leisure Class by Thorstein Veblen, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, trade route, tulip mania, Upton Sinclair, vertical integration, Washington Consensus

This echoed the assertions of Irving Fisher, the brilliant economist, who had the misfortune of declaring in mid-1929 that ‘stock prices had reached what looked like a permanently high plateau’.241 The Methodenstreit between the historical school and the neo-classicals, which in practice expelled the state, Society and the historical context from economic theory, occurred in the period of installation of the third surge, which in the periodization proposed here is parallel to the installation period of the fifth, when the monetarists defeated the Keynesians.242 With a longer time frame, in Heilbroner’s classic about the ‘worldly philosophers’,243 where he locates each of the great economic thinkers in the context of his times, we get a glimpse at the possible experiential source of some of their interpretations. If David Ricardo had not been a successful stockbroker living in the midst of the maturing first surge, he might not have realized the threat to industrial profits coming from the protective Corn Laws and the rising cost of land, so he might not have come up with a theory of rents. If Veblen had not lived through the ‘savage world’ of the 1880s and 1890s he might not have developed his views about the negative role of financial capital in contrast with that of the engineers.

After asserting that the long waves he had established, ‘relative to the series most important in economic life, are international; and the timing of these cycles corresponds fairly well for European Uneven Development and Time-Lags in Diffusion 63 capitalist countries’, he added that, though the USA may have peculiarities, ‘we can venture ... that the same timing holds also for the United States’.81 What is held in this book is that, though major crises tend to be nearly simultaneous across industries and the world, because of instant transmission of the violent contraction of markets, most diffusion processes are sequential and lagged, taking the form of wider and wider ripples of propagation. As paradigms mature in the core countries, investment opportunities move further and further out, seeking comparative advantages, different conditions and possibilities for outstretching saturated markets. It would seem that each paradigm spreads in ripple-like fashion,82 both from sector to sector across the industrial structure and geographically inside each country and across the world. In terms of its sectoral impact, each technological revolution begins with a group of core industries, usually involving some energy source or another allpervasive input, a new infrastructure and a few main products and processes.83 From there it spreads to the most closely connected industries forming a strongly interactive constellation with very high synergy and intensive feedback effects.

But these countries had not gone through a Frenzy as intense as that of the United States, hence they did not have such a monumental collapse to come out from; but, neither did they benefit from the advantages of the frenzy phase: that is, they did not have a fully installed industrial base for deploying mass production, nor had they developed a vast road network accompanied by electric utilities, nor had the paradigm diffused as deeply as in the USA for the establishment of a mass-consumption mode of growth. So, neither alone nor together could those countries pull the world onto a synergy period and their recoveries were fragile.201 201. An additional point to make is that the nature of the particular paradigm can favor certain comparative advantages. For the deployment of the ‘homogenizing’ consumption patterns of mass production, large size and population were an advantage. The USA and the Soviet Union had them (and so would have been the case of a Nazi empire in Europe). 126 Technological Revolutions and Financial Capital In the meantime, Roosevelt’s New Deal, which tried to apply many of the right recipes for successful synergy, was being systematically opposed for fear of Socialism.


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The Economic Singularity: Artificial Intelligence and the Death of Capitalism by Calum Chace

"World Economic Forum" Davos, 3D printing, additive manufacturing, agricultural Revolution, AI winter, Airbnb, AlphaGo, Alvin Toffler, Amazon Robotics, Andy Rubin, artificial general intelligence, augmented reality, autonomous vehicles, banking crisis, basic income, Baxter: Rethink Robotics, Berlin Wall, Bernie Sanders, bitcoin, blockchain, Boston Dynamics, bread and circuses, call centre, Chris Urmson, congestion charging, credit crunch, David Ricardo: comparative advantage, deep learning, DeepMind, Demis Hassabis, digital divide, Douglas Engelbart, Dr. Strangelove, driverless car, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Fairchild Semiconductor, Flynn Effect, full employment, future of work, Future Shock, gender pay gap, Geoffrey Hinton, gig economy, Google Glasses, Google X / Alphabet X, Hans Moravec, Herman Kahn, hype cycle, ImageNet competition, income inequality, industrial robot, Internet of things, invention of the telephone, invisible hand, James Watt: steam engine, Jaron Lanier, Jeff Bezos, job automation, John Markoff, John Maynard Keynes: technological unemployment, John von Neumann, Kevin Kelly, Kiva Systems, knowledge worker, lifelogging, lump of labour, Lyft, machine translation, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Milgram experiment, Narrative Science, natural language processing, Neil Armstrong, new economy, Nick Bostrom, Occupy movement, Oculus Rift, OpenAI, PageRank, pattern recognition, post scarcity, post-industrial society, post-work, precariat, prediction markets, QWERTY keyboard, railway mania, RAND corporation, Ray Kurzweil, RFID, Rodney Brooks, Sam Altman, Satoshi Nakamoto, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Skype, SoftBank, software is eating the world, speech recognition, Stephen Hawking, Steve Jobs, TaskRabbit, technological singularity, TED Talk, The future is already here, The Future of Employment, Thomas Malthus, transaction costs, Two Sigma, Tyler Cowen, Tyler Cowen: Great Stagnation, Uber for X, uber lyft, universal basic income, Vernor Vinge, warehouse automation, warehouse robotics, working-age population, Y Combinator, young professional

[xxv] During the early 19th century, when the industrial revolution was in full swing, most members of the newly-established social science of economics argued that any unemployment caused by the introduction of machinery would be resolved by the growth in overall economic demand. But there were prominent figures who took the more pessimistic view, that innovation could cause long-term unemployment. They included Thomas Malthus, John Stuart Mill, and even the most respected economist of the time, David Ricardo.[xxvi] The Luddite fallacy and economic theory The debate can get quite technical, but there are two reasons why it has been correct to reject the Luddite fallacy up until now. The first reason is economic theory: companies introduce machines because they increase production and cut costs.

There are many important businesses and activities now that could not have been imagined 50 years ago. In fact, Autor accuses Martin Ford of arrogance in writing off human ingenuity. In an article for the Journal of Economic Perspectives (summer 2015) entitled “Why are there still so many jobs?”,[lv] Autor forecasts that people will retain a comparative advantage in so-called “human” attributes such as interpersonal interaction, flexibility, adaptivity. He argues that many jobs – like radiologist – combine these with the routine, predictable tasks where computers win. Autor believes it will not be possible to separate these two types of tasks, so humans will continue to carry out the whole bundle.


pages: 248 words: 73,689

Age of the City: Why Our Future Will Be Won or Lost Together by Ian Goldin, Tom Lee-Devlin

15-minute city, 1960s counterculture, agricultural Revolution, Alvin Toffler, Anthropocene, anti-globalists, Berlin Wall, Bonfire of the Vanities, Brixton riot, call centre, car-free, carbon footprint, Cass Sunstein, charter city, Chuck Templeton: OpenTable:, clean water, cloud computing, congestion charging, contact tracing, coronavirus, COVID-19, CRISPR, data science, David Brooks, David Ricardo: comparative advantage, decarbonisation, deindustrialization, Deng Xiaoping, desegregation, Edward Glaeser, Edward Jenner, Enrique Peñalosa, fake news, Fall of the Berlin Wall, financial engineering, financial independence, future of work, General Motors Futurama, gentrification, germ theory of disease, global pandemic, global supply chain, global village, Haight Ashbury, Hernando de Soto, high-speed rail, household responsibility system, housing crisis, Howard Rheingold, income per capita, Induced demand, industrial robot, informal economy, invention of the printing press, invention of the wheel, Jane Jacobs, Jeff Bezos, job automation, John Perry Barlow, John Snow's cholera map, Kickstarter, knowledge economy, knowledge worker, labour mobility, Lewis Mumford, lockdown, Louis Pasteur, low interest rates, low skilled workers, manufacturing employment, Marshall McLuhan, mass immigration, megacity, Neal Stephenson, Network effects, New Urbanism, offshore financial centre, open borders, open economy, Pearl River Delta, race to the bottom, Ray Oldenburg, remote working, rent control, Republic of Letters, Richard Florida, ride hailing / ride sharing, rising living standards, Salesforce, Shenzhen special economic zone , smart cities, smart meter, Snow Crash, social distancing, special economic zone, spinning jenny, Steve Jobs, Stewart Brand, superstar cities, the built environment, The Death and Life of Great American Cities, The Great Good Place, The Wealth of Nations by Adam Smith, trade liberalization, trade route, Upton Sinclair, uranium enrichment, urban decay, urban planning, urban sprawl, Victor Gruen, white flight, working poor, working-age population, zero-sum game, zoonotic diseases

Trade through most of history was predominately shaped by the natural endowments of different regions. Variations in climate, material deposits and flora and fauna made trade mutually advantageous by allowing economies to focus on producing those goods in which they had the greatest comparative advantage, an insight originally crystallized by the classical economist David Ricardo. In the 1930s, the Swedish economists Eli Heckscher and Bertil Ohlin extended this theory for an industrialized world by also considering variations in the relative amount of labour and capital available in different economies. Those with an abundance of capital relative to labour – rich countries, in other words – would benefit by focusing on the production of capital-intensive goods, such as industrial machinery, importing labour-intensive goods, such as textiles, from abroad.41 By the 1970s, it had become apparent that these theories could not adequately explain patterns of trade.


Green Economics: An Introduction to Theory, Policy and Practice by Molly Scott Cato

Albert Einstein, back-to-the-land, banking crisis, banks create money, basic income, Bretton Woods, Buy land – they’re not making it any more, carbon footprint, carbon tax, central bank independence, clean water, Community Supported Agriculture, congestion charging, corporate social responsibility, David Ricardo: comparative advantage, degrowth, deskilling, energy security, food miles, Food sovereignty, Fractional reserve banking, full employment, gender pay gap, green new deal, income inequality, informal economy, intentional community, Intergovernmental Panel on Climate Change (IPCC), job satisfaction, land bank, land reform, land value tax, Mahatma Gandhi, market fundamentalism, Money creation, mortgage debt, Multi Fibre Arrangement, passive income, peak oil, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, reserve currency, Rupert Read, seminal paper, the built environment, The Spirit Level, Tobin tax, tontine, University of East Anglia, wikimedia commons

The earliest attempt to formalize a discussion of the benefits of trade within economic theory was made by David Ricardo, whose ‘theory of comparative advantage’, first published in 1817, is still relied on by mainstream economists. It was made in contrast to the theory of absolute advantage, which suggests that if a country can produce one good more efficiently than another country it would gain economically if it concentrated its efforts on its best good and traded this with other countries for goods that they produced more efficiently. This is intuitively reasonable. The next step is to argue that, even if one country produces everything less efficiently than its neighbour, it is still better placed to concentrate on the good it produces most efficiently itself and trade for other goods with its neighbours.

In this section we will first explore the economic theories that have been used to justify global free trade, particularly the theory of comparative advantage. The following section explores who are the winners and losers in the global trade game. We then come to the heart of the matter from the perspec- 124 GREEN ECONOMICS tive of a green economist: the impossibility of persisting with the present volume of movement of goods during this era of climate change and movement towards lower use of fossil fuels. Finally we explore policies and practices for greening trade at the local and global levels. Whose comparative advantage? The earliest attempt to formalize a discussion of the benefits of trade within economic theory was made by David Ricardo, whose ‘theory of comparative advantage’, first published in 1817, is still relied on by mainstream economists.

Deskilling and reskilling Greening production and distribution 55 56 59 61 64 vi GREEN ECONOMICS 5 Money The politics of money Money and global injustice Money creation: Financially and ecologically unstable How money wastes people Local currencies for a localized world Conclusion 71 72 74 77 79 81 85 6 Green Business: From Maximizing Profits to a Vision of Conviviality Limitations of market and technological solutions Issues of scale and ownership Learning to switch the lights off Low-carbon growth as the flourishing of the convivial economy 89 90 92 95 98 PART III POLICIES FOR A GREEN ECONOMY 7 The Policy Context The ecological modernization discourse Policy responses to climate change What’s wrong with GDP? Measuring what we value 105 106 109 113 116 8 Globalization and Trade Whose comparative advantage? How free is free trade? Trade in the era of climate change and peak oil Greening trade locally Greening trade globally 123 124 126 129 131 134 9 Relocalizing Economic Relationships Localization to replace globalization Political protection for local economies Self-reliant local economies on the ground The next step: The bioregional economy Conclusion 139 139 142 144 150 153 10 Green Taxation Theory of green taxation Strategic taxation Taxes on commons Ecotaxes 157 157 160 162 164 CONTENTS vii 11 Green Welfare Green approaches to social policy What is poverty?


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The Globotics Upheaval: Globalisation, Robotics and the Future of Work by Richard Baldwin

agricultural Revolution, Airbnb, AlphaGo, AltaVista, Amazon Web Services, Apollo 11, augmented reality, autonomous vehicles, basic income, Big Tech, bread and circuses, business process, business process outsourcing, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, commoditize, computer vision, Corn Laws, correlation does not imply causation, Credit Default Swap, data science, David Ricardo: comparative advantage, declining real wages, deep learning, DeepMind, deindustrialization, deskilling, Donald Trump, Douglas Hofstadter, Downton Abbey, Elon Musk, Erik Brynjolfsson, facts on the ground, Fairchild Semiconductor, future of journalism, future of work, George Gilder, Google Glasses, Google Hangouts, Hans Moravec, hiring and firing, hype cycle, impulse control, income inequality, industrial robot, intangible asset, Internet of things, invisible hand, James Watt: steam engine, Jeff Bezos, job automation, Kevin Roose, knowledge worker, laissez-faire capitalism, Les Trente Glorieuses, low skilled workers, machine translation, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, manufacturing employment, Mark Zuckerberg, mass immigration, mass incarceration, Metcalfe’s law, mirror neurons, new economy, optical character recognition, pattern recognition, Ponzi scheme, post-industrial society, post-work, profit motive, remote working, reshoring, ride hailing / ride sharing, Robert Gordon, Robert Metcalfe, robotic process automation, Ronald Reagan, Salesforce, San Francisco homelessness, Second Machine Age, self-driving car, side project, Silicon Valley, Skype, Snapchat, social intelligence, sovereign wealth fund, standardized shipping container, statistical model, Stephen Hawking, Steve Jobs, supply-chain management, systems thinking, TaskRabbit, telepresence, telepresence robot, telerobotics, Thomas Malthus, trade liberalization, universal basic income, warehouse automation

Jobs tend to move out of the sectors competing with imports, but move into sectors that export. In the case of the United Kingdom, booming imports of food were matched by equally booming exports of textiles and other manufactured goods. The principle guiding this impact is David Ricardo’s famous principle of comparative advantage, which, roughly put, says: “Do what you do best; import the rest.” In nineteenth-century Britain, the “best” meant manufacturing. British competitiveness in manufacturing had a huge head start by the 1800s and its edge over other nations was still growing, so globalization allowed Britain to become the workshop of the world.

At first, the controlling instructions were fed in using a one-inch-wide punched tape. A “controller unit”—a sort of computer—read and interpreted the instructions and converted them into mechanical motions by the machine tool. The newfound flexibility of machine tools destroyed one part of humans’ comparative advantage in factories—namely, their ability to learn new tasks, adapt to evolving situations, and react flexibly. The 1973 Milestone Dating exactly when the continental divide was crossed is difficult since progress is a process, not an event. Nonetheless, 1973 is a convenient starting date since it is the year that Texas Instrument employees Gary Boone and Michael Cochran patented the first “computer on a chip.”


pages: 365 words: 88,125

23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

accelerated depreciation, affirmative action, Alan Greenspan, AOL-Time Warner, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, borderless world, business logic, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, deskilling, digital divide, ending welfare as we know it, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, full employment, German hyperinflation, Gini coefficient, Glass-Steagall Act, hiring and firing, Hyman Minsky, income inequality, income per capita, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market fundamentalism, means of production, Mexican peso crisis / tequila crisis, microcredit, Myron Scholes, North Sea oil, offshore financial centre, old-boy network, post-industrial society, price stability, profit maximization, profit motive, purchasing power parity, rent control, Robert Solow, shareholder value, short selling, Skype, structural adjustment programs, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, Toyota Production System, trade liberalization, trickle-down economics, women in the workforce, working poor, zero-sum game

Therefore, if you gave the poor voting rights, they would want to maximize their current consumption, rather than investment, by imposing taxes on the rich and spending them. This might make the poor better off in the short run, but it would make them worse off in the long run by reducing investment and thus growth. In their anti-poor politics, the liberals were intellectually supported by the Classical economists, with David Ricardo, the nineteenth-century British economist, as the most brilliant of them all. Unlike today’s liberal economists, the Classical economists did not see the capitalist economy as being made up of individuals. They believed that people belonged to different classes – capitalists, workers and landlords – and behaved differently according to their classes.

At the time, Korea was one of the poorest countries in the world, relying on natural resource-based exports (e.g., fish, tungsten ore) or labour-intensive manufactured exports (e.g., wigs made with human hair, cheap garments). According to the received theory of international trade, known as the ‘theory of comparative advantage’, a country like Korea, with a lot of labour and very little capital, should not be making capital-intensive products, like steel.1 Worse, Korea did not even produce the necessary raw materials. Sweden developed an iron and steel industry quite naturally because it has a lot of iron ore deposits.

Chang, The East Asian Development Experience: The Miracle, the Crisis, and the Future (Zed Press, London, 2006). 6 For comparison of the quality of institutions in today’s rich countries when they were at similar levels of development with those found in today’s developing countries, see H-J. Chang, Kicking Away the Ladder (Anthem Press, London, 2002), ch. 3. THING 12 1 For a user-friendly explanation and criticism of the theory of comparative advantage, see ‘My six-year-old son should get a job’, ch. 3 of my Bad Samaritans (Random House, London, 2007, and Bloomsbury USA, New York, 2008). 2 Further details can be found from my earlier books, Kicking Away the Ladder (Anthem Press, London, 2002) and Bad Samaritans. THING 13 1 The sixteen countries where inequality increased are, in descending order of income inequality as of 2000, the US, South Korea, the UK, Israel, Spain, Italy, the Netherlands, Japan, Australia, Canada, Sweden, Norway, Belgium, Finland, Luxemburg and Austria.


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Straight Talk on Trade: Ideas for a Sane World Economy by Dani Rodrik

3D printing, airline deregulation, Asian financial crisis, bank run, barriers to entry, behavioural economics, Berlin Wall, Bernie Sanders, blue-collar work, Bretton Woods, BRICs, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, carried interest, central bank independence, centre right, collective bargaining, conceptual framework, continuous integration, corporate governance, corporate social responsibility, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Donald Trump, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, export processing zone, failed state, financial deregulation, financial innovation, financial intermediation, financial repression, floating exchange rates, full employment, future of work, general purpose technology, George Akerlof, global value chain, income inequality, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Jean Tirole, Kenneth Rogoff, low interest rates, low skilled workers, manufacturing employment, market clearing, market fundamentalism, meta-analysis, moral hazard, Nelson Mandela, new economy, offshore financial centre, open borders, open economy, open immigration, Pareto efficiency, postindustrial economy, precautionary principle, price stability, public intellectual, pushing on a string, race to the bottom, randomized controlled trial, regulatory arbitrage, rent control, rent-seeking, Richard Thaler, Robert Gordon, Robert Shiller, Ronald Reagan, Sam Peltzman, Silicon Valley, Solyndra, special economic zone, spectrum auction, Steven Pinker, tacit knowledge, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, total factor productivity, trade liberalization, transaction costs, Tyler Cowen, unorthodox policies, Washington Consensus, World Values Survey, zero-sum game, éminence grise

They have consistently minimized distributional concerns, even though it is now clear that the distributional impact of, say, the North American Free Trade Agreement or China’s entry into the World Trade Organization was significant for the most directly affected communities in the United States. They have overstated the magnitude of aggregate gains from trade deals, though such gains have been relatively small since at least the 1990s. They have endorsed the propaganda portraying today’s trade deals as “free trade agreements,” even though Adam Smith and David Ricardo would turn over in their graves if they read the details of, say, the Trans-Pacific Partnership on intellectual property rules or investment regulations. This reluctance to be honest about trade has cost economists their credibility with the public. Worse still, it has fed their opponents’ narrative.

On the one hand, the reduction of trade barriers is said to promote economic efficiency and specialization. On the other hand, it is supposed to increase exports and jobs by increasing access to trade partners’ markets. The first of these is the conventional comparative-advantage argument for trade liberalization; the second is a mercantilist argument. The difficulty is that the comparative advantage and mercantilist goals are contradictory. In the comparative advantage perspective, the gains from trade arise from imports: exports are what a country must give up in order to afford those imports. And these gains accrue to all countries, as long as trade expands in a balanced fashion.

They have also known that the economic benefits of trade agreements that reach beyond borders to shape domestic regulations—as with the tightening of patent rules or the harmonization of health and safety requirements—are fundamentally ambiguous. Nonetheless, economists can be counted on to parrot the wonders of comparative advantage and free trade whenever trade agreements come up. They have consistently minimized distributional concerns, even though it is now clear that the distributional impact of, say, the North American Free Trade Agreement or China’s entry into the World Trade Organization was significant for the most directly affected communities in the United States.


pages: 279 words: 87,910

How Much Is Enough?: Money and the Good Life by Robert Skidelsky, Edward Skidelsky

banking crisis, basic income, Bertrand Russell: In Praise of Idleness, Bonfire of the Vanities, call centre, carbon credits, creative destruction, critique of consumerism, David Ricardo: comparative advantage, death of newspapers, Dr. Strangelove, financial innovation, Francis Fukuyama: the end of history, full employment, Great Leap Forward, guns versus butter model, happiness index / gross national happiness, Herbert Marcuse, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, market clearing, market fundamentalism, Meghnad Desai, Paul Samuelson, Philippa Foot, planned obsolescence, precautionary principle, profit motive, purchasing power parity, Ralph Waldo Emerson, retail therapy, Robert Solow, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, union organizing, University of East Anglia, Veblen good, wage slave, wealth creators, World Values Survey, zero-sum game

In fact he and his contemporaries did not talk about growth at all but about “improvement,” a term encompassing moral as well as material conditions. At the end of this road lay the “stationary state”—a state in which the possibilities of improvement were exhausted. All the classical economists had this end point in mind, at varying degrees of affluence. Smith’s two famous successors, Thomas Malthus and David Ricardo, were much less optimistic than Smith himself. Malthus’s Essay on the Principle of Population (1798, 1826) was written to challenge William Godwin’s utopian claim that property redistribution would make possible abundance for all. Its logic was straightforwardly cyclical. Without strenuous moral “checks,” population would inevitably outstrip the land available to support it: variations in population pressure would determine cycles of rising and falling incomes.

* The “natural” form of trade is between areas of the world with different resource and climatic endowments. This makes it impossible or extremely costly to produce all desired goods in the same place. If the Scots want to drink wine they will have to import it from wine-growing areas, exchanging in return, say, tartan kilts. However, the most efficient form of trade takes place according to comparative advantage: that is, it will pay country A to specialize in that good, or goods, which it can produce relatively more cheaply than B, even if it can produce all goods more cheaply than in B. This is the basis of the modern doctrine of free trade. Evidently, its persuasive power declines in conditions of abundance, when cheapness is no longer the main consideration.


pages: 291 words: 81,703

Average Is Over: Powering America Beyond the Age of the Great Stagnation by Tyler Cowen

Amazon Mechanical Turk, behavioural economics, Black Swan, brain emulation, Brownian motion, business cycle, Cass Sunstein, Charles Babbage, choice architecture, complexity theory, computer age, computer vision, computerized trading, cosmological constant, crowdsourcing, dark matter, David Brooks, David Ricardo: comparative advantage, deliberate practice, driverless car, Drosophila, en.wikipedia.org, endowment effect, epigenetics, Erik Brynjolfsson, eurozone crisis, experimental economics, Flynn Effect, Freestyle chess, full employment, future of work, game design, Higgs boson, income inequality, industrial robot, informal economy, Isaac Newton, Johannes Kepler, John Markoff, Ken Thompson, Khan Academy, labor-force participation, Loebner Prize, low interest rates, low skilled workers, machine readable, manufacturing employment, Mark Zuckerberg, meta-analysis, microcredit, Myron Scholes, Narrative Science, Netflix Prize, Nicholas Carr, off-the-grid, P = NP, P vs NP, pattern recognition, Peter Thiel, randomized controlled trial, Ray Kurzweil, reshoring, Richard Florida, Richard Thaler, Ronald Reagan, Silicon Valley, Skype, statistical model, stem cell, Steve Jobs, Turing test, Tyler Cowen, Tyler Cowen: Great Stagnation, upwardly mobile, Yogi Berra

In these pages I paint a vision of a future which at first appears truly strange, but at least to me is also discomfortingly familiar and indeed intuitive. As a blogger and economics writer, I find that the question I receive most often from readers is—by far—something like: “What will the low- and mid-skilled jobs of the future look like?” This question is on everyone’s mind with a new urgency but it goes back to David Ricardo and Charles Babbage in the nineteenth century. Ricardo was a leading economist of his time who wrote on “the machinery question,” while Babbage was the intellectual father of the modern computer and he—not coincidentally—also wrote on how radical mechanization was going to reshape work. These questions have reemerged as culturally central because we are at the crux of a technological revolution once again.

Of course, educational institutions aren’t ready to admit how much they share with churches. These temples of secularism don’t want to admit they are about simple tasks such as motivating the slugs or acculturating people into the work habits and sociological expectations of the so-called educated class. As it currently stands, we are losing track of a college education’s real comparative advantage. This was an acceptable bargain when the wages of educators and administrators were low, and government budgets had more slack, but it’s becoming increasingly expensive. We like to pretend our instructors teach as well as chess computers, but too often they don’t come close to that ideal.


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Grave New World: The End of Globalization, the Return of History by Stephen D. King

"World Economic Forum" Davos, 9 dash line, Admiral Zheng, air freight, Alan Greenspan, Albert Einstein, Asian financial crisis, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Sanders, bilateral investment treaty, bitcoin, blockchain, Bonfire of the Vanities, borderless world, Bretton Woods, Brexit referendum, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collateralized debt obligation, colonial rule, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, currency risk, David Ricardo: comparative advantage, debt deflation, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Snowden, eurozone crisis, facts on the ground, failed state, Fall of the Berlin Wall, falling living standards, floating exchange rates, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, global value chain, Global Witness, Great Leap Forward, hydraulic fracturing, Hyman Minsky, imperial preference, income inequality, income per capita, incomplete markets, inflation targeting, information asymmetry, Internet of things, invisible hand, Jeremy Corbyn, joint-stock company, Kickstarter, Long Term Capital Management, low interest rates, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, middle-income trap, moral hazard, Nixon shock, offshore financial centre, oil shock, old age dependency ratio, paradox of thrift, Peace of Westphalia, plutocrats, post-truth, price stability, profit maximization, quantitative easing, race to the bottom, rent-seeking, reserve currency, reshoring, rising living standards, Ronald Reagan, Savings and loan crisis, Scramble for Africa, Second Machine Age, Skype, South China Sea, special drawing rights, technology bubble, The Great Moderation, The Market for Lemons, the market place, The Rise and Fall of American Growth, trade liberalization, trade route, Washington Consensus, WikiLeaks, Yom Kippur War, zero-sum game

The Office’s case appeared to be based on a levelling of the playing field, implying that the other signatories had, in some sense, been cheating: seen this way, TPP represented a chance for the US to get its own back. Yet the Office’s interpretation was wide of the mark: like any meaningful trade agreement, TPP would have been disruptive for all concerned. Where David Ricardo’s comparative advantage applied, countries would have ended up specializing in some areas and exiting from others.10 In other words, there would have been both winners and losers in the US labour market, even if overall economic activity had ended up at a higher level (labour standards across the region would also have ended up higher, one reason why TPP’s demise comes at considerable cost).11 Where global supply chains were formed, specialist production would have been concentrated in some countries, and would have disappeared from others: again, there would have been labour market disruption even if the pie had increased in size.

For the supply chains to work, there had to be new factories, closer business relationships, upgraded cross-border financial arrangements, better logistics, protection of intellectual property rights and effective training programmes. In other words, the supply-chain story went well beyond the nineteenth-century Ricardian concept of comparative advantage, in which Portugal and England would specialize, respectively, in the production of port and cloth. A new global economic ecosystem was being constructed. And its foundations were underpinned by information technology. The combination of enhanced capital mobility and faster – and cheaper – information flows changed the nature of international economic connections.

Chinese labour may be cheaper than US labour, but the increase in computational power since the 1980s means that an increasing number of tasks that once could only have been performed by human beings can now be carried out by machines, which are capable of working 24 hours a day, seven days a week.10 To date, this is primarily true of tasks with a considerable degree of repetition – typically those in factories or involving a high volume of clerical work. In the process of automating many of these tasks, some workers gain even as others lose. People blessed with high levels of creativity, intuition, social skills and problem-solving techniques may well flourish: computerization allows them to concentrate on the tasks in which they have a comparative advantage. Others may fall by the wayside, discovering that even a decent high-school education might not be enough to guarantee them the opportunities they aspire to. At the same time, given that computers have yet to (inexpensively) replicate common manual tasks – a human is more adept than a robot at cleaning a bathroom or waiting tables – those who fall by the wayside may find themselves in competition for manual jobs with others who have fewer educational qualifications.


pages: 372 words: 94,153

More From Less: The Surprising Story of How We Learned to Prosper Using Fewer Resources – and What Happens Next by Andrew McAfee

back-to-the-land, Bartolomé de las Casas, Berlin Wall, bitcoin, Blitzscaling, Branko Milanovic, British Empire, Buckminster Fuller, call centre, carbon credits, carbon footprint, carbon tax, Charles Babbage, clean tech, clean water, cloud computing, congestion pricing, Corn Laws, creative destruction, crony capitalism, data science, David Ricardo: comparative advantage, decarbonisation, DeepMind, degrowth, dematerialisation, Demis Hassabis, Deng Xiaoping, do well by doing good, Donald Trump, Edward Glaeser, en.wikipedia.org, energy transition, Erik Brynjolfsson, failed state, fake news, Fall of the Berlin Wall, Garrett Hardin, Great Leap Forward, Haber-Bosch Process, Hans Rosling, humanitarian revolution, hydraulic fracturing, income inequality, indoor plumbing, intangible asset, James Watt: steam engine, Jeff Bezos, job automation, John Snow's cholera map, joint-stock company, Joseph Schumpeter, Khan Academy, Landlord’s Game, Louis Pasteur, Lyft, Marc Andreessen, Marc Benioff, market fundamentalism, means of production, Michael Shellenberger, Mikhail Gorbachev, ocean acidification, oil shale / tar sands, opioid epidemic / opioid crisis, Paul Samuelson, peak oil, precision agriculture, price elasticity of demand, profit maximization, profit motive, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, Salesforce, Scramble for Africa, Second Machine Age, Silicon Valley, Steve Jobs, Steven Pinker, Stewart Brand, Ted Nordhaus, TED Talk, telepresence, The Wealth of Nations by Adam Smith, Thomas Davenport, Thomas Malthus, Thorstein Veblen, total factor productivity, Tragedy of the Commons, Uber and Lyft, uber lyft, Veblen good, War on Poverty, We are as Gods, Whole Earth Catalog, World Values Survey

It would have made sense for England to concentrate on manufacturing even if it were more productive than mainland Europe at both farming and manufacturing. “Comparative advantage” is the counterintuitive idea that even if country A is more efficient at producing both of two products than country B, the best thing is for it to produce only one of those products—the one where its comparative advantage in efficiency is bigger—and trade for the other one with country B. This arrangement is in the self-interest of both countries and leaves them both better off. Comparative advantage was first described by the English political economist David Ricardo in 1817. The Nobel Prize–winning economist Paul Samuelson tells the story that he was once asked by the mathematician Stanislaw Ulam to “name me one proposition in all of the social sciences which is both true and non-trivial.”

The Nobel Prize–winning economist Paul Samuelson tells the story that he was once asked by the mathematician Stanislaw Ulam to “name me one proposition in all of the social sciences which is both true and non-trivial.” Samuelson’s answer, which he only thought of years later, was comparative advantage. As he wrote, “That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.” IV. I had a vague memory that Marx also wrote about “the machinery of capitalism being oiled with the blood of the workers.”

