Re: The Economy IS The Colateral Damage of War on Terrorism.

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Paul Davidson has pointed out many times on this list that Say's Law without full employment is inoperative.  Comparative
advantage without global full employment is merely Say's Law internationalized.  I think that this insight and his
conceptual view on liquidity are the two things, among others, I have greatly benefitted from Paul and am in full agreement
with him.  The empirical evidence for them are now very visible.

Henry C.K. Liu

Kazuhiro Kurose wrote:

> The theory of Ricardo's comparative advantage has been thought of as representative trade theory by both mainstream
> economists and heterodox economists in which post Keynesians are also included. I think, however, that the former has
> much stronger linkage to Ricardo's theory than the latter has. Because both the former has the same theoretical basis as
> Ricardo, that is, so-called Say's law. Because of the law, both Ricardo and mainstream can think of trade equilibrium
> condition as being equivalent to macroeconomic equilibrium condition. In other words, they deny the possibility of
> unemployment as the result of open economy. Post Keynesians, who think that macroeconomic equilibrium condition is never
> naturally and necessarily achieved, should not put much emphasis on the benefit from international trade. Because we can
> get the great efficiency from international trade only if the condition that loss of effective demand is not arisen is
> satisfied.
>
>  **************************************
>   Kazuhiro Kurose
>   Graduate School of Economics and Business
>   Administration, Hokkaido University
>   Kita 9 Nishi 7, Kita-Ku, Sapporo, Japan
>   060-0809
>     TEL: +81-11-716-2111 ex:2786
>  **************************************
> ----- Original Message -----
> ??? : "Rakesh Bhandari" <rakeshb@xxxxxxxxxxxx>
> ?? : <pkt@xxxxxxxxxxxxxxxx>
> Cc: <rosserjb@xxxxxxx>
> ???? : 2001?12?9? 11:05
> ?? : Re: The Economy IS The Colateral Damage of War on Terrorism.
>
> > >
> > >The arguments for free trade remain fairly
> > >strong, and I would assert that the burden of
> > >proof is on those who favor protectionism in
> > >any particular case, with a strong case needing
> > >to be made.
> >
> > Barkley, let me take Ricardo's famous example and then modify it so
> > that the entries are not Ricardian labor costs of production but
> > rather Marxian cost prices (constant + variable capital) and prices
> > of production (cost price*average rate of profit or kr)
> >
> >   I want to show that since capitalists will make decisions in terms
> > of cost prices or production they may create a pattern of
> > specialization that actually increases the burden of labor.
> >
> > That is, Ricardo's case for free trade (that is optimal from the
> > point of view of minimizing social labor time) depends on his
> > assumption that
> > SUPPLY PRICES ARE PROPORTIONAL TO THE LABOR COSTS OF PRODUCTION
> >
> >
> > RICARDO'S LABOR SCHEME
> >
> >           Port          Eng
> > Wine     80            120
> > Cloth    90            100
> >
> >
> > So those are labor hours in Ricardo's example. But let's deal with
> > what the capitalists see, i.e. their costs.
> >
> > So assuming the same labor content as above, I introduce  composition
> > of capitals and a uniform rate of exploitation of 100%.
> >
> > MY COST PRICE SCHEME
> >
> >               Port               Eng
> > Wine     70 (60c+10v)        75 (30c+45v)
> > Cloth    60 (30c+30v)        80 (60c+20v)
> >
> >
> > So if the variable capital had been doubled for each entry above,
> > i.e., the rate of exploitation was zero, then the entries would be
> > identical to Ricardo's example.
> >
> > Now let us form prices of production in each nation on the basis of
> > those cost prices (that is, distribute the mass of surplus value in
> > each nation so that the each capital within the same nation gets the
> > same return, i.e., both Portuguese capitalists enjoy the same rate of
> > return and both English capitalists enjoy the same rate of return.).
> > You will see of course that the sum of the prices of production in
> > Portugal equals the sum of Ricardian labor values in Portugal. And
> > the same for England.
> >
> > MY PRICE OF PRODUCTION SCHEME
> >
> >           Port          Eng
> > Wine     91            106
> > Cloth    79            114
> >
> >
> > Ricardo assumed  that given Portugal's dual absolute advantage, she
> > will initially export both cloth and wine. But if paid in gold, then
> > gold flows out of England, which then raises prices in Portugal
> > relative to England. So English goods become progressively cheaper.
> > Ricardo assumes that the outflow continues until England can undersel
> > Portugal in something. Within England comparative advantage is with
> > cloth over wine, so Ricardo seems to assume that this will be what
> > England specializes in.
> >
> >   But this is calculated in labor values. There is no reason to assume
> > that in terms of cost prices (c + v) and market prices (or prices of
> > production, kr) English cloth has a comparative advantage over
> > English wine. In fact it was easy to construct an example where this
> > was easy to reverse in terms of cost prices and prices of production.
> >
> > Again if Ricardo's trades are now carried out on the basis of MARXIAN
> > PRICES OF PRODUCTION, INSTEAD OF RICARDIAN LABOR VALUES, then we will
> > get the most perverse specialization, i.e., the specialization that
> > maximizes the labor effort needed to produce a given output.
> >
> > Portugal will produce 2 units of cloth and England two units of wine.
> > 420 hours are now needed to produce 2 units of each; in autarchy only
> > 390 hours were needed. Ricardo's optimal specialization would have
> > brought the time down to 360 hours. There is no reason to assume that
> > a capitalist economy would tend in favor of Ricardo's optimal
> > solution.
> >
> > Ricardo's panglossian views about the optimality of free trade cannot
> > be sustained because traders and capitalists will operate in terms of
> > cost prices and prices of production, not labor values. The former
> > can lead to specializations that are labor burden increasing.
> >
> > In order for there to calculation and decision making in terms of
> > labor values there would have first have to be an international
> > workers' revolution.
> >
> > I am sure that this is what you economists teach your students!
> >
> > Rakesh
> >
> >