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Sunday, July 15, 2012

Avert your eyes

In which I publicly engage in the practice of the Ricardian Vice:

Unit Labor Costs

Britain 100 cloth 110 wine
Portugal 90 cloth 80 wine

In the absence of transportation costs, it is efficient for Britain to produce cloth, and Portugal to produce wine, as, assuming that these trade at equal price (1 unit of cloth for 1 unit of wine) Britain can then obtain wine at a cost of 100 labor units by producing cloth and trading, rather than 110 units by producing the wine itself, and Portugal can obtain cloth at a cost of 80 units by trade rather than 90 by production.


Now let's do this Ricardo-style and assume the perfect mobility of labor, maintaining, as Ricardo does, the perfect immobility of capital. We will likewise assume that Britain and Portugal have equally-sized labor forces. We will also follow Ricardo in leaving time and transport costs out of the equation. So, what are the consequences?

Obviously the wine and cloth laborers will move to Britain, since they will receive an 11 percent raise and a 38 percent raise respectively. However, once they get there, the doubling of the labor supply in Britain this causes will cause the price of labor to be cut in two. Britain can now produce the same amount of cloth for the cost of what was previously 50 units of labor and the same amount of wine for 55, thereby obtaining both wine and cloth for a much lower unit labor cost than what it used to cost to produce the wine alone. Portugal doesn't get anything out of it, but that doesn't matter because they've got no ability to retain their laborers without resorting to badges and guns.

Therefore, open immigration is not only desirable, but is vastly preferable to comparative advantage by a factor of 105/200 and autarky by a factor of 105/210. QED. What else can we conclude?

1. Ricardo implicitly postulated the immobility of labor.
2. The mobility of labor not only fails to disprove comparative advantage, but actually strengthens the case for even freer trade... at least if you're in the higher labor cost country and you only look at the labor costs.
3. The mobility of labor will eliminate international trade since everyone will be living in Britain.
4. The mobility of labor operates to the detriment of labor.
5. Ricardo's logic is remarkably stupid.

Labels:

68 Comments:

Blogger Nate July 15, 2012 3:15 PM  

I'm going with 5... its a terrible... terrible form of argument.

Blogger Nate July 15, 2012 3:22 PM  

4) by the by...is incorrect. It screws the higher wage workers... and the workers who move. What's left however is a smaller work force left to produce the same goods. IE the wine and cloth laborers that don't move to Britain will end up making more... what with the supply and demand and all that.

Also... why don't the british companies more to portugal in this scenario?

Blogger Giraffe July 15, 2012 3:27 PM  

the doubling of the labor supply in Britain will cause the price of labor to be cut in two.

So now they can only make 50 units making cloth so they move back to Portugal to make 90. Almost double their wages. The only people getting rich her is Mayflower.

Blogger Giraffe July 15, 2012 3:29 PM  

What Nate said. The costs will reach equilibrium somewhere in between.

Blogger Nate July 15, 2012 3:35 PM  

Right...

What Ricardo never mentioned is that it isn't good for EVERYONE. The rich countries get screwed and the poor countries improve.

Except its all bollocks anyway because you can't just rip out all the logistics and say it evens out.

Anonymous Cheddarman July 15, 2012 3:41 PM  

If there are no time and transport costs for labor, why would Portuguese immigrate to Brittan in an amount sufficient to reduce wages in the wine and cloth producing industries by half? They could easily move back to Portugal where higher wages are paid.

I would assume that an equilibrium would be reached between the two countries, in terms of wages, and the equilibrium point would be at or close to the lower wage.

Anonymous Simon Grey July 15, 2012 3:45 PM  

"why don't the british companies more to portugal in this scenario?"

Well, as Vox said, "let's do this Ricardo-style and assume the perfect mobility of labor, maintaining, as Ricardo does, the perfect immobility of capital." That help?

Anonymous Jake July 15, 2012 4:33 PM  

You can't just assume labor cost = wages.

Just imagine your scenario for a moment, producing wine in Britain would probably require a lot more labor per unit of wine produced than doing so in Portugal due. If it takes twice as much labor to produce the same wine then the wages are NOT higher in Britain even though labor costs are. All the Portuguese folk would not flock to Britain to make wine, they're more productive, and so better paid, where they are.

Blogger Nate July 15, 2012 4:35 PM  

"Well, as Vox said, "let's do this Ricardo-style and assume the perfect mobility of labor, maintaining, as Ricardo does, the perfect immobility of capital." That help?"

Yeah... I mean I read it... but its just such an insane set of parameters that I have a hard time applying it.

Blogger Vox July 15, 2012 4:39 PM  

Also... why don't the british companies more to portugal in this scenario?

Immobile capital. Ricardo's rules....

Yeah... I mean I read it... but its just such an insane set of parameters that I have a hard time applying it.

Hence Schumpeter's immortal summary of Ricardo and his vice. The real problem is that we have to assume that the capital in Britain is sufficient to accomodate the double labor.

I would assume that an equilibrium would be reached between the two countries, in terms of wages, and the equilibrium point would be at or close to the lower wage.

Yep. Either way, the mobility of labor eliminates the need for trade by Ricardo's logic.

Anonymous scoobius dubious July 15, 2012 5:08 PM  

You guys had to wait til the post-grad level to realize that this was rubbish?

But you're still quoting Mises with a straight face? "Well now Ricardo, I mean come on, he's an idiot, but that Mises guy... he's aces."

Well, okay.

Anonymous Anonymous July 15, 2012 5:52 PM  

I've been watching this debate since the first post.

Very amused. Very amused.

The complete absence of reality between the observable facts of our current situation, and some abstract "free trade" theory, border on insanity.

First, none of you can even agree what "free trade" actually is, then, you can not defend the theory as currently practiced by that name, only compounds the issue.

Second, the completely lack of regard for your fellow citizens when advocating for unilateral "free trade" is morally repugnant. I'd hate having you "free trade" types as neighbors, since I assume you would stand by and allow complete strangers to rape, pillage and destroy everything I own, out of a belief in the idea, that if it doesn't affect you personally, it's none of your business.

Third, is is just possible, probable in fact, that "free trade" may be good in some areas, (let say in perishable commodities, like food, milk, cheese, meat) and not such a good idea, in areas like industrial goods, consumer goods like Maytag washer and dryers, and some electronics.


Only if you are a complete anarchist would you argue that some form of government should be not be allowed to establish some kind of regulation on some areas of trade.

farmer Tom

Blogger Nate July 15, 2012 5:53 PM  

"But you're still quoting Mises with a straight face? "Well now Ricardo, I mean come on, he's an idiot, but that Mises guy... he's aces." "

Says the genius that hasn't bothered to actually read any Mises.

Blogger Nate July 15, 2012 5:54 PM  

"Only if you are a complete anarchist would you argue that some form of government should be not be allowed to establish some kind of regulation on some areas of trade. "

Oh sure...

Or maybe if you want to prevent the federal government from raping one section of the country for the benefit of another... and therefore stop a major domestic war...

Anonymous Anonymous July 15, 2012 6:07 PM  

I said "some form of government" Nate, not the federales.!!!!



farmer Tom

Blogger Nate July 15, 2012 6:10 PM  

"I said "some form of government" Nate, not the federales.!!!!"

So France is going to negotiate separate trade agreements with each state?

Don't get me wrong... I'm fine with it... I am just looking for clarification.

Anonymous scoobius dubious July 15, 2012 6:11 PM  

"Says the genius that hasn't bothered to actually read any Mises."

He's an economist, Wendy. I therefore dismiss him with extreme prejudice.

Same way I dismiss you.

You are hereby dismissed, Wendy.

Blogger Nate July 15, 2012 6:12 PM  

I mean how does that work when Louisiana decides to have no import tariffs at all... and Pittsburgh wants its steal manufacturing protected via tariff?

Everyone is just gonna ship their stuff into Nawlins and go from there.

Blogger Nate July 15, 2012 6:12 PM  

"He's an economist, Wendy. I therefore dismiss him with extreme prejudice."

So's Vox douche bag.

Anonymous scoobius dubious July 15, 2012 6:16 PM  

Time to once again break out your dictionary, Wendy. The only volume, aside from libertarian Chick tracts, that you appear to have in your library.

What's a douche bag?

You're crumbling under pressure, Wendy. Have I hit a nerve or sumpin?

Blogger Nate July 15, 2012 6:18 PM  

Ahh yes... truly I am all shook up by one who criticizes authors he's never read.

They weight of your intellectual integrity is indeed stifling.

On a related note...

No. I will not have sex with you.

Blogger Nate July 15, 2012 6:23 PM  

Answer the question Nancy.

Vox is an economist. By your own words you dismiss economists "with extreme prejudice".

So do you dismiss Vox?

Anonymous scoobius dubious July 15, 2012 6:34 PM  

"No. I will not have sex with you."

Of course not. Christ, what a concept! But this will continue until you apologize. You insulted me, unprovoked, in the midst of a purely theoretical, hackles-free discussion. I do not take kindly to that. unger can throw insults at me all day long and I don't mind, I hurl them back and it's amusing, because we were in the middle of a heated discussion. But you were a smug little arrogant prick, and that is not a thing that I forget.

Apologize, and I will go back to addressing you like a regular guy, and we can agree or disagree about this or that or whatever and I won't mind a bit. Be a man, for once in your life.

"They weight of your intellectual integrity is indeed stifling."

They weight is stifling? Aside from your spelling, your prose and your metaphors are absolutely marvelous, Wendy. It's like local color or something. Isn't that what they say about scenery-pieces like you? "Local color"?

I'm extending an olive branch, Wendy. I advise you to take it.

Anonymous VD July 15, 2012 6:44 PM  

But you're still quoting Mises with a straight face? "Well now Ricardo, I mean come on, he's an idiot, but that Mises guy... he's aces."

Yeah, pretty much. He's not always correct, but he's reliably perceptive, insightful, and informative.

Anonymous scoobius dubious July 15, 2012 6:59 PM  

"he's reliably perceptive, insightful, and informative."

That much, I can live with. If he is, then great. Treating him like scripture, though, is the thing bothers me.

Lots of writers are perceptive, insightful, and informative. I could probably spin you a plausible economic Summa out of Emily Dickinson, except it would be silly to do it. If Mises is good huntin' (though frankly I have yet to see it in the rather large patches that I've read online), that's fine with me. I just don't like pantheons. Especially when economists are involved.

Anonymous FUBAR Nation (Ben) July 15, 2012 7:13 PM  

Vox, it would be nice if you could explain your calculations. We aren't all super intelligences here you know.

Ever heard of Excel?

Anonymous bob k. mando July 15, 2012 7:37 PM  

farmer Tom July 15, 2012 5:52 PM
First, none of you can even agree what "free trade" actually is




well, that's the difference between colluquial / technical usage and what any consistently and logically applied definitions would arrive at.

think of it like the Marxist term "reactionary". Marxists mean reactionary to be an epithet with which they can smear conservatives and classical liberals. actually, it's an epithet they apply to anyone who isn't currently properly 'educated' with today's specifically approved variation of proletarian fervor ( Mao? Lenin? Pol Pot? Trotsky? whatever, f this noise ) .

yet, "reactionary" is derived from a previously existing word; "reaction". what is the dictionary definition of reaction?
http://dictionary.reference.com/browse/reaction?s=t
1 - a reverse movement or tendency; an action in a reverse direction or manner.
2 is simply a statement of Marxist ideology
3 - action in response to some influence, event, etc.: the nation's reaction to the President's speech.
4 - Physiology . action in response to a stimulus, as of the system or of a nerve, muscle, etc.


to WHAT is the conservative/class.lib. "reacting"?

according to Marxists, they are "reacting" to the "inevitable forces of history"
http://thegptutor.blogspot.com/2009/02/communist-manifesto-by-karl-marx-and.html
"The Manifesto argues that this development is inevitable, and that capitalism is inherently unstable. The Communists intend to promote this revolution, and will promote the parties and associations that are moving history towards its natural conclusion. They argue that the elimination of social classes cannot come about through reforms or changes in government. Rather, a revolution will be required."

IOW, conservatives / class.libs. are asserted to be "reacting" TO SOMETHING WHICH HAS NOT YET OCCURRED ( the revolution of the international proletariat ).

there is NO rational way that "reactionary" could be used in this manner.

and yet, due to common usage ( that is, the Marxists having taken control of the commanding heights of Amer-English culture long ago ) it's almost impossible to have a conversation in which you apply the term "reactionary" in a RATIONAL manner; ie - to Marxists. it's the CURRENT system which is providing the stimulus and it is the MARXISTS who are reacting to it. however, most everyone is going to stand there looking at you with a poleaxed expression if you try to use the term in this manner.

almost exactly this same principle is at work wrt "Ricardian Free Trade". Ricardian Free Trade is not "Free Trade" by any rational definition. Ricardo simply rules out of bounds any variables or logistical concerns that he doesn't feel like modeling.

money is a form of capital. money is easily transferable ( it's the whole reason draft checks were created by the Templars in the 1200s http://wiki.answers.com/Q/How_might_the_use_of_money_and_credit_have_helped_to_increase_trade_in_the_middle_ages ). Ricardo doesn't FEEL like modeling Capital trade ... so he simply rules the whole concept 'out of bounds'.

outrageous, slipshod, and ridiculous, but there it is.

once the technical terminology has already been defined in such a way Mises has little choice but to utilize the term as Ricardo 'defined it'. otherwise you wind up with a sh1tstorm like what Vox has going here.

not that fighting the sh1storm fight doesn't have inherent value. you just have to recognize that it's going to be a long and uphill slog.

kind of like reading one of my posts.

Anonymous bob k. mando July 15, 2012 7:45 PM  

VD July 15, 2012 6:44 PM
Yeah, pretty much. He's not always correct, but he's reliably perceptive, insightful, and informative.



which is the most that you can ask of ANY man.

only cultural marxists believe in the inherent perfectability of Man.

pretty much everyone else on the planet understands that ALL are fallible and ALL err.

even i've had a go at Vox a time or two ( or three or four or ... ).

trying to discard EVERYTHING Mises said because he may have made a mistake here or there, that's just asinine stupidity. his errors were of a far different nature than the deliberate falsifications Ricardo created.

Anonymous scoobius dubious July 15, 2012 7:57 PM  

Queen Wendy: "Answer the question Nancy. Vox is an economist. By your own words you dismiss economists "with extreme prejudice".

So do you dismiss Vox?"

Here we see the intriguing spectacle of a grown man hiding, cowering, behind the reputation of another man. Ah, Wendy, you kill me sometimes.

Your shield is being battered down. Slowly but surely. It's what I do for a living, dontcha know. I'm good at it. Soon, it (by which I mean your shield, pay attention boy!) will be gone, and then you will face me: naked, and frightened, and disarmed.

One last time, Nate. I'm offering you the olive branch. I'll even knock off the Wendy stuff, for a limited time only. Apologize, and we'll go back to normal.

I'm very, very good at this; and I'm only just warming up.

Anonymous jSinSaTx July 15, 2012 8:18 PM  

Why get so irritated because someone is insulting on the Internet? Nate isn't that important to you is he? This is just odd...

Anonymous Wendy July 15, 2012 9:06 PM  

He's an economist, Wendy. I therefore dismiss him with extreme prejudice.

Same way I dismiss you.

You are hereby dismissed, Wendy.


Please don't use my name when referring to Nate.

Blogger Nate July 15, 2012 9:07 PM  

"ere we see the intriguing spectacle of a grown man hiding, cowering, behind the reputation of another man. Ah, Wendy, you kill me sometimes."

Dude... you don't even understand that game I am playing. Vox's reputation has nothing to do with it.

Do you.. or do you not... dismiss Vox on the basis of him being an economist?

Anonymous Josh July 15, 2012 9:12 PM  

Only if you are a complete anarchist would you argue that some form of government should be not be allowed to establish some kind of regulation on some areas of trade.

Why?

Anonymous Josh July 15, 2012 9:13 PM  

Nate is cowering in front of scooby doo?

Anonymous Stilicho July 15, 2012 10:05 PM  

Nate is cowering in front of scooby doo?

Ruh ro, raggy.

Anonymous bob k. mando July 15, 2012 11:08 PM  

OT -
stick a fork in the US military, we're done
http://news.blogs.cnn.com/2012/07/11/navys-new-gender-neutral-carriers-wont-have-urinals/

Anonymous The other skeptic July 15, 2012 11:32 PM  


OT -
stick a fork in the US military, we're done
Navy's New Gender Neutral Carriers won't have Urinals, and the aircraft will fly slower so women can land them


Not only that, men will be required to sit when they piss.

Anonymous zen0 July 15, 2012 11:35 PM  

Does Calvinism inform the Ricardian vice??



James Mill, the man behind the Ricardian system....by Rothbard

If Emil Kauder is right, and Scottish Calvinism accounts for Smith's introduction of the labor theory of value into economics, then Scottish Calvinism even more accounts for James Mill's forceful and determined crusade for the labor theory of value and perhaps for its playing a central role in the Ricardian system. It also might explain the devoted adherence to the labor theory by Mill's fellow Scot and student of Dugald Stewart, John R. McCulloch.

Wouldn't that be a hoot. Vox's aversion to Calvinism and the Ricardian vice somehow orbiting around a previously unexamined central point.

All this hoohaw about free trade engendered by some little rat-faced, penny-pinching Scottish Calvinist badgering his social superiors into producing economic theory he himself could not sell.

And then......wait for it.........he becomes an Atheist!

You just can't make this stuff up. It is as mind boggling as when I found out that the people of Oaxaca celebrate a festival called the Night of the Radishes.

Anonymous The other skeptic July 15, 2012 11:35 PM  

Did anyone raise the issue that in Faulty Towers, Manuel, who is unable to speak English, is incompetent?

That is, while all the wine makers from Portugal could move to England, their lack of language skills would likely make them less than useful. After all, they are not simply gardeners and drunken killers of citizens.

Anonymous zen0 July 15, 2012 11:42 PM  

Not only that, men will be required to sit when they piss.

Who would have thought that it would become an act of revolutionary zeal to stand to piss with the seat in the down position.

A little secret about the ladies......some of them squat over the seat and piss, sometimes leaving a mess, because they don't want to sit on something other bare asses have touched. (hat tip, Mrs. zen0)

No worries, they will just blame the men.

Anonymous ROFL July 15, 2012 11:49 PM  

"But you were a smug little arrogant prick, and that is not a thing that I forget."

How do you like Vox's attack poodle? Lol

Anonymous zen0 July 15, 2012 11:52 PM  

The other skeptic July 15, 2012 11:35 PM

Did anyone raise the issue that in Faulty Towers, Manuel, who is unable to speak English, is incompetent?

That is, while all the wine makers from Portugal could move to England, their lack of language skills would likely make them less than useful. After all, they are not simply gardeners and drunken killers of citizens.


That's Fawlty Towers, bro.
And another thing, Basil Fawlty was fluent in English but way more incompetent than Manuel. Manuel only got into trouble when he paid attention to Basil.

Besides, I thought Manuel was from Spain. Most likely Barthelona.

Anonymous The other skeptic July 16, 2012 12:13 AM  


That's Fawlty Towers, bro.


Too many beers.


Besides, I thought Manuel was from Spain. Most likely Barthelona.

Que? All them wogs is the same.

Anonymous cherub's revenge July 16, 2012 12:31 AM  

Let me get this straight: You've got internationalists who have disdain for any national exceptionalism, especially American. Yet, they go out and sell a trade theory with the marketing it's good for America.

Now you got to be one gullible SOB to buy into something as being good for you, sold by someone who does nothing but wish you ill.

Put it this way, I've got the usual suspects who do all the Sunday morning talk show rounds peddling trade agreements, go to

Davos, Bilderberger and G whatever conferences on one hand.

On the other I've got a bunch of old fuddy duddy paleo-con protectionists.

Which group would you rather enter a real estate deal with?

There you go.

Anonymous zen0 July 16, 2012 12:38 AM  

Que? All them wogs is the same.

Sorry to be a pain in the ass at beergoggle time, but Dagos are Spaniards and Portugese. Wogs are fuzzy-wuzzys, as wog is short for golliwog. Wops are Italian.

If one is to be derogatory, one must observe certain protocols.

Anonymous unger July 16, 2012 12:58 AM  

FUBAR Nation: The raises he's talking about assume, first of all, that the workers are paid 100% of their productivity. Since cloth and wine trade 1:1, it's safe, and probably easier to see, if I put the pay in dollars, not wine and cloth. Take those units of cloth and wine as daily production per worker. If a Portuguese clothworker who was once earning $90 a day - a dollar for each of the 90 units of cloth he made in a day - moves to Britain, where the conditions of land and capital enable him to produce 100 units of cloth, and thus earn $100, he's 11% more productive: ((final productivity/original productivity)/original productivity)*100, thus, ((100-90)/90)*100. A Portuguese wineworker who once made $80 a day and, by moving, now makes $110 a day, is, by that same calculation method, 37.5% (round up to 38%) more productive.

Vox assumes that the populations of Britain and Portugal are equal. He then notes that if the whole population of Portugal moves to Britain, there'd be twice as many people in Britain, meaning, twice the labor supply there. The total amount of demand for cloth and wine would not change, though - the same total number of people want the goods. So labor supply in Britain doubles, while demand remains the same. Assuming perfectly elastic demand, this means that the price of labor will drop by half. On net, however, that doesn't mean anyone actually takes a pay cut, because twice as many people working (at least under the assumptions, one of which is that the former Portuguese can work just as well in Britain as the native Brits) means twice the product, and not just that: because half those people are more productive than they previously were, total production increases by more than half. Instead of a world where 190*the clothmaking populations of Britain and Portugal units of cloth, plus 190*the winemaking populations of Britain and Portugal units of wine are made each day, there are now 100*the doubled clothmaking population of Britain units of cloth, and 110*the doubled winemaking population of Britain units of wine made each day. In spite of the nominal pay cut, there's actually more stuff to go around - their money goes farther.

Does that answer your question about his math?

Vox: You should've subtitled this 'In which Vox demonstrates that he really doesn't have a clue what the word 'economics' means'. Because you don't. It's the study of how to economize - how to make the most efficient use of scarce resources. Because yes, at least as far as the economics go, factor mobility is a good thing. The mathematical model you presented (you're welcome for the above explanation, btw) does indeed contain a great many assumptions and simplifications that don't map perfectly onto reality, but it does correctly illustrate the basic mechanics of a fundamental truth of a world of scarce resources: you get more product if you don't waste resources. Factor mobility helps you not to waste resources, so yes, factor mobility will increase production. That this surprises you only shows that you go through life with all the introspection of a junebug, because you in fact do economize in exactly that manner, deploying your factors of production in particular ways and not myriad other possible ways, every moment of every day, for the purpose of getting things done well and not poorly, quickly and not slowly, and getting more from your labors and not less. Actually, you're much worse than the junebug: at least junebugs are seldom inclined to deny what they do.

Of course, your explanation fails even as an example of Ricardian oversimplification. You say that Portugal gets nothing out of the migration, yet you forget that 'Portugal', meaning 'a body of people living in a certain part of the Iberian peninsula', no longer exists, because everyone moved out, and then go on to ignore what you just affirmed, that the formerly-Portuguese people become significantly wealthier.

Anonymous unger July 16, 2012 12:59 AM  

So, going down your little list:
1: No, he didn't implicitly postulate labor mobility - mostly because, uh, he didn't. You just said 'well, what if labor were internationally mobile?', which, uh, is you postulating labor mobility, not Ricardo. Unless you are Ricardo - and you're sounding crazy enough now to where I wouldn't put it past you. Nicer guy than Napoleon, anyway - though Napoleon would fit better with your delusions of grandeur and unwarranted belief in your own competence.
2: Well, I'm glad you at least see that labor mobility doesn't disprove the theory of comparative advantage. I was worried for a bit there. But why do you say "at least if you're in the higher labor cost country"? Under the assumptions given, the native Brits benefit too, to the tune of about 10.5%.
3: Correct.
4: Wrong. Labor mobility makes labor more productive, which is the opposite of 'working to the detriment of labor', at least here on Planet Earth. Of course, maybe on Planet Stupid, people like working and getting less for it - spinning their wheels, as the phrase goes.
5: Wrong. Ricardo's assumptions imperfectly map onto reality - for instance, there are more than two goods, so Portugal is probably good for something even if England has an absolute advantage in wine and cloth, and so unless Portugal really is good for nothing, some people are likely to stay there...though, if Portugal really is good for nothing, why the hell do you think it's good for anyone to stay there? But the model as Ricardo stated it does demonstrate the basic functioning of comparative advantage, and the labor-mobility-modified model you gave does demonstrate the efficiency gains, and thus, productivity gains, from labor mobility.

Thus, Mises, explaining the theory better than Ricardo did, wrote: "Now, in a world in which there is free mobility not only for products, but no less for capital goods and for labor, a country so little suited for production would cease to be used as the seat of any human industry. If people fare better without exploiting the --comparatively unsatisfactory--physical conditions of production offered by this country, they will not settle here and will leave it as uninhabited as the polar regions, the tundras and the deserts." He expected that people would intuitively understand that there's nothing at all amiss with leaving useless places. Unfortunately, he was dealing with morons like yourself, who quite literally don't have sense enough to come in when it rains.

Anonymous VD July 16, 2012 3:27 AM  

1: No, he didn't implicitly postulate labor mobility - mostly because, uh, he didn't. You just said 'well, what if labor were internationally mobile?', which, uh, is you postulating labor mobility, not Ricardo.

Unger, you really cannot read. Of course he didn't postulate labor mobility. I did. He postulated labor IMMOBILITY. And you're wrong on (4)and (5) as well.

Anonymous unger July 16, 2012 4:01 AM  

Hah, you're right, for once. I did misread that. I have a dozen or so misreadings left before we're even, though - and I, unlike you, have the good grace to concede such errors when I make them.

Very well: 1: Correct. The caveat is that Ricardo was very explicitly outlining the advantages of international trade, and was not attempting to defend (and likely didn't think necessary to defend, since it should be common sense) the benefits of intranational trade, which is characterized by labor and capital mobility.

As for me being wrong on 4 and 5: well, actually, I'm not wrong on them at all. I'm not wrong on 4 because it's flat-out common sense that working under favorable conditions is more productive than working under unfavorable conditions, and I'm not wrong on 5 because the logic of 4, which you affirm as valid every minute of every day, even as you spin your silly little denials, holds up.

Anonymous unger July 16, 2012 4:04 AM  

Well, I'm also not wrong on 5 because you ...simply didn't identify a logical flaw here, either in Ricardo's model or in your modified one. You just dislike its implication that, from an economic perspective, labor mobility is a good thing. Treating that as a reductio ad absurdum doan' fly.

Anonymous VD July 16, 2012 5:19 AM  

I have a dozen or so misreadings left before we're even, though - and I, unlike you, have the good grace to concede such errors when I make them.

Back up all twelve, with sources, or retract before you post again. I'm officially tired of your tedious and abrasive blundering.

Anonymous unger July 16, 2012 6:20 AM  

Translation: you're tired of me embarassing you. What a pity for you, because I have indeed compiled eleven misreadings with subsequent misrepresentations, all of which were called to your attention, including four very gross ones with severe consequences for your attempts to think and debate the topics at hand rationally. Considering that I said 'or so', I wonder if I shall have to count this as number twelve?

In which I demonstrated that you were totally unfamiliar with Austrian (and specifically Misesian) theorizing about force and the relevance to economics
http://voxday.blogspot.com/2012/06/gary-north-in-detail.html?commentPage=2#8536995031893974435

In which I demonstrated that you were full of crap with your claim that North didn't make an economic argument
http://voxday.blogspot.com/2012/06/losing-it-on-free-trade.html?commentPage=2#6701927232491328728

In which I hammered you after you doubled down
http://voxday.blogspot.com/2012/06/losing-it-on-free-trade.html?commentPage=2#5944600109623079263

In which I demonstrated that you misrepresented North's claims about protectionist claims
http://voxday.blogspot.com/2012/06/losing-it-on-free-trade.html?commentPage=2#6290119557955494620
http://voxday.blogspot.com/2012/06/losing-it-on-free-trade.html?commentPage=2#7238916344034751558
http://voxday.blogspot.com/2012/06/losing-it-on-free-trade.html?commentPage=2#4788412566511371012
http://voxday.blogspot.com/2012/06/losing-it-on-free-trade.html?commentPage=2#1871878359031390536
http://voxday.blogspot.com/2012/06/losing-it-on-free-trade.html?commentPage=2#7693632125140796126

In which I show that you simply didn't read, and thus failed to distinguish, between an elucidation of a fundamental law of scarcity and an application to the case of exchange
http://voxday.blogspot.com/2012/06/wnd-column_25.html#311925447244434526

In which I demonstrate a gross misreading and consequent misrepresentation of Hazlitt, which you've ignored for the better part of a week now, because I'm unarguably right and the point is critical enough to where the whole essay now needs to be scrapped
http://voxday.blogspot.com/2012/07/mailvox-hazlitt-international-trade.html#5357234880554188912

In which I demonstrate that you misrepresented the nature of the dispute at hand
http://voxday.blogspot.com/2012/07/free-trade-is-anti-property-rights.html#3451151362797410688

In which I take you to task for asserting that free trade requires labor mobility to work, then successfully answer your challenge to show where you made the claim, then take you to task for denying it, then wrangle out of you the admission that yes, actually, you meant exactly what I said you did
http://voxday.blogspot.com/2012/07/mailvox-best-defense.html#790782618311470904
http://voxday.blogspot.com/2012/07/mailvox-best-defense.html#4733141915916150352
http://voxday.blogspot.com/2012/07/mailvox-best-defense.html#4561311288253062739
http://voxday.blogspot.com/2012/07/mailvox-best-defense.html#6374693963201647732
http://voxday.blogspot.com/2012/07/mailvox-best-defense.html#7908377508734095854

In which I point out that you misrepresented a challenger's criticism of a very bad Dread Ilk attempt to concoct an economic model
http://voxday.blogspot.com/2012/07/mailvox-best-defense.html#7063189338790969266
http://voxday.blogspot.com/2012/07/mailvox-best-defense.html#813426357969026809

In which I point out that you took a piece of Mises out of context to support your addlebrained notions, when in fact the full context offers you no support whatsoever
http://voxday.blogspot.com/2012/07/mailvox-best-defense.html#2050462773251220634

...and in which I point out that you blatantly took a piece of Ricardo out of context to support your addlebrained notions, when in fact the full context offers you no support whatsoever