Møller-Maersk, 257 Apollo 8 mission, 53–54 apparent consumption, 78–79 Apple, 102, 111, 169, 235, 257 Applebaum, Anne, 218 Arab oil embargo, 161 Ardekani, Siamak, 75 artificial intelligence, 205 Asch, Solomon, 226 Atacama Desert, 17 “Atoms for Peace,” 58–59 Audubon, John James, 43, 258 Austin, Benjamin, 254 Ausubel, Jesse, 4–5, 75, 76, 78, 183 authoritarianism, 174, 217–18, 220 automobiles, 161–63 back to the land movement, 67–68, 91–93 bananas, 24 Baron, Jonathan, 127 BASF, 31 Beach, Brian, 41 beefalo, 182 Bergius, Friedrich, 31 Berzin, Alfred, 164 Bezos, Jeff, 206 Bhattacharjee, Amit, 127 Bishop, Bill, 227 Bismarck, Otto von, 225 bison, 44–46, 96, 152–53, 183 Blake, William, 40–41 Blomqvist, Linus, 270 Bloom, Paul, 210 blue whales, 47 Borlaug, Norman, 31–32, 262 Bosch, Carl, 31 Boulding, Kenneth, 63–65 Boulton, Matthew, 15–16, 20, 121, 206 Bowling Alone (Putnam), 213 Brand, Stewart, 67–68, 182, 183 Brandeis, Louis, 259 Brazil, 173, 174 Brynjolfsson, Erik, 112, 205 Bump, Philip, 224 cap-and-trade programs, 143–44, 145, 187, 188 capitalism, 2–3, 4, 5, 36, 99–123, 113, 125–39, 141, 151, 158–59, 161, 167–68 critiques of, 126–31 defining of, 115–18 negatives of, 142–43 spread of, 170–73 carbon capture systems, 187 carbon dioxide, 185, 188–89 carbon offsets, 259–60 carbon taxes, 187, 249–50, 252, 257, 259 Caro, Robert, 29n Case, Steve, 256 CBS Evening News with Walter Cronkite, 53 central planning, 116, 122, 170 cerium, 107 Chávez, Hugo, 134–35 Chicago and North Western Railway, 105–06 child labor, 35, 38–39, 167 child mortality, 196–97 China, 85, 93–94, 106, 110, 133, 145, 154, 172, 174, 185 chlorofluorocarbons, 149–50, 185, 228, 249 cholera, 22–23, 26 Christensen, Clay, 265 Christmas Carol, A (Dickens), 24 chromium, 72 Church, George, 182 Cichon, Steve, 101–02 circle of sympathy, 176 Civil War, US, 38 Clapham, Phillip, 163 Clark, Gregory, 10–11, 20 Clean Air Act, 66, 95, 122, 143, 147, 161 Clean Water Act (1972), 66, 190, 252–53 climate change, 60, 158, 185, 228, 243, 248, 257, 269, 274 Clinton, Hillary, 201, 224 Closing Circle, The (Commoner), 64 coal, 16, 18, 19, 40, 41, 56 as finite resource, 48–49 Coal Question, The (Jevons), 48, 49 Coase, Ronald, 143 collusion, 129 colonialism, 35, 39–40, 167 Commoner, Barry, 64 commons, 183–84 communism, 133, 172 Communist Manifesto, The (Marx and Engels), 21 comparative advantage, 19n competition, 109–10, 116, 129, 203 computer-aided design, 113 computers, 141 concentration, 199–210, 218, 224 economic, 202–03 industrial, 204 of wealth, 205–07 Condition of the Working Class in England, The (Engels), 21 Congo Free State, 39 conservationists, 95–96 conspicuous consumption, 152 Constitution, US, 38 consumption, 63–64, 88–90 contract enforcement, 116 Cooke, Earl, 60 Coors, 101 copper, 79, 80, 90, 107, 120 coprolite, 18 Cordier, Daniel, 106–07 Corn Laws, 18, 172 Corporate Average Fuel Economy (CAFE) standards, 162 corporatism, 129 corruption, 175 cotton industry, 38 cotton textiles, 19 Cramer, Kathy, 221 CRIB, 62–68, 87–97 cronyism, 129 Crookes, William, 30 crude oil, 58 “Crude Oil” (GAO), 103 Crutzen, Paul, 150 Cuba, 133 Cutler, David, 28 Cutter, Bo, 105 Cuyahoga River, 54 Daimler, Gottlieb, 26–27 Dana, Jason, 127 Davenport, Thomas, 27 de-extinction movement, 182 death penalty, 176 deaths of despair, 214, 216, 219–20, 247 Deaton, Angus, 210, 213–14, 220 DeepMind, 239–40 deforestation, 43, 184–85 degrowth, 63–64, 88 demand, 50–51 dematerialization, 4–5, 71, 72–73, 75–85, 87, 125, 141, 144, 151–52, 160, 167, 168, 235, 247–48, 259 causes of, 99–123 paths to, 110–11 Demick, Barbara, 94 democracy, 174 Democracy in America (Tocqueville), 89–90 democratic socialism, 133–34 Deng Xiaoping, 170 Denmark, 117–18 developing countries, 56 Devezas, Tessaleno, 73 Dickens, Charles, 24 digital tools, 234–35 Dijkstra, Lewis, 199 Dimon, Jamie, 256 Ding Xuedong, 253 disconnection, 211–29, 247, 253–54, 255, 270–71 diversity, 216–17 Dodge, Irving, 45 Donora, Pa., 41, 55, 66, 145 Dragusanu, Raluca, 268 data centers, 240 Duolingo, 236 DuPont, 149 Durkheim, Emile, 215–16, 219 Earth Day, 3, 53, 60–61 Earthrise, 53–54 Ecology as Politics (Gorz), 63–64 Edison, Thomas, 27 education, 177, 195, 256 Ehrlich, Paul, 55, 59, 62, 65, 71–72, 75, 151, 244–45 Eisenhower, Dwight, 58 electrical power, 26–28, 29, 30, 36 Elephant Graph, 221–23 elephants, 153–54 Elop, Stephen, 102 Emancipation Proclamation, 38 emancipative values, 176 energy consumption, 58–60, 59 Energy Information Administration, US, 103 Engels, Friedrich, 21 Engels Pause, 20, 23 England, 18–20, 22, 38 abolitionist movement in, 37 air pollution in, 41 population of, 10–11 population versus wages in, 20 Enlightenment, 122–23 Enlightenment Now (Pinker), 37, 176, 179 environmental movement, 53, 65, 68, 122 Environmental Protection Agency, 66, 95 ephemeralization, 70–71 epidemiology, 22 Essay on the Principle of Population, An, (Malthus), 8–9, 10, 13 Evans, Benedict, 173 externalities, 142 extinctions, 35, 36, 42–43, 61, 96, 151–52, 167, 181–82 Factfulness (Rosling), 179 Factory Act (1833), 38 factory ships, 47 Fair Trade certification, 268 false imprisonment, 175 famine, 12, 13, 61, 62, 69 Famine 1975!


The Internet Trap: How the Digital Economy Builds Monopolies and Undermines Democracy by Matthew Hindman

A Declaration of the Independence of Cyberspace, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, AltaVista, Amazon Web Services, barriers to entry, Benjamin Mako Hill, bounce rate, business logic, Cambridge Analytica, cloud computing, computer vision, creative destruction, crowdsourcing, David Ricardo: comparative advantage, death of newspapers, deep learning, DeepMind, digital divide, discovery of DNA, disinformation, Donald Trump, fake news, fault tolerance, Filter Bubble, Firefox, future of journalism, Ida Tarbell, incognito mode, informal economy, information retrieval, invention of the telescope, Jeff Bezos, John Perry Barlow, John von Neumann, Joseph Schumpeter, lake wobegon effect, large denomination, longitudinal study, loose coupling, machine translation, Marc Andreessen, Mark Zuckerberg, Metcalfe’s law, natural language processing, Netflix Prize, Network effects, New Economic Geography, New Journalism, pattern recognition, peer-to-peer, Pepsi Challenge, performance metric, power law, price discrimination, recommendation engine, Robert Metcalfe, search costs, selection bias, Silicon Valley, Skype, sparse data, speech recognition, Stewart Brand, surveillance capitalism, technoutopianism, Ted Nelson, The Chicago School, the long tail, The Soul of a New Machine, Thomas Malthus, web application, Whole Earth Catalog, Yochai Benkler

—Alfred Marshall, Principles of Economics, 1895 In the late 1970s, a young economist by the name of Paul Krugman began publishing a series of articles about international trade. Krugman’s work was motivated by a puzzle. For more than a century-and-a-half, economists had explained trade largely through theories of comparative advantage. David Ricardo (1817) explained this idea through a parable about cloth and wine. Since the English climate is terrible for growing grapes, Ricardo argued, Portugal should end up with the vineyards and Britain should end up with the looms. This was true, Ricardo said, even if Portugal was better at both weaving and winemaking: if relative advantage won out, trade would make both countries better off.

As trade barriers fell, the bulk of international trade turned out to be between countries with similar economies—similar climates, similar natural resources, similar levels of The Economic Geography of Cyberspace • 63 industrialization. Even more puzzling, these countries were often engaged in intraindustry trade, or even trading exactly the same type of goods. This clearly could not be explained by comparative advantage. What was going on? Krugman’s answer was a model with three central assumptions. First, the model assumed that firms had economies of scale—that larger firms were more efficient. Second, it was assumed that consumers had diverse preferences—that some buyers would prefer to drive a Volkswagen even if they could afford a Cadillac.

Increasing Returns in the Digital Economy In 2008, in his Nobel prize lecture, Paul Krugman recounted the intellectual journey that had led him to the podium in Stockholm. Despite the influence of his work, Krugman acknowledged that his research had been partly superseded by events. Growth in international trade since 1990— such as growing trade between China and the West—was a return to the old comparative-advantage pattern. The economic advantages of industrial concentration, too, seemed to have waned. The U.S. auto industry, once clustered in a single region, has spread out to include most of the American South, and even much of Mexico. The “increasing returns revolution” in trade and geography, Krugman admitted, now described “forces that are waning rather than gathering strength.” 47 From a broader perspective, though, the increasing returns revolution is more important than ever.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

activist fund / activist shareholder / activist investor, Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Black Swan, bond market vigilante , bonus culture, Bretton Woods, business climate, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial engineering, financial innovation, financial intermediation, Fractional reserve banking, full employment, Glass-Steagall Act, God and Mammon, Golden arches theory, Gordon Gekko, greed is good, Hyman Minsky, income inequality, industrial research laboratory, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, labour market flexibility, liberal capitalism, light touch regulation, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, mass immigration, means of production, Menlo Park, money market fund, moral hazard, moveable type in China, Myron Scholes, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Paul Samuelson, plutocrats, price stability, principal–agent problem, profit motive, proprietary trading, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, Veblen good, We are the 99%, Wolfgang Streeck, zero-sum game

Clearly stockbrokers have fewer worries about it than most. Yet this also applies to many economists, perhaps because their discipline encourages them to think entirely objectively about market behaviour. In the UK, some of the greatest speculators have, in fact, been economists. David Ricardo, best known for developing the law of comparative advantage, one of the most powerful ideas in economics, made a killing (as did Nathan Rothschild) by betting against a French victory at Waterloo. He amassed a considerable fortune in his stockbroking business, which allowed him to retire early to write and become a Member of Parliament.

Paid far less than the rocket scientists in the big banks who were devising new and complex financial instruments, they were, as always, one step behind and less well paid than the people they were trying to regulate. In the case of the British, they were also being urged by government ministers not to be too tough on the City of London, which appeared to have a unique capacity for creating employment and generating tax revenue in an industry where Britain appeared to enjoy a remarkable comparative advantage. The regulators will continue to struggle because they are locked in a vicious circle. Every time there is a financial crisis, a political backlash ensures a raft of ever more complex re-regulatory measures. Financial market practitioners react to these by engaging in regulatory arbitrage, which is relatively easy in a world of global capital flows without a global regulator – banks simply put their business through markets in countries that have less draconian rules.

Perhaps the biggest impetus behind the decline of manufacturing in the advanced economies is globalisation. In effect, developed countries have been outsourcing their manufacturing to China and other emerging markets that are now going through the rapid urbanisation and industrialisation that characterises the early stages of capitalist development, in which very low labour costs create comparative advantage. This is, then, part of a continuing process of international specialisation. If there is a backlash against this transfer of manufacturing activity to the developing countries, it is chiefly because ‘structural adjustment’, as the economists call it, involves wrenching change. Those whose jobs are lost in old industries may lack the skills or the willingness to migrate to take up jobs in new industries elsewhere, or be reluctant to take on lower-skill jobs than they have previously done.


pages: 339 words: 88,732

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson, Andrew McAfee

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, access to a mobile phone, additive manufacturing, Airbnb, Alan Greenspan, Albert Einstein, Amazon Mechanical Turk, Amazon Web Services, American Society of Civil Engineers: Report Card, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, barriers to entry, basic income, Baxter: Rethink Robotics, Boston Dynamics, British Empire, business cycle, business intelligence, business process, call centre, carbon tax, Charles Lindbergh, Chuck Templeton: OpenTable:, clean water, combinatorial explosion, computer age, computer vision, congestion charging, congestion pricing, corporate governance, cotton gin, creative destruction, crowdsourcing, data science, David Ricardo: comparative advantage, digital map, driverless car, employer provided health coverage, en.wikipedia.org, Erik Brynjolfsson, factory automation, Fairchild Semiconductor, falling living standards, Filter Bubble, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, Freestyle chess, full employment, G4S, game design, general purpose technology, global village, GPS: selective availability, Hans Moravec, happiness index / gross national happiness, illegal immigration, immigration reform, income inequality, income per capita, indoor plumbing, industrial robot, informal economy, intangible asset, inventory management, James Watt: steam engine, Jeff Bezos, Jevons paradox, jimmy wales, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Khan Academy, Kiva Systems, knowledge worker, Kodak vs Instagram, law of one price, low skilled workers, Lyft, Mahatma Gandhi, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Mars Rover, mass immigration, means of production, Narrative Science, Nate Silver, natural language processing, Network effects, new economy, New Urbanism, Nicholas Carr, Occupy movement, oil shale / tar sands, oil shock, One Laptop per Child (OLPC), pattern recognition, Paul Samuelson, payday loans, post-work, power law, price stability, Productivity paradox, profit maximization, Ralph Nader, Ray Kurzweil, recommendation engine, Report Card for America’s Infrastructure, Robert Gordon, Robert Solow, Rodney Brooks, Ronald Reagan, search costs, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Simon Kuznets, six sigma, Skype, software patent, sovereign wealth fund, speech recognition, statistical model, Steve Jobs, Steven Pinker, Stuxnet, supply-chain management, TaskRabbit, technological singularity, telepresence, The Bell Curve by Richard Herrnstein and Charles Murray, the Cathedral and the Bazaar, the long tail, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, Vernor Vinge, warehouse robotics, Watson beat the top human players on Jeopardy!, winner-take-all economy, Y2K

Of course, almost every economy has been using technology to substitute capital for labor for decades, if not centuries. Automatic threshing machines replaced a full 30 percent of the agricultural labor force in the middle of the nineteenth century, and industrialization continued at a brisk pace throughout the twentieth century. Nineteenth-century economists like Karl Marx and David Ricardo predicted that the mechanization of the economy would worsen the fate of workers, ultimately driving them to a subsistence wage.34 What has actually happened to the relative share of capital and labor? Historically, despite changes in the technology of production, the share of overall GDP going to labor has been surprisingly stable, at least until recently.

In 2004 Frank Levy and Richard Murnane published their book The New Division of Labor.1 The division they focused on was between human and digital labor—in other words, between people and computers. In any sensible economic system, people should focus on the tasks and jobs where they have a comparative advantage over computers, leaving computers the work for which they are better suited. In their book Levy and Murnane offered a way to think about which tasks fell into each category. One hundred years ago the previous paragraph wouldn’t have made any sense. Back then, computers were humans. The word was originally a job title, not a label for a type of machine.

This however, is not recombinant innovation in any meaningful sense. It’s closer to the digital equivalent of a hypothetical room full of monkeys banging away randomly on typewriters for a million years and still not reproducing a single play of Shakespeare’s. Ideation in its many forms is an area today where humans have a comparative advantage over machines. Scientists come up with new hypotheses. Journalists sniff out a good story. Chefs add a new dish to the menu. Engineers on a factory floor figure out why a machine is no longer working properly. Steve Jobs and his colleagues at Apple figure out what kind of tablet computer we actually want.


words: 49,604

The Weightless World: Strategies for Managing the Digital Economy by Diane Coyle

Alan Greenspan, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, blue-collar work, Bretton Woods, business cycle, clean water, company town, computer age, Corn Laws, creative destruction, cross-subsidies, David Ricardo: comparative advantage, dematerialisation, Diane Coyle, Edward Glaeser, everywhere but in the productivity statistics, financial deregulation, flying shuttle, full employment, George Santayana, global village, Great Leap Forward, hiring and firing, Howard Rheingold, income inequality, informal economy, invention of the sewing machine, invisible hand, Jane Jacobs, Joseph Schumpeter, Kickstarter, knowledge economy, labour market flexibility, laissez-faire capitalism, lump of labour, Mahbub ul Haq, Marshall McLuhan, mass immigration, McJob, Meghnad Desai, microcredit, moral panic, Neal Stephenson, Network effects, new economy, Nick Leeson, night-watchman state, North Sea oil, offshore financial centre, pension reform, pension time bomb, pensions crisis, Robert Solow, Ronald Reagan, Silicon Valley, Snow Crash, spinning jenny, The Death and Life of Great American Cities, the market place, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tobin tax, Tragedy of the Commons, two tier labour market, very high income, War on Poverty, winner-take-all economy, working-age population

Danny Quah (October 1996) Discarding Non-stick Frying Pans for Economic Growth, Centrepiece, Centre for Economic Performance, London School of Economics, London. Gregory Rawlins (1996) Moths to the Flame, MIT Press, Cambridge, MA. Robert Reich (1991) The Work of Nations, Simon & Schuster, London. Howard Rheingold (1994) The Virtual Community, Secker & Warburg, London. David Ricardo (first published 1817) Principles of Political Economy and Taxation. Jeremy Rifkin (1995) The End of Work, Tarcher/Putnam. Gillian Rose (1996) Mourning Becomes the Law: Philosophy and Representation, Cambridge University Press, Cambridge. Nathan Rosenberg (1982) Inside the Black Box: Technology and Economics, Cambridge University Press, Cambridge.

The effect of the power loom on employment in Lancashire last century was trivial compared to the impact of Weightless Work 53 cheap imports in the 1980s. The industry’s capital stock was shipped direct from mill to scrap yard or textile museum in the space of less than a decade. This is just what economic theory would predict. Countries should export the goods in which they have a comparative advantage (that is, goods which make intensive use of inputs that are relatively cheaper in those countries — unskilled workers, in the developing world). An increase in trade will tend to raise the return to the relatively abundant input world-wide, which should mean higher wages in the third world, but a decline in demand and lower wages for these workers in the developed world.

Communications will favour the cities if urban residents use them more than rural residents; and if the value of interaction between people increases, say because the ideas that need to be exchanged become more complex and creative. He and a co-author write: ‘The rise in the New York multimedia industry may be a sign of big cities’ comparative advantage in facilitating the difficult information flows involved in cutting-edge industries ... As telecommunications improve, the demand for interactions of all varieties should rise, and the role of cities as centres of interactions should also increase. After all, the most famous modern agglomeration of industry, Silicon Valley, has occurred in the industry with the most direct access to the latest and best information technology.


pages: 369 words: 94,588

The Enigma of Capital: And the Crises of Capitalism by David Harvey

accounting loophole / creative accounting, Alan Greenspan, anti-communist, Asian financial crisis, bank run, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, cotton gin, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, equal pay for equal work, European colonialism, failed state, financial innovation, Frank Gehry, full employment, gentrification, Glass-Steagall Act, global reserve currency, Google Earth, Great Leap Forward, Guggenheim Bilbao, Gunnar Myrdal, guns versus butter model, Herbert Marcuse, illegal immigration, indoor plumbing, interest rate swap, invention of the steam engine, Jane Jacobs, joint-stock company, Joseph Schumpeter, Just-in-time delivery, land reform, liquidity trap, Long Term Capital Management, market bubble, means of production, megacity, microcredit, military-industrial complex, Money creation, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Northern Rock, oil shale / tar sands, peak oil, Pearl River Delta, place-making, Ponzi scheme, precariat, reserve currency, Ronald Reagan, Savings and loan crisis, sharing economy, Shenzhen special economic zone , Silicon Valley, special drawing rights, special economic zone, statistical arbitrage, structural adjustment programs, subprime mortgage crisis, technological determinism, the built environment, the market place, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, Timothy McVeigh, too big to fail, trickle-down economics, urban renewal, urban sprawl, vertical integration, white flight, women in the workforce

Here, too, capitalism is likely to encounter limits and barriers which will become increasingly hard to circumvent. Nowhere has the idea of limits to capital been more stridently and persistently asserted throughout capitalism’s history than with respect to scarcities in nature. The famous Enlightenment economists Thomas Malthus and David Ricardo both held that diminishing returns in agriculture would eventually lead the profit rate to fall to zero, thus spelling the end of capitalism as we know it because all profit would be absorbed by rent on land and on the supply of natural resources. Malthus went still further, of course, insisting (in the first version of his population theory) that the conflict between population growth and natural limits was bound to produce (and already was producing) crises of famine, poverty, pestilence and war, no matter what policies were implemented.

In much the same way that the state–finance nexus came to play a key role in capitalist development, so a state–corporate nexus also emerges around questions of research and development in sectors of the economy considered to be of strategic (and not solely military) importance to the state. Surveillance becomes big business. To the degree that R&D underpins comparative advantage in global economic competition, so a wide range of departments within the governmental apparatus (dealing with health, food and agriculture, transport and communications and energy, as well as the more traditional military arms and surveillance), backed by a huge semi-public research university system, have come to play a vital role in technological and organisational innovation in association with industry in the leading capitalist powers.

Index Numbers in italics indicate Figures; those in bold indicate a Table. 11 September 2001 attacks 38, 41–2 subject to perpetual renewal and transformation 128 A Abu Dhabi 222 Académie Française 91 accumulation by dispossession 48–9, 244 acid deposition 75, 187 activity spheres 121–4, 128, 130 deindustrialised working-class area 151 and ‘green revolution’ 185–6 institutional and administrative arrangements 123 ‘mental conceptions of the world’ 123 patterns of relations between 196 production and labour processes 123 relations to nature 123 the reproduction of daily life and of the species 123 slums 152 social relations 123 subject to perpetual renewal and transformation 128 suburbs 150 technologies and organisational forms 123 uneven development between and among them 128–9 Adelphia 100 advertising industry 106 affective bonds 194 Afghanistan: US interventionism 210 Africa civil wars 148 land bought up in 220 neocolonialism 208 population growth 146 agribusiness 50 agriculture collectivisation of 250 diminishing returns in 72 ‘green revolution’ 185–6 ‘high farming’ 82 itinerant labourers 147 subsidies 79 AIG 5 alcoholism 151 Allen, Paul 98 Allende, Salvador 203 Amazonia 161, 188 American Bankers Association 8 American Revolution 61 anarchists 253, 254 anti-capitalist revolutionary movement 228 anti-racism 258 anti-Semitism 62 après moi le déluge 64, 71 Argentina Debt Crisis (2000–2002) 6, 243, 246, 261 Arizona, foreclosure wave in 1 Arrighi, Giovanni: The Long Twentieth Century 35, 204 asbestos 74 Asia Asian Currency Crisis (1997–98) 141, 261 collapse of export markets 141 growth 218 population growth 146 asset stripping 49, 50, 245 asset traders 40 asset values 1, 6, 21, 23, 26, 29, 46, 223, 261 Association of South East Asian Nations (ASEAN) 200 Athabaska tar sands, Canada 83 austerity programmes 246, 251 automobile industry 14, 15, 23, 56, 67, 68, 77, 121, 160–61 Detroit 5, 15, 16, 91, 108, 195, 216 autonomista movement 233, 234, 254 B Baader-Meinhof Gang 254 Bakunin, Michael 225 Balzac, Honoré 156 Bangalore, software development in 195 Bangkok 243 Bank of England 53, 54 massive liquidity injections in stock markets 261 Bank of International Settlements, Basel 51, 55, 200 Bank of New England 261 Bankers Trust 25 banking bail-outs 5, 218 bank shares become almost worthless 5 bankers’ pay and bonuses 12, 56, 218 ‘boutique investment banks’ 12 de-leveraging 30 debt-deposit ratio 30 deposit banks 20 French banks nationalised 198 international networks of finance houses 163 investment banks 2, 19, 20, 28, 219 irresponsible behaviour 10–11 lending 51 liquidity injections by central banks vii, 261 mysterious workings of central banks 54 ‘national bail-out’ 30–31 property market-led Nordic and Japanese bank crises 261 regional European banks 4 regular banks stash away cash 12, 220 rising tide of ‘moral hazard’ in international bank lending practices 19 ‘shadow banking’ system 8, 21, 24 sympathy with ‘Bonnie and Clyde’ bank robbers 56 Baran, Paul and Sweezey, Paul: Monopoly Capital 52, 113 Barings Bank 37, 100, 190 Baucus, Max 220 Bavaria, automotive engineering in 195 Beijing declaration (1995) 258 Berlin: cross-border leasing 14 Bernanke, Ben 236 ‘Big Bang’ (1986) 20, 37 Big Bang unification of global stock, options and currency trading markets 262 billionaire class 29, 110, 223 biodiversity 74, 251 biomass 78 biomedical engineering 98 biopiracy 245, 251 Birmingham 27 Bismarck, Prince Otto von 168 Black, Fischer 100 Blackstone 50 Blair, Tony 255 Blair government 197 blockbusting neighbourhoods 248 Bloomberg, Mayor Michael 20, 98, 174 Bolivarian movement 226, 256 bonuses, Wall Street 2, 12 Borlaug, Norman 186 bourgeoisie 48, 89, 95, 167, 176 ‘boutique investment banks’ 12 Brazil automobile industry 16 capital flight crisis (1999) 261 containerisation 16 an export-dominated economy 6 follows Japanese model 92 landless movement 257 lending to 19 the right to the city movement 257 workers’ party 256 Bretton Woods Agreement (1944) 31, 32, 51, 55, 171 British Academy 235 British empire 14 Brown, Gordon 27, 45 Budd, Alan 15 Buenos Aires 243 Buffett, Warren 173 building booms 173–4 Bush, George W. 5, 42, 45 business associations 195 C California, foreclosure wave in 1, 2 Canada, tightly regulated banks in 141 ‘cap and trade’ markets in pollution rights 221 capital bank 30 centralisation of 95, 110, 113 circulation of 90, 93, 108, 114, 116, 122, 124, 128, 158, 159, 182, 183, 191 cultural 21 devalued 46 embedded in the land 191 expansion of 58, 67, 68 exploitations of 102 export 19, 158 fixed 191, 213 industrial 40–41, 56 insufficient initial money capital 47 investment 93, 203 and labour 56, 88, 169–70 liquid money 20 mobility 59, 63, 64, 161–2, 191, 213 and nature 88 as a process 40 reproduction of 58 scarcity 50 surplus 16, 28, 29, 50–51, 84, 88, 100, 158, 166, 167, 172, 173, 174, 206, 215, 216, 217 capital accumulation 107, 108, 123, 182, 183, 191, 211 and the activity spheres 128 barriers to 12, 16, 47, 65–6, 69–70, 159 compound rate 28, 74, 75, 97, 126, 135, 215 continuity of endless 74 at the core of human evolutionary dynamics 121 dynamics of 188, 197 geographic landscape of 185 geographical dynamics of 67, 143 and governance 201 lagging 130 laws of 113, 154, 160 main centres of 192 market-based 180 Mumbai redevelopment 178 ‘nature’ affected by 122 and population growth 144–7 and social struggles 105 start of 159 capital circulation barriers to 45 continuity of 68 industrial/production capital 40–41 inherently risky 52 interruption in the process 41–2, 50 spatial movement 42 speculative 52, 53 capital controls 198 capital flow continuity 41, 47, 67, 117 defined vi global 20 importance of understanding vi, vii-viii interrupted, slowed down or suspended vi systematic misallocation of 70 taxation of vi wealth creation vi capital gains 112 capital strike 60 capital surplus absorption 31–2, 94, 97, 98, 101, 163 capital-labour relation 77 capitalism and communism 224–5 corporate 1691 ‘creative-destructive’ tendencies in 46 crisis of vi, 40, 42, 117, 130 end of 72 evolution of 117, 118, 120 expansion at a compound rate 45 first contradiction of 77 geographical development of 143 geographical mobility 161 global 36, 110 historical geography of 76, 117, 118, 121, 174, 180, 200, 202, 204 industrial 58, 109, 242 internal contradictions 115 irrationality of 11, 215, 246 market-led 203 positive and negative aspects 120 and poverty 72 relies on the beneficence of nature 71 removal of 260 rise of 135, 192, 194, 204, 228, 248–9, 258 ‘second contradiction of’ 77, 78 social relations in 101 and socialism 224 speculative 160 survival of 46, 57, 66, 86, 107, 112, 113, 116, 130, 144, 229, 246 uneven geographical development of 211, 213 volatile 145 Capitalism, Nature, Socialism journal 77 capitalist creed 103 capitalist development considered over time 121–4 ‘eras’ of 97 capitalist exploitation 104 capitalist logic 205 capitalist reinvestment 110–11 capitalists, types of 40 Carnegie, Andrew 98 Carnegie foundation 44 Carnegie Mellon University, Pittsburgh, Pennsylvania 195 Carson, Rachel: Silent Spring 187 Case Shiller Composite Indices SA 3 Catholic Church 194, 254 cell phones 131, 150, 152 Central American Free Trade Association (CAFTA) 200 centralisation 10, 11, 165, 201 Certificates of Deposit 262 chambers of commerce 195, 203 Channel Tunnel 50 Chiapas, Mexico 207, 226 Chicago Board Options Exchange 262 Chicago Currency Futures Market 262 ‘Chicago School’ 246 Chile, lending to 19 China ‘barefoot doctors’ 137 bilateral trade with Latin America 173 capital accumulation issue 70 cheap retail goods 64 collapse of communism 16 collapse of export markets 141 Cultural Revolution 137 Deng’s announcement 159 falling exports 6 follows Japanese model 92 ‘Great Leap Forward’ 137, 138 growth 35, 59, 137, 144–5, 213, 218, 222 health care 137 huge foreign exchange reserves 141, 206 infant mortality 59 infrastructural investment 222 labour income and household consumption (1980–2005) 14 market closed after communists took power (1949) 108 market forcibly opened 108 and oil market 83 one child per family policy 137, 146 one-party rule 199 opening-up of 58 plundering of wealth from 109, 113 proletarianisation 60 protests in 38 and rare earth metals 188 recession (1997) 172 ‘silk road’ 163 trading networks 163 unemployment 6 unrest in 66 urbanisation 172–3 and US consumerism 109 Chinese Central Bank 4, 173 Chinese Communist Party 180, 200, 256 chlorofluoral carbons (CFCs) 74, 76, 187 chronometer 91, 156 Church, the 249 CIA (Central Intelligence Agency) 169 circular and cumulative causation 196 Citibank 19 City Bank 261 city centres, Disneyfication of 131 City of London 20, 35, 45, 162, 219 class consciousness 232, 242, 244 class inequalities 240–41 class organisation 62 class politics 62 class power 10, 11, 12, 61, 130, 180 class relations, radical reconstitution of 98 class struggle 56, 63, 65, 96, 102, 127, 134, 193, 242, 258 Clausewitz, Carl von 213 Cleveland, foreclosure crisis in 2 Cleveland, foreclosures on housing in 1 Clinton, Bill 11, 12, 17, 44, 45 co-evolution 132, 136, 138, 168, 185, 186, 195, 197, 228, 232 in three cases 149–53 coal reserves 79, 188 coercive laws of competition see under competition Cold War 31, 34, 92 Collateralised Bond Obligations (CBOs) 262 Collateralised Debt Obligations (CDOs) 36, 142, 261, 262 Collateralised Mortgage Obligations (CMOs) 262 colonialism 212 communications, innovations in 42, 93 communism 228, 233, 242, 249 collapse of 16, 58, 63 compared with socialism 224 as a loaded term 259–60 orthodox communists 253 revolutionary 136 traditional institutionalised 259 companies joint stock 49 limited 49 comparative advantage 92 competition 15, 26, 43, 70 between financial centres 20 coercive laws of 43, 71, 90, 95, 158, 159, 161 and expansion of production 113 and falling prices 29, 116 fostering 52 global economic 92, 131 and innovation 90, 91 inter-capitalist 31 inter-state 209, 256 internalised 210 interterritorial 202 spatial 164 and the workforce 61 competitive advantage 109 computerised trading 262 computers 41, 99, 158–9 consortia 50, 220 consumerism 95, 109, 168, 175, 240 consumerist excess 176 credit-fuelled 118 niche 131 suburban 171 containerisation 16 Continental Illinois Bank 261 cooperatives 234, 242 corporate fraud 245 corruption 43, 69 cotton industry 67, 144, 162 credit cards fees vii, 245 rise of the industry 17 credit crunch 140 Credit Default swaps 262 Crédit Immobilièr 54 Crédit Mobilier 54 Crédit Mobilier and Immobilier 168 credit swaps 21 credit system and austerity programmes 246 crisis within 52 and the current crisis 118 and effective demand problem 112 an inadequate configuration of 52 predatory practices 245 role of 115 social and economic power in 115 crises crises of disproportionality 70 crisis of underconsumption 107, 111 east Asia (1997–8) 6, 8, 35, 49, 246 financial crisis of 1997–8 198, 206 financial crisis of 2008 34, 108, 114, 115 general 45–6 inevitable 71 language of crisis 27 legitimation 217 necessary 71 property market 8 role of 246–7 savings and loan crisis (US, 1984–92) 8 short sharp 8, 10 south-east Asia (1997–8) 6, 8, 35, 49, 246 cross-border leasing 142–3 cultural choice 238 ‘cultural industries’ 21 cultural preferences 73–4 Cultural Revolution 137 currency currency swaps 262 futures market 24, 32 global 32–3, 34 options markets on 262 customs barriers 42, 43 cyberspace 190 D Darwin, Charles 120 DDT 74, 187 de-leveraging 30 debt-financing 17, 131, 141, 169 decentralisation 165, 201 decolonisation 31, 208, 212 deficit financing 35, 111 deforestation 74, 143 deindustrialisation 33, 43, 88, 131, 150, 157, 243 Deleuze, Gilles 128 demand consumer 107, 109 effective 107, 110–14, 116, 118, 221, 222 lack of 47 worker 108 Democratic Party (US) 11 Deng Xiaoping 159 deregulation 11, 16, 54, 131 derivatives 8 currency 21 heavy losses in (US) 261 derivatives markets creation of 29, 85 unregulated 99, 100, 219 Descartes, René 156 desertification 74 Detroit auto industry 5, 15, 16, 91, 108, 195, 216 foreclosures on housing in 1 Deutsches Bank 20 devaluation 32, 47, 116 of bank capital 30 of prior investments 93 developing countries: transformation of daily lives 94–5 Developing Countries Debt Crisis 19, 261 development path building alliances 230 common objectives 230–31 development not the same as growth 229–30 impacts and feedbacks from other spaces in the global economy 230 Diamond, Jared: Guns, Germs and Steel 132–3, 154 diasporas 147, 155, 163 Dickens, Charles: Bleak House 90 disease 75, 85 dispossession anti-communist insurgent movements against 250–51 of arbitrary feudal institutions 249 of the capital class 260 China 179–80 first category 242–4 India 178–9, 180 movements against 247–52 second category 242, 244–5 Seoul 179 types of 247 under socialism and communism 250 Domar, Evsey 71 Dongguan, China 36 dot-com bubble 29, 261 Dow 35,000 prediction 21 drug trade 45, 49 Dubai: over-investment 10 Dubai World 174, 222 Durban conference on anti-racism (2009) 258 E ‘earth days’ 72, 171 east Asia crash of 1997–8 6, 8, 35, 49, 246 labour reserves 64 movement of production to 43 proletarianisation 62 state-centric economies 226 wage rates 62 eastern European countries 37 eBay 190 economic crisis (1848) 167 economists, and the current financial crisis 235–6 ecosystems 74, 75, 76 Ecuador, and remittances 38 education 59, 63, 127, 128, 221, 224, 257 electronics industry 68 Elizabeth II, Queen vi-vii, 235, 236, 238–9 employment casual part-time low-paid female 150 chronic job insecurity 93 culture of the workplace 104 deskilling 93 reskilling 93 services 149 Engels, Friedrich 89, 98, 115, 157, 237 The Housing Question 176–7, 178 Enron 8, 24, 52, 53, 100, 261 entertainment industries 41 environment: modified by human action 84–5 environmental movement 78 environmental sciences 186–7 equipment 58, 66–7 equity futures 262 equity index swaps 262 equity values 262 ethanol plants 80 ethnic cleansings 247 ethnicity issues 104 Eurodollars 262 Europe negative population growth in western Europe 146 reconstruction of economy after Second World War 202 rsouevolutions of 1848 243 European Union 200, 226 eastern European countries 37 elections (June 2009) 143 unemployment 140 evolution punctuated equilibrium theory of natural evolution 130 social 133 theory of 120, 129 exchange rates 24, 32, 198 exports, falling 141 external economies 162 F Factory Act (1848) 127 factory inspectors 127 ‘failed states’ 69 Fannie Mae (US government-chartered mortgage institution) 4, 17, 173, 223 fascism 169, 203, 233 Federal Deposit Insurance Corporation (FDIC) 8 rescue of Continental Illinois Bank 261 Federal Reserve System (the Fed) 2, 17, 54, 116, 219, 236, 248 and asset values 6 cuts interest rates 5, 261 massive liquidity injections in stock markets 261 rescue of Continental Illinois Bank 261 feminists, and colonisation of urban neighbourhoods 248 fertilisers 186 feudalism 135, 138, 228 finance capitalists 40 financial institutions awash with credit 17 bankruptcies 261 control of supply and demand for housing 17 nationalisations 261 financial services 99 Financial Times 12 financialisation 30, 35, 98, 245 Finland: Nordic cris (1992) 8 Flint strike, Michigan (1936–7) 243 Florida, foreclosure wave in 1, 2 Forbes magazine 29, 223 Ford, Henry 64, 98, 160, 161, 188, 189 Ford foundation 44, 186 Fordism 136 Fordlandia 188, 189 foreclosed businesses 245 foreclosed properties 220 fossil fuels 78 Foucault, Michel 134 Fourierists 168 France acceptance of state interventions 200 financial crisis (1868) 168 French banks nationalised 198 immigration 14 Paris Commune 168 pro-natal policies 59 strikes in 38 train network 28 Franco-Prussian War (1870) 168 fraud 43, 49 Freddie Mac (US government-chartered mortgage institution) 4, 17, 173, 223 free trade 10, 33, 90, 131 agreements 42 French Communist Party 52 French Revolution 61 Friedman, Thomas L.: The World is Flat 132 futures, energy 24 futures markets 21 Certificates of Deposit 262 currency 24 Eurodollars 262 Treasury instruments 262 G G7/G8/G20 51, 200 Galileo Galilei 89 Gates, Bill 98, 173, 221 Gates foundation 44 gays, and colonisation of urban neighbourhoods 247, 248 GDP growth (1950–2030) 27 Gehry, Frank 203 Geithner, Tim 11 gender issues 104, 151 General Motors 5 General Motors Acceptance Corporation 23 genetic engineering 84, 98 genetic modification 186 genetically modified organisms (GMOs) 186 gentrification 131, 256, 257 geographical determinism 210 geopolitics 209, 210, 213, 256 Germany acceptance of state interventions 199–200 cross-border leasing 142–3 an export-dominated economy 6 falling exports 141 invasion of US auto market 15 Nazi expansionism 209 neoliberal orthodoxies 141 Turkish immigrants 14 Weimar inflation 141 Glass-Steagall act (1933) 20 Global Crossing 100 global warming 73, 77, 121, 122, 187 globalisation 157 Glyn, Andrew et al: ‘British Capitalism, Workers and the Profits Squeeze’ 65 Goethe, Johann Wolfgang von 156 gold reserves 108, 112, 116 Goldman Sachs 5, 11, 20, 163, 173, 219 Google Earth 156 Gould, Stephen Jay 98, 130 governance 151, 197, 198, 199, 201, 208, 220 governmentality 134 GPS systems 156 Gramsci, Antonio 257 Grandin, Greg: Fordlandia 188, 189 grassroots organisations (GROS) 254 Great Depression (1920s) 46, 170 ‘Great Leap Forward’ 137, 138, 250 ‘Great Society’ anti-poverty programmes 32 Greater London Council 197 Greece sovereign debt 222 student unrest in 38 ‘green communes’ 130 Green Party (Germany) 256 ‘green revolution’ 185–6 Greenspan, Alan 44 Greider, William: Secrets of the Temple 54 growth balanced 71 compound 27, 28, 48, 50, 54, 70, 75, 78, 86 economic 70–71, 83, 138 negative 6 stop in 45 Guggenheim Museu, Bilbao 203 Gulf States collapse of oil-revenue based building boom 38 oil production 6 surplus petrodollars 19, 28 Gulf wars 210 gun trade 44 H habitat loss 74, 251 Haiti, and remittances 38 Hanseatic League 163 Harrison, John 91 Harrod, Roy 70–71 Harvey, David: A Brief History of Neoliberalism 130 Harvey, William vii Haushofer, Karl 209 Haussmann, Baron 49, 167–8, 169, 171, 176 Hawken, Paul: Blessed Unrest 133 Hayek, Friedrich 233 health care 28–9, 59, 63, 220, 221, 224 reneging on obligations 49 Health Care Bill 220 hedge funds 8, 21, 49, 261 managers 44 hedging 24, 36 Hegel, Georg Wilhelm Friedrich 133 hegemony 35–6, 212, 213, 216 Heidegger, Martin 234 Helú, Carlos Slim 29 heterogeneity 214 Hitler, Adolf 141 HIV/AIDS pandemic 1 Holloway, John: Change the World without Taking Power 133 homogeneity 214 Hong Kong excessive urban development 8 rise of (1970s) 35 sweatshops 16 horizontal networking 254 household debt 17 housing 146–7, 149, 150, 221, 224 asset value crisis 1, 174 foreclosure crises 1–2, 166 mortgage finance 170 values 1–2 HSBC 20, 163 Hubbert, M.


pages: 323 words: 90,868

The Wealth of Humans: Work, Power, and Status in the Twenty-First Century by Ryan Avent

3D printing, Airbnb, American energy revolution, assortative mating, autonomous vehicles, Bakken shale, barriers to entry, basic income, Bernie Sanders, Big Tech, BRICs, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, cloud computing, collective bargaining, computer age, creative destruction, currency risk, dark matter, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, disruptive innovation, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, driverless car, Edward Glaeser, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, falling living standards, financial engineering, first square of the chessboard, first square of the chessboard / second half of the chessboard, Ford paid five dollars a day, Francis Fukuyama: the end of history, future of work, general purpose technology, gig economy, global supply chain, global value chain, heat death of the universe, hydraulic fracturing, income inequality, independent contractor, indoor plumbing, industrial robot, intangible asset, interchangeable parts, Internet of things, inventory management, invisible hand, James Watt: steam engine, Jeff Bezos, Jeremy Corbyn, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph-Marie Jacquard, knowledge economy, low interest rates, low skilled workers, lump of labour, Lyft, machine translation, manufacturing employment, Marc Andreessen, mass immigration, means of production, new economy, performance metric, pets.com, post-work, price mechanism, quantitative easing, Ray Kurzweil, rent-seeking, reshoring, rising living standards, Robert Gordon, Robert Solow, Ronald Coase, savings glut, Second Machine Age, secular stagnation, self-driving car, sharing economy, Silicon Valley, single-payer health, software is eating the world, supply-chain management, supply-chain management software, tacit knowledge, TaskRabbit, tech billionaire, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Spirit Level, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, Uber and Lyft, Uber for X, uber lyft, very high income, warehouse robotics, working-age population

Malthus opposed England’s Poor Laws, designed to keep the utterly destitute from dying in the streets; since the poor were doomed at any rate, keeping them alive and capable of breeding simply prolonged and increased their misery, he argued. Happily, Malthus was wrong. Unexpectedly, agricultural productivity grew very rapidly, and families began having fewer children. Malthusian collapse was thankfully averted. David Ricardo, a contemporary of Malthus, had a more sophisticated take on the relationship between the scarcity of land and the distribution of resources in society. Ricardo was born in London in 1772, one of the seventeen children of a Portuguese family recently relocated to Britain. He made his fortune in finance, making a killing when the price of British government debt soared after news of victory at the Battle of Waterloo (in some versions of the story, Ricardo first encouraged rumours of an English defeat to drive prices down).

He made his fortune in finance, making a killing when the price of British government debt soared after news of victory at the Battle of Waterloo (in some versions of the story, Ricardo first encouraged rumours of an English defeat to drive prices down). But he is best known for his fundamental contributions to early economics; he’s famous for developing the idea of ‘comparative advantage’, for instance, which states that trade can make two trading partners better off even if one of them is more productive in every industry. By specializing in the activity at which each is relatively best and then trading with the other, each partner profits. But his insights on the effects of land scarcity are equally significant.

Ray labour abundance as good problem bargaining power cognitive but repetitive collective bargaining and demographic issues discrimination and exclusion global growth of workforce and immigration liberalization in 1970s/80s ‘lump of labour’ fallacy occupational licences organized and proximity reallocation to growing industries retraining and skill acquisition and scarcity and social value work as a positive good see also employment Labour Party, British land scarcity Latvia Le Pen, Jean-Marie Le Pen, Marine legal profession Lehman Brothers collapse (2008) Lepore, Jill liberalization, economic (from 1970s) Linkner, Josh, The Road to Reinvention London Lucas, Robert Lyft maker-taker distinction Malthus, Reverend Thomas Manchester Mandel, Michael Mankiw, Gregory marketing and public relations Marshall, Alfred Marx, Karl Mason, Paul, Postcapitalism (2015) McAfee, Andrew medicine and healthcare ‘mercantilist’ world Mercedes Benz Mexico Microsoft mineral industries minimum wage Mokyr, Joel Monroe, President James MOOCs (‘massive open online courses’) Moore, Gordon mortality rates Mosaic (web browser) music, digital nation states big communities of affinity inequality between as loci of redistribution and social capital nationalist and separatist movements Netherlands Netscape New York City Newsweek NIMBYism Nordic and Scandinavian economies North Carolina North Dakota Obama, Barack oil markets O’Neill, Jim Oracle Orbán, Viktor outsourcing Peretti, Jonah Peterson Institute for International Economics pets.com Philadelphia Centennial Fair (1876) Philippines Phoenix, Arizona Piketty, Thomas, Capital in the Twenty-First Century (2013) Poland political institutions politics fractionalization in Europe future/emerging narratives geopolitical forces human wealth narrative left-wing looming upheaval/conflict Marxism nationalist and separatist movements past unrest and conflict polarization in USA radicalism and extremism realignment revolutionary right-wing rise of populist outsiders and scarcity social membership battles Poor Laws, British print media advertising revenue productivity agricultural artisanal goods and services Baumol’s Cost Disease and cities and dematerialization and digital revolution and employment trilemma and financial crisis (2008) and Henry Ford growth data in higher education of highly skilled few and industrial revolution minimum wage impact paradox of in service sector and specialization and wage rates see also factors of production professional, technical or managerial work and education levels and emerging economies the highly skilled few and industrial revolution and ‘offshoring’ professional associations skilled cities professional associations profits Progressive Policy Institute property values proximity public spending Putnam, Robert Quakebot quantitative easing Race Against the Machine, Brynjolfsson and McAfee (2011) railways Raleigh, North Carolina Reagan, Ronald redistribution and geopolitical forces during liberal era methods of nation state as locus of as a necessity as politically hard and societal openness wealth as human rent, economic Republican Party, US ‘reshoring’ phenomenon Resseger, Matthew retail sector retirement age Ricardo, David rich people and maker-taker distinction wild contingency of wealth Robinson, James robots Rodrik, Dani Romney, Mitt rule of law Russia San Francisco San Jose Sanders, Bernie sanitation SAP Saudi Arabia savings glut, global ‘Say’s Law’ Scalia, Antonin Scandinavian and Nordic economies scarcity and labour political effects of Schleicher, David Schwartz, Anna scientists Scotland Sears Second World War secular stagnation global spread of possible solutions shale deposits sharing economies Silicon Valley Singapore skilled workers and education levels and falling wages the highly skilled few and industrial revolution ‘knowledge-intensive’ goods and services reshoring phenomenon technological deskilling see also professional, technical or managerial work Slack (chat service) Slate (web publication) smartphone culture Smith, Adam social capital and American Constitution baseball metaphor and cities ‘deepening’ definition/nature of and dematerialization and developing economies and erosion of institutions of firms and companies and good government and housing wealth and immigration and income distribution during industrial revolution and liberalization and nation-states productive application of and rich-poor nation gap and Adam Smith and start-ups social class conflict middle classes and NIMBYism social conditioning of labour force working classes social democratic model social reform social wealth and social membership software ‘enterprise software’ products supply-chain management Solow, Robert Somalia South Korea Soviet Union, dissolution of (1991) specialization Star Trek state, role of steam power Subramanian, Arvind suburbanization Sweden Syriza party Taiwan TaskRabbit taxation telegraphy Tesla, Nikola Thatcher, Margaret ‘tiger’ economies of South-East Asia Time Warner Toyota trade China as ‘mega-trader’ ‘comparative advantage’ theory and dematerialization global supply chains liberalization shaping of by digital revolution Adam Smith on trade unions transhumanism transport technology self-driving cars Trump, Donald Twitter Uber UK Independence Party United States of America (USA) 2016 Presidential election campaign average income Bureau of Labour Statistics (BLS) Constitution deindustrialization education in employment in ethno-nationalist diversity of financial crisis (2008) housing costs in housing wealth in individualism in industrialization in inequality in Jim Crow segregation labour scarcity in Young America liberalization in minimum wage in political polarization in post-crisis profit rates productivity boom of 1990s real wage data rising debt levels secular stagnation in shale revolution in social capital in and social wealth surpasses Britain as leading nation wage subsidies in university education advanced degrees downward mobility of graduates MOOCs (‘massive open online courses’) and productivity see also education urbanization utopias, post-work Victoria, Queen video-gamers Virginia, US state Volvo Vox wages basic income policy Baumol’s Cost Disease cheap labour and employment growth and dot.com boom and financial crisis (2008) and flexibility and Henry Ford government subsidies and housing costs and immigration and industrial revolution low-pay as check on automation minimum wage and productivity the ‘reservation wage’ as rising in China rising in emerging economies and scarcity in service sector and skill-upgrading approach stagnation of and supply of graduates Wandsworth Washington D.C.


The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities by Mancur Olson

barriers to entry, British Empire, business cycle, California gold rush, collective bargaining, correlation coefficient, David Ricardo: comparative advantage, full employment, income per capita, Kenneth Arrow, market clearing, Norman Macrae, Pareto efficiency, Phillips curve, price discrimination, profit maximization, rent-seeking, Robert Solow, Sam Peltzman, search costs, selection bias, Simon Kuznets, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, urban decay, working poor

It escapes these measurements because the gains are not direct gains of those who take part in the international transactions that the liberalization permitted, but other gains from increases in efficiency in the importing countryincreases that are distinct from and additional to any that arise because of comparative advantage. In the interest of readers who are not economists, it may be helpful to point out that the conventional case for freeing trade rests on the theory of comparative advantage. This theory goes back at least to David Ricardo, one of the giants on whose shoulders the economist is fortunate to stand. The theory of comparative advantage is lucidly and rigorously stated in many excellent textbooks, so there is no need here to go into it, or into certain exceptional circumstances that could make tariffs possibly advantageous. The literature on comparative advantage is so valuable and fascinating that it ought to be part of everyone's education.

These resources would, in general, yield more valued output for the country if they were devoted to activities in which the country has a comparative advantage and the proceeds were used to buy imports; normally with freer trade a country could have more of all goods, or at least more of some without less of any others. The argument offered here is different from the conventional argument for comparative advantage, although resonant with that argument. To demonstrate that there are gains from freer trade that do not rest on comparative advantage or differences in cost of production, let us look first at the case of a country that has comparative advantage in the production of a good and exports that good, but that also is subject to the accumulation of distributional coalitions described in Implication 2.

With a tariff they may be able to sell what they sell on the home market at a higher price by shifting more of their output to the world market (where the elasticity of demand is usually greater), because they do not affect the world price that much (in other words, the organized exporters engage in price discrimination and thereby obtain more revenue than before). Even though the country had, and by assumption continues to have, comparative advantage in producing the good in question, eliminating the tariff will still increase efficiency. The reason is that the tariff is necessary to the socially inefficient two-price system that the organized exporters have arranged. This example is sufficient to show gains from freer trade that do not flow from the theory of comparative advantage or differences in costs across countries, but rather from the constraints that free trade and factor mobility impose on special-interest groups.


pages: 364 words: 99,613

Servant Economy: Where America's Elite Is Sending the Middle Class by Jeff Faux

air traffic controllers' union, Alan Greenspan, back-to-the-land, Bear Stearns, benefit corporation, Bernie Sanders, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, call centre, centre right, classic study, cognitive dissonance, collateralized debt obligation, collective bargaining, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, David Brooks, David Ricardo: comparative advantage, disruptive innovation, falling living standards, financial deregulation, financial innovation, full employment, Glass-Steagall Act, guns versus butter model, high-speed rail, hiring and firing, Howard Zinn, Hyman Minsky, illegal immigration, indoor plumbing, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kevin Roose, Kickstarter, lake wobegon effect, Long Term Capital Management, low interest rates, market fundamentalism, Martin Wolf, McMansion, medical malpractice, Michael Milken, military-industrial complex, Minsky moment, mortgage debt, Myron Scholes, Naomi Klein, new economy, oil shock, old-boy network, open immigration, Paul Samuelson, plutocrats, price mechanism, price stability, private military company, public intellectual, radical decentralization, Ralph Nader, reserve currency, rising living standards, Robert Shiller, rolodex, Ronald Reagan, Savings and loan crisis, school vouchers, Silicon Valley, single-payer health, Solyndra, South China Sea, statistical model, Steve Jobs, Suez crisis 1956, Thomas L Friedman, Thorstein Veblen, too big to fail, trade route, Triangle Shirtwaist Factory, union organizing, upwardly mobile, urban renewal, War on Poverty, We are the 99%, working poor, Yogi Berra, Yom Kippur War, you are the product

Their purpose was to give U.S. corporations the right to produce offshore and sell to the U.S. market. As the president of Peru, Alan Garcia, told the U.S. Chamber of Commerce after the 2007 U.S.-Peru free-trade agreement in December of that year, “Come and open your factories in my country so we can sell your own products back to the U.S.” This is not what Adam Smith, David Ricardo, and the classical advocates of free trade had in mind. But the actual content of these agreements was unimportant to economists defending intellectual dogma. Indeed, a survey of the economists who supported the first of these deals, NAFTA, showed that only one in nine had actually read the treaty itself.4 Not even the venerable Nobel Prize winner Paul Samuelson, a founder of the neoliberal economics that dominated postwar economic policy and a staunch supporter of free trade, was exempt from the contempt of the academic inquisition that tolerates no heresy.

When Samuelson suggested in a 2004 article that the United States might not, after all, benefit from free trade, he was dismissed as an old man who had lost his marbles.5 His point was simply that the dogma that free trade was a win-win for everyone had become dubious as (1) highly skilled workers overseas became increasingly cheaper to hire, (2) the gains from producing goods more cheaply elsewhere went to capital rather than labor, and (3) the United States lost a comparative advantage in expanding industries. Eventually, defenders of the free-trade deals admitted that they were not quite win-win for everyone. The very unskilled and uneducated, of course, might lose their jobs. But American workers were assured that their better education and access to superior U.S. technology would allow them to produce more high-value products.

The share of jobs for which a college education will actually be required is projected to be just 21 percent.6 It turned out that much of the job and wealth creation associated with the information economy was tied to the making of goods; success results from setting trained people to work on problems in the context of day-to-day production, whether of sneakers, automobiles, pharmaceuticals, or Hollywood films. The more we offshored production jobs, the more we offshored research and development as well. What had been touted as a natural comparative advantage for the United States in skills, technology, and organization was in reality duplicated or even surpassed by other nations. “American” transnational corporations were locating their research and development departments in India, Taiwan, and China, where the skills were high and came cheap.


pages: 327 words: 90,542

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril by Satyajit Das

"there is no alternative" (TINA), "World Economic Forum" Davos, 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Alan Greenspan, Albert Einstein, Alfred Russel Wallace, Anthropocene, Anton Chekhov, Asian financial crisis, banking crisis, Bear Stearns, Berlin Wall, bitcoin, bond market vigilante , Bretton Woods, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, digital divide, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial engineering, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, geopolitical risk, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, Great Leap Forward, Greenspan put, happiness index / gross national happiness, high-speed rail, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), it is difficult to get a man to understand something, when his salary depends on his not understanding it, It's morning again in America, Jane Jacobs, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, Kevin Roose, knowledge economy, knowledge worker, Les Trente Glorieuses, light touch regulation, liquidity trap, Long Term Capital Management, low interest rates, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, middle-income trap, Mikhail Gorbachev, military-industrial complex, Minsky moment, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, PalmPilot, passive income, peak oil, peer-to-peer lending, pension reform, planned obsolescence, plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Robert Solow, Ronald Reagan, Russell Brand, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, Stephen Fry, systems thinking, TaskRabbit, 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 market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, uber lyft, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

It is not clear whether the current trend reflects cyclical factors or a fundamental structural change. Expectations of a rapid return to pre-crisis conditions appear optimistic. In recent decades, international integration has focused on the geographic separation of production and consumption. Economist David Ricardo's concept of comparative advantage, whereby countries produce more of those goods and services in which they enjoy a competitive edge, gained ascendancy. The manufacturing process itself was divided into discrete components. A pair of trousers could be made using yarn spun in Bangladesh that was then woven into fabric and dyed in India, China, or Vietnam; the zipper might be manufactured in Japan and the buttons in China; and the whole could be stitched together in Sri Lanka, Pakistan, or Honduras.


pages: 309 words: 91,581

The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It by Timothy Noah

air traffic controllers' union, Alan Greenspan, assortative mating, autonomous vehicles, Bear Stearns, blue-collar work, Bonfire of the Vanities, Branko Milanovic, business cycle, call centre, carbon tax, collective bargaining, compensation consultant, computer age, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, Deng Xiaoping, easy for humans, difficult for computers, Erik Brynjolfsson, Everybody Ought to Be Rich, feminist movement, Ford Model T, Frank Levy and Richard Murnane: The New Division of Labor, Gini coefficient, government statistician, Gunnar Myrdal, income inequality, independent contractor, industrial robot, invisible hand, It's morning again in America, job automation, Joseph Schumpeter, longitudinal study, low skilled workers, lump of labour, manufacturing employment, moral hazard, oil shock, pattern recognition, Paul Samuelson, performance metric, positional goods, post-industrial society, postindustrial economy, proprietary trading, purchasing power parity, refrigerator car, rent control, Richard Feynman, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, Stephen Hawking, Steve Jobs, subprime mortgage crisis, The Spirit Level, too big to fail, trickle-down economics, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, upwardly mobile, very high income, Vilfredo Pareto, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, Yom Kippur War

Samuelson, who considered himself “the midwife, helping to deliver Wolfie’s brainchild,” would go on to write the twentieth century’s bestselling economics textbook and to win the Nobel Prize. Fifty years after the theorem’s debut, the Columbia economist Jagdish Bhagwati wrote, “I know of no major international economic theorist today who would not trade an arm and a leg” for its authorship.4 The Stolper-Samuelson theorem challenged the notion dating back to David Ricardo that everybody benefited when trade between nations proceeded unimpeded. According to classical economics, even higher-wage workers benefited when their country traded with a lower-wage nation. That was because the resulting drop in prices would so exceed their reduced wages that the workers would net out with the practical equivalent of a raise.

But thus far traditional economic theory is holding up reasonably well.7 Computers are eliminating jobs, but they’re also creating jobs. The trouble is that the kinds of jobs computers eliminate tend to be the ones previously occupied by moderately skilled middle-class workers, while the kinds of jobs computers create tend to be ones for highly skilled, affluent workers. “Computers’ comparative advantage over people,” write Levy and Murnane, “lies in tasks that can be described using rules-based logic: step-by-step procedures with an action specified for every contingency.” Where rule-based logic breaks down, they point out, is whenever an unforeseen contingency arises. They cite the example of an auto mechanic using computerized diagnostics to figure out what’s wrong with a minivan whose front seat won’t move forward or backward at the touch of an electric switch.


pages: 382 words: 92,138

The Entrepreneurial State: Debunking Public vs. Private Sector Myths by Mariana Mazzucato

Apple II, banking crisis, barriers to entry, Bretton Woods, business cycle, California gold rush, call centre, carbon footprint, carbon tax, Carmen Reinhart, circular economy, clean tech, computer age, creative destruction, credit crunch, David Ricardo: comparative advantage, demand response, deskilling, dual-use technology, endogenous growth, energy security, energy transition, eurozone crisis, everywhere but in the productivity statistics, Fairchild Semiconductor, Financial Instability Hypothesis, full employment, G4S, general purpose technology, green transition, Growth in a Time of Debt, Hyman Minsky, incomplete markets, information retrieval, intangible asset, invisible hand, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, knowledge worker, linear model of innovation, natural language processing, new economy, offshore financial centre, Philip Mirowski, popular electronics, Post-Keynesian economics, profit maximization, Ralph Nader, renewable energy credits, rent-seeking, ride hailing / ride sharing, risk tolerance, Robert Solow, shareholder value, Silicon Valley, Silicon Valley ideology, smart grid, Solyndra, Steve Jobs, Steve Wozniak, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tony Fadell, too big to fail, total factor productivity, trickle-down economics, vertical integration, Washington Consensus, William Shockley: the traitorous eight

Within the firm’s hierarchical and functional division of labour, there is the integration of organizational learning into process routines that leverage the skills and efforts of large numbers of people. A New Framework What are the mechanisms that can help ensure that growth is not only ‘smart’ but also ‘inclusive’ (e.g. the goal of the EC’s 2020 strategy)? What explains the reasons why innovation and inequality have gone hand in hand? While the classical economists (such as David Ricardo or Karl Marx) studied innovation and distribution together through, for example, the analysis of the effect of mechanization on the wage/profit ratio, for years studies of innovation and distribution have been separated. Today, they have been brought back together mainly by the de-skilling perspective and its realization that innovation has a tendency of allowing those with high skills to prosper, and those with low skills to get left behind (Acemoglu 2002).

What must be explained is how a country like the US can become a leading market, but fail to produce a leading manufacturer, and conversely, how a country like China can produce a leading manufacturer in the absence (until recently) of a domestic market. What distinguishes these nations has nothing to do with their ‘comparative advantages’ as producers of wind turbines or solar PV panels, and it has nothing to do with a natural abundance of wind or sun. Historically, the development of wind and solar power has reflected differences in government policies meant to foster these power sources. For some countries, this is a process that has unfolded over many decades.


pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

accounting loophole / creative accounting, Alan Greenspan, banking crisis, banks create money, barriers to entry, behavioural economics, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, book value, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, Greenspan put, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, Money creation, money market fund, open economy, Pareto efficiency, Paul Samuelson, Phillips curve, place-making, Ponzi scheme, Post-Keynesian economics, power law, profit maximization, quantitative easing, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Shiller, Robert Solow, Ronald Coase, Savings and loan crisis, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

As a result, while Marx’s thought still has considerable influence upon philosophers, historians, sociologists and left-wing political activists, at the beginning of the twenty-first century, Marx and Marxists are largely ignored by other economists.1 Most non-orthodox economists would acknowledge that Marx made major contributions to economic thought, but it seems that overall Samuelson was right: Marx was a ‘minor Post-Ricardian’ – someone who took classical economics slightly farther than had David Ricardo, but who ultimately led it into a dead end. This conclusion is false. Properly understood, Marx’s theory of value liberates classical economics from its dependence on the labor theory of value, and makes it the basis for a deep and critical understanding of capitalism. But in a truly Machiavellian irony, the main factor obscuring this richer appreciation of Marx is the slavish devotion of Marxist economists to the labor theory of value.

But in a truly Machiavellian irony, the main factor obscuring this richer appreciation of Marx is the slavish devotion of Marxist economists to the labor theory of value. To see why Marx’s theory of value is not the labor theory of value, we have to first delve into the minds of the great classical economists Adam Smith and David Ricardo. Value – a prelude The proposition that something is the source of value raises two questions: what is ‘value’ anyway, and why should any one thing be the source of it? A generic definition of value – one which encompasses the several schools of thought in economics which have used the term – is that value is the innate worth of a commodity, which determines the normal (‘equilibrium’) ratio at which two commodities exchange.

Lastly, a book that was in its first incarnation almost exclusively about microeconomics now covers microeconomics and macroeconomics in roughly equal measure. The one glaring omission is the absence of any discussion of international trade theory. The reason for this is that, while the flaws in the theory of comparative advantage are, to me, both huge and obvious, a detailed critique of the mathematical logic has not yet been done, and nor is there a viable alternative. That is a task that I may tackle after Finance and Economic Breakdown is completed, but not before. Looking back The reception of the first edition was both gratifying and predictable.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bear Stearns, Bernie Madoff, book value, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, compensation consultant, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, land bank, law of one price, light touch regulation, Long Term Capital Management, low interest rates, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, military-industrial complex, minimum wage unemployment, Money creation, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, Robert Solow, rolodex, Savings and loan crisis, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

How power was purged from international economics However, after Britain had obtained the position of industrial world leader, classical British economist David Hume (1711–1776) fiercely criticized mercantilist theories and politics as unreasonable. He and his famous compatriots Adam Smith (1723–1790) and David Ricardo (1772–1823) became champions of global free trade. They agitated against continental European attempts to grab market share from the leading economy using the same mercantilist policies that Britain had so successfully employed before. Even so, it was not easy to convince other countries that it was best for them to continue exporting raw materials to Britain and importing industrial goods back from Britain.

In exchange, Portugal gained free access to British ports throughout the world, which was a boon for its traders, who were able to resell British manufactured goods with a much better profit margin than 4 ECONOMISTS AND THE POWERFUL their French or Spanish counterparts (and Britain did not try to seize Portugal’s Brazilian colonies, unlike those of Spain or France). Ricardo would later use this treaty as his famous example to illustrate the mutual benefits of comparative advantage (Ricardo 1817); however Portugal to this day still lives with an unusually global-trade-dependant economy as a legacy of that treaty (Almodovar and Cardoso 1998). The birth of marginalism While the classical economists touted the virtues of free international trade and took issues of power out of international economics, they still left some room to discuss power in the national context, notably on the labor market.

D. 13 American Economic Association ix, 10, 17, 20, 26–7, 44 American Economic Review 8, 20, 26–7 American International Group (AIG) 70, 90–91 Anglo-Saxon economics ix Arrow, Kenneth 7, 23–4, 212; see also impossibility theorem (Arrow’s) asset bubble 104 asymmetric information: see information, asymmetric AT&T 147 authoritarianism 24, 210 average cost 148, 151 Bank of America 77, 86, 94 barriers to entry 54, 160 Basel III Accord 104–5 Bear Stearns 90, 96, 107, 111 Becker, Gary S. 186 Bemis, Edward 9–10 Bentham, Jeremy 11 Berlin, Isaiah 25 Bernays, Edward 15–17 Bill of Rights (US) 208 Bolsa Família program 41 Boskin Commission 36 Bourdieu, Pierre 25, 115, 160 Bridgestone (tire manufacturer) 163–4, 166–7 British Empire ix, 16, 100 Buchanan, James 23–4 Buffett, Warren 93, 107–9 Bullionists 2 Bureau of Labor Statistics 32–3, 35 capitalism vii–viii, ix, 2, 5–6, 10, 18–19, 21, 31, 46, 142, 153, 158, 165 central bank 43, 67, 79–88, 104–5 CEO: see chief executive officer (CEO) Chicago, University of 10, 17, 19, 26, 27, 44, 80, 84, 168, 186, 193 chief executive officer (CEO) xi, 16, 47, 61, 70, 93, 95–6, 103, 107–13, 115–27, 132, 138–9, 215, 217 Chrysler xi, 113 Citicorp (bank) 43 Citigroup (bank) xi, 61, 63, 96, 105, 112, 125 Clark, John Bates 6, 10–11, 155, 193 classical value theory 5 Cold War 2, 18, 21, 25–8, 46 collective bargaining 185 Commodity Futures Trading Commission (CTFC) 90, 92 Commons, John R. 8–10 communism xii, 2, 19, 21, 25, 139 comparative advantage 4 Condorcet, Marquis de 23 conflict 165 consumption viii, 11, 13, 32, 78, 158, 192, 203, 211 control fraud 94–5 convergence vii 242 ECONOMISTS AND THE POWERFUL cooperation 73–5, 165, 167, 170, 198 cooperative 102 Cornell University 10 corporate elite x, xii, 115, 117, 140 corporate governance 92, 119, 127, 135, 136 corporate government 135 corporate management 109 corporation tax 139 corruption 220 credit x, xi, 29, 48–50, 59–60, 62, 65, 71, 73, 75, 77–84, 90–91, 95–8, 100, 104, 110, 149, 183 credit default swap 91, 93 CTFC: see Commodity Futures Trading Commission (CTFC) Darwinism 167 Debreu, Gerard 7 demand curve 146 democracy 18, 207, 211–13, 220 depreciation 33, 147 derivatives 67, 90–93, 96–7 Deutsche Bank 105, 121 disability adjusted life expectancy vii discrimination 130, 186–7 earnings management 129–30 economic growth xi, 80 economic policy xi, 46, 66, 76, 152 economic utility 4–5, 13 economics, mainstream viii, x–xi, xiii, 1, 29, 47, 136, 145, 164, 170, 208, 211, 214 economics, neoclassical ix, xii, 6, 8, 10–11, 13, 21–2, 25, 30, 38, 42, 45, 141, 143–4, 153–5, 157–60, 163–4, 168, 170–71, 173, 180–82, 188, 191–2, 210, 213 economies of scale 3, 54, 152, 161 economies of scope 54 Edgeworth, Francis Y. 10 efficiency vii, x, xi, xii, 13, 19, 25, 39, 43, 48, 62, 73, 101, 108, 136–7, 143, 144, 146–7, 149, 156, 160, 170, 176, 179, 183, 190, 193, 197, 202–4, 216, 219 efficient markets x Ely, Richard T. 9–10 employment protection 188, 200–203, 205 Enron 52, 92, 98, 110, 128, 132, 217 entrenchment 126, 135 equality of opportunity vii–ix, xii, 37, 39–41, 45, 53, 114, 124, 172 equality of outcome vii equilibrium x, 6–7, 37, 47, 146, 159, 161, 181–2, 197, 208 euro ix, 67, 82, 102 European Central Bank 103, 189, 215 European Commission/Union 67, 152 executive compensation 120–21, 138 exploitation 6, 156, 209, 212 exports 2, 34, 180–81 fairness ix, 13, 37, 39–40, 160, 164–6, 169–70, 177, 220 Fannie Mae (US government subsidizer of mortgages) 217 fear, uncertainty, doubt (FUD) 145 Federal Reserve (US) 43–4, 69–70, 85, 87–92, 143, 215 feedback loop 40, 216, 220 fiat money 75, 81 filibuster (US antilegislative maneuver) 218 financial industry xi, 44, 46–8, 51, 54–6, 64, 70, 89, 91–2, 121, 129, 217 financial markets xi, 47, 92, 108, 110, 128 financial rating agencies: see rating agencies financial sector xi, 43–4, 47–8, 53–4, 60, 64, 69, 79, 81, 83, 88–9, 100–101, 103, 105 Financial Stability Board 103 First (Workingmen’s) International 5 first mover advantage 132 Fisher, Irving 10, 13, 60, 75, 81, 83–4, 214 Fitch (ratings agency) 97 fixed costs 143 INDEX Fortune (magazine) 128 Fortune 500 (index) 49, 139 forwards (financial instrument) 67 founding fathers (of the United States) 207, 218 Freddie Mac (US government subsidizer of mortgages) 217 free market 6–7, 24, 46, 84, 147, 188, 193, 209 free riding 24, 37, 164 free trade 3–4, 16, 46, 209 freedom viii, 10, 18, 21, 25, 80, 94, 188, 191, 218 Freud, Sigmund 15 Friedman, Milton 44, 57, 81 front running (trading strategy) 65–6 FUD: see fear, uncertainty, doubt (FUD) fund managers 56–8, 63–4, 68, 134 futures (financial instrument) 67 Galbraith, John Kenneth 11, 74 GDP: see gross domestic product (GDP) General Motors xi, 16, 184–5 global financial crisis ix, 90; see also Great Financial Crisis God 24 gold 2, 72–7, 79–80, 86–7, 89 golden parachutes 112 Goldman Sachs 47, 49, 54, 56, 63, 66, 69, 88, 93, 105, 121, 215 goodwill 131 Great Depression 11, 70, 80, 138–9, 181, 204 Great Financial Crisis 79, 100, 111, 136; see also global financial crisis gross domestic product (GDP) vii–ix, xi, 28–31, 143 growth 27–8, 31, 33, 35, 39, 71, 90, 102, 108, 128, 132, 135, 151, 195, 203–4 Hadley, Arthur 10 happiness 202 Harvard Business Review 17–18 Harvard University 17–18, 26, 109, 208 243 hedge fund 29, 43, 46, 53, 58, 64–8, 92, 96, 101, 107 hedonic method 33–6 Hicks, John 13–14, 21 Homo economicus 164–6, 173 hostile takeovers 126 human capital 128 imports 2, 12, 34, 35 impossibility theorem (Arrow’s) 23–4, 212–13 incentives 39–40, 42–5, 52, 91, 93, 109, 114–15, 129, 132, 140, 172–4, 177, 182, 214 income guarantee 41 incompleteness viii, 12, 49, 145, 169, 184 incumbency 121, 134, 149 index tracking fund 55, 58 indifference 141, 168 industrial goods 2–3, 142 industrial production 2, 179 Industrial Revolution 5, 143, 181 inequality vii, 40, 138, 140 inflation 32–3, 36, 50, 78, 81, 104, 109, 120 information advantage 48, 131 information, asymmetric x, 191 information costs 144 information goods 143 information, imperfect x, xii, 142, 145, 149, 220 information technology 34, 218 innovation 34, 43, 147, 150–52, 160, 208 insider information 53–4, 62–3, 131 insider knowledge 131 insider trading 63–4, 131 institutionalism 8, 21 insurance xi, 39, 69, 82, 89–91,152, 189, 198, 204, 210 interest rate, real 50, 159 International Monetary Fund 27, 31, 48, 69, 74 International Workingmen’s Association 5 244 ECONOMISTS AND THE POWERFUL investment 32–3, 37, 41, 51, 56–7, 68, 78, 96–100, 103–4, 128–30, 133, 135, 140, 157, 184, 217 advice 51, 54, 56, 129 banking 29, 43, 47, 51, 52, 54, 55, 60–62, 64, 70–71, 89–90, 93, 94, 96, 97, 101, 107, 111–12, 125, 132 personal viii irrationality vii, 1, 13, 16, 38, 40, 151, 205, 211–12 Ivy League 27 Jevons, William Stanley 5, 16 job security viii, 108, 199–200, 202–4 J.P.


pages: 850 words: 224,533

The Internationalists: How a Radical Plan to Outlaw War Remade the World by Oona A. Hathaway, Scott J. Shapiro

9 dash line, Albert Einstein, anti-globalists, bank run, Bartolomé de las Casas, battle of ideas, British Empire, clean water, colonial rule, continuation of politics by other means, David Ricardo: comparative advantage, Donald Trump, facts on the ground, failed state, false flag, gentleman farmer, humanitarian revolution, index card, long peace, Monroe Doctrine, new economy, off-the-grid, oil shale / tar sands, open economy, Peace of Westphalia, power law, public intellectual, Ronald Reagan, Scientific racism, Scramble for Africa, South China Sea, spice trade, Steven Pinker, The Wealth of Nations by Adam Smith, trade liberalization, uranium enrichment, zero-sum game

In his 1776 classic work, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith demonstrated that specialization in production allows for economies of scale, improving efficiency and growth.20 In 1817, David Ricardo showed that countries could gain from trade even if one was more efficient at producing all traded goods—what mattered was their comparative advantage.21 These revolutionary ideas swept the Western world. And yet growth in global trade was sluggish. From the end of the eighteenth century, when Adam Smith first launched his famous critique of mercantilism, until the early twentieth, global trade rose from just under 10 percent of global GDP to just over 20 percent.22 This tepid response is puzzling.

Our claim that weak states were no longer threatened with conquest is consistent not only with the data in the previous chapter but also with the argument and findings of Tanisha Fazal, who documents the decline of state death in the second half of the twentieth century. Tanisha Fazal, State Death: The Politics and Geography of Conquest, Occupation, and Annexation (Princeton, NJ: Princeton University Press, 2007). 20. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London: W. Strahan and T. Cadell, 1776). 21. David Ricardo, On the Principles of Political Economy and Taxation (London: John Murray, Albermarle-Street, 1817). 22. Mohamed Nagdy and Max Roser, “International Trade (2016),” OurWorldInData.org, accessed January 17, 2016, http://ourworldindata.org/data/global-interconnections/international-trade/. 23. Robert Powell, “Absolute and Relative Gains in International Relations Theory,” The American Political Science Review 85, no. 4 (1991): 1303–20. 24.

., 194 Cohen, David, 390, 395 Cohen, Felix, 50 Cold War, xii, 370n, 405 collective responsibility, 79, 269–71, 282, 283–84, 521n Cologne, University of, 230, 231–34, 235, 244 colonialism, 76, 96, 172–73, 192, 321–22, 323, 341–42, 345–47, 355–57, 364, 398, 404, 462n Columbia University, 108, 115–17, 121, 194, 469n Comité de l’Afrique Française, 398 communism, 228–30, 295, 324 comparative advantage, 343 competition, 4, 22, 50, 103, 224–25, 341–43, 420, 436n Comprehensive Iran Sanctions, Accountability, and Divestment Act (2010), 389 Comprehensive Peace Agreement (2005), 365 Conant, James, 245 “Concept of the Political, The” (Schmitt), 217–19, 226, 292 Congress, U.S., 34, 39, 51, 102–3, 105, 111, 112, 118, 121, 126, 171, 184, 337, 389, 475n conquests, 43, 48–49, 97, 304, 313–15, 316, 317, 319–23, 320, 328, 330 conquistadores, 43, 48–49 conscription, 114–15, 147–48 Conscription Act (1873), 147 Conservative Party, 118 Constitution, U.S., 44, 213–14, 331, 449n Constitution, Weimar, 226–30, 231, 417 Convention for the Amelioration of the Condition of the Wounded and Sick in Armies in the Field (1929), 496n Convention for the Reduction of Armaments (1932–1934), 162 Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) (1973), 377 Coolidge, Calvin, 187 cordon sanitaire (buffer zone), 32 “Correlates of War” dataset, 311–13, 323, 347–48, 367–68, 367, 530n, 531n Council of Europe, 384–85 Council of the League of Nations, 105–6, 131–33, 161–62, 465n–66n, 470n Council on Foreign Relations, 167 “countermeasures,” 375–76 Covenant of the League of Nations, 105, 106, 110–11, 119, 127, 128, 132–33, 155–56, 157, 161, 162, 168, 174–75, 195, 212, 330, 465n–66n, 470n, 490n–91n, 502n “Cow’s Tongue Line,” 359–63, 360 Crazy Horse, 51 Crimea, xiii, xvii, 202–3, 204, 309–11, 314, 328, 364, 390–94, 417, 418, 419, 422 “crimes against humanity,” 267, 290–92, 508n “crimes against peace,” 257, 508n criminal law, 80–81, 96, 109, 114–15, 248–49, 253–54, 257, 286–87, 288, 290–91 Cromwell, Oliver, 38, 45 Crusades, 96, 410 “cuartel general,” 78 Cuba, 43, 163, 387 Cushendun, Ronald McNeill, Lord, xi Custer, George Armstrong, 51, 58 Cyprus, 382–85 Cyrus the Great, 47 Czechoslovakia, 240, 241, 244, 318, 330 Dachau concentration camp, 279, 281–82 Daily Mail, 241 Daily Mirror, 178–79 daimyō (feudal lords), 139, 141 Dairen (Dalian), 152–53 Dallas, Alexander, 89 Darfur, 329, 365 Dar-ul-Islam (realm of Islam), 410 Davies, Norman, 51 Dawes, John, 224 Dawes Plan, 224 death penalty (capital punishment), 78–79, 141, 236, 251, 254–57, 262, 263–64, 288, 291–92 Declaration of Independence, xiv “Declaration of the Rights of Man,” 85 “Declaration of the United Nations” (1942), 191–93, 197, 210–12, 330, 345 Declaration of War on Spain (1719), 41 declarations of war, 34, 36, 40, 41, 63–64, 76, 102, 104, 151, 180–81, 190–93, 448n, 483n–84n, 487n “declinists,” 334–35 decolonialism, 76, 96, 172–73, 192, 321–22, 323, 341–42, 345–47, 355–57, 364, 398, 404, 462n defensive wars, 10, 32, 34, 43, 44, 62, 123, 126, 127, 156, 159–61, 199, 213, 253, 333, 341, 353, 370, 406, 416 de Gaulle, Charles, 249 De Jure Belli ac Pacis Libri Tres (Law of War and Peace, The) (Grotius), 20–28, 47–48, 94, 95, 145–47, 299–300, 409, 441n democracies, 85, 111–12, 225, 226, 228–34, 244, 332–33, 334, 336, 369, 391, 448n, 535n, 549n Democracy: A Religion (Maqdisi), 549n destroyers for bases program, 194 Detroit, USS, 128 Dewey, John, 108, 109, 113, 115, 119, 123, 125, 195, 415 dictatorships, 226–38, 244–45, 258–59 Dietrich, Marlene, 286 diplomacy, gunboat, xvii, 51, 96, 97, 134–38, 149, 181, 300, 301–3, 304, 332, 370, 460n, 478n–79n, 480n, 481n disarmament, 109, 116–17, 120, 162, 191, 196, 272–73, 287 Dispute Settlement Body, 379–80 divine law, 29–30, 48, 73–75, 136, 294, 409, 410, 413, 455n Dix, Rudolf, 273–75 Dominican Republic, 187, 242 Dönitz, Karl, 290 Doppō (Soldiers’ Rules), 148 Dorotić, Pavla (Cari), 220–21, 226 “Draft Constitution of International Organization,” 197 Drezner, Daniel, xiii Druze, 413 Dubats, 172 duelling, 109 due process, 256–57, 291–92 Dumbarton Oaks conference (1944), 199–201, 205, 207–8 Dutch East India Company, 4, 8, 13, 14–19, 22–23, 26, 51, 94, 153, 299, 462n Dutch Republic, 3–23, 26–27, 51, 436n–37n, 439n see also Netherlands Dutch West India Company, 17 “duty of war,” 106 East Indies, 4–6, 13, 17, 18, 22, 26, 51, 95–96, 136, 357, 358–59 East Prussia, 322 East Timor, 364 Ečer, Bohuslav, 252–54, 257, 259, 260, 266, 282, 283, 290, 291 Ečer-Chanler theory, 266, 282, 283, 290 economic sanctions, 91, 105–6, 114, 118, 119, 121, 125, 127, 164, 165, 170, 172–75, 179–82, 208, 223, 238, 239, 253, 272, 273, 282, 289, 304, 316, 332, 374, 381, 387–94, 415, 418, 421, 422, 470n, 492n, 522n economies: mercantile, 340 protectionism in (import quotas) in, 342, 371–72, 379, 535n tariffs in, 371–72, 380, 385, 480n Ecuador, 323, 358 Eden, Anthony, 185–86, 207 Eden, Garden of, 375 Edo, 135–37, 138, 141, 147 see also Tokyo Edward III, King of England, 41 “Effect of the Briand-Kellogg Pact of Paris in International Law” report (1934), 170–71 Egypt, 75, 329, 356, 402–8, 531n Eight Books on the Law of Nature and Nations (Pufendorf), 27–28 Eighty Years’ War, 78 Eisenhower, Dwight D., 264 Elba, 65–66, 67, 68–69, 251 Eldon, John Scott, Lord Chancellor, 68 Elements of International Law (Wheaton), 144 Elgin, James Bruce, Earl of, 140 Eliot, Charles W., 107–8 Elsje (Grotius’s chambermaid), 21 Embuscade, 84–85 emergency decrees, 228–33 Encyclopaedia Britannica, 116 “End of Sykes-Pikot” video, 396–97, 413 English Channel, 37n Enlightenment, 29, 75 environmental issues, 341, 377, 382, 385–87, 421 Erasmus, 6 Eric XIV, King of Sweden, 83–84 Eritrea, 172–74, 321 Estado da Índia, 46 Estonia, 318–19, 506n Ethiopia, 172–74, 238, 258, 259, 273, 319, 357, 531n etiamsi daremus (“even if we should concede”) passage, 29–30, 409 Eucharist, 116, 118n “Euromaidan” protests (2010), 310 Europe, 15, 45, 169, 240–43, 286, 317–19, 322, 339–40, 343, 344, 417, see also specific countries European Convention of Human Rights (1950), 384 European Court of Human Rights, 45, 384 European Union (EU), 45, 343, 372, 380, 385, 390, 391, 392, 393, 394, 418–19 exile, 65–66 Exner, Franz, 286, 524n ExxonMobil, 393 failed states, 364–68, 366, 367 Faisal I, King of Iraq, 399 false flags, 80 Farouk, King of Egypt, 405 fascism, 238, 244–45, 258–59 Feilchenfeld, Ernst, 260 Fernando, Cardinal-Infante Ferdinand of Austria, Don, 36 Fiery Cross Reef, 359–63, 360 Fifteenth Amendment, 331 financial crisis (2008), 391 Finland, 177, 322 Fisuserinku-shi Bankoku Kōhō (“Vissering’s International Law”) (Nishi), 144 428, 482n Flechtheim, Ossip, 295 Fleming, Ian, 61 Flick, Friedrich, 216–17, 271–75, 286 Fontaine, Arthur, 120 Fontainebleau, Treaty of (1814), 65, 67, 68, 251 Fordow nuclear facility, 394 Fort Meade, 60 Fourteen Points, 105–6 Fourteenth Amendment, 331 France, ix–xi, 32, 36–39, 41, 65–67, 78, 82–92, 102, 176, 184, 208, 267–68, 317, 319, 321, 322, 349, 355, 376, 396–402, 401 Franconia, 279 Franco-Prussian War, 45–46, 47, 221 Franco-Russian Alliance Military Convention (1892), 102 Frank, Hans, 235–36, 238, 242, 285, 290 Frankfurter, Felix, 167–68 Franklin, Benjamin, 83 Franz Ferdinand, Archduke of Austria, 101–2 Franz Joseph I, Emperor of Austria, 102–3 Frederick II (“the Great”), King of Prussia, 32, 45, 445n-46n “freedom of the seas,” 18, 22–23, 26, 82–92, 95, 104, 105, 118 free trade, 18, 223–24, 332–33, 341–43, 344, 345, 346, 368, 371, 378–80, 419–20 French Revolution, 76, 82–92, 458n Freud, Sigmund, 231 Frick, Wilhelm, 290 “friend-enemy” distinction, 218–19, 220, 222, 223 Fritzsche, Hans, 285, 290, 296, 526n Fruin, Robert, 95, 434n, 435n, 439n, 443n, 461n Fulgosius, Raphael, 24–25, 442n Funk, Walther, 285, 290 Furtado de Mendonça, André, 4–5 Galicia, 239 ganbaru attitude, 151–53 Ganghwa Island, Treaty of (1876), 149–50 General Agreement on Tariffs and Trade (GATT), 372, 378–80, 381 General Treaty for the Renunciation of War (1928), 129, 249, 283, 302 see also Peace Pact (1928) Genêt, Edmond-Charles, 82–92, 460n Geneva, 62–63, 244 Geneva Convention (First) (1864), 77 “Geneva Protocol,” 117–19, 120, 125, 126, 217, 470n genocide, xi, 256, 274, 352, 365 see also Holocaust gens de guerre (combatants), 63 Gentili, Alberico, 49 George III, King of England, 50 Germany, Imperial, 45–46, 249, 251–52, 323 Germany, Nazi, 162, 176, 184, 185, 191, 204, 218, 224–36, 254, 278–80, 286, 318–19, 403, 508n–9n, 526n Germany, Weimar, 225, 226–33, 295 Gerry, Peter, 186–87 Gestapo, 255, 274 Gheyn, Jacques de, 6–7 Ghost Dance, 56–58 “ghost shirts,” 57 Gibraltar, 17–18 Gilbert, Gustave, 256–57, 280 Girondins, 84, 88, 89 global economy, xvi, 14, 16, 17, 28, 55, 96, 133, 173–74, 224, 226, 240, 332–34, 339–43, 346, 368, 371–73, 378–79, 381, 391, 392–93, 395, 419, 420–21, 481n–82n Goa, 324 God, 29–30, 48, 73–75, 136, 294, 409, 410, 413, 455n see also Allah Goebbels, Joseph, 225, 229, 263, 264, 519n Goebbels, Magda, 519n Good Neighbor Policy, 187, 242–43 Gore, Al, 371–72 Göring, Edda, 279 Göring, Hermann, 225, 229, 232–33, 235, 237, 242, 256, 263, 264, 270, 277, 278–80, 281, 284–85, 290, 523n government: democratic, 85, 111–12, 225, 226, 228–34, 244, 332–33, 334, 336, 369, 391, 448n, 535n, 549n fascist, 238, 244–45, 258–59 imperialist, xx, 52, 95–96, 341, 345–46, 355, 369, 410–11, 462n; see also colonialism parliamentary, 228–30, 231, 233–34 social contract and, 11, 29–30, 143, 409 totalitarian, 226–38, 244–45, 258–59; see also Nazism Gragas law code, 379 Grande Armée, 65 Grange, 85 Great Britain, 22, 40, 67–69, 82–92, 102–6, 120, 133, 159–60, 165, 176–82, 184, 189, 191–94, 246, 247, 267–68, 312, 343, 348–49, 396–402, 401, 407, 463n, 500n, 531n Great Depression, 164 Great Mosque (Mosul), 411–12 Great Purges, 257 Greece, 90, 382–85 “Green Line” (Cyprus), 383–85 Grey, Edward, Lord, 474n Gromyko, Andrei, 199, 200, 201, 206 Groot, Cornet de, 95 Gros, André, 267 Grossraum (“Great Space”), 240–43, 286, 289–90, 293, 295–96 Grotius, Hugo, xix–xx, 6–30, 35, 37, 44, 47–49, 53, 54, 61, 62, 69–72, 77, 80, 91, 93–98, 104, 136, 141, 143, 147, 153, 159, 239, 294, 299–300, 303–5, 314, 324, 358, 409, 410, 417, 437n, 441n, 442n, 443n, 449n, 454n, 455n, 460n, 462n, 481n, 527n Group of 8 (G-8), 390–91 Gulf War, 332, 387 gunboat diplomacy, xvii, 51, 96, 97, 134–38, 149, 181, 300, 301–3, 304, 332, 370, 460n, 478n–79n, 480n, 481n Gunjin chokuyu (Imperial Rescript to Soldiers and Sailors) (1882), 148 Gunjin kunkai (Admonition to Soldiers) (1878), 147–48 Gustavus Adolphus, King of Sweden, 42 Gutachten (expert legal opinion), 227, 247, 272, 274, 286–87 Hackworth, Green, 194 Haggenmacher, Peter, 438n, 441n Hague Convention (First) (1899), 77, 79, 93, 97, 109, 445n Hague Convention (Second) (1907), 77, 79, 90, 109 Haile Selassie I, Emperor of Ethiopia, 172–74 Hamilton, Alexander, 86 Hammond, George, 85 Handelshochschule, 226, 229 Hannibal, 449n Hard, William, 118 Harding, Warren G., 112 Harriman, Averell, 207 Harris, Townsend, 133–34, 136, 138–40, 480n Harvard University, 245 Hearst, William Randolph, 164 Heath, Edward, 82 Heemskerck, Jacob van, 3–18, 23–30, 94–95, 143, 144, 358, 436n–37n Heinsius, Daniel, 7 Henry IV, King of France, 6 Henry V (Shakespeare), 37 heralds, 36–37 Hess, Rudolf, 278–79, 285, 290 Hezbollah, 368, 388 Himmler, Heinrich, 225, 237, 263, 264 Hindenburg, Paul von, 227, 229, 232 Hirohito, Emperor of Japan, 148, 159, 180 Hiroshima, bombing of (1945), 213 Hitler, Adolf, 162, 179, 185, 193, 213, 215, 225, 228, 232–38, 240–43, 249, 250, 251, 252, 257–64, 274, 279–80, 289–90, 506n Hitlerite Responsibility Under the Criminal Law (Trainin), 257 Hobbes, Thomas, 294, 381 Hoffmann, Johann Joseph, 142–43 Holocaust, xxi, 264–66, 274, 275, 279, 281, 285, 291–92, 298, 356 Holy Roman Empire, xix, 38–39, 42–43, 45, 65, 73 Hong Kong, 133–34 Honjō Shigeru, 155, 488n Hoover, Herbert, 163–65, 168, 178, 492n Hopkins, Harry, 189–90, 192 Hotta Masayoshi, 140 “House of German Justice,” 238 “How Lovely Are the Messengers That Bring Us Good Tidings of Peace” (Mendelssohn), 94 How Russia Betrayed Germany’s Confidence and Thereby Caused the European War and How the Franco-German Conflict Might Have Been Avoided, 102 Hughes, Charles Evans, 117 Hugo, Victor, 25 Hull, Cordell, 168, 173, 175, 176, 180–81, 185, 193, 197–98, 211, 247, 254–55, 268, 499n Human Nature and Conduct (Dewey), 115 human rights, xv, 22, 294, 346, 377, 382–85, 387, 389, 395 see also “crimes against humanity,” European Convention of Human Rights, European Court of Human Rights, genocide, torture Humboldt University, 220 Hungarian Revolution (1956), 330 Hungary, 318, 330 Husayn ibn Ali, Sharif of Mecca, 399 Hussein, Saddam, 330, 332, 388 Hussein, Uday, 387–88 “hygienic wars,” 96, 240 Hymans, Paul, xi hyperinflation, 221, 224, 226 Iceland, 373–75, 379 Ii Naosuke, 140–41 immunity from prosecution, xvi, 61–63, 71, 77, 80–81, 96, 97, 260n, 454n, 460n impartiality, 87–92, 96, 97, 103, 165, 167, 169–70, 177–78, 182, 246–47, 304, 459n, 460n imperialism, xx, 52, 95–96, 341, 345–46, 355, 369, 410–11, 462n see also colonialism import quotas, 342, 371–72, 379, 535n “independences,” 346–48, 348, 537n India, 328, 352, 357, 383 individual responsibility, 270–71 Indonesia, 4–5, 328, 329, 346, 358 “Inquiry, The,” 116 Inter-Allied Peace Council, 250 Inter-American Bar Association, 247 International Atomic Energy Agency (IAEA), 394 International Coffee Organization, 344, 377 International Court of Justice (World Court), 196, 305, 363, 415 international institutions, xxi, 112, 114, 315, 344–46, 378, 418, 419, 420 see also specific institutions Internationalists, xxi, 94, 95, 106–7, 316, 331, 332, 419–24 International Labor Organization (ILO), 116 international law, xv, xvii, xix, xx, 27–30, 44–45, 47, 52, 61, 87–88, 90, 94, 96, 109–10, 118, 141, 143, 144–50, 153, 159, 167–68, 170–71, 212, 233, 238–39, 246, 248, 249, 251, 257–62, 266–74, 282–90, 299–304, 329, 353, 359, 363, 370–77, 382, 389, 391–92, 394, 406, 415, 420–22, 463n, 521n, 528n International Law (Oppenheim) (Oppenheim), 239, 246–47, 248, 260, 268, 377, 465n-66n International Law Commission, 301–2 International Monetary Fund (IMF), 343, 378, 393 International Olive Oil Council, 344 International Organization for the Maintenance of International Peace and Security, 198 International Whaling Commission, 344 interstate wars, xviii–xix, 214, 312, 332–35, 353, 368–70, 368, 418 interventionist policies, xx–xxi, 29, 43, 48–49, 96, 97, 177, 187, 222–23, 294, 312–13, 369–70, 383, 417–18, 450n–51n, 499n Interventionists, xx–xxi, 96, 97, 294, 417 intrastate wars, xix, 367–69, 367, 539n–40n Iran, 329, 388–90, 392, 394–95, 417 Iran Nuclear Deal, 394–95 Iraq, 330, 332, 367, 387–88, 397–402, 401, 419 Iraq War, 372, 387–88 Islamic fundamentalism, xiii, xx–xxi, 368, 396–415, 416, 417, 549n, 550n Islamic State, xiii, 368, 396–97, 400–402, 411–15, 416, 418–19 islands, legal status of, 358–59 isolationism, 111, 134, 164–65, 173–74, 175, 188, 246 Israel, 322, 355–57, 394–95, 399, 400, 410 Israelites, 74–75 Italian Socialist Republic, 259 Italy, xii–xiii, 172–74, 249, 258–59, 263–64, 329, 357 172–74, 238, 258, 259, 273, 319, 329, 357, 531n ius publicum europaeum (European Public Law), 294 Ivanov, Sergei, 392 Jabhat Fateh al-Sham, 414 Jackson, Andrew, 33, 444n Jackson, Robert H., 179, 248–49, 261–64, 266–68, 271–72, 276–77, 280–83, 291, 295, 298, 304, 377, 521n Jacobins, 89 Jahiliyyah (spiritual ignorance), 406–11, 550n Jahrreiss, Hermann, 234, 285, 286–90, 295, 297n James I, King of England, 19 James Bond, 61, 62 Japan, xiv, 15, 120, 131–84, 192, 193, 205, 213, 214, 250, 289, 302–3, 313, 316–22, 329, 330, 354, 361, 391, 422, 478n–79n, 480n, 490n, 492n, 496n, 505n–6n, 532n Java, 4–5, 346 Jay, John, 449n Jefferson, Thomas, 28, 49, 83, 85–92, 460n Jerome, St., 45 Jerusalem, 356 Jesus Christ, 57, 156, 294 “Jewish Spirit in German Law” conference (1936), 237 Jews, xxi, 21, 106–7, 216, 222, 229, 230, 231, 233–34, 235, 236, 237, 241, 255, 256, 264–66, 274, 275, 279, 281, 285–86, 291–92, 295, 298, 305, 355–57, 399, 403 jihad (holy war), 396, 398, 402, 404–15, 416 Jodl, Alfred, 285, 286, 290 Jodl, Luise, 286, 524n Johnson v.


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The Divide: A Brief Guide to Global Inequality and Its Solutions by Jason Hickel

"World Economic Forum" Davos, Alan Greenspan, Andrei Shleifer, Asian financial crisis, Atahualpa, Bartolomé de las Casas, Bernie Sanders, Bob Geldof, Bretton Woods, British Empire, Cape to Cairo, capital controls, carbon credits, carbon footprint, carbon tax, clean water, collective bargaining, colonial rule, Cornelius Vanderbilt, David Attenborough, David Graeber, David Ricardo: comparative advantage, declining real wages, degrowth, dematerialisation, Doha Development Round, Elon Musk, European colonialism, falling living standards, financial deregulation, flying shuttle, Fractional reserve banking, Francisco Pizarro, full employment, Glass-Steagall Act, Global Witness, Hans Rosling, happiness index / gross national happiness, Howard Zinn, income inequality, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, James Watt: steam engine, laissez-faire capitalism, land reform, land value tax, liberal capitalism, Live Aid, Mahatma Gandhi, Money creation, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, negative emissions, Nelson Mandela, offshore financial centre, oil shale / tar sands, out of africa, Phillips curve, planned obsolescence, plutocrats, purchasing power parity, race to the bottom, rent control, road to serfdom, Ronald Reagan, Scramble for Africa, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, structural adjustment programs, TED Talk, The Chicago School, The Spirit Level, trade route, transatlantic slave trade, transfer pricing, trickle-down economics, Washington Consensus, WikiLeaks, women in the workforce, Works Progress Administration

Poor Theory, Poor Countries If free trade runs counter to the development needs of poor countries, why do most mainstream economists continue to advocate it? One reason is that the theory of free trade is so remarkably compelling. The keystone of modern free-trade theory comes from David Ricardo, the early-19th-century British economist. Ricardo argued that the global economy would operate most efficiently and productively if every country specialised in producing the goods in which they have a comparative advantage over other countries, given their particular set of technologies. If Portugal is better at producing wine and England is better at producing cloth, it doesn’t make any sense for England to waste its time producing wine – it should just focus on cloth and import the wine from Portugal.3 The more modern version of the theory – known as the Heckscher–Ohlin–Samuelson theory – shifts the comparison from relative endowments of technology to relative endowments of ‘factors of production’.

In most undergraduate economics courses, students are taught that the differences between the economies of poor and rich countries can be explained by the laws of comparative advantage and supply and demand. The standard theory holds that prices and wages are set automatically by the market depending on each country’s factors of production. Poor countries have a natural abundance of labour, so their wages are low and therefore their comparative advantage lies in labour-intensive production (first mining and agriculture and later also light manufacturing). Rich countries have a natural abundance of capital, so their wages will be higher and they will specialise in capital-intensive production of higher-order commodities.

For example, trade mispricing makes a mockery of the idea of ‘market prices’: the prices of many of the goods that get shipped around the world have nothing to do with the market at all – they are simply invented out of thin air. The tax haven system also violates the principles of comparative advantage. For one, it provides the equivalent of an unfair subsidy for companies that are rich enough to take advantage of tax evasion services. But more importantly, it means that companies move around the world not to where they can be most efficient, but to where they can find the greatest secrecy or the lowest taxes. The fact that the tiny British Virgin Islands hosts some 850,000 companies (for a population of 25,000) makes the idea of comparative advantage seem quaint. * In light of all this, the question of corruption begins to take on a somewhat different hue.


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The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg

3D printing, agricultural Revolution, Alan Greenspan, Anthropocene, Apollo 11, back-to-the-land, banking crisis, banks create money, Bear Stearns, biodiversity loss, Bretton Woods, business cycle, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, degrowth, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, Glass-Steagall Act, global village, green transition, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, intentional community, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jevons paradox, Kenneth Rogoff, late fees, liberal capitalism, low interest rates, mega-rich, military-industrial complex, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, rolling blackouts, Ronald Reagan, short selling, special drawing rights, systems thinking, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, WikiLeaks, working poor, world market for maybe five computers, zero-sum game

While the first economists were ancient Greek and Indian philosophers, among them Aristotle (382– 322 bce) — who discussed the “art” of wealth acquisition and questioned whether property should best be owned privately or by government acting on behalf of the people — little of real substance was added to the discussion during the next two thousand years. It’s in the 18th century that economic thinking really gets going. “Classical” economic philosophers such as Adam Smith (1723–1790), Thomas Robert Malthus (1766–1834), and David Ricardo (1772–1823) introduced basic concepts such as supply and demand, division of labor, and the balance of international trade. As happens in so many disciplines, early practitioners were presented with plenty of uncharted territory and proceeded to formulate general maps of their subject that future experts would labor to refine in ever more trivial ways.

Economists frame the advantages of increased trade in terms of a concept called “comparative advantage.” Technically, comparative advantage means that each country will specialize in what it is good at, even if another country does everything better, and the result is that all countries benefit from trade. However, this assumes that capital can only be invested domestically. If instead capital can be invested anywhere, which is actually the case, then it will go to whichever country has an absolute advantage. The net result is even greater output than a world based on comparative advantage, but one in which not all countries benefit. Even in the comparative advantage model, economists recognize that some sectors in a country can lose out while others gain.

Even in the comparative advantage model, economists recognize that some sectors in a country can lose out while others gain. In world of absolute advantage, the sectors that gain need not be in the same country as the sectors that lose. Herman Daly has made this point, but apparently Ricardo also recognized that comparative advantage depends on capital being invested domestically, which was the case in his day. 50. Frances Berdan, “Trade and Markets in Precapitalist States,” in Economic Anthropology, Stuart Plattner, ed. (Stanford, CA: Stanford University Press, 1989). 51. Jeff Rubin, Why Your World Is About To Get a Whole Lot Smaller: Oil and the End of Globalization (New York: Random House, 2009). 52.


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Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato

Alan Greenspan, balance sheet recession, banking crisis, basic income, Bear Stearns, Bernie Sanders, Bretton Woods, business climate, business cycle, carbon tax, Carmen Reinhart, central bank independence, circular economy, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, degrowth, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, endogenous growth, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, Ford Model T, forward guidance, full employment, G4S, general purpose technology, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet of things, investor state dispute settlement, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, low interest rates, low skilled workers, Martin Wolf, mass incarceration, military-industrial complex, Modern Monetary Theory, Money creation, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, ocean acidification, paradox of thrift, Paul Samuelson, planned obsolescence, Post-Keynesian economics, price stability, private sector deleveraging, quantitative easing, QWERTY keyboard, railway mania, rent-seeking, road to serfdom, savings glut, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Solyndra, Steve Jobs, stock buybacks, systems thinking, the built environment, The Great Moderation, The Spirit Level, Thorstein Veblen, too big to fail, total factor productivity, Tragedy of the Commons, transaction costs, trickle-down economics, universal basic income, vertical integration, very high income

And in focusing his theory of production on investments in productive capabilities and the management of the labour force, Marx provided a substantive theory of how the capitalist enterprise generates productivity—even though, as I explain below, key arguments about how capitalist employers extracted unremunerated labour effort from production workers in the British industrial revolution on which his theory of surplus value was based were empirically wrong. Marx was no stranger to a general equilibrium theory of the market economy. In Das Kapital, Marx constructed the general equilibrium system of market exchange on the basis of the labour theory of value, in the tradition of what we now call the ‘classical’ economists, especially David Ricardo.10 Marx argued that, in a general equilibrium of market exchange, capitalism presents itself as ‘a very Eden of the innate rights of man’ because all parties can exchange commodities, including the commodity ‘labour power’, at their own free will. A century after Marx wrote Capital, Milton Friedman would encapsulate this ideology of the market economy in his tract, Capitalism and Freedom (without, of course, invoking the labour theory of value), while subordinating production to the market through the theory of the firm in perfect competition (or what, as we have seen, should really be called the theory of the unproductive firm).11 In Parts 1 and 2 of Capital, Marx began the analysis of the capitalist system by laying out the logic of a general equilibrium system of exchange based on labour values, so that he could then demonstrate that capitalism does not in fact operate according to the ideology of ‘Freedom, Equality, Property and Bentham’ that market exchange appears to offer.12 For Marx, the point of this exercise was not (as many Marxist and non-Marxist economists have wrongly believed) to explain relative market prices by the exchange value of labour inputs, but, to the contrary, to show that, as a theory of the market economy, the labour theory of value cannot explain the existence of capitalist profit (and hence market prices) in the economic system.

Hutton, How Good We Can Be: Ending the Mercenary Society and Building a Great Country, London, Abacus, 2015. 44 Lawrence Summers, October 1991, when Chief Economist at the World Bank; cited by M. Ellman, ‘Transition economies’, in H.-J. Chang, ed., Rethinking Development Economics, London and New York, Anthem Press, 2003, pp. 179–98 (p. 197). 45 P. A. Hall and D. Soskice, eds., Varieties of Capitalism. The Institutional Foundations of Comparative Advantage, Oxford, Oxford University Press, 2001. 46 C. Perez, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, London, Edward Elgar, 2002. 47 J. A. Schumpeter, Capitalism, Socialism, and Democracy, 3rd edn, New York, Harper, 1962 [1942]. 48 Nelson and Winter, An Evolutionary Theory of Economic Change; see also R.


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The God Species: Saving the Planet in the Age of Humans by Mark Lynas

Airbus A320, Anthropocene, back-to-the-land, Berlin Wall, biodiversity loss, carbon credits, carbon footprint, clean water, Climategate, Climatic Research Unit, data science, David Ricardo: comparative advantage, decarbonisation, degrowth, dematerialisation, demographic transition, Easter island, Eyjafjallajökull, Great Leap Forward, Haber-Bosch Process, ice-free Arctic, Intergovernmental Panel on Climate Change (IPCC), invention of the steam engine, James Watt: steam engine, megacity, meta-analysis, moral hazard, Negawatt, New Urbanism, ocean acidification, oil shale / tar sands, out of africa, peak oil, planetary scale, precautionary principle, quantitative easing, race to the bottom, rewilding, Ronald Reagan, special drawing rights, Stewart Brand, synthetic biology, Tragedy of the Commons, two and twenty, undersea cable, University of East Anglia, We are as Gods

Studies of the amount of water saved globally per year through the virtual water trade in food amount to some 455 cubic kilometers,38 a substantial saving given that only 2,000 cubic kilometers remain to be used before we find ourselves on the wrong side of the proposed water planetary boundary. Producing food where the maximum water efficiency can be achieved, and where water is most plentiful, is a natural extension of the idea of comparative advantage, a basic concept in economics that was first proposed by David Ricardo in the early nineteenth century. The idea does have relevance domestically as well as internationally: Instead of trying to divert enormous quantities of water from the wetter south to the arid north, China could instead explicitly formulate a policy to focus on transferring virtual rather than real water, saving money and promoting environmental efficiency in the process.


Capital Ideas Evolving by Peter L. Bernstein

Albert Einstein, algorithmic trading, Andrei Shleifer, asset allocation, behavioural economics, Black Monday: stock market crash in 1987, Bob Litterman, book value, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, computerized trading, creative destruction, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, diversification, diversified portfolio, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, high net worth, hiring and firing, index fund, invisible hand, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, mental accounting, money market fund, Myron Scholes, paper trading, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, price anchoring, price stability, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, seminal paper, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, statistical model, survivorship bias, systematic trading, tail risk, technology bubble, The Wealth of Nations by Adam Smith, transaction costs, yield curve, Yogi Berra, zero-sum game

.* The resulting theoretical structure had no prior existence and only a few scattered roots in the past. Few triumphs in the history of ideas can compare with this achievement. Think of the centuries from Euclid to Isaac Newton to Albert Einstein or the 160 years in the development of modern economic theory from Adam Smith in 1776 to David Ricardo, Alfred Marshall, and Karl Marx in the nineteenth century, and finally to John Maynard Keynes in 1936. When I started work on this project early in 1989, all of my heroes were still alive, which was my prime motivation for telling the story at that moment. They were, indeed, very much alive. They were also available to me for personal interviews and correspondence, which they gave with boundless generosity.

The traditional step would be for each to establish new industries— in which neither will have comparative advantage. A far less costly and more efficient solution to their problems is available in a simple financial instrument called a swap. Under this arrangement, Country A would pay to Country B the returns on a global portfolio of automobile stocks, while Country B would pay to Country A the returns on a world electronics portfolio. Thus, diversification is achieved, but each country will continue to benefit by producing the products in which it has comparative advantage—and all this thanks to just a few signatures on a piece of paper!

All the pieces had to fit and join together. Three elements were the focus of all this work: low transactions costs, control of risk, and strategies derived from the index fund platform where scale was a plus instead of a drawback and source of weakness. Scale was where Wells Fargo’s products could develop their comparative advantage and run ahead of the competition, especially for managers whose business was in stock picking and market timing. Wells Fargo did not emphasize low transactions costs just because they were something nice for clients. Low transactions costs meant Wells Fargo could pursue strategies that were out of the ranges of typical active management firms.


pages: 375 words: 105,586

A Small Farm Future: Making the Case for a Society Built Around Local Economies, Self-Provisioning, Agricultural Diversity and a Shared Earth by Chris Smaje

agricultural Revolution, Airbnb, Alfred Russel Wallace, back-to-the-land, barriers to entry, biodiversity loss, Black Lives Matter, Boris Johnson, carbon footprint, circular economy, clean water, climate change refugee, collaborative consumption, Corn Laws, COVID-19, David Ricardo: comparative advantage, decarbonisation, degrowth, deindustrialization, dematerialisation, demographic transition, Deng Xiaoping, Donald Trump, energy transition, European colonialism, Extinction Rebellion, failed state, fake news, financial deregulation, financial independence, Food sovereignty, Ford Model T, future of work, Gail Bradbrook, garden city movement, Garrett Hardin, gentrification, global pandemic, Great Leap Forward, green new deal, Hans Rosling, hive mind, intentional community, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jevons paradox, land reform, mass immigration, megacity, middle-income trap, Murray Bookchin, Naomi Klein, Peace of Westphalia, peak oil, post-industrial society, precariat, profit maximization, profit motive, rent-seeking, rewilding, Rutger Bregman, Silicon Valley, Silicon Valley billionaire, Steven Pinker, Stewart Brand, Ted Nordhaus, the scientific method, The Wealth of Nations by Adam Smith, Tragedy of the Commons, transaction costs, vertical integration, Washington Consensus, Wolfgang Streeck, zero-sum game

These problems of labour and capital have long exercised the minds of economic thinkers, almost from the outset of the modern capitalist economy itself. Here, I want to outline briefly some ideas of one such pioneer, David Ricardo (1772–1823), which are relevant to the latest, and possibly terminal, crisis of capitalism. Ricardo is best known nowadays for his much-abused theory of comparative advantage, which he illustrated by a discussion of the mutual benefits accruing to England and Portugal from trading the former’s cloth for the latter’s wine. Ricardo showed that a country achieved a net income benefit by focusing on those goods it could produce most cheaply relative to other countries and importing other goods from abroad, even if it could also produce the import goods more cheaply itself.

Another is that capital investment is restricted to its country of origin, where it can only seek comparative advantage by investing in the most efficient domestic industries, rather than absolute advantage by investing wherever in the world it can earn the best return. Ricardo affirmed ‘most men of property to be satisfied with a low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations’.109 But given the freedom of capital to seek advantageous employment wherever it wishes now written deeply into the structure of global economic governance, arguments for free trade on the basis of comparative advantage no longer hold water.


pages: 338 words: 104,684

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy by Stephanie Kelton

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Alan Greenspan, American Society of Civil Engineers: Report Card, Apollo 11, Asian financial crisis, bank run, Bernie Madoff, Bernie Sanders, blockchain, bond market vigilante , book value, Bretton Woods, business cycle, capital controls, carbon tax, central bank independence, collective bargaining, COVID-19, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, decarbonisation, deindustrialization, discrete time, Donald Trump, eurozone crisis, fiat currency, floating exchange rates, Food sovereignty, full employment, gentrification, Gini coefficient, global reserve currency, global supply chain, green new deal, high-speed rail, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, Jeff Bezos, liquidity trap, low interest rates, Mahatma Gandhi, manufacturing employment, market bubble, Mason jar, Modern Monetary Theory, mortgage debt, Naomi Klein, National Debt Clock, new economy, New Urbanism, Nixon shock, Nixon triggered the end of the Bretton Woods system, obamacare, open economy, Paul Samuelson, Phillips curve, Ponzi scheme, Post-Keynesian economics, price anchoring, price stability, pushing on a string, quantitative easing, race to the bottom, reserve currency, Richard Florida, Ronald Reagan, San Francisco homelessness, shareholder value, Silicon Valley, Tax Reform Act of 1986, trade liberalization, urban planning, working-age population, Works Progress Administration, yield curve, zero-sum game

Historically, international organizations (like the IMF) have recommended that developing countries, especially those that have achieved independence from colonial powers after World War II, focus on producing and selling just a few goods to richer countries.30 This suggestion comes from an idea that a nineteenth-century English economist, David Ricardo, called comparative advantage. Essentially, Ricardo recommended that countries should specialize in producing whatever goods and services they are most adept and efficient at. But many influential economists take the idea of comparative advantage to extremes. For instance, they argue that developing countries should focus on what they can produce most cheaply in the short term, rather than developing new industries that would enhance their monetary sovereignty over time.


pages: 356 words: 106,161

The Glass Half-Empty: Debunking the Myth of Progress in the Twenty-First Century by Rodrigo Aguilera

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Alan Greenspan, Anthropocene, availability heuristic, barriers to entry, basic income, benefit corporation, Berlin Wall, Bernie Madoff, Bernie Sanders, bitcoin, Boris Johnson, Branko Milanovic, Bretton Woods, Brexit referendum, Capital in the Twenty-First Century by Thomas Piketty, capitalist realism, carbon footprint, Carmen Reinhart, centre right, clean water, cognitive bias, collapse of Lehman Brothers, Colonization of Mars, computer age, Corn Laws, corporate governance, corporate raider, creative destruction, cryptocurrency, cuban missile crisis, David Graeber, David Ricardo: comparative advantage, death from overwork, decarbonisation, deindustrialization, Deng Xiaoping, Doha Development Round, don't be evil, Donald Trump, Doomsday Clock, Dunning–Kruger effect, Elon Musk, European colonialism, fake news, Fall of the Berlin Wall, first-past-the-post, Francis Fukuyama: the end of history, fundamental attribution error, gig economy, Gini coefficient, Glass-Steagall Act, Great Leap Forward, green new deal, Hans Rosling, housing crisis, income inequality, income per capita, index fund, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, Jeff Bezos, Jeremy Corbyn, Jevons paradox, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, karōshi / gwarosa / guolaosi, Kenneth Rogoff, Kickstarter, lake wobegon effect, land value tax, Landlord’s Game, late capitalism, liberal capitalism, long peace, loss aversion, low interest rates, Mark Zuckerberg, market fundamentalism, means of production, meta-analysis, military-industrial complex, Mont Pelerin Society, moral hazard, moral panic, neoliberal agenda, Network effects, North Sea oil, Northern Rock, offshore financial centre, opioid epidemic / opioid crisis, Overton Window, Pareto efficiency, passive investing, Peter Thiel, plutocrats, principal–agent problem, profit motive, public intellectual, purchasing power parity, race to the bottom, rent-seeking, risk tolerance, road to serfdom, Robert Shiller, Robert Solow, savings glut, Scientific racism, secular stagnation, Silicon Valley, Silicon Valley ideology, Slavoj Žižek, Social Justice Warrior, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Stanislav Petrov, Steven Pinker, structural adjustment programs, surveillance capitalism, tail risk, tech bro, TED Talk, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transatlantic slave trade, trolley problem, unbiased observer, universal basic income, Vilfredo Pareto, Washington Consensus, Winter of Discontent, Y2K, young professional, zero-sum game

Because limited liability allowed no greater loss to a business owner beyond the capital he or she initially invested, this too was seen as something that would encourage unscrupulous behavior. Scottish economist John Ramsay McCulloch, heir to the Ricardian school of economists (followers of David Ricardo, of comparative advantage fame) had this to say in 1856, a year after the groundbreaking limited liability law was passed in the UK: Most people engaged in business, as at present carried on, are impressed with the well founded conviction that their interests will be best promoted by their preserving an unblemished reputation.

Whether it’s coddling to Third World autocrats (like Venezuela’s Maduro, arguably the litmus test of when the left crosses the threshold of ideological lunacy) merely because of their “anti-imperialist” rhetoric, opposing multilateral institutions like the European Union or NATO because of their perceived free market or hegemonic intentions, or pursuing unilateral nuclear disarmament in the face of growing Russian and Chinese global ambitions, it seems many progressive politicians appear willing to scare off large segments of their potential supporters over policies that only cater to the fringes and detract appeal from their comparative advantage in economic and social proposals. A case in point is Jeremy Corbyn, whose needlessly ambiguous stance on Brexit has led to him having the lowest approval ratings of an opposition leader in nearly half a century even in the face of the monstrous incompetence and cruelty of the current Tory leadership.14 This book goes to print just before the scheduled December 2019 snap election, one that Labour cannot afford to lose if there is any hope of ever seeing its progressive agenda put into practice.


pages: 401 words: 115,959

Philanthrocapitalism by Matthew Bishop, Michael Green, Bill Clinton

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, Abraham Maslow, Albert Einstein, An Inconvenient Truth, anti-communist, AOL-Time Warner, barriers to entry, battle of ideas, Bernie Madoff, Big Tech, Bob Geldof, Bonfire of the Vanities, business process, business process outsourcing, Charles Lindbergh, clean tech, clean water, corporate governance, corporate social responsibility, Dava Sobel, David Ricardo: comparative advantage, digital divide, do well by doing good, don't be evil, family office, financial innovation, full employment, global pandemic, global village, Global Witness, God and Mammon, Hernando de Soto, high net worth, Ida Tarbell, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Dyson, John Elkington, John Harrison: Longitude, joint-stock company, junk bonds, knowledge economy, knowledge worker, Larry Ellison, Live Aid, lone genius, Marc Andreessen, Marc Benioff, market bubble, mass affluent, Michael Milken, microcredit, Mikhail Gorbachev, Neil Armstrong, Nelson Mandela, new economy, offshore financial centre, old-boy network, PalmPilot, peer-to-peer lending, performance metric, Peter Singer: altruism, plutocrats, profit maximization, profit motive, Richard Feynman, risk tolerance, risk-adjusted returns, Ronald Coase, Ronald Reagan, Salesforce, scientific management, seminal paper, shareholder value, Silicon Valley, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, SpaceShipOne, stem cell, Steve Jobs, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade liberalization, transaction costs, trickle-down economics, Tyler Cowen, wealth creators, winner-take-all economy, working poor, World Values Survey, X Prize

As well as being a time of religious revival, this was also one of humanity’s greatest periods of intellectual endeavor, as men looked to reason in order to explore their world, including the study of the causes of social problems. The “British Enlightenment” was, according to the historian Gertrude Himmelfarb, an inspiration for this “age of benevolence.” But British empiricism also helped foster a growing skepticism about philanthropy. The economist David Ricardo argued that handouts to the poor pushed up the wages at which people were willing to work, and so increased unemployment. By saving today’s poor from hunger, charity was only perpetuating or worsening the problem by ensuring there would be more mouths to feed tomorrow, argued the Reverend Thomas Malthus in his 1798 “Essay on the Principle of Population,” in which he predicted that demand for food would outstrip supply as the population continued to grow.

Gates will help himself, and other philanthrocapitalists, by ensuring that his foundation is as transparent as possible and subjecting its activities to rigorous public performance analysis. He has promised to be open about the foundation’s failures, of which he expects plenty—given that taking risks is one of the philanthropist’s comparative advantages over a government, business, or mass charity. Among other performance and transparency initiatives, in 2007 he gave $105 million to the University of Washington to research the performance of global health work, including that of his foundation. It remains to be seen how willing the university will be to tell a major funding source that he is doing something badly (perish the thought).

The result, in both spheres, is that he takes big risks, moves fast, pursues lots of different strategies at once, and takes controversial positions. He regards as a strength the ability of his foundations to “proceed by way of trial and error.” He says he is “ready to accept errors and to abandon projects when they fail. This gives us a comparative advantage. Bureaucracies find it difficult to admit failure; this makes them risk averse. We can tolerate risks; therefore we can reap greater rewards.” Sometimes Soros gives money to campaigns that he expects to fail simply to send a message by taking a stand. Unlike most traditional foundations, he does not shy away from taking on causes that will win him no friends.


pages: 429 words: 120,332

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens by Nicholas Shaxson

Asian financial crisis, asset-backed security, bank run, battle of ideas, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, collapse of Lehman Brothers, computerized trading, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, Double Irish / Dutch Sandwich, export processing zone, failed state, financial deregulation, financial engineering, financial innovation, Fractional reserve banking, full employment, Glass-Steagall Act, Global Witness, Golden arches theory, high net worth, income inequality, Kenneth Rogoff, laissez-faire capitalism, land reform, land value tax, light touch regulation, Londongrad, Long Term Capital Management, low interest rates, Martin Wolf, Money creation, money market fund, New Journalism, Northern Rock, offshore financial centre, oil shock, old-boy network, out of africa, passive income, plutocrats, Ponzi scheme, race to the bottom, regulatory arbitrage, reserve currency, Ronald Reagan, shareholder value, Suez crisis 1956, The Spirit Level, too big to fail, transfer pricing, vertical integration, Washington Consensus

Treasure Islands explores a system that works directly and aggressively against transparency. Offshore secrecy shifts control over information and the power that flows from it toward the insiders, helping them take the cream and use the system to shift the costs and risks onto the rest of society. David Ricardo’s theory of comparative advantage elegantly describes principles that lead different jurisdictions to specialize in certain things: fine wines from France, cheap manufactures from China, and computers from the United States. But when we find that the British Virgin Islands, with fewer than twenty-five thousand inhabitants, hosts over eight hundred thousand companies, or that more than 40 percent of foreign direct investment into India comes from Mauritius, Ricardo’s theory loses its traction.

., 67–8, 78–84 City of London Corporation (Corporation of London), 70–4, 76, 85–6, 224, 242n25, 243n36–37, 244n72 head of: See Lord Mayor of London history of, 71–2 and voting rights, 71 civil society, 170 Clinton, Bill, 52, 119–20, 150, 160 Clinton, Hillary, 30, 58 Coalition for Tax Competition, 150 Cold War, 75, 109, 138 Coleman, Norm, 121 Colombia, 26, 101, 111, 133, 136 Medellin drug cartel, 101, 133 colonialism, 2–8, 20, 23, 65, 88–9, 93–5, 104–5, 117, 138, 147, 161, 184 Commodity Futures Trading Committee (CFTC), 68 Compact of Free Association, 22 comparative advantage theory, 16 competition, tax, 149–56 Confidential Relationships (Preservation) Law, 101–2 Congdon, Tim, 66 ConocoPhilips, 22 Cook, Geoff, 168 Cornfeld, Bernie, 97–8 corporate governance, 39, 85, 122–5, 201–2 corporate responsibility, 228–9 The Corporation (Bakan), 158 Corporation Trust (Delaware), 125–6 corruption, 126–8, 229 Corruption Perceptions Index (CPI), 126 country-by-country reporting, 222 Cowperthwaite, Sir John, 105 Craven, John, 81 credit cards, 193–201 criminal money See arms trafficking; bribes; drug money; mob/mafia; terrorist financing Crocodile Dundee, 33 Crook, Kenneth, 93–5 Cuba, 88–9, 93 currency trading, 63–4, 70 Cyprus, 10, 27, 33, 138, 238n52 Dai Xianglong, 86 Davison, Daniel, 81 Deepwater Horizon, 22 de la Torre, Lisandro, 36, 38, 46–7 de Rugy, Veronique, 150 deferrals, tax, 112–13 Delaware, 22, 26, 39–40, 120–1, 123–6, 150, 166, 193–201, 204, 207–12, 214, 222, 228, 247n31, 248n34,39,42, 254n3,4, 255n18, 256n40 Chancery Court, 124–5, 248n34 Corporation Trust office, 125–6 history of offshoring, 39–40, 123–6 and jurisdictions, 193–201, 204, 207–12, 214 and securitization/bundling, 26, 125 and usury, 193–5, 200, 204 Delaware Statutory Trust Act (1988), 201 DeLay, Tom, 160–1 Deloitte & Touche, 25, 202, 209 DeLong, Bradford, 49, 55, 158–9 democracy, 7–8, 13, 31, 33, 42, 56, 71, 82, 102, 113, 123, 129, 131, 144–8, 162, 164, 170, 182, 185, 189, 192, 195–6, 198, 206, 210, 212, 219, 222, 224 and taxation, 144–8 Democratic party, 31, 82, 123, 185, 195, 198, 254n4 Democratic Republic of Congo, 131 deregulation, 32, 52, 66, 74–6, 85, 87, 115, 129–30, 132, 155, 159, 182, 193, 200, 209–10, 212, 217 developing countries, 8, 28–30, 57–60, 91, 93, 97, 100, 108, 126, 129–48, 155–6, 164, 169, 183, 217, 222–5, 227, 229, 236n29, 237n44, 240n22, 246n13, 250n26 and blame-the-victim, 8, 29, 140–4 and capital, 57–60 and capital flight, 139–43 and mobile phone charges, 148 and the offshore system, 129–48 and reform, 223–4 and sovereign debt funds, 143–4 and tax, 144–8 and tax treaties, 147–8 See Bank of Credit and Commerce International Deviers-Joncour, Christine, 5 Dill, James B., 39 Disney, 7, 88 Double, Paul, 73 double taxation, 26, 41–2, 130, 146 defined, 26 “Double Irish,” 14 drug money, 6, 9, 18, 20, 22, 26–7, 29, 88, 101–2, 111, 120, 131–3, 136 du Pont, Pierre S.


pages: 464 words: 116,945

Seventeen Contradictions and the End of Capitalism by David Harvey

accounting loophole / creative accounting, Alvin Toffler, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, Charles Babbage, classic study, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, company town, cotton gin, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, death from overwork, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, drone strike, end world poverty, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, gentrification, global reserve currency, Great Leap Forward, Guggenheim Bilbao, Gunnar Myrdal, Herbert Marcuse, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, military-industrial complex, Money creation, Murray Bookchin, new economy, New Urbanism, Occupy movement, peak oil, phenotype, planned obsolescence, plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, Savings and loan crisis, scientific management, short selling, Silicon Valley, special economic zone, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

Arguably, the role of experts has increased exponentially over recent decades and this poses a serious problem for the transparency and legibility of the world in which we live. We all depend on experts to fix our computer, diagnose our illnesses, design our transport systems and ensure our security. In the 1970s a new perspective was introduced to the discussion with the rise of a so-called ‘new international division of labour’. David Ricardo, appealing to the doctrine of comparative advantage, had long ago insisted on the benefits in efficiency to be gained from specialisation within and trade between countries. The specialisations partly depended on natural factors (it is no more possible to grow bananas and coffee in Canada than it is possible to mine copper or extract oil where there is none).

., Disposable Women and Other Myths of Global Capitalism, New York, Routledge, 2006 Index Numbers in italics indicate Figures. 2001: A Space Odyssey (film) 271 A Abu Ghraib, Iraq 202 acid deposition 255, 256 advertising 50, 121, 140, 141, 187, 197, 236, 237, 275, 276 Aeschylus 291 Afghanistan 202, 290 Africa and global financial crisis 170 growth 232 indigenous population and property rights 39 labour 107, 108, 174 ‘land grabs’ 39, 58, 77, 252 population growth 230 Agamben, Giorgio 283–4 agglomeration 149, 150 economies 149 aggregate demand 20, 80, 81, 104, 173 aggregate effective demand 235 agribusiness 95, 133, 136, 206, 247, 258 agriculture ix, 39, 61, 104, 113, 117, 148, 229, 239, 257–8, 261 Alabama 148 Algerian War (1954–62) 288, 290 alienation 57, 69, 125, 126, 128, 129, 130, 198, 213, 214, 215, 263, 266–70, 272, 275–6, 279–80, 281, 286, 287 Allende, Salvador 201 Althusser, Louis 286 Amazon 131, 132 Americas colonisation of 229 indigenous populations 283 Amnesty International 202 anti-capitalist movements 11, 14, 65, 110, 111, 162 anti-capitalist struggle 14, 110, 145, 193, 269, 294 anti-globalisation 125 anti-terrorism xiii apartheid 169, 202, 203 Apple 84, 123, 131 apprenticeships 117 Arab Spring movement 280 Arbenz, Jacobo 201 Argentina 59, 107, 152, 160, 232 Aristotelianism 283, 289 Aristotle 1, 4, 200, 215 arms races 93 arms traffickers 54 Arrighi, Giovanni 136 Adam Smith in Beijing 142 Arthur, Brian: The Nature of Technology 89, 95–9, 101–4, 110 artificial intelligence xii, 104, 108, 120, 139, 188, 208, 295 Asia ‘land grabs’ 58 urbanisation 254 assembly lines 119 asset values and the credit system 83 defined 240 devalued 257 housing market 19, 20, 21, 58, 133 and predatory lending 133 property 76 recovery of 234 speculation 83, 101, 179 associationism 281 AT&T 131 austerity xi, 84, 177, 191, 223 Australia 152 autodidacts 183 automation xii, 103, 105, 106, 108, 138, 208, 215, 295 B Babbage, Charles 119 Bangkok riots, Thailand (1968) x Bangladesh dismantlement of old ships 250 factories 129, 174, 292 industrialisation 123 labour 108, 123, 129 protests against unsafe labour conditions 280 textile mill tragedies 249 Bank of England 45, 46 banking bonuses 164 electronic 92, 100, 277 excessive charges 84 interbank lending 233 and monopoly power 143 national banks supplant local banking in Britain and France 158 net transfers between banks 28 power of bankers 75 private banks 233 profits 54 regional banks 158 shell games 54–5 systematic banking malfeasance 54, 61 Baran, Paul and Sweezy, Paul: Monopoly Capitalism 136 Barcelona 141, 160 barrios pobres ix barter 24, 25, 29 Battersea Power Station, London 255 Battle of Algiers, The (film) 288 Bavaria, Germany 143, 150 Becker, Gary 186 Bernanke, Ben 47 Bhutan 171 billionaires xi, 165, 169, 170 biodiversity 246, 254, 255, 260 biofuels 3 biomedical engineering xii Birmingham 149 Bitcoin 36, 109 Black Panthers 291 Blade Runner (film) 271 Blankfein, Lloyd 239–40 Bohr, Niels 70 Bolivia 257, 260, 284 bondholders xii, 32, 51, 152, 158, 223, 240, 244, 245 bonuses 54, 77, 164, 178 Bourdieu, Pierre 186, 187 bourgeois morality 195 bourgeois reformism 167, 211 ‘Brady Bonds’ 240 Braudel, Fernand 193 Braverman, Harry: Labor and Monopoly Capital 119 Brazil a BRIC country 170, 228 coffee growers 257 poverty grants 107 unrest in (2013) 171, 243, 293 Brecht, Bertolt 265, 293 Bretton Woods (1944) 46 brewing trade 138 BRIC countries 10, 170, 174, 228 Britain alliance between state and London merchant capitalists 44–5 banking 158 enclosure movement 58 lends to United States (nineteenth century) 153 suppression of Mau Mau 291 surpluses of capital and labour sent to colonies 152–3 welfare state 165 see also United Kingdom British Empire 115, 174 British Museum Library, London 4 British Petroleum (BP) 61, 128 Buffett, Peter 211–12, 245, 283, 285 Buffett, Warren 211 bureaucracy 121–2, 165, 203, 251 Bush, George, Jr 201, 202 C Cabet, Étienne 183 Cabral, Amilcar 291 cadastral mapping 41 Cadbury 18 Cairo uprising (2011) 99 Calhoun, Craig 178 California 29, 196, 254 Canada 152 Cape Canaveral, Florida 196 capital abolition of monopolisable skills 119–20 aim of 92, 96–7, 232 alternatives to 36, 69, 89, 162 annihilation of space through time 138, 147, 178 capital-labour contradiction 65, 66, 68–9 and capitalism 7, 57, 68, 115, 166, 218 centralisation of 135, 142 circulation of 5, 7, 8, 53, 63, 67, 73, 74, 75, 79, 88, 99, 147, 168, 172, 177, 234, 247, 251, 276 commodity 74, 81 control over labour 102–3, 116–17, 166, 171–2, 274, 291–2 creation of 57 cultural 186 destruction of 154, 196, 233–4 and division of labour 112 economic engine of 8, 10, 97, 168, 172, 200, 253, 265, 268 evolution of 54, 151, 171, 270 exploitation by 156, 195 fictitious 32–3, 34, 76, 101, 110–11, 239–42 fixed 75–8, 155, 234 importance of uneven geographical development to 161 inequality foundational for 171–2 investment in fixed capital 75 innovations 4 legal-illegal duality 72 limitless growth of 37 new form of 4, 14 parasitic forms of 245 power of xii, 36, 47 private capital accumulation 23 privatisation of 61 process-thing duality 70–78 profitability of 184, 191–2 purpose of 92 realisation of 88, 173, 192, 212, 231, 235, 242, 268, 273 relation to nature 246–63 reproduction of 4, 47, 55, 63, 64, 88, 97, 108, 130, 146, 161, 168, 171, 172, 180, 181, 182, 189, 194, 219, 233, 252 spatiality of 99 and surplus value 63 surpluses of 151, 152, 153 temporality of 99 tension between fixed and circulating capital 75–8, 88, 89 turnover time of 73, 99, 147 and wage rates 173 capital accumulation, exponential growth of 229 capital gains 85, 179 capital accumulation 7, 8, 75, 76, 78, 102, 149, 151–5, 159, 172, 173, 179, 192, 209, 223, 228–32, 238, 241, 243, 244, 247, 273, 274, 276 basic architecture for 88 and capital’s aim 92, 96 collapse of 106 compound rate of 228–9 and the credit system 83 and democratisation 43 and demographic growth 231 and household consumerism 192 and lack of aggregate effective demand in the market 81 and the land market 59 and Marx 5 maximising 98 models of 53 in a new territories 152–3 perpetual 92, 110, 146, 162, 233, 265 private 23 promotion of 34 and the property market 50 recent problems of 10 and the state 48 capitalism ailing 58 an alternative to 36 and capital 7, 57, 68, 115, 166, 218 city landscape of 160 consumerist 197 contagious predatory lawlessness within 109 crises essential to its reproduction ix; defined 7 and demand-side management 85 and democracy 43 disaster 254–5, 255 economic engine of xiii, 7–8, 11, 110, 220, 221, 252, 279 evolution of 218 geographical landscape of 146, 159 global xi–xii, 108, 124 history of 7 ‘knowledge-based’ xii, 238 and money power 33 and a moneyless economy 36 neoliberal 266 political economy of xiv; and private property rights 41 and racialisation 8 reproduction of ix; revivified xi; vulture 162 capitalist markets 33, 53 capitalo-centric studies 10 car industry 121, 138, 148, 158, 188 carbon trading 235, 250 Caribbean migrants 115 Cartesian thinking 247 Cato Institute 143 Central America 136 central banks/bankers xi–xii, 37, 45, 46, 48, 51, 109, 142, 156, 161, 173, 233, 245 centralisation 135, 142, 144, 145, 146, 149, 150, 219 Césaire, Aimé 291 CFCs (chloro-fluorocarbons) 248, 254, 256, 259 chambers of commerce 168 Chandler, Alfred 141 Chaplin, Charlie 103 Charles I, King 199 Chartism 184 Chávez, Hugo 123, 201 cheating 57, 61, 63 Cheney, Dick 289 Chicago riots (1968) x chicanery 60, 72 children 174 exploitation of 195 raising 188, 190 trading of 26 violence and abuse of 193 Chile 136, 194, 280 coup of 1973 165, 201 China air quality 250, 258 becomes dynamic centre of a global capitalism 124 a BRIC country 170, 228 capital in (after 2000) 154 class struggles 233 and competition 150, 161 consumerism 194–5, 236 decentralisation 49 dirigiste governmentality 48 dismantlement of old ships 250 dispossessions in 58 education 184, 187 factories 123, 129, 174, 182 famine in 124–5 ‘great leap forward’ 125 growth of 170, 227, 232 income inequalities 169 industrialisation 232 Keynesian demand-side and debt-financed expansion xi; labour 80, 82, 107, 108, 123, 174, 230 life expectancy 259 personal debt 194 remittances 175 special economic zones 41, 144 speculative booms and bubbles in housing markets 21 suburbanisation 253 and technology 101 toxic batteries 249–50 unstable lurches forward 10 urban and infrastructural projects 151 urbanisation 232 Chinese Communist Party 108, 142 Church, the 185, 189, 199 circular cumulative causation 150 CitiBank 61 citizenship rights 168 civil rights 202, 205 class affluent classes 205 alliances 143, 149 class analysis xiii; conflict 85, 159 domination 91, 110 plutocratic capitalist xiii; power 55, 61, 88, 89, 92, 97, 99, 110, 134, 135, 221, 279 and race 166, 291 rule 91 structure 91 class struggle 34, 54, 67, 68, 85, 99, 103, 110, 116, 120, 135, 159, 172, 175, 183, 214, 233 climate change 4, 253–6, 259 Clinton, President Bill 176 Cloud Atlas (film) 271 CNN 285 coal 3, 255 coercion x, 41–4, 53, 60–63, 79, 95, 201, 286 Cold War 153, 165 collateralised debt obligations (CDOs) 78 Collins, Suzanne: The Hunger Games 264 Colombia 280 colonialism 257 the colonised 289–90 indigenous populations 39, 40 liberation from colonial rule 202 philanthropic 208, 285 colonisation 229, 262 ‘combinatorial evolution’ 96, 102, 104, 146, 147, 248 commercialisation 262, 263, 266 commodification 24, 55, 57, 59–63, 88, 115, 140, 141, 192, 193, 235, 243, 251, 253, 260, 262, 263, 273 commodities advertising 275 asking price 31 and barter 24 commodity exchange 39, 64 compared with products 25–6 defective or dangerous 72 definition 39 devaluation of 234 exchange value 15, 25 falling costs of 117 importance of workers as buyers 80–81 international trade in 256 labour power as a commodity 62 low-value 29 mobility of 147–8 obsolescence 236 single metric of value 24 unique 140–41 use value 15, 26, 35 commodity markets 49 ‘common capital of the class’ 142, 143 common wealth created by social labour 53 private appropriation of 53, 54, 55, 61, 88, 89 reproduction of 61 use values 53 commons collective management of 50 crucial 295 enclosure of 41, 235 natural 250 privatised 250 communications 99, 147, 148, 177 communism 196 collapse of (1989) xii, 165 communist parties 136 during Cold War 165 scientific 269 socialism/communism 91, 269 comparative advantage 122 competition and alienated workers 125 avoiding 31 between capitals 172 between energy and food production 3 decentralised 145 and deflationary crisis (1930s) 136 foreign 148, 155 geopolitical 219 inter-capitalist 110 international 154, 175 interstate 110 interterritorial 219 in labour market 116 and monopoly 131–45, 146, 218 and technology 92–3 and turnover time of capital 73, 99 and wages 135 competitive advantage 73, 93, 96, 112, 161 competitive market 131, 132 competitiveness 184 complementarity principle of 70 compounding growth 37, 49, 222, 227, 228, 233, 234, 235, 243, 244 perpetual 222–45, 296 computerisation 100, 120, 222 computers 92, 100, 105, 119 hardware 92, 101 organisational forms 92, 93, 99, 101 programming 120 software 92, 99, 101, 115, 116 conscience laundering 211, 245, 284, 286 Conscious Capitalism 284 constitutional rights 58 constitutionality 60, 61 constitutions progressive 284 and social bond between human rights and private property 40 US Constitution 284 and usurpation of power 45 consumerism 89, 106, 160, 192–5, 197, 198, 236, 274–7 containerisation 138, 148, 158 contracts 71, 72, 93, 207 contradictions Aristotelian conception of 4 between money and the social labour money represents 83 between reality and appearance 4–6 between use and exchange value 83 of capital and capitalism 68 contagious intensification of 14 creative use of 3 dialectical conception of 4 differing reactions to 2–3 and general crises 14 and innovation 3 moved around rather than resolved 3–4 multiple 33, 42 resolution of 3, 4 two modes of usage 1–2 unstable 89 Controller of the Currency 120 corporations and common wealth 54 corporate management 98–9 power of 57–8, 136 and private property 39–40 ‘visible hand’ 141–2 corruption 53, 197, 266 cosmopolitanism 285 cost of living 164, 175 credit cards 67, 133, 277 credit card companies 54, 84, 278 credit financing 152 credit system 83, 92, 101, 111, 239 crises changes in mental conceptions of the world ix-x; crisis of capital 4 defined 4 essential to the reproduction of capitalism ix; general crisis ensuing from contagions 14 housing markets crisis (2007–9) 18, 20, 22 reconfiguration of physical landscapes ix; slow resolution of x; sovereign debt crisis (after 2012) 37 currency markets, turbulence of (late 1960s) x customary rights 41, 59, 198 D Davos conferences 169 DDT 259 Debord, Guy: The Society of the Spectacle 236 debt creation 236 debt encumbrancy 212 debt peonage 62, 212 decentralisation 49, 142, 143, 144, 146, 148, 219, 281, 295 Declaration of Independence (US) 284 decolonisation 282, 288, 290 decommodification 85 deindustrialisation xii, 77–8, 98, 110, 148, 153, 159, 234 DeLong, Bradford 228 demand management 81, 82, 106, 176 demand-side management 85 democracy 47, 215 bourgeois 43, 49 governance within capitalism 43 social 190 totalitarian 220, 292 democratic governance 220, 266 democratisation 43 Deng Xiaoping x depressions 49, 227 1930s x, 108, 136, 169, 227, 232, 234 Descartes, René 247 Detroit 77, 136, 138, 148, 150, 152, 155, 159, 160 devaluation 153, 155, 162 of capital 233 of commodities 234 crises 150–51, 152, 154 localised 154 regional 154 developing countries 16, 240 Dhaka, Bangladesh 77 dialectics 70 Dickens, Charles 126, 169 Bleak House 226 Dombey and Son 184 digital revolution 144 disabled, the 202 see also handicapped discrimination 7, 8, 68, 116, 297 diseases 10, 211, 246, 254, 260 disempowerment 81, 103, 116, 119, 198, 270 disinvestment 78 Disneyfication 276 dispossession accumulation by 60, 67, 68, 84, 101, 111, 133, 141, 212 and capital 54, 55, 57 economies of 162 of indigenous populations 40, 59, 207 ‘land grabs’ 58 of land rights of the Irish 40 of the marginalised 198 political economy of 58 distributional equality 172 distributional shares 164–5, 166 division of labour 24, 71, 112–30, 154, 184, 268, 270 and Adam Smith 98, 118 defined 112 ‘the detail division of labour’ 118, 121 distinctions and oppositions 113–14 evolution of 112, 120, 121, 126 and gender 114–15 increasing complexity of 124, 125, 126 industrial proletariat 114 and innovation 96 ‘new international division of labour’ 122–3 organisation of 98 proliferating 121 relation between the parts and the whole 112 social 113, 118, 121, 125 technical 113, 295 uneven geographical developments in 130 dot-com bubble (1990s) 222–3, 241 ‘double coincidence of wants and needs’ 24 drugs 32, 193, 248 cartels 54 Durkheim, Emile 122, 125 Dust Bowl (United States, 1930s) 257 dynamism 92, 104, 146, 219 dystopia 229, 232, 264 E Eagleton , Terry: Why Marx Was Right 1, 21, 200, 214–15 East Asia crisis of 1997–98 154 dirigiste governmentality 48 education 184 rise of 170 Eastern Europe 115, 230 ecological offsets 250 economic rationality 211, 250, 252, 273, 274, 275, 277, 278, 279 economies 48 advanced capitalist 228, 236 agglomeration 149 of dispossession 162 domination of industrial cartels and finance capital 135 household 192 informal 175 knowledge-based 188 mature 227–8 regional 149 reoriented to demand-side management 85 of scale 75 solidarity 66, 180 stagnant xii ecosystems 207, 247, 248, 251–6, 258, 261, 263, 296 Ecuador 46, 152, 284 education 23, 58, 60, 67–8, 84, 110, 127–8, 129, 134, 150, 156, 168, 183, 184, 185, 187, 188, 189, 223, 235, 296 efficiency 71, 92, 93, 98, 103, 117, 118, 119, 122, 126, 272, 273, 284 efficient market hypothesis 118 Egypt 107, 280, 293 Ehrlich, Paul 246 electronics 120, 121, 129, 236, 292 emerging markets 170–71, 242 employment 37 capital in command of job creation 172, 174 conditions of 128 full-time 274 opportunities for xii, 108, 168 regional crises of 151 of women 108, 114, 115, 127 see also labour enclosure movement 58 Engels, Friedrich 70 The Condition of the English Working Class in England 292 English Civil War (1642–9) 199 Enlightenment 247 Enron 133, 241 environmental damage 49, 61, 110, 111, 113, 232, 249–50, 255, 257, 258, 259, 265, 286, 293 environmental movement 249, 252 environmentalism 249, 252–3 Epicurus 283 equal rights 64 Erasmus, Desiderius 283 ethnic hatreds and discriminations 8, 165 ethnic minorities 168 ethnicisation 62 ethnicity 7, 68, 116 euro, the 15, 37, 46 Europe deindustrialisation in 234 economic development in 10 fascist parties 280 low population growth rate 230 social democratic era 18 unemployment 108 women in labour force 230 European Central Bank 37, 46, 51 European Commission 51 European Union (EU) 95, 159 exchange values commodities 15, 25, 64 dominance of 266 and housing 14–23, 43 and money 28, 35, 38 uniform and qualitatively identical 15 and use values 15, 35, 42, 44, 50, 60, 65, 88 exclusionary permanent ownership rights 39 experts 122 exploitation 49, 54, 57, 62, 68, 75, 83, 107, 108, 124, 126, 128, 129, 150, 156, 159, 166, 175, 176, 182, 185, 193, 195, 208, 246, 257 exponential growth 224, 240, 254 capacity for 230 of capital 246 of capital accumulation 223, 229 of capitalist activity 253 and capital’s ecosystem 255 in computer power 105 and environmental resources 260 in human affairs 229 and innovations in finance and banking 100 potential dangers of 222, 223 of sophisticated technologies 100 expropriation 207 externality effects 43–4 Exxon 128 F Facebook 236, 278, 279 factories ix, 123, 129, 160, 174, 182, 247, 292 Factory Act (1864) 127, 183 famine 124–5, 229, 246 Fannie Mae 50 Fanon, Frantz 287 The Wretched of the Earth 288–90, 293 fascist parties 280 favelas ix, 16, 84, 175 feminisation 115 feminists 189, 192, 283 fertilisers 255 fetishes, fetishism 4–7, 31, 36–7, 61, 103, 111, 179, 198, 243, 245, 269, 278 feudalism 41 financial markets 60, 133 financialisation 238 FIRE (finance, insurance and real estate) sections 113 fishing 59, 113, 148, 249, 250 fixity and motion 75–8, 88, 89, 146, 155 Food and Drug Administration 120 food production/supply 3, 229, 246, 248, 252 security 253, 294, 296 stamp aid 206, 292 Ford, Martin 104–8, 111, 273 foreclosure 21, 22, 24, 54, 58, 241, 268 forestry 113, 148, 257 fossil fuels 3–4 Foucault, Michel xiii, 204, 209, 280–81 Fourier, François Marie Charles 183 Fourierists 18 Fourteen Points 201 France banking 158 dirigiste governmentality under de Gaulle 48 and European Central Bank 46 fascist parties 280 Francis, Pope 293 Apostolic Exhortation 275–6 Frankfurt School 261 Freddie Mac 50 free trade 138, 157 freedom 47, 48, 142, 143, 218, 219, 220, 265, 267–270, 276, 279–82, 285, 288, 296 and centralised power 142 cultural 168 freedom and domination 199–215, 219, 268, 285 and the good life 215 and money creation 51 popular desire for 43 religious 168 and state finances 48 under the rule of capital 64 see also liberty and freedom freedom of movement 47, 296 freedom of thought 200 freedom of the press 213 French Revolution 203, 213, 284 G G7 159 G20 159 Gallup survey of work 271–2 Gandhi, Mahatma 284, 291 Gaulle, Charles de 48 gay rights 166 GDP 194, 195, 223 Gehry, Frank 141 gender discriminations 7, 8, 68, 165 gene sequences 60 General Motors xii genetic engineering xii, 101, 247 genetic materials 235, 241, 251, 261 genetically modified foods 101 genocide 8 gentrification 19, 84, 141, 276 geocentric model 5 geographical landscape building a new 151, 155 of capitalism 159 evolution of 146–7 instability of 146 soulless, rationalised 157 geopolitical struggles 8, 154 Germany and austerity 223 autobahns built 151 and European Central Bank 46 inflation during 1920s 30 wage repression 158–9 Gesell, Silvio 35 Ghana 291 global economic crisis (2007–9) 22, 23, 47, 118, 124, 132, 151, 170, 228, 232, 234, 235, 241 global financialisation x, 177–8 global warming 260 globalisation 136, 174, 176, 179, 223, 293 gold 27–31, 33, 37, 57, 227, 233, 238, 240 Golden Dawn 280 Goldman Sachs 75, 239 Google 131, 136, 195, 279 Gordon, Robert 222, 223, 230, 239, 304n2 Gore, Al 249 Gorz, André 104–5, 107, 242, 270–77, 279 government 60 democratic 48 planning 48 and social bond between human rights and private property 40 spending power 48 governmentality 43, 48, 157, 209, 280–81, 285 Gramsci, Antonio 286, 293 Greco, Thomas 48–9 Greece 160, 161, 162, 171, 235 austerity 223 degradation of the well-being of the masses xi; fascist parties 280 the power of the bondholders 51, 152 greenwashing 249 Guantanamo Bay, Cuba 202, 284 Guatemala 201 Guevara, Che 291 Guggenheim Museum, Bilbao 141 guild system 117 Guinea-Bissau 291 Gulf Oil Spill (2010) 61 H Habermas, Jürgen 192 habitat 246, 249, 252, 253, 255 handicapped, the 218 see also disabled Harvey, David The Enigma of Capital 265 Rebel Cities 282 Hayek, Friedrich 42 Road to Serfdom 206 health care 23, 58, 60, 67–8, 84, 110, 134, 156, 167, 189, 190, 235, 296 hedge funds 101, 162, 239, 241, 249 managers 164, 178 Heidegger, Martin 59, 250 Heritage Foundation 143 heterotopic spaces 219 Hill, Christopher 199 Ho Chi Minh 291 holocausts 8 homelessness 58 Hong Kong 150, 160 housing 156, 296 asset values 19, 20, 21, 58 ‘built to order’ 17 construction 67 controlling externalities 19–20 exchange values 14–23, 43 gated communities ix, 160, 208, 264 high costs 84 home ownership 49–50 investing in improvements 20, 43 mortgages 19, 21, 28, 50, 67, 82 predatory practices 67, 133 production costs 17 rental markets 22 renting or leasing 18–19, 67 self-built 84 self-help 16, 160 slum ix, 16, 175 social 18, 235 speculating in exchange value 20–22 speculative builds 17, 28, 78, 82 tenement 17, 160 terraced 17 tract ix, 17, 82 use values 14–19, 21–2, 23, 67 housing markets 18, 19, 21, 22, 28, 32, 49, 58, 60, 67, 68, 77, 83, 133, 192 crisis (2007–9) 18, 20, 22, 82–3 HSBC 61 Hudson, Michael 222 human capital theory 185, 186 human evolution 229–30 human nature 97, 198, 213, 261, 262, 263 revolt of 263, 264–81 human rights 40, 200, 202 humanism 269 capitalist 212 defined 283 education 128 excesses and dark side 283 and freedom 200, 208, 210 liberal 210, 287, 289 Marxist 284, 286 religious 283 Renaissance 283 revolutionary 212, 221, 282–93 secular 283, 285–6 types of 284 Hungary: fascist parties 280 Husserl, Edmund 192 Huygens, Christiaan 70 I IBM 128 Iceland: banking 55 identity politics xiii illegal aliens (‘sans-papiers’) 156 illegality 61, 72 immigrants, housing 160 imperialism 135, 136, 143, 201, 257, 258 income bourgeois disposable 235 disparities of 164–81 levelling up of 171 redistribution to the lower classes xi; see also wages indebtedness 152, 194, 222 India billionaires in 170 a BRIC country 170, 228 call centres 139 consumerism 236 dismantlement of old ships 250 labour 107, 230 ‘land grabs’ 77 moneylenders 210 social reproduction in 194 software engineers 196 special economic zones 144 unstable lurches forward 10 indigenous populations 193, 202, 257, 283 dispossession of 40, 59, 207 and exclusionary ownership rights 39 individualism 42, 197, 214, 281 Indonesia 129, 160 industrial cartels 135 Industrial Revolution 127 industrialisation 123, 189, 229, 232 inflation 30, 36, 37, 40, 49, 136, 228, 233 inheritance 40 Inner Asia, labour in 108 innovation 132 centres of 96 and the class struggle 103 competitive 219 as a double-edged sword xii; improving the qualities of daily life 4 labour-saving 104, 106, 107, 108 logistical 147 organisational 147 political 219 product 93 technological 94–5, 105, 147, 219 as a way out of a contradiction 3 insurance companies 278 intellectual property rights xii, 41, 123, 133, 139, 187, 207, 235, 241–2, 251 interest compound 5, 222, 224, 225, 226–7 interest-rate manipulations 54 interest rates 54, 186 living off 179, 186 on loans 17 money capital 28, 32 and mortgages 19, 67 on repayment of loans to the state 32 simple 225, 227 usury 49 Internal Revenue Service income tax returns 164 International Monetary Fund (IMF) 49, 51, 100, 143, 161, 169, 186, 234, 240 internet 158, 220, 278 investment: in fixed capital 75 investment pension funds 35–6 IOUs 30 Iran 232, 289 Iranian Revolution 289 Iraq war 201, 290 Ireland dispossession of land rights 40 housing market crash (2007–9) 82–3 Istanbul 141 uprising (2013) 99, 129, 171, 243 Italy 51,161, 223, 235 ITT 136 J Jacobs, Jane 96 James, C.L.R. 291 Japan 1980s economic boom 18 capital in (1980s) 154 economic development in 10 factories 123 growth rate 227 land market crash (1990) 18 low population growth rate 230 and Marshall Plan 153 post-war recovery 161 Jewish Question 213 JPMorgan 61 Judaeo-Christian tradition 283 K Kant, Immanuel 285 Katz, Cindi 189, 195, 197 Kenya 291 Kerala, India 171 Keynes, John Maynard xi, 46, 76, 244, 266 ‘Economic Possibilities for our Grandchildren’ 33–4 General Theory of Employment, Interest, and Money 35 Keynesianism demand management 82, 105, 176 demand-side and debt-financed expansion xi King, Martin Luther 284, 291 knowledge xii, 26, 41, 95, 96, 100, 105, 113, 122, 123, 127, 144, 184, 188, 196, 238, 242, 295 Koch brothers 292 Kohl, Helmut x L labour agitating and fighting for more 64 alienated workers 125, 126, 128, 129, 130 artisan 117, 182–3 and automation 105 capital/labour contradiction 65, 66, 68–9, 146 collective 117 commodification of 57 contracts 71, 72 control over 74, 102–11, 119, 166, 171–2, 274, 291–2 deskilling 111, 119 discipline 65, 79 disempowering workers 81, 103, 116, 119, 270 division of see division of labour; domestic 196 education 127–8, 129, 183, 187 exploitation of 54, 57, 62, 68, 75, 83, 107, 108, 126, 128, 129, 150, 156, 166, 175, 176, 182, 185, 195 factory 122, 123, 237 fair market value 63, 64 Gallup survey 271–2 house building 17 housework 114–15, 192 huge increase in the global wage labour force 107–8 importance of workers as buyers of commodities 80–81 ‘industrial reserve army’ 79–80, 173–4 migrations of 118 non-unionised xii; power of 61–4, 71, 73, 74, 79, 81, 88, 99, 108, 118–19, 127, 173, 175, 183, 189, 207, 233, 267 privatisation of 61 in service 117 skills 116, 118–19, 123, 149, 182–3, 185, 231 social see social labour; surplus 151, 152, 173–4, 175, 195, 233 symbolic 123 and trade unions 116 trading in labour services 62–3 unalienated 66, 89 unionised xii; unpaid 189 unskilled 114, 185 women in workforce see under women; worked to exhaustion or death 61, 182 see also employment labour markets 47, 62, 64, 66–9, 71, 102, 114, 116, 118, 166 labour-saving devices 104, 106, 107, 173, 174, 277 labour power commodification of 61, 88 exploitation of 62, 175 generation of surplus value 63 mobility of 99 monetisation of 61 private property character of 64 privatisation of 61 reserves of 108 Lagos, Nigeria, social reproduction in 195 laissez-faire 118, 205, 207, 281 land commodification 260–61 concept of 76–7 division of 59 and enclosure movement 58 establishing as private property 41 exhausting its fertility 61 privatisation 59, 61 scarcity 77 urban 251 ‘land grabs’ 39, 58, 77, 252 land market 18, 59 land price 17 land registry 41 land rents 78, 85 land rights 40, 93 land-use zoning 43 landlords 54, 67, 83, 140, 179, 251, 261 Latin America ’1and grabs’ 58, 77 labour 107 reductions in social inequality 171 two ‘lost decades’ of development 234 lawyers 22, 26, 67, 82, 245 leasing 16, 17, 18 Lebed, Jonathan 195 Lee Kuan-Yew 48 Leeds 149 Lefebvre, Henri 157, 192 Critique of Everyday Life 197–8 left, the defence of jobs and skills under threat 110 and the factory worker 68 incapable of mounting opposition to the power of capital xii; remains of the radical left xii–xiii Lehman Brothers investment bank, fall of (2008) x–xi, 47, 241 ‘leisure’ industries 115 Lenin, Vladimir 135 Leninism 91 Lewis, Michael: The Big Short 20–21 LGBT groups 168, 202, 218 liberation struggle 288, 290 liberty, liberties 44, 48–51, 142, 143, 212, 276, 284, 289 and bourgeois democracy 49 and centralised power 142 and money creation 51 non-coercive individual liberty 42 popular desire for 43 and state finances 48 liberty and freedom 199–215 coercion and violence in pursuit of 201 government surveillance and cracking of encrypted codes 201–2 human rights abuses 202 popular desire for 203 rhetoric on 200–201, 202 life expectancy 250, 258, 259 light, corpuscular theory of 70 living standards xii, 63, 64, 84, 89, 134, 175, 230 loans fictitious capital 32 housing 19 interest on 17 Locke, John 40, 201, 204 logos 31 London smog of 1952 255 unrest in (2011) 243 Los Angeles 150, 292 Louis XIV, King of France 245 Lovelace, Richard 199, 200, 203 Luddites 101 M McCarthyite scourge 56 MacKinnon, Catherine: Are Women Human?


pages: 446 words: 117,660

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future by Paul Krugman

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Andrei Shleifer, antiwork, Asian financial crisis, bank run, banking crisis, basic income, behavioural economics, benefit corporation, Berlin Wall, Bernie Madoff, bitcoin, blockchain, bond market vigilante , Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, carbon tax, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, fake news, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, green new deal, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, it is difficult to get a man to understand something, when his salary depends on his not understanding it, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, low interest rates, market bubble, market clearing, market fundamentalism, means of production, Modern Monetary Theory, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, plutocrats, Ponzi scheme, post-truth, price stability, public intellectual, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Ronald Reagan, secular stagnation, Seymour Hersh, stock buybacks, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, We are all Keynesians now, working-age population

Clearly, it doesn’t have to be something that looks like C-3PO, or rolls around saying “Exterminate! Exterminate!” From an economic point of view, a robot is anything that uses technology to do work formerly done by human beings. And robots in that sense have been transforming our economy literally for centuries. David Ricardo, one of the founding fathers of economics, wrote about the disruptive effects of machinery in 1821! These days, when people talk about the robot apocalypse, they don’t usually think of things like strip mining and mountaintop removal. Yet these technologies utterly transformed coal mining: coal production almost doubled between 1950 and 2000 (it only began falling a few years ago), yet the number of coal miners fell from 470,000 to fewer than 80,000.

Rudi flagged that idea as potentially very interesting indeed; I went home to work on it seriously; and within a few days I realized that I had hold of something that would form the core of my professional life. What had I found? The point of my trade models was not particularly startling once one thought about it: economies of scale could be an independent cause of international trade, even in the absence of comparative advantage. This was a new insight to me, but had (as I soon discovered) been pointed out many times before by critics of conventional trade theory. The models I worked out left some loose ends hanging; in particular, they typically had many equilibria. Even so, to make the models tractable I had to make obviously unrealistic assumptions.

Empiricists pointed out that trade took place largely between countries with seemingly similar factor endowments, and that much of this trade involved intra-industry exchanges of seemingly similar products. Acute observers pointed to the importance of economies of scale and imperfect competition in actual international markets. Yet all of this intelligent commentary was ignored by mainstream trade theorists—after all, their critics often seemed to have an imperfect understanding of comparative advantage, and had no coherent models of their own to offer; so why pay attention to them? The result was that the profession overlooked evidence and stories that were right under its nose. The same story is repeated in geography. Geographers and regional scientists have amassed a great deal of evidence on the nature and importance of localized external economies, and organized that evidence intelligently if not rigorously.


pages: 624 words: 127,987

The Personal MBA: A World-Class Business Education in a Single Volume by Josh Kaufman

Albert Einstein, Alvin Toffler, Atul Gawande, Black Swan, Blue Ocean Strategy, business cycle, business process, buy low sell high, capital asset pricing model, Checklist Manifesto, cognitive bias, correlation does not imply causation, Credit Default Swap, Daniel Kahneman / Amos Tversky, David Heinemeier Hansson, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, discounted cash flows, Donald Knuth, double entry bookkeeping, Douglas Hofstadter, Dunning–Kruger effect, en.wikipedia.org, Frederick Winslow Taylor, George Santayana, Gödel, Escher, Bach, high net worth, hindsight bias, index card, inventory management, iterative process, job satisfaction, Johann Wolfgang von Goethe, Kaizen: continuous improvement, Kevin Kelly, Kickstarter, Lao Tzu, lateral thinking, loose coupling, loss aversion, Marc Andreessen, market bubble, Network effects, Parkinson's law, Paul Buchheit, Paul Graham, place-making, premature optimization, Ralph Waldo Emerson, rent control, scientific management, side project, statistical model, stealth mode startup, Steve Jobs, Steve Wozniak, subscription business, systems thinking, telemarketer, the scientific method, time value of money, Toyota Production System, tulip mania, Upton Sinclair, Vilfredo Pareto, Walter Mischel, Y Combinator, Yogi Berra

SHARE THIS CONCEPT: http://book.personalmba.com/power/ Comparative Advantage Be a first-rate version of yourself, not a second-rate version of someone else. —JUDY GARLAND, ACTRESS AND SINGER Essential to the idea of working with other people is the question, Why work with other people in the first place? If you can’t control them and get them to do exactly what you want them to do all the time, why bother? The answer is Comparative Advantage, a concept that originated in the “dismal science” of economics. Attributed to David Ricardo’s 1817 text On the Principles of Political Economy and Taxation, “Ricardo’s Law of Comparative Advantage” provided an answer to a question of international politics: is it better for the economies of countries to be self-sufficient and produce everything themselves, or specialize in producing certain goods, then trade with one another?

“Strengths-Based Management” is simply another term for Comparative Advantage. Comparative Advantage explains why it often makes sense to work with contractors or outsourcers rather than try to do everything yourself. If you want to build a house, it’s probably more efficient to hire a general contractor and specialists who do the kind of work the project requires every day. You could certainly try to do it yourself, but unless you know what you’re doing, it’ll probably take longer, and the results won’t be as good. Comparative Advantage also explains why diverse teams consistently outperform homogenous teams.

As a result, instead of wasting time and money struggling to do something they weren’t good at, Portugal and England would both be better off if they specialized, then traded with each other. Comparative Advantage means it’s better to capitalize on your strengths than to shore up your weaknesses. In First, Break All The Rules by Marcus Buckingham and Curt Coffman, and StrengthsFinder 2.0 by Tom Rath, the authors share the results of the Gallup Organization’s comprehensive research on human productivity. As it turns out, Comparative Advantage applies as much to individuals as it does to countries: businesses work better if the individuals who operate them focus on what they’re best at, working with other specialists to accomplish everything else they need.


pages: 424 words: 119,679

It's Better Than It Looks: Reasons for Optimism in an Age of Fear by Gregg Easterbrook

affirmative action, Affordable Care Act / Obamacare, air freight, Alan Greenspan, Apollo 11, autonomous vehicles, basic income, Bernie Madoff, Bernie Sanders, Black Lives Matter, Boeing 747, Branko Milanovic, Brexit referendum, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, clean tech, clean water, coronavirus, Crossrail, David Brooks, David Ricardo: comparative advantage, deindustrialization, Dissolution of the Soviet Union, Donald Trump, driverless car, Elon Musk, Exxon Valdez, factory automation, failed state, fake news, full employment, Gini coefficient, Google Earth, Home mortgage interest deduction, hydraulic fracturing, Hyperloop, illegal immigration, impulse control, income inequality, independent contractor, Indoor air pollution, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Watt: steam engine, labor-force participation, liberal capitalism, longitudinal study, Lyft, mandatory minimum, manufacturing employment, Mikhail Gorbachev, minimum wage unemployment, Modern Monetary Theory, obamacare, oil shale / tar sands, Paul Samuelson, peak oil, plant based meat, plutocrats, Ponzi scheme, post scarcity, purchasing power parity, quantitative easing, reserve currency, rising living standards, Robert Gordon, Ronald Reagan, self-driving car, short selling, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, Steve Wozniak, Steven Pinker, supervolcano, The Chicago School, The Rise and Fall of American Growth, the scientific method, There's no reason for any individual to have a computer in his home - Ken Olsen, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, transaction costs, Tyler Cowen, uber lyft, universal basic income, War on Poverty, Washington Consensus, We are all Keynesians now, WikiLeaks, working poor, Works Progress Administration

This magnificently fashioned system of canals, sluices, and pumps could be rendered worthless in a few hours by America’s overwhelming air power. Chinese leaders endorsed the project because they believe war with the United States will not happen. American leaders should believe that too. CAN WE REALLY BELIEVE ECONOMIC forces have shifted away from war? A leading voice of classical economics was David Ricardo, born in London in 1772. He maintained that at bottom, wealth was control of land, and feared that as the number of people kept expanding but the acreage of land did not, the world would go haywire. Living before the development of high-yield farming, Ricardo assumed a rising population could be fed only by tilling more land; knew the wealth and privilege of the European aristocracy was based on land; knew wars were fought either over land or over access to sea lanes.

That does not mean Colorado and Montana are not wonderful, that Atlanta and Chicago are not great places, that Chattanooga and Provo are not hidden-gem small cities—only that outward-focused coastal regions are favored by economic tendencies. Broadly across the world, this is true: one reason China became prosperous while adjacent Mongolia did not is that China possesses a long coastal region while Mongolia is landlocked. “Comparative advantage,” as well established as any idea in economics, benefits almost everyone in places that become trade partners, while exposing people to new ideas that lead to innovation. The role of trade, mainly across the waters, is embedded in history. A magisterial book, The Sea and Civilization by Lincoln Paine, shows that for three thousand years, regions, countries, and empires engaged in trading via ship developed faster than those that shunned exploration and exchange.

., on, 165–166, 178, 183–184, 185–186 dictatorship and, 164–166 economy and, 167–168, 170, 173–174, 193 education and, 169–170 ethics and, 174 freedom of thought and, 168–169 internet and, 175–176 inventions and inventiveness in, 172–173 recession of, 165 short-selling strategy for, 175 slavery and oppression and, 174–175 Trump lying and, 184–185 World War I and, 170–171 World War II and, 171–173 See also corruption developing world positive change in, 17, 18 poverty in, 20, 280 sanitation infrastructure in, 30 traffic deaths in, 142–143 Diamond, Larry, 165–166, 178, 183–184 two-party duopoly for, 185–186 dictatorship, 193 Carnation Revolution and, 165 coup d’état and, 166 democracy and, 164–166 education and, 169 internet and, 175–176 World War II and, 171–173 dietary habits, of West, 25, 116 disability, 249, 257 education and, 37 veterans and, 36–37, 258 disease in Africa, 25, 39 avian and swine flu, 22 chemical and biological weapons and, 26–27 Ebola, 23, 25 films and, 28 influenza pandemic, 27–28 malaria, 39 media negativity and, 24–25 MERS, 23 mosquitoes and, 39 news coverage and, 24–25 obesity as, 5, 26, 35 smoking and, 24 unstoppable contagion, 27, 28 vaccinations and, 25, 39–40 weight gain and metabolic syndrome, 25–26 See also public health Dodd-Frank Act, 92–93 Dust Bowl, 5 dynamism catastrophism and, 20–21, 221, 283 food production and, 21 East of Eden (Steinbeck), 17–18, 58, 134 Easy Rider (movie), 198, 199 Ebola, 23, 25 echo chamber, 215–216 economy, 209–210 bulk transportation and, 80–81 buying power and, 85–86, 87, 246, 249 Clinton, H., on, 67 coal mining and, 61, 76–77, 233 collapse anxiety and, 68 communism and, 174 comparative advantage and, 79–80 control and, 65–66 currency and, 69 democracy and, 167–168, 170, 173–174, 193 Dodd-Frank Act and, 92–93 education and, 169 fascism and, 66 Feldstein on, 91 globalization and, 82 golden age of, 69–70 Great Recession and, 64, 68, 97 inequality and, 84–85 inflation and, 87 infrastructure and, 93–95 Keynes on, 98–99 marriage and, 267, 268 media negativity and, 77, 79, 87–88 modern monetary theory and, 96 Panasonic and, 68–69 paper mills and, 78–79 Piketty on, 84–85 predictions and, 64 pretax income and, 84–85, 91 regulations of, 92–93 retirement economics, 31, 273–274 slow growth and, 90–92 Soviet and American, 167 state pension accounts and, 97–98 trade boosting, 79, 245–246 Trump and, 70–71 US domestic production and, 77–78 US GDP and, 84, 90–91 war and, 93, 132–134 Washington Consensus and, 66–67 Western living standards and, 88 See also market economy; middle class, US; national debt, US education, 280 book reading and, 271 in China, 170 college as, 269–271 democracy and, 169–170 disability and, 37 economy and, 169 immigrants and, 269–270 jobs and, 89–90 longevity and, 37–38 marriage and, 267 public school system and, 38, 269 skilled trades and, 270 wage and, 89–90 The Education of Henry Adams (Adams), 197, 198 Ehrlich, Paul, 5 elections.


pages: 453 words: 122,586

Samuelson Friedman: The Battle Over the Free Market by Nicholas Wapshott

2021 United States Capitol attack, Alan Greenspan, bank run, basic income, battle of ideas, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, California gold rush, collective bargaining, coronavirus, corporate governance, COVID-19, creative destruction, David Ricardo: comparative advantage, Donald Trump, double helix, en.wikipedia.org, fiat currency, financial engineering, fixed income, floating exchange rates, full employment, God and Mammon, greed is good, Gunnar Myrdal, income inequality, indoor plumbing, invisible hand, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, light touch regulation, liquidity trap, lockdown, low interest rates, Machinery of Freedom by David Friedman, market bubble, market clearing, mass immigration, military-industrial complex, Money creation, money market fund, Mont Pelerin Society, moral hazard, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, paradox of thrift, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, price stability, public intellectual, pushing on a string, quantitative easing, rent control, road to serfdom, Robert Bork, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, seminal paper, Simon Kuznets, social distancing, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, trickle-down economics, universal basic income, upwardly mobile, urban renewal, War on Poverty, We are all Keynesians now, Works Progress Administration, zero-sum game

An indication of how Keynesian ideas dominated the intellectual landscape can be gleaned from the contemporary histories of economic thought. For instance, William J. Barber, a professor of economics at Wesleyan, published A History of Economic Thought in 1967. While he gave due credit to “Classical Economics,” with chapters on Adam Smith, Robert Malthus, David Ricardo, and John Stuart Mill, the book ends with the triumph of Keynes. There is no mention of the Austrian School, nor the Chicago School, nor von Mises, nor Hayek, nor Friedman. In his textbook Economics, Samuelson suggested that the Chicago School, Austrian economics, and radical libertarian ideas about the preeminence of the market were of little contemporary relevance—and therefore of limited use to students of economics.

In 1972 he had given a talk—“International Trade for a Rich Country”53—which became a popular part of his speaking repertory. In it he pointed out that “free trade need not help everybody everywhere” and that “a rich place can lose net when a poor one newly gains comparative advantage in activities in which previously the rich country had enjoyed comparative advantage.” It was an economic truth given prominence by Trump54 in his 2016 insurgent presidential campaign that promised a renegotiation of America’s trade deals and the introduction of selective tariffs to protect home markets. Friedman’s novel plan for a negative income tax to replace traditional welfare payments attracted support from across the political spectrum, including from Samuelson, who praised it as “an idea whose time has come.”55 The idea morphed into the “universal basic income” in which the state would provide a minimum wage to everyone as a right.


pages: 422 words: 131,666

Life Inc.: How the World Became a Corporation and How to Take It Back by Douglas Rushkoff

Abraham Maslow, Adam Curtis, addicted to oil, affirmative action, Alan Greenspan, Amazon Mechanical Turk, An Inconvenient Truth, anti-globalists, AOL-Time Warner, banks create money, Bear Stearns, benefit corporation, big-box store, Bretton Woods, car-free, Charles Lindbergh, colonial exploitation, Community Supported Agriculture, complexity theory, computer age, congestion pricing, corporate governance, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, death of newspapers, digital divide, don't be evil, Donald Trump, double entry bookkeeping, easy for humans, difficult for computers, financial innovation, Firefox, full employment, General Motors Futurama, gentrification, Glass-Steagall Act, global village, Google Earth, greed is good, Herbert Marcuse, Howard Rheingold, income per capita, invention of the printing press, invisible hand, Jane Jacobs, John Nash: game theory, joint-stock company, Kevin Kelly, Kickstarter, laissez-faire capitalism, loss aversion, market bubble, market design, Marshall McLuhan, Milgram experiment, military-industrial complex, moral hazard, multilevel marketing, mutually assured destruction, Naomi Klein, negative equity, new economy, New Urbanism, Norbert Wiener, peak oil, peer-to-peer, place-making, placebo effect, planned obsolescence, Ponzi scheme, price mechanism, price stability, principal–agent problem, private military company, profit maximization, profit motive, prosperity theology / prosperity gospel / gospel of success, public intellectual, race to the bottom, RAND corporation, rent-seeking, RFID, road to serfdom, Ronald Reagan, scientific management, short selling, Silicon Valley, Simon Kuznets, social software, Steve Jobs, Telecommunications Act of 1996, telemarketer, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trade route, trickle-down economics, union organizing, urban decay, urban planning, urban renewal, Vannevar Bush, vertical integration, Victor Gruen, white flight, working poor, Works Progress Administration, Y2K, young professional, zero-sum game

Defenders of the free market—including editors of financial publications from The Economist to The Wall Street Journal—deride any critique of these development strategies as jingoistic, ill-informed, and protectionist. They like to cite David Ricardo’s 1817 theory of comparative advantage, which most of us were taught as freshmen in Econ 101. I had the pleasure of learning it in a Princeton lecture hall with a thousand other college freshmen from the left-leaning former Fed vice chairman Alan Blinder, and it goes something like this: The theory of comparative advantage shows how trade can benefit all parties as long as they produce goods with different relative costs. It’s easy to see that if Country A makes shoes faster, and Country B makes hats faster, then everyone in Country A should make shoes, and everyone in Country B should make hats.

Even if the Portuguese farmer could have raised sheep more efficiently than the Brit, he’s better off doing the thing that he’s relatively better at. More total wine and sheep are produced, lowering everyone’s costs. Trade is good, especially if it allows nations to specialize in what they do best, or what their natural endowment allows. The comparative advantage argument no longer holds when you’re talking about a car manufactured in ten countries, each with its own exchange rates. Comparative advantage applies to balanced national economies trading with one another. Trade agreements like the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT) are more about creating “integrated economies,” whose national boundaries no longer pose any obstacles to the corporations who transcend them.

For every man-hour the U.K. spends making cars, it earns more value to trade for Italy’s dresses than it would if it made dresses for itself. It’s better to have everyone in the U.K. doing the thing they do best, and then trade with other countries that are doing what they do best. Corporations use the theory of comparative advantage to justify the way they do foreign trade and, moreover, to explain why building cars and trucks over in Mexico or Brazil doesn’t really take away jobs from people in Detroit or Birmingham. The domestic workers simply need to be “retrained” to do what Westerners do best (whatever that is), and then everything will be okay.


pages: 497 words: 143,175

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies by Judith Stein

1960s counterculture, accelerated depreciation, activist lawyer, affirmative action, airline deregulation, Alan Greenspan, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, business cycle, capital controls, centre right, collective bargaining, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, desegregation, do well by doing good, Dr. Strangelove, energy security, Fall of the Berlin Wall, falling living standards, feminist movement, financial deregulation, floating exchange rates, full employment, Glass-Steagall Act, Gunnar Myrdal, guns versus butter model, Ida Tarbell, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, Les Trente Glorieuses, liberal capitalism, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, Martin Wolf, new economy, Nixon triggered the end of the Bretton Woods system, oil shale / tar sands, oil shock, open economy, Paul Samuelson, payday loans, post-industrial society, post-oil, price mechanism, price stability, Ralph Nader, RAND corporation, reserve currency, Robert Gordon, Robert Solow, Ronald Reagan, Savings and loan crisis, Simon Kuznets, strikebreaker, three-martini lunch, trade liberalization, union organizing, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor, Yom Kippur War

The Americans were the main force behind the so-called Tokyo Round of trade negotiations, which attempted to rein in the subsidies and other special industrial policies that Europeans and Japanese had used to prosper in the low-tariff, recessionary era of the 1970s. TOKYO ROUND Every nation approached the Tokyo Round, begun in 1974 and completed in 1979, with its own interests front and center. The behavior contrasted sharply with official trilateralism, a variant of the theory of comparative advantage, which had dominated academic and policy thinking about trade since British political economist David Ricardo formulated it two hundred years ago. Both the first and modern version posited free trade as the obvious policy for national well-being. The durability of the theory is striking, especially when its original assumption—a world of small-scale enterprise—disappeared many years ago.

Whether it was by personal conviction or the desire to placate his coalition partner, Schmidt’s current interpretation of the crisis was closer to the FDP’s than to his own party’s. He chose to continue macroeconomic austerity while he reorganized and cartelized troubled industries like mining and steel. The Japanese story is better known. Had the Japanese followed the prescriptions of classical economics, they would have capitalized on their comparative advantage, cheap labor. Although low wages made them formidable competitors in textiles, clothing, and trinkets, the government had grander ambitions. Capital-intensive industries like steel, shipbuilding, autos, and machinery produced great nations, and that was its goal. The Japanese restricted market access for foreign multinationals, forcing them to license their technologies.34 But how would Japan acquire the necessary capital?

The companies had to manufacture enough models and parts in Canada for export to the United States to offset 95 percent of the value of the models and parts it manufactured in the United States for sale in Canada. Over time, the companies shifted much production north of the border, producing a U.S. automobile trade deficit with Canada.135 The auto trade was a managed traffic. The goal of achieving a national industry or domestic auto employment trumped principles of comparative advantage everywhere. Given the superiority of Detroit’s cars and their dominance in the U.S. market, the issue of foreign cars at home had been nonexistent until the 1970s, at which time the oil crises coincided with the coming of age of Japanese auto exports. Initially, Japan built cars for its own market.


pages: 394 words: 124,743

Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry by Steven Rattner

activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, bank run, banking crisis, Bear Stearns, business cycle, Carl Icahn, centre right, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, creative destruction, credit crunch, David Brooks, David Ricardo: comparative advantage, declining real wages, Ford Model T, friendly fire, hiring and firing, income inequality, Joseph Schumpeter, low skilled workers, McMansion, Mikhail Gorbachev, moral hazard, Ronald Reagan, Saturday Night Live, shareholder value, subprime mortgage crisis, supply-chain management, too big to fail

To oversimplify, the left believes the remedy lies in limiting free trade; the right puts its hopes in pro-business, anti-union policies. As a product of Brown University's classical economics department, I was a signed-up, paid-up free-trader. I had studied Adam Smith as well as David Ricardo's theory of comparative advantage and enthusiastically accepted the superiority of open markets. Consumers have benefited greatly from the availability of lower-cost imported goods. Those iPhones and iPads and iPods that Americans are snapping up would cost a lot more if they were being made in America instead of in China—as would the clothes, shoes, and other basic goods that make up a typical family's budget.


pages: 637 words: 128,673

Democracy Incorporated by Sheldon S. Wolin

affirmative action, Berlin Wall, British Empire, centre right, coherent worldview, collective bargaining, colonial rule, corporate governance, creative destruction, cuban missile crisis, David Ricardo: comparative advantage, dematerialisation, Donald Trump, Fall of the Berlin Wall, full employment, illegal immigration, invisible hand, It's morning again in America, mass incarceration, money market fund, mutually assured destruction, new economy, offshore financial centre, Plato's cave, public intellectual, radical decentralization, Ralph Nader, Ronald Reagan, school vouchers, single-payer health, stem cell, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen

Thus conservatism stood as a holding action against radical change from “below,” a defense of customary ways and institutions, a skeptical view of marketplace values and types, and an abhorrence of demotic equality.12 The liberal apostles of change were the great political economists—Adam Smith, Jeremy Bentham, John Stuart Mill, and David Ricardo. In varying degrees they advocated a politics centered on the middle class and excluding the working class and poor. None were egalitarians—with the possible exception of Bentham. They pitted intellectual elitism against the inherited privileges of an aristocracy, the free market against mercantilist notions of state control of the economy, and they sided with modern science against religious obscurantism.

So many “pasts” have flashed by and vanished that the temporal category itself seems obsolete. No collective memory means no collective guilt: surely My Lai is the name of a rock star. Rapid change is not a neutral force, a natural phenomenon that exists independently of human will, or of considerations of power, comparative advantage, and ideological biases. It is a “reality” constructed from decisions arrived at within a certain framework—itself not accidental. We might call it “the political economy of change.” That framework involves a wide range of factors: players with unequal resources, available capital, investment opportunities and decisions, market conditions, scientific discoveries, technological innovations, cultural dispositions, and the relative strength of contending political forces.


pages: 448 words: 142,946

Sacred Economics: Money, Gift, and Society in the Age of Transition by Charles Eisenstein

Albert Einstein, back-to-the-land, bank run, Bernie Madoff, big-box store, bread and circuses, Bretton Woods, capital controls, carbon credits, carbon tax, clean water, collateralized debt obligation, commoditize, corporate raider, credit crunch, David Ricardo: comparative advantage, debt deflation, degrowth, deindustrialization, delayed gratification, disintermediation, diversification, do well by doing good, fiat currency, financial independence, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, full employment, global supply chain, God and Mammon, happiness index / gross national happiness, hydraulic fracturing, informal economy, intentional community, invisible hand, Jane Jacobs, land tenure, land value tax, Lao Tzu, Lewis Mumford, liquidity trap, low interest rates, McMansion, means of production, megaproject, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, multilevel marketing, new economy, off grid, oil shale / tar sands, Own Your Own Home, Paul Samuelson, peak oil, phenotype, planned obsolescence, Ponzi scheme, profit motive, quantitative easing, race to the bottom, Scramble for Africa, special drawing rights, spinning jenny, technoutopianism, the built environment, Thomas Malthus, too big to fail, Tragedy of the Commons

In it, the meadow in a village commons was stripped bare of vegetation, because it was to each villager’s advantage to graze as many sheep there as possible. When everyone pursued their own advantage, the result was overgrazing and losses for all. 3. The unfairness and economic inefficiency of economic rents were recognized by classical economists as well and come under criticism in the writings of Adam Smith, David Ricardo, and John Stuart Mill. See Hudson, “Deficit Commission Follies.” 4. This distinction is actually somewhat problematic. The value of the land and the value of “improvements” on the land cannot always be separated. For one, human activity can alter the land permanently and change its “underlying value.”

I am not advocating the abandonment of global trade. While many things that should be local, such as food, have become global, there are many realms of collective human creativity that by their nature require a global coordination of labor. Moreover, economists’ doctrines of efficiency of scale and comparative advantage (that some places and cultures are better suited to certain kinds of production) are not entirely without basis.1 In general, though, sacred economics will induce the local sourcing of many commodities that are shipped across oceans and continents today. While the changes described thus far make globalization less economic, my affinity for local economy is not primarily motivated by economic logic: the maximization of some measurable quantum of well-being.

And since political sovereignty is worth little in the absence of monetary sovereignty, reasserting local, regional, and (in the case of small countries) national control over credit is an important path toward the relocalization of economy, culture, and life. 1. They are, however, exaggerated. Comparative advantage is often a cover for hidden subsidies, and efficiency of scale is often a cover for market leverage and bargaining power. An example of the former is the U. S. sugar industry, beneficiary of both direct government subsidies and indirect subsidies in the form of soil and water depletion, which allow it to undercut producers in other countries.


pages: 460 words: 131,579

Masters of Management: How the Business Gurus and Their Ideas Have Changed the World—for Better and for Worse by Adrian Wooldridge

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, affirmative action, Alan Greenspan, barriers to entry, behavioural economics, Black Swan, blood diamond, borderless world, business climate, business cycle, business intelligence, business process, carbon footprint, Cass Sunstein, Clayton Christensen, clean tech, cloud computing, collaborative consumption, collapse of Lehman Brothers, collateralized debt obligation, commoditize, company town, corporate governance, corporate social responsibility, creative destruction, credit crunch, crowdsourcing, David Brooks, David Ricardo: comparative advantage, disintermediation, disruptive innovation, do well by doing good, don't be evil, Donald Trump, Edward Glaeser, Exxon Valdez, financial deregulation, Ford Model T, Frederick Winslow Taylor, future of work, George Gilder, global supply chain, Golden arches theory, hobby farmer, industrial cluster, intangible asset, It's morning again in America, job satisfaction, job-hopping, joint-stock company, Joseph Schumpeter, junk bonds, Just-in-time delivery, Kickstarter, knowledge economy, knowledge worker, lake wobegon effect, Long Term Capital Management, low skilled workers, Mark Zuckerberg, McMansion, means of production, Menlo Park, meritocracy, Michael Milken, military-industrial complex, mobile money, Naomi Klein, Netflix Prize, Network effects, new economy, Nick Leeson, Norman Macrae, open immigration, patent troll, Ponzi scheme, popular capitalism, post-industrial society, profit motive, purchasing power parity, radical decentralization, Ralph Nader, recommendation engine, Richard Florida, Richard Thaler, risk tolerance, Ronald Reagan, science of happiness, scientific management, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Steven Levy, supply-chain management, tacit knowledge, technoutopianism, the long tail, The Soul of a New Machine, The Wealth of Nations by Adam Smith, Thomas Davenport, Tony Hsieh, too big to fail, vertical integration, wealth creators, women in the workforce, young professional, Zipcar

The discipline still awaits its Joseph Schumpeter or John Maynard Keynes. It lacks rules of debate, so the discipline remains open to anybody with an axe to grind—much as economics was open to the likes of Karl Marx. However, just as anybody wanting to know about economics a hundred years ago could draw on writers such as Alfred Marshall, Adam Smith, and David Ricardo, management theory already has its founding fathers—among them, Alfred Sloan and Peter Drucker. Management theory has also generated debates on such momentous subjects as globalization, the nature of work, and the changing structure of companies. Despite its adolescent excesses, the discipline has generated ideas that work.

DuPont has moved its electronics-related businesses to Japan, Siemens has moved its air traffic management to Britain, and Hyundai its personal computer business to the United States. This brings us to the final myth about globalization: the idea that politics is dead (or at least irrelevant from business’s point of view). Business people like to believe that they live in a rational world of profit and loss and comparative advantage. They are also reluctant to engage in “political” debates, because such debates threaten to alienate potential customers. Better to mouth bland banalities and let the cash registers ring than engage in serious argument and risk putting off a potential customer. In fact, politics is an omnipresent force in business life.


pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

"Friedman doctrine" OR "shareholder theory", Abraham Wald, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, AOL-Time Warner, asset allocation, asset-backed security, bank run, beat the dealer, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Carl Icahn, Cass Sunstein, collateralized debt obligation, compensation consultant, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, democratizing finance, Dennis Tito, discovery of the americas, diversification, diversified portfolio, Dr. Strangelove, Edward Glaeser, Edward Thorp, endowment effect, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Glass-Steagall Act, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Bogle, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, market design, Michael Milken, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, power law, prediction markets, proprietary trading, prudent man rule, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, seminal paper, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Skinner box, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, tech worker, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, Two Sigma, Tyler Cowen, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

These intrinsic values of stocks “are supposed to reflect fundamentals of their companies, such as capital equipment, inventories, unfilled orders, profits,” they wrote. “Most of these items, and the values attached to them, will hardly fluctuate as fast and far as the stock prices do. It is…a subterfuge going back at least to Adam Smith and David Ricardo to say that market price will always oscillate around the true (equilibrium) price. But since no methods are developed how to separate the oscillations from the basis, this is not an empirically testable assertion and it can be disregarded.”7 Fama had proposed that the way to test the efficient market hypothesis was to see if stock price movements obeyed the dictates of the capital asset pricing model, but this was only a relative test.

But Osborne didn’t see any point in reinventing statistics to handle it. When it came to rare events, he argued, one had to look outside the statistics of randomness and identify actual causes for the anomalies. This required judgment and experience, two areas in which finance scholars possessed no comparative advantage. They focused instead on the probable. THE REWARDS FOR DOING SO were great in the 1970s, as the war between random walkers and professional investors began to settle into an uneasy but profitable truce. Hostilities still flared up from time to time, as on a mid-decade summer morning at Stanford Business School.


pages: 491 words: 131,769

Crisis Economics: A Crash Course in the Future of Finance by Nouriel Roubini, Stephen Mihm

Alan Greenspan, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, dark matter, David Ricardo: comparative advantage, debt deflation, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, Glass-Steagall Act, global pandemic, global reserve currency, Gordon Gekko, Greenspan put, Growth in a Time of Debt, housing crisis, Hyman Minsky, information asymmetry, interest rate swap, invisible hand, Joseph Schumpeter, junk bonds, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, means of production, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, Northern Rock, offshore financial centre, oil shock, Paradox of Choice, paradox of thrift, Paul Samuelson, Ponzi scheme, price stability, principal–agent problem, private sector deleveraging, proprietary trading, pushing on a string, quantitative easing, quantitative trading / quantitative finance, race to the bottom, random walk, regulatory arbitrage, reserve currency, risk tolerance, Robert Shiller, Satyajit Das, Savings and loan crisis, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, subprime mortgage crisis, Suez crisis 1956, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, too big to fail, tulip mania, Tyler Cowen, unorthodox policies, value at risk, We are all Keynesians now, Works Progress Administration, yield curve, Yom Kippur War

This was understandable: like other early economists, he was interested in explaining how capitalist markets succeed, not why they fail. In the next century, however, many economists refined and reworked Smith’s ideas. In fact, if nineteenth-century economics had a consensus, it was the idea that markets are fundamentally self-regulating, always moving toward some magical equilibrium. A host of economists—David Ricardo, Jean-Baptiste Say, Léon Walras, and Alfred Marshall—refined Smith’s insights and started to build a mathematical edifice to prove this point. Faith in the fundamental stability of markets gave rise to an important corollary: if markets are fundamentally self-regulating, and their collective wisdom is always right, then the prices of assets bought and sold in the market are accurate and justified.

Its only major problem is the danger that North Korea will collapse and inundate it with hungry refugees. Turkey too deserves to be included in the inner circle. It has a robust banking sector, a thriving domestic market, a large and growing population, a savvy entrepreneurial sector, and a comparative advantage in labor-intensive manufacturing. It has ties to Europe (NATO and European Union membership candidacy), to the Middle East, and to Central Asia. Indonesia may be the strongest candidate of the bunch. The world’s largest Muslim state, it boasts a rapidly expanding middle class, stable and increasingly democratic politics, and an economy that outshone much of Asia despite the damage done by the global recession.


pages: 790 words: 150,875

Civilization: The West and the Rest by Niall Ferguson

Admiral Zheng, agricultural Revolution, Albert Einstein, Andrei Shleifer, Atahualpa, Ayatollah Khomeini, Berlin Wall, BRICs, British Empire, business cycle, clean water, collective bargaining, colonial rule, conceptual framework, Copley Medal, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, Deng Xiaoping, discovery of the americas, Dissolution of the Soviet Union, Easter island, European colonialism, Fall of the Berlin Wall, financial engineering, Francisco Pizarro, full employment, Great Leap Forward, Gregor Mendel, guns versus butter model, Hans Lippershey, haute couture, Hernando de Soto, income inequality, invention of movable type, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Joseph Schumpeter, Kickstarter, Kitchen Debate, land reform, land tenure, liberal capitalism, Louis Pasteur, Mahatma Gandhi, market bubble, Martin Wolf, mass immigration, means of production, megacity, Mikhail Gorbachev, new economy, Pearl River Delta, Pierre-Simon Laplace, power law, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, purchasing power parity, quantitative easing, rent-seeking, reserve currency, retail therapy, road to serfdom, Ronald Reagan, savings glut, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special economic zone, spice trade, spinning jenny, Steve Jobs, Steven Pinker, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, The Great Moderation, the market place, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, total factor productivity, trade route, transaction costs, transatlantic slave trade, undersea cable, upwardly mobile, uranium enrichment, wage slave, Washington Consensus, women in the workforce, work culture , World Values Survey

But it not at all clear why the doctrine of the sovereignty of parliament or the evolution of the common law would have provided Boulton and Watt with stronger incentives than their unsung counterparts on the continent. It is possible that eighteenth-century tariffs erected against Indian calicoes gave British manufacturers some advantage, just as similar protectionist policies would later nurture the infant industries of the United States against British competition.18 David Ricardo’s doctrine of comparative advantage* was not the sole reason why cotton exports from Britain soared in the first half of the nineteenth century. Aside from that, the case seems unconvincing that British (or, for that matter, American) political or legal institutions were more favourable to industrial development than Dutch, French or German.19 In the eyes of contemporaries, the state of the British political and legal systems in the key decades of industrial take-off was the very reverse of favourable to fledgling industry.

But presumably rich French and Italian children also fared better than poor ones. * Comparative advantage means one country’s ability to produce a good or service with a lower opportunity cost/higher relative efficiency than another. Ricardo’s famous example concerns the trade between England and Portugal. In Portugal it is possible to produce both wine and cloth more easily and cheaply than in England, but in England it is much harder and therefore more expensive to produce wine than cloth. Both sides therefore gain if Portugal focuses on producing wine, where its comparative advantage is greatest, leaving the English to produce only cloth.

The impoverished, strife-torn petty states of Western Europe embarked on half a millennium of almost unstoppable expansion. The great empires of the Orient meanwhile stagnated and latterly succumbed to Western dominance. Why did China founder while Europe forged ahead? Smith’s main answer was that the Chinese had failed to ‘encourage foreign commerce’, and had therefore missed out on the benefits of comparative advantage and the international division of labour. But other explanations were possible. Writing in the 1740s, Charles de Secondat, baron de Montesquieu, blamed the ‘settled plan of tyranny’, which he traced back to China’s exceptionally large population, which in turn was due to the East Asian weather: I reason thus: Asia has properly no temperate zone, as the places situated in a very cold climate immediately touch upon those which are exceedingly hot, that is, Turkey, Persia, India, China, Korea, and Japan.


pages: 518 words: 147,036

The Fissured Workplace by David Weil

"Friedman doctrine" OR "shareholder theory", accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, banking crisis, barriers to entry, behavioural economics, business cycle, business process, buy and hold, call centre, Carmen Reinhart, Cass Sunstein, Clayton Christensen, clean water, collective bargaining, commoditize, company town, corporate governance, corporate raider, Corrections Corporation of America, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, declining real wages, employer provided health coverage, Frank Levy and Richard Murnane: The New Division of Labor, George Akerlof, global supply chain, global value chain, hiring and firing, income inequality, independent contractor, information asymmetry, intermodal, inventory management, Jane Jacobs, Kenneth Rogoff, law of one price, long term incentive plan, loss aversion, low skilled workers, minimum wage unemployment, moral hazard, Network effects, new economy, occupational segregation, Paul Samuelson, performance metric, pre–internet, price discrimination, principal–agent problem, Rana Plaza, Richard Florida, Richard Thaler, Ronald Coase, seminal paper, shareholder value, Silicon Valley, statistical model, Steve Jobs, supply-chain management, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, Triangle Shirtwaist Factory, ultimatum game, union organizing, vertical integration, women in the workforce, yield management

Successful global manufacturers accomplish this through supply chain management, which comprises the planning, coordination, and control of the activities of that network of suppliers through the creation and implementation of standards. Offshoring, Trade, and the Impact on Workers The economic literature on the consequences of trade between nations goes back to David Ricardo’s work on comparative advantage in the early 1800s. The focus of discussion has been trade in final goods.24 But offshoring typically involves the use of outside suppliers to provide intermediate products—arising from what trade economist Rob Feenstra calls the “disintegration of production.” The changing nature of trade—as well as the growing importance of trade in intermediate goods—is illustrated by looking at U.S. imports and exports with respect to their end use over time.

In addition, Ricardo’s ideas on gains from trade were built around natural endowments (climate, access to raw materials) conveying comparative advantages to different nations. Two countries producing products where they could translate those endowments into lower costs would benefit from exchanges between them. The situation becomes more complicated if each party can create an advantage through volitional policy (for example, educating its workforce; investing in research and development; devoting significant national resources to developing comparative advantage in an industry), although the overall benefits from trade between those with higher and lower productivity arising from those policies still hold.

It was echoed in articles and books by academics in business schools as well as by an army of consultants in new and established consulting companies. The message was simple: firms should focus their attention and their resources on a set of core competencies that represented distinctive capabilities and sources of comparative advantage in the markets in which they competed. Anything that did not directly support those core competencies would be carefully evaluated as to whether it should (1) remain part of the business at all; (2) be restructured to be done more efficiently internally; or (3) be outsourced to some other party that could provide the necessary activity externally at lower cost.


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

"World Economic Forum" Davos, accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, Anthropocene, anti-globalists, asset-backed security, banking crisis, banks create money, basic income, biodiversity loss, bond market vigilante , Boris Johnson, Bretton Woods, British Empire, Bullingdon Club, business cycle, call centre, capital controls, carbon footprint, carbon tax, collective bargaining, corporate raider, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, degrowth, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial engineering, financial innovation, financial intermediation, Fractional reserve banking, full employment, G4S, Goldman Sachs: Vampire Squid, green new deal, high net worth, high-speed rail, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", James Dyson, job automation, Julian Assange, junk bonds, Kickstarter, labour market flexibility, laissez-faire capitalism, land bank, land value tax, long term incentive plan, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, mass immigration, means of production, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Philip Mirowski, plutocrats, popular capitalism, predatory finance, price stability, proprietary trading, pushing on a string, quantitative easing, race to the bottom, rent-seeking, retail therapy, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, tacit knowledge, TED Talk, The Nature of the Firm, 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, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, wealth creators, WikiLeaks, Winter of Discontent, working poor, Yom Kippur War, zero-sum game

While pure capitalists also depend on this surplus for their profit, they are also instrumental in making the generation of that surplus possible, and can make a profit only as long as this is the case. For Marx, whereas the capitalists funded production, those who merely made money out of money by lending or speculation belonged to ‘the class of parasites’.88 Further, as the political economist David Ricardo and, later, Marx, Henry George and many subsequent commentators have argued, capitalists and landlords and other rentiers have opposed interests, for rent puts up living costs for workers, creating upward pressure on wages, and it creates overheads for capitalists who rent land from the landlords.

But, given the financial sector’s concentration in London and its success in privatising gains and socialising losses, it’s the rest of the country that has had to bail out the City, while its rescuers have lost out. In geographical terms, the majority of the country’s population cannot afford to continue to transfer wealth to the metropolis.124 Martin Wolf of the Financial Times was equally robust in his condemnation of the financial sector: ‘The UK has a strategic nightmare: it has a strong comparative advantage in the world’s most irresponsible industry.’ The influence of the sector, with its ‘light-touch’ approach, was ‘surely malign’. Echoing John Gieve’s less-appealing avian metaphor, he wrote that Britain needs to ask itself a ‘painful question: how should the country manage the cuckoo sitting in its nest?’


The Old Patagonian Express by Paul Theroux

anti-communist, Atahualpa, company town, David Ricardo: comparative advantage, Francisco Pizarro, it's over 9,000, Khyber Pass, Mahatma Gandhi, Maui Hawaii, place-making, Ralph Waldo Emerson, transcontinental railway

And Laredo required the viciousness of its sister-city to keep its own churches full. Laredo had the airport and the churches, Nuevo Laredo the brothels and basket-factories. Each nationality had seemed to gravitate to its own special area of competence. This was economically-sound thinking; it followed to the letter the Theory of Comparative Advantage, outlined by the distinguished economist, David Ricardo (1772-1823). At first glance, this looked like the typical sort of mushroom-and-dunghill relationship that exists at the frontiers of many unequal countries. But the longer I thought about it the more Laredo seemed like all of the United States, and Nuevo Laredo all of Latin America.


pages: 653 words: 155,847

Energy: A Human History by Richard Rhodes

Albert Einstein, animal electricity, California gold rush, Cesare Marchetti: Marchetti’s constant, Copley Medal, dark matter, David Ricardo: comparative advantage, decarbonisation, demographic transition, Dmitri Mendeleev, Drosophila, Edmond Halley, energy transition, Ernest Rutherford, Fellow of the Royal Society, flex fuel, Ford Model T, Garrett Hardin, gentrification, Great Leap Forward, Ida Tarbell, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the steam engine, invisible hand, Isaac Newton, James Watt: steam engine, joint-stock company, Menlo Park, Michael Shellenberger, Mikhail Gorbachev, new economy, nuclear winter, off-the-grid, oil rush, oil shale / tar sands, oil shock, peak oil, Ralph Nader, Richard Feynman, Ronald Reagan, selection bias, Simon Kuznets, tacit knowledge, Ted Nordhaus, The Rise and Fall of American Growth, Thomas Malthus, Thorstein Veblen, tontine, Tragedy of the Commons, uranium enrichment, urban renewal, Vanguard fund, working poor, young professional

“The man in the street in the 1790s,” Wrigley argues, “would be in no doubt about the occurrence of a revolution across the Channel in France, but he would have been astonished to learn that he was living in the middle of what future generations would also term a revolution.” Nor was the man in the street the only person in denial, Wrigley adds. “The three greatest of the framers of classical economics, Adam Smith, Thomas Malthus, and David Ricardo, not only were equally unaware of it, but were unanimous in dismissing the possibility of what later generations came to term an industrial revolution.”I14 Wagonways and railways extending to and from canals were numerous by 1800. A few railways hauling coal, like the Merthyr Tramroad, bypassed canals where traffic was heavy.

So the directors decided to stage a contest: a substantial prize of £500 (today £40,000, or $57,000) for the locomotive engine hauling freight and passengers that delivered the best time on a prescribed course. One of the expert engineers advising them, James Walker, suggested that the course might be at Rainhill, a village about ten miles east of Liverpool on the new Liverpool & Manchester line. There were stationary engines at Rainhill, Walker advised, that would “enable you to judge of the comparative advantages of the two systems.”60 The directors agreed. On 25 April 1829 they published a list of “Stipulations & Conditions” for the Rainhill trials. First on the list was a requirement that the “engine must effectually consume its own smoke.”61 Black, sulfurous coal smoke blowing across their lands had offended the rural gentry in particular.


How to Be a Liberal: The Story of Liberalism and the Fight for Its Life by Ian Dunt

4chan, Alan Greenspan, Alfred Russel Wallace, bank run, battle of ideas, Bear Stearns, Big bang: deregulation of the City of London, Boris Johnson, bounce rate, Brexit referendum, British Empire, Brixton riot, Cambridge Analytica, Carmen Reinhart, centre right, classic study, David Ricardo: comparative advantage, disinformation, Dominic Cummings, Donald Trump, eurozone crisis, experimental subject, fake news, feminist movement, Francis Fukuyama: the end of history, full employment, Glass-Steagall Act, Growth in a Time of Debt, illegal immigration, invisible hand, John Bercow, Kenneth Rogoff, liberal world order, low interest rates, Mark Zuckerberg, mass immigration, means of production, Mohammed Bouazizi, Northern Rock, old-boy network, Paul Samuelson, Peter Thiel, Phillips curve, price mechanism, profit motive, quantitative easing, recommendation engine, road to serfdom, Ronald Reagan, Saturday Night Live, Scientific racism, Silicon Valley, Silicon Valley billionaire, Steve Bannon, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Winter of Discontent, working poor, zero-sum game

Afterwards, she led a delegation of women to his statue in Embankment, and laid a wreath in his memory. The battle over gender also had to be fought on economics. Taylor and Mill looked at liberalism’s effort to address the property question and found it to be insufficient. The fact it came from them was surprising. Mill’s father had supported Adam Smith’s theories. David Ricardo, an early classical economist, had been a regular visitor at the family home. For most of his life, John Stuart Mill had accepted the basic maxims of this school of thought: the sanctity of private property, the drive of human self-interest, and the idea that competition was the most efficient way of increasing the wealth of a country.

And in fact they didn’t even know what messages other people were getting. The idea of a common policy debate, with commonly accepted facts, started to disappear. These techniques were deployed amid a political debate which had already deteriorated in the face of the identity war. The referendum campaign was never really about the EU or its comparative advantages and disadvantages, any more than the Dreyfus Affair was about the evidence of a soldier’s guilt. It was a symbolic culture war in which information was processed by virtue of whether it corresponded to someone’s tribal identity. On 16th June, hours after Farage’s Breaking Point poster had been unveiled, events reached a tragic crescendo.


pages: 7,371 words: 186,208

The Long Twentieth Century: Money, Power, and the Origins of Our Times by Giovanni Arrighi

anti-communist, Asian financial crisis, barriers to entry, Bretton Woods, British Empire, business climate, business logic, business process, classic study, colonial rule, commoditize, Corn Laws, creative destruction, cuban missile crisis, David Ricardo: comparative advantage, declining real wages, deindustrialization, double entry bookkeeping, European colonialism, Fairchild Semiconductor, financial independence, financial intermediation, floating exchange rates, gentrification, Glass-Steagall Act, Great Leap Forward, income inequality, informal economy, invisible hand, joint-stock company, Joseph Schumpeter, Kōnosuke Matsushita, late capitalism, London Interbank Offered Rate, means of production, Meghnad Desai, military-industrial complex, Money creation, money: store of value / unit of account / medium of exchange, new economy, offshore financial centre, oil shock, Peace of Westphalia, post-Fordism, profit maximization, Project for a New American Century, RAND corporation, reserve currency, scientific management, spice trade, Strategic Defense Initiative, Suez canal 1869, the market place, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, trade route, transaction costs, transatlantic slave trade, transcontinental railway, upwardly mobile, vertical integration, Yom Kippur War

While the organization of world commodity markets, world capital markets, and world currency markets under the aegis of the gold standard gave an unparalleled momentum to the mechanisms of markets, a deep-seated movement sprang into being to resist the pernicious effects of a market-controlled economy. (Polanyi 1957: 76) Polanyi traces the origins of this double movement to the rise in Britain, under the influence of David Ricardo, of the utopian belief “in man’s salvation through the self-regulating market.” Conceived in pre-industrial times as a mere penchant for non-bureaucratic methods of government, this belief assumed evangelical fervor after the industrial revolution in Britain took off, where in the 1820s it came to stand for its three classical THE LONG TWENTIETH CENTURY 265 tenets: “that labor should find its price on the market; that the creation of money should be subject to an automatic mechanism; that goods should be free to flow from country to country without hindrance or preference; in short, for a labor market, the gold standard, and free trade” (Polanyi 1957:135) In the 1830s and 1840s the liberal crusade for free markets resulted in a series of legislative Acts aimed at repealing restrictive regulations.

On the contrary, it was strictly limited by their ability to appropriate the benefits of world commerce, of settler colonialism, and of capitalist slavery, and to turn these benefits into adequate rewards for the entrepreneurship and productive efforts of their metropolitan subjects (cf. Tilly 1990: 82-3). In breaking out of these limits British rulers had a decisive comparative advantage over all their competitors, the French included. This was geopolitical, and resembled the comparative advantage of Venice at the height of its power: 52 THE LONG TWENTIETH CENTURY Both in overseas trade and in naval strength, Britain gained supremacy, favored, like Venice, by two interacting factors: her island position and the new role which fell into her hands, the role of intermediary between two worlds.

The territorialist and the capitalist logics of power (TMT' and MTM ') thus cross-fertilized and sustained one another. The recycling of imperial tribute extracted from the colonies into capital invested all over the world enhanced London’s comparative advantage as a world financial center 1/is-it-2/is competing centers such as Amsterdam and Paris (cf. Jenks 1938). This comparative advantage made London the natural home of /mutefimmce — a closely knit body of cosmopolitan financiers whose global networks were turned into yet another instrument of British governance of the interstate system: Finance . . . acted as a powerful moderator in the councils and policies of a number of smaller sovereign states.


pages: 540 words: 168,921

The Relentless Revolution: A History of Capitalism by Joyce Appleby

1919 Motor Transport Corps convoy, agricultural Revolution, Alan Greenspan, An Inconvenient Truth, anti-communist, Asian financial crisis, asset-backed security, Bartolomé de las Casas, Bear Stearns, Bernie Madoff, Bretton Woods, BRICs, British Empire, call centre, Charles Lindbergh, classic study, collateralized debt obligation, collective bargaining, Columbian Exchange, commoditize, Cornelius Vanderbilt, corporate governance, cotton gin, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, Doha Development Round, double entry bookkeeping, epigenetics, equal pay for equal work, European colonialism, facts on the ground, failed state, Firefox, fixed income, Ford Model T, Ford paid five dollars a day, Francisco Pizarro, Frederick Winslow Taylor, full employment, General Magic , Glass-Steagall Act, Gordon Gekko, Great Leap Forward, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, hiring and firing, Ida Tarbell, illegal immigration, informal economy, interchangeable parts, interest rate swap, invention of movable type, invention of the printing press, invention of the steam engine, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, Jeff Bezos, John Bogle, joint-stock company, Joseph Schumpeter, junk bonds, knowledge economy, land bank, land reform, Livingstone, I presume, Long Term Capital Management, low interest rates, Mahatma Gandhi, Martin Wolf, military-industrial complex, moral hazard, Nixon triggered the end of the Bretton Woods system, PalmPilot, Parag Khanna, pneumatic tube, Ponzi scheme, profit maximization, profit motive, race to the bottom, Ralph Nader, refrigerator car, Ronald Reagan, scientific management, Scramble for Africa, Silicon Valley, Silicon Valley startup, South China Sea, South Sea Bubble, special economic zone, spice trade, spinning jenny, strikebreaker, Suez canal 1869, the built environment, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thorstein Veblen, total factor productivity, trade route, transatlantic slave trade, transcontinental railway, two and twenty, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, vertical integration, War on Poverty, working poor, Works Progress Administration, Yogi Berra, Yom Kippur War

The supply of money, the philosopher David Hume maintained, had nothing to do with prosperity, which depended upon real things in the economy, like shops, stores, and factories. Any increase in money would only produce inflation. This became the classic, academic position throughout the nineteenth century, articulated by David Ricardo and enshrined in the elegant writings of John Stuart Mill.20 The Dutch had actually created the first modern banking system, one that pioneered bills of exchange backed by gold in the bank vault. They also started the first stock exchange and worked out a way to lend money on the collateral of real estate, a forerunner of our mortgages.

The importance of these call centers to India can be gleaned from the predominance of work in the service sector of the economy. While the actual number of farmers has declined steadily to 24 percent of the population, the percentage of those in service work has grown to 50 percent. By comparison, China has become the world’s factory with almost 50 percent of its workers in industry. Each country has found its comparative advantage in the world market. And their investment in higher education reflects this difference. Fewer than 1 percent of Chinese men and women have had any college education, compared with 3 percent of Indians, both extremely low numbers for countries that want to be world leaders.39 Both countries have suffered from a brain drain as some of their most talented young people seek better jobs abroad.


Unfinished Empire: The Global Expansion of Britain by John Darwin

Alfred Russel Wallace, British Empire, classic study, colonial rule, Corn Laws, David Ricardo: comparative advantage, European colonialism, financial independence, friendly fire, full employment, imperial preference, Khartoum Gordon, Khyber Pass, Kowloon Walled City, land tenure, mass immigration, Nelson Mandela, open economy, plutocrats, principal–agent problem, quantitative easing, reserve currency, Right to Buy, Scientific racism, South China Sea, special economic zone, spice trade, Suez canal 1869, Suez crisis 1956, The Wealth of Nations by Adam Smith, too big to fail, trade route, transcontinental railway, union organizing

Worse still, restricting the import of cheap food was seen as a double imposition on the fast-growing manufacturing interest: it prevented manufacturers from reducing their costs by lowering wages in line with food prices, and discouraged potential foreign customers, who might sell grain in return, from buying British goods. The great champion of this view was the economist David Ricardo, the inventor of ‘comparative advantage’.48 It was wisest, said Ricardo, to buy what you needed from those who made it most cheaply, and concentrate your resources of labour and capital on what you did best. That would maximize trade and also ‘utility’ – meaning enjoyment and welfare. Thus a combination of geopolitics – the break-up of mercantilist empires – and industrialization gradually destroyed the old rules and the beliefs they were built on.


pages: 651 words: 180,162

Antifragile: Things That Gain From Disorder by Nassim Nicholas Taleb

"World Economic Forum" Davos, Air France Flight 447, Alan Greenspan, Andrei Shleifer, anti-fragile, banking crisis, Benoit Mandelbrot, Berlin Wall, biodiversity loss, Black Swan, business cycle, caloric restriction, caloric restriction, Chuck Templeton: OpenTable:, commoditize, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discrete time, double entry bookkeeping, Emanuel Derman, epigenetics, fail fast, financial engineering, financial independence, Flash crash, flying shuttle, Gary Taubes, George Santayana, Gini coefficient, Helicobacter pylori, Henri Poincaré, Higgs boson, high net worth, hygiene hypothesis, Ignaz Semmelweis: hand washing, informal economy, invention of the wheel, invisible hand, Isaac Newton, James Hargreaves, Jane Jacobs, Jim Simons, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, knowledge economy, language acquisition, Lao Tzu, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, Marc Andreessen, Mark Spitznagel, meta-analysis, microbiome, money market fund, moral hazard, mouse model, Myron Scholes, Norbert Wiener, pattern recognition, Paul Samuelson, placebo effect, Ponzi scheme, Post-Keynesian economics, power law, principal–agent problem, purchasing power parity, quantitative trading / quantitative finance, Ralph Nader, random walk, Ray Kurzweil, rent control, Republic of Letters, Ronald Reagan, Rory Sutherland, Rupert Read, selection bias, Silicon Valley, six sigma, spinning jenny, statistical model, Steve Jobs, Steven Pinker, Stewart Brand, stochastic process, stochastic volatility, synthetic biology, tacit knowledge, tail risk, Thales and the olive presses, Thales of Miletus, The Great Moderation, the new new thing, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Malthus, too big to fail, transaction costs, urban planning, Vilfredo Pareto, Yogi Berra, Zipf's Law

The method of point estimate would assume a Dirac stick at −200, thus underestimating both the expected deficit (−312) and the tail fragility of it. (From Taleb and Douady, 2012). Application: Ricardian Model and Left Tail—The Price of Wine Happens to Vary For almost two hundred years, we’ve been talking about an idea by the economist David Ricardo called “comparative advantage.” In short, it says that a country should have a certain policy based on its comparative advantage in wine or clothes. Say a country is good at both wine and clothes, better than its neighbors with whom it can trade freely. Then the visible optimal strategy would be to specialize in either wine or clothes, whichever fits the best and minimizes opportunity costs.

For instance, the concept of specialization that has obsessed economists since Ricardo (and before) blows up countries when imposed by policy makers, as it makes the economies error-prone; but it works well when reached progressively by evolutionary means, with the right buffers and layers of redundancies. Another case where economists may inspire us but should never tell us what to do—more on that in the discussion of Ricardian comparative advantage and model fragility in the Appendix. The difference between a narrative and practice—the important things that cannot be easily narrated—lies mainly in optionality, the missed optionality of things. The “right thing” here is typically an antifragile payoff. And my argument is that you don’t go to school to learn optionality, but the reverse: to become blind to it.

In the absence of transaction and transportation costs, it is efficient for Britain to produce just cloth, and Portugal to only produce wine. The idea has always attracted economists because of its paradoxical and counterintuitive aspect. For instance, in an article “Why Intellectuals Don’t Understand Comparative Advantage” (Krugman, 1998), Paul Krugman, who fails to understand the concept himself, as this essay and his technical work show him to be completely innocent of tail events and risk management, makes fun of other intellectuals such as S. J. Gould who understand tail events albeit intuitively rather than analytically.


pages: 603 words: 182,781

Aerotropolis by John D. Kasarda, Greg Lindsay

3D printing, air freight, airline deregulation, airport security, Akira Okazaki, Alvin Toffler, An Inconvenient Truth, Asian financial crisis, back-to-the-land, barriers to entry, Bear Stearns, Berlin Wall, big-box store, blood diamond, Boeing 747, book value, borderless world, Boris Johnson, British Empire, business cycle, call centre, carbon footprint, Cesare Marchetti: Marchetti’s constant, Charles Lindbergh, Clayton Christensen, clean tech, cognitive dissonance, commoditize, company town, conceptual framework, credit crunch, David Brooks, David Ricardo: comparative advantage, Deng Xiaoping, deskilling, digital map, disruptive innovation, Dr. Strangelove, Dutch auction, Easter island, edge city, Edward Glaeser, Eyjafjallajökull, failed state, financial engineering, flag carrier, flying shuttle, food miles, Ford Model T, Ford paid five dollars a day, Frank Gehry, fudge factor, fulfillment center, full employment, future of work, Future Shock, General Motors Futurama, gentleman farmer, gentrification, Geoffrey West, Santa Fe Institute, George Gilder, global supply chain, global village, gravity well, Great Leap Forward, Haber-Bosch Process, Hernando de Soto, high-speed rail, hive mind, if you build it, they will come, illegal immigration, inflight wifi, intangible asset, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), intermodal, invention of the telephone, inventory management, invisible hand, Jane Jacobs, Jeff Bezos, Jevons paradox, Joan Didion, Kangaroo Route, Kickstarter, Kiva Systems, knowledge worker, kremlinology, land bank, Lewis Mumford, low cost airline, Marchetti’s constant, Marshall McLuhan, Masdar, mass immigration, McMansion, megacity, megaproject, Menlo Park, microcredit, military-industrial complex, Network effects, New Economic Geography, new economy, New Urbanism, oil shale / tar sands, oil shock, One Laptop per Child (OLPC), peak oil, Pearl River Delta, Peter Calthorpe, Peter Thiel, pets.com, pink-collar, planned obsolescence, pre–internet, RFID, Richard Florida, Ronald Coase, Ronald Reagan, Rubik’s Cube, savings glut, Seaside, Florida, Shenzhen special economic zone , Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, SimCity, Skype, smart cities, smart grid, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, spinning jenny, starchitect, stem cell, Steve Jobs, Suez canal 1869, sunk-cost fallacy, supply-chain management, sustainable-tourism, tech worker, telepresence, the built environment, The Chicago School, The Death and Life of Great American Cities, the long tail, The Nature of the Firm, thinkpad, Thomas L Friedman, Thomas Malthus, Tony Hsieh, trade route, transcontinental railway, transit-oriented development, traveling salesman, trickle-down economics, upwardly mobile, urban planning, urban renewal, urban sprawl, vertical integration, Virgin Galactic, walkable city, warehouse robotics, white flight, white picket fence, Yogi Berra, zero-sum game

It opened up the possibility for international consultations on a day-to-day basis not only between the officials of governments but also between the engineers, controllers, salesmen and strategists of private firms.” These face-to-face encounters were sufficient to begin flattening the world a good three decades before e-mail. A more detailed explication was folded into his description of the “product life cycle,” a modern take on David Ricardo’s nineteenth-century theories of comparative advantage and trade. Vernon’s model charted the path from cradle to grave of the latest and greatest inventions. Beginning life as expensive innovations, they were created by American firms and sold to American customers. Overseas demand begot overseas factories, ostensibly to serve local markets.

Not much bigger, he argued, because beyond a certain point, the drag of managing huge organizations over long distances would offset any advantages of scale. Size mattered, however, if advances in transportation, communication, and management techniques could shrink these distances and di-minish the drag. This is exactly what happened. Emboldened by the Jet Age, companies broke themselves into pieces and spread them around searching for comparative advantage. Given enough telephones, flights, and mainframes, they could put their headquarters in one place, their factories in another, their R & D labs in a third, their back-office file cabinets in a fourth, and their call centers in a fifth. Once they added FedEx to the equation and swapped out their mainframes for PCs, factories left for Mexico (then China), call centers for India, and R & D for Beijing.

And a third of AT&T’s managers are now “postgeographic.” Demographers call this “the distributed workforce.” If Melvin Webber were still alive, he might have tried “employees without propinquity” because we’re acting like the companies we work for, looking to live, play, and pray wherever we see comparable advantage—provided, of course, we can get from here to there. Joel Garreau calls this the “Santa Fe-ing of the World”—“places the entire point of which is face-to-face contact”— although the test bed for his hypothesis is actually sixty miles down the road. In searching for an upper limit to the sizes of salvageable aerotropoli, Mesa del Sol isn’t the largest infill project in the West.


pages: 687 words: 189,243

A Culture of Growth: The Origins of the Modern Economy by Joel Mokyr

Andrei Shleifer, barriers to entry, Berlin Wall, business cycle, classic study, clockwork universe, cognitive dissonance, Copley Medal, creative destruction, David Ricardo: comparative advantage, delayed gratification, deliberate practice, Deng Xiaoping, Edmond Halley, Edward Jenner, epigenetics, Fellow of the Royal Society, financial independence, flying shuttle, framing effect, germ theory of disease, Haber-Bosch Process, Herbert Marcuse, hindsight bias, income inequality, information asymmetry, invention of movable type, invention of the printing press, invisible hand, Isaac Newton, Jacquard loom, Jacques de Vaucanson, James Watt: steam engine, Johannes Kepler, John Harrison: Longitude, Joseph Schumpeter, knowledge economy, labor-force participation, land tenure, law of one price, Menlo Park, moveable type in China, new economy, phenotype, price stability, principal–agent problem, rent-seeking, Republic of Letters, Robert Solow, Ronald Reagan, seminal paper, South Sea Bubble, statistical model, survivorship bias, tacit knowledge, the market place, the strength of weak ties, The Structural Transformation of the Public Sphere, The Wealth of Nations by Adam Smith, transaction costs, ultimatum game, World Values Survey, Wunderkammern

In the age of mercantilism, which was receding slowly but was still very much in force by the early nineteenth century, it was believed above all that employment and jobs were a central responsibility of ecnomic policy and thus often felt ambivalent about labor-saving technological progress because it was feared that such advances might lead to unemployment (Berg, 1980). Even David Ricardo, one of the great prophets of liberal political economy, expressed a deep concern that technological progress could throw workers out of work and that the “discovery and use of machinery may be attended with a diminution of gross produce; and whenever this is the case, it will be injurious to the labouring class as some of their number will be thrown out of employment” (Ricardo, [1821] 1971, p. 382).

In nearly all cases, members of the Republic of Letters cared little about the religion of the originator of an intellectual innovation. 12 Mersenne tried to persuade himself that both Galileo and the Catholic Church were right, and he famously stated that there were 50,000 atheists in Paris in 1630, to which a wag responded that his circle of friends must have been quite wide (Caton, 1988, p. 78). 13 Kuhn feels that after Newton, British mathematics has no figure that can compare to such Continental figures as Euler, the Bernoullis, and Laplace, while Continental experimentalists comparable to the best British ones such as Boyle, Black, Hales, and Priestley are absent before 1780 (Kuhn, 1976, p. 25). This seems, however, more of a matter of minor differences in comparative advantage than of essence, and in the end modern chemistry, the ultimate Baconian triumph, was mostly a Continental product. It was France that produced Lavoisier and his students such as Berthollet and Chaptal, though the contributions of Joseph Priestley and John Dalton illustrate the transnational character of the project. 14 For a recent restatement of this view, see Jacob and Stewart (2004, p. 119). 15 The French Académie was in large part patterned after the Académie Française, founded in 1635, which was in charge of setting rules for the French language under the auspices of Cardinal Richelieu.


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Alan Greenspan, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, behavioural economics, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial engineering, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, low interest rates, market fundamentalism, means of production, military-industrial complex, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, Phillips curve, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, synthetic biology, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

He argued that the repayment of the debt would require higher future taxes, and that expectation would reduce the current private spending of rational individuals. The conclusion was that the bonds did not represent real net wealth and that fiscal deficits had less of an expansionary impact on demand than Keynesian economists assumed. Barro’s argument was conceptually similar to the hypothesis that had been suggested much earlier by David Ricardo, in chapter XVII of his book ([1817] 1973). Ricardo had advanced a hypothesis that was plausible for his time, when taxes were paid by very few rich and well-informed individuals, and public bonds, which were largely held by the same people, were expected to be repaid by taxing, in the future, the same individuals who had bought the bonds.

In some sense this faith represented a return to the faith that classical economists had had in laissez-faire and the power of the market, a faith that had characterized economic thinking in the second half of the nineteenth century and the early part of the twentieth century. In recent decades this faith had been progressively extended, beyond national markets, to the world market by pro-globalization enthusiasts. Some economists came to believe that the invisible hand could operate globally. A belief that a free world market would exploit countries’ comparative advantage and, as a consequence, would allow much greater specialization for the world as a whole, and would increase productivity and the welfare of all the world’s citizens. Free trade and the liberalization of capital movements were enthusiastically supported, in spite of some doubters and continued opposition by labor unions.


pages: 695 words: 194,693

Money Changes Everything: How Finance Made Civilization Possible by William N. Goetzmann

Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, banking crisis, Benoit Mandelbrot, Black Swan, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, Cass Sunstein, classic study, collective bargaining, colonial exploitation, compound rate of return, conceptual framework, Cornelius Vanderbilt, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, delayed gratification, Detroit bankruptcy, disintermediation, diversified portfolio, double entry bookkeeping, Edmond Halley, en.wikipedia.org, equity premium, equity risk premium, financial engineering, financial independence, financial innovation, financial intermediation, fixed income, frictionless, frictionless market, full employment, high net worth, income inequality, index fund, invention of the steam engine, invention of writing, invisible hand, James Watt: steam engine, joint-stock company, joint-stock limited liability company, laissez-faire capitalism, land bank, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, means of production, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, new economy, passive investing, Paul Lévy, Ponzi scheme, price stability, principal–agent problem, profit maximization, profit motive, public intellectual, quantitative trading / quantitative finance, random walk, Richard Thaler, Robert Shiller, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, spice trade, stochastic process, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, time value of money, tontine, too big to fail, trade liberalization, trade route, transatlantic slave trade, tulip mania, wage slave

Eventually, a great recession in the industrialized economies would stir the proletariat to seize the means of production from the capitalists. In the meantime, capitalism would relentlessly and systematically drain the life blood of the working class. KAPITAL IN A NUTSHELL In Marx’s world, the value of everything is a function of the labor expended to create it. Marx adapted this view from the work of David Ricardo—a brilliant and influential political economist of the early nineteenth century who proposed a theory of value based on human input to the production process. In Marx’s reformulation of Ricardian theory, money is bad, because it conceals the amount of labor required for the production of a given commodity.

As with Venice and the Italian city-states, Toulouse’s political history during the twelfth and thirteenth centuries was intertwined with its financial history. However, financial development in Toulouse took a very different turn than in the northern Italian republics. Its evolution is not bound up with maritime trade but with a very different enterprise: the milling of grain. If Genoa and Venice had the comparative advantage of access to the sea, Toulouse’s advantage was access to the Garonne River. FIGURE 22. View of the Bazacle mill on the Garonne River today. A VISIT TO THE BAZACLE The campus of the Toulouse School of Social Sciences stands just outside the bounds of the ancient city wall, fronting a picturesque canal.


Understanding Power by Noam Chomsky

anti-communist, Ayatollah Khomeini, Berlin Wall, Bretton Woods, British Empire, Burning Man, business climate, business cycle, cognitive dissonance, continuous integration, Corn Laws, cuban missile crisis, dark matter, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, disinformation, European colonialism, Fall of the Berlin Wall, feminist movement, gentrification, global reserve currency, guns versus butter model, Howard Zinn, junk bonds, Korean Air Lines Flight 007, liberation theology, Mahatma Gandhi, Mikhail Gorbachev, military-industrial complex, Monroe Doctrine, mortgage tax deduction, Nixon triggered the end of the Bretton Woods system, Paul Samuelson, Ralph Nader, reserve currency, Ronald Reagan, Rosa Parks, school choice, Strategic Defense Initiative, strikebreaker, structural adjustment programs, systems thinking, the scientific method, The Wealth of Nations by Adam Smith, union organizing, wage slave, women in the workforce

Malthus gets kind of a bad press, actually: he’s singled out as the guy who said that people should just be left to starve if they can’t support themselves—but really that was pretty much the line of classical economics in general. In fact, Malthus was one of the founders of classical economics, right alongside of guys like David Ricardo. Malthus’s point was basically this: if you don’t have independent wealth, and you can’t sell your labor on the market at a level at which you can survive, then you have no right being here—go to the workhouse prison or go somewhere else. And in those days, “go somewhere else” meant go to North America, or to Australia, and so on.

And back then, capital was indeed immobile—first because “capital” primarily meant land, and you can’t move land, and also because to the extent that there was investment, it was very local: like, you didn’t have communications systems that allowed for easy transfers of money all around the world, like we do today. So in the early nineteenth century, the assumption that labor is mobile and capital is immobile was more or less realistic—and on the basis of that assumption, you could try to prove things about comparative advantage and all this stuff you learn in school about Portugal and wine and so on [Ricardo’s most famous hypothetical for demonstrating how free trade could be mutually advantageous to participating countries involved England concentrating on selling cloth and Portugal wine]. Incidentally, if you want to know how well those theorems actually work, just compare Portugal and England after a hundred years of trying them out—growing wine versus industrializing as possible modes of development.

Take the fact that there is not a single case on record in history of any country that has developed successfully through adherence to “free market” principles: none. Certainly not the United States. I mean, the United States has always had extensive state intervention in the economy, right from the earliest days—we would be exporting fur right now if we were following the principles of comparative advantage. Look, the reason why the industrial revolution took off in places like Lowell and Lawrence is because of high protectionist tariffs the U.S. government set up to keep out British goods. And the same thing runs right up to today: like, we would not have successful high-tech industry in the United States today if it wasn’t for a huge public subsidy to advanced industry, mostly through the Pentagon system and N.A.S.A. and so on—that doesn’t have the vaguest relation to a “free market.”


pages: 556 words: 46,885

The World's First Railway System: Enterprise, Competition, and Regulation on the Railway Network in Victorian Britain by Mark Casson

banking crisis, barriers to entry, Beeching cuts, British Empire, business cycle, classic study, combinatorial explosion, Corn Laws, corporate social responsibility, David Ricardo: comparative advantage, Garrett Hardin, gentrification, high-speed rail, independent contractor, intermodal, iterative process, joint-stock company, joint-stock limited liability company, Kickstarter, knowledge economy, linear programming, low interest rates, megaproject, Network effects, New Urbanism, performance metric, price elasticity of demand, railway mania, rent-seeking, strikebreaker, the market place, Tragedy of the Commons, transaction costs, vertical integration

General Charles Pasley FRS (as he later became) was a young military engineer who had served in Spain, Holland, and throughout the Mediterranean before he joined the Board of Trade. He lectured at a military college and was responsible for a range of innovations in telegraphy, mining, pontooning, and explosives. George Porter was an economist, married to the sister of David Ricardo, MP (the classical economic theorist who was an opponent of Malthus and an advocate of free trade). He was an established Wgure with a high personal reputation at the time that he served on the Committee. He was the author of a monumental work on The Progress of the Nation, in its Social and Economic Relations from the Beginning of the 19th Century to the Present Day, which Wrst appeared in 1836.

Victorian entrepreneurs may well have been slow to recognize the magnitude of scale economies in heavy industries, and to appreciate the commercial benefits of organized industrial research in well-equipped laboratories. But in a small and increasingly crowded country, this was not where national comparative advantage lay. The late Victorian economy is an example of what is now called the knowledgebased economy. Its comparative advantage lay increasingly in the export of knowledge-intensive services, such as public administration, trade, shipping, finance, and engineering consultancy. These services were mainly delivered in packages relating to major projects for colonial and overseas development.

By increasing speeds, steam power enlarged the range of traffic that could be transported—for example, perishable goods—and also stimulated existing demands—especially for passenger travel. As a result, railways began to specialize in carrying a distinctive type of traffic, in which they had a strong comparative advantage; this had important implications for the way that the railway network needed to be configured. The second part of this chapter discusses the techniques that were used to derive the counterfactual. They comprise a set of nine heuristic principles which achieve reasonably direct linkages between major traffic centres with the lowest possible route mileage.


pages: 1,202 words: 424,886

Stigum's Money Market, 4E by Marcia Stigum, Anthony Crescenzi

accounting loophole / creative accounting, Alan Greenspan, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Black-Scholes formula, book value, Brownian motion, business climate, buy and hold, capital controls, central bank independence, centralized clearinghouse, corporate governance, credit crunch, Credit Default Swap, cross-border payments, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, disintermediation, distributed generation, diversification, diversified portfolio, Dutch auction, financial innovation, financial intermediation, fixed income, flag carrier, foreign exchange controls, full employment, Glass-Steagall Act, Goodhart's law, Greenspan put, guns versus butter model, high net worth, implied volatility, income per capita, intangible asset, interest rate derivative, interest rate swap, inverted yield curve, junk bonds, land bank, large denomination, locking in a profit, London Interbank Offered Rate, low interest rates, margin call, market bubble, market clearing, market fundamentalism, Money creation, money market fund, mortgage debt, Myron Scholes, offshore financial centre, paper trading, pension reform, Phillips curve, Ponzi scheme, price mechanism, price stability, profit motive, proprietary trading, prudent man rule, Real Time Gross Settlement, reserve currency, risk free rate, risk tolerance, risk/return, Savings and loan crisis, seigniorage, shareholder value, short selling, short squeeze, tail risk, technology bubble, the payments system, too big to fail, transaction costs, two-sided market, value at risk, volatility smile, yield curve, zero-coupon bond, zero-sum game

TABLE 19.1 The Double A-Triple B swap, based on comparative advantage, produces a savings pie of 35 bp, which the two split: 25 bp to Double A, 10 bp to Triple B A Free Lunch The example we have just worked through, which, however the deal is worded, is the economic equivalent of Double A and Triple B selling each other their respective liabilities at prices that make the deal advantageous to both, seems to violate the “no-free-lunch” principle so dear to the heart of every economist. Actually, it does not. In the nineteenth century, a famous British economist, David Ricardo, demonstrated that even if country A enjoys an absolute cost advantage over country B in the production of both wine and cheese, if A’s absolute cost advantage over B is greater in wine than in cheese, then it’s possible for both A and B to be better off (drink more wine, eat more cheese) if A specializes in the production of wine (in which it has a comparative cost advantage), B specializes in the production of cheese (in which it has a comparative cost advantage), and A and B trade: A’s wine for B’s cheese.

What applies to goods also applies to money. Double A has a comparative advantage over Triple B in the borrowing of fixed-rate money, whereas Triple B has a comparative advantage over Double A in the borrowing of floating-rate money. If each borrower specializes in borrowing what it can borrow best, then each reduces its aggregate borrowing costs by the 47.5-bp advantage that Double A enjoys in the fixed-rate market minus the 12.5-bp disadvantage that Triple B suffers in the floating-rate market. Subtracting 12.5 bp from 47.5 bp, we get 35 bp. By borrowing along lines of their respective comparative advantages and then trading via a swap the liabilities thus created, Double A and Triple B create a 35-bp pie of savings that they can carve up between themselves.

This example, except for the maturities of the liabilities involved, is no different from the Double A-Triple B example presented early in this chapter. Double A, as a top-rated bank, has a comparative advantage in issuing fixed rate, but wants lower-cost, floating-rate money. LBO has a comparative advantage in issuing floating rate, but wants to reduce its interest-rate risk. Each borrows according to its comparative advantage; Morgan intermediates a swap between the two; and everyone walks away happy. This is about as classic an example of why the swap market exists as one can find. In this example, Morgan of course is running a swap book.


pages: 1,213 words: 376,284

Empire of Things: How We Became a World of Consumers, From the Fifteenth Century to the Twenty-First by Frank Trentmann

Abraham Maslow, Airbnb, Alan Greenspan, Anton Chekhov, Ayatollah Khomeini, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, bread and circuses, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, carbon footprint, Cass Sunstein, choice architecture, classic study, clean water, collaborative consumption, collective bargaining, colonial exploitation, colonial rule, Community Supported Agriculture, company town, critique of consumerism, cross-subsidies, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, equity premium, Fall of the Berlin Wall, Fellow of the Royal Society, financial exclusion, fixed income, food miles, Ford Model T, full employment, gentrification, germ theory of disease, global village, Great Leap Forward, haute cuisine, Herbert Marcuse, high net worth, income inequality, index card, informal economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, it's over 9,000, James Watt: steam engine, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kitchen Debate, knowledge economy, labour mobility, Les Trente Glorieuses, libertarian paternalism, Livingstone, I presume, longitudinal study, mass immigration, McMansion, mega-rich, Michael Shellenberger, moral panic, mortgage debt, Murano, Venice glass, Naomi Klein, New Urbanism, Paradox of Choice, Pier Paolo Pasolini, planned obsolescence, pneumatic tube, post-industrial society, Post-Keynesian economics, post-materialism, postnationalism / post nation state, profit motive, prosperity theology / prosperity gospel / gospel of success, public intellectual, purchasing power parity, Ralph Nader, rent control, retail therapy, Richard Thaler, Right to Buy, Ronald Reagan, school vouchers, scientific management, Scientific racism, Scramble for Africa, seminal paper, sharing economy, Silicon Valley, Skype, stakhanovite, Ted Nordhaus, the built environment, the market place, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, trade liberalization, trade route, transatlantic slave trade, union organizing, upwardly mobile, urban planning, urban sprawl, Washington Consensus, women in the workforce, working poor, young professional, zero-sum game

‘When once the workers have unsatisfied desires for something different from idleness they are on the road to efficiency where each step taken makes the next easier.’76 That idea that material desire prompted people to be more industrious had been commonplace in the eighteenth century, as we have seen. It was only now, though, in the late nineteenth century, that an economic theory of consumption began to emerge. Adam Smith’s famous remark that ‘consumption is the sole end and purpose of all production’ was about all he had to say on the topic. For his successors, David Ricardo and John Stuart Mill, economics was about land and production. In the 1840s, the extreme liberal Frédéric Bastiat in France raised the flag for the consumer in his crusade for ‘free exchange’; Bastiat’s dying words in 1850 supposedly were ‘we must learn to look at everything from the point of view of the consumer.’

In addition, the barter regime of the Soviet bloc placed a premium on food and raw materials at the expense of technological innovation. The more developed members such as the GDR and Czechoslovakia were punished twice over. They had to trade their undervalued industrial products for overvalued food and raw materials.177 The law of comparative advantage was turned on its head. Incapable of delivering on big white goods, the GDR in 1959 shifted its focus to the ‘thousand little things needed in daily life’ like screws, sewing needles and spare parts. Delegations travelled to Sweden and West Berlin to study dry cleaning and DIY.178 If socialist consumers wanted things, they would need to learn to repair them.


pages: 1,060 words: 265,296

Wealth and Poverty of Nations by David S. Landes

Admiral Zheng, affirmative action, agricultural Revolution, Atahualpa, Ayatollah Khomeini, Bartolomé de las Casas, book value, British Empire, business cycle, Cape to Cairo, classic study, clean water, colonial rule, Columbian Exchange, computer age, David Ricardo: comparative advantage, deindustrialization, deskilling, European colonialism, Fellow of the Royal Society, financial intermediation, Francisco Pizarro, germ theory of disease, glass ceiling, high-speed rail, illegal immigration, income inequality, Index librorum prohibitorum, interchangeable parts, invention of agriculture, invention of movable type, invisible hand, Isaac Newton, it's over 9,000, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Just-in-time delivery, Kenneth Arrow, land tenure, lateral thinking, Lewis Mumford, mass immigration, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, Monroe Doctrine, Murano, Venice glass, new economy, New Urbanism, North Sea oil, out of africa, passive investing, Paul Erdős, Paul Samuelson, Philip Mirowski, rent-seeking, Right to Buy, Robert Solow, Savings and loan crisis, Scramble for Africa, Simon Kuznets, South China Sea, spice trade, spinning jenny, Suez canal 1869, The Wealth of Nations by Adam Smith, trade route, transaction costs, transatlantic slave trade, Vilfredo Pareto, zero-sum game

In the fifteenth century its population numbered about 1 million and its chief products and exports consisted o f wine (port and, increasingly, madeira—rich, head-turning beverages) and, rising fast, cane sugar. Had the Portuguese of that era been able to anticipate the now classi­ cal analysis of comparative advantage by David Ricardo, they would have continued on this sensible path, minding their own business and trading their natural produce for the manufactures of other lands. In­ stead, they jumped the traces o f rationality and turned their land into a platform for empire. Portugal's far-flung network of dominion would come to stretch three quarters o f the way around the world, from Brazil in the west to the Spice Islands and Japan in the Far East.

Still others, following the a priori reasoning of classical economic theory, have ar­ gued that it really made no difference to other countries that Britain had moved ahead in industrial technology and productivity. Each na­ tion, after all, could and would follow its own comparative advantage, could and would buy what it needed on the most favorable terms.* So what if Britain made better and cheaper iron and steel? One could * A w o r d a b o u t t h e t e r m comparative advantage, w h i c h w e shall u s e a g a i n o n o t h e r o c c a s i o n s . C o n t r a r y t o a p p e a r a n c e , it d o e s n o t m e a n t h e ability t o p r o d u c e s o m e t h i n g at l o w e r c o s t t h a n s o m e o t h e r p r o d u c e r .

As history has shown, some countries will do much better than others. The primary reason is that comparative advantage is not the same for all, and that some activities are more lucrative and productive than others. (A dollar is not a dollar is not a dollar.) They require and yield greater gains in knowledge and know-how, within and without. —The export and import o f jobs is not the same as trade in com­ modities. The two may be fungible in theory, but the human im­ pact is very different. —Comparative advantage is not fixed, and it can move for or against. —It always helps to attend and respond to the market.


pages: 1,993 words: 478,072

The Boundless Sea: A Human History of the Oceans by David Abulafia

Admiral Zheng, Alfred Russel Wallace, Bartolomé de las Casas, British Empire, colonial rule, computer age, Cornelius Vanderbilt, dark matter, David Ricardo: comparative advantage, discovery of the americas, domestication of the camel, Easter island, Edmond Halley, Eratosthenes, European colonialism, Fellow of the Royal Society, John Harrison: Longitude, joint-stock company, Kickstarter, land reform, lone genius, Malacca Straits, mass immigration, Maui Hawaii, megacity, new economy, out of africa, p-value, Peace of Westphalia, polynesian navigation, Scramble for Africa, South China Sea, spice trade, Suez canal 1869, Suez crisis 1956, trade route, transaction costs, transatlantic slave trade, transcontinental railway, undersea cable, wikimedia commons, yellow journalism

He was a Scot and a graduate in medicine from Edinburgh University, but when he took passage out East as surgeon’s mate on an East Indiaman he began to realize how easy it would be to make his fortune out of the spice trade; he became active in the country trade between Bombay and Canton.19 This enthusiasm for free trade had already spurred Raffles on to the refoundation of Singapore; and it was rooted in the thinking of the British pioneers of economics, the Scot Adam Smith and the Sephardic Jew David Ricardo. Among the readers of both these authors was James Matheson, who had their books sent to him in China and became an apostle for free trade, a philosophy that he and his colleague William Jardine took to an extreme. Jardine carried his Calvinist principles to the furthest limit, so that his office contained a single chair, and anyone who came to see him had to remain standing, which meant that business was conducted rapidly.20 Facing these difficulties, the EIC turned to the trade in opium.

This traffic was rendered much easier by the domestication of the camel, whose date is disputed but may have been achieved, at least in parts of Arabia, by 1000 BC .37 Competition between land and sea routes to south Arabia and the facing shores of Africa would last many centuries. It was not always clear what comparative advantage a sea route offered those seeking frankincense and myrrh. The Red Sea would only be used intensively when ships regularly sailed south beyond the fabled lands of Punt, Sheba and Ophir into the wide expanses of the ocean, and that would only happen when the attractions of the Indies and of the shores of Africa became clear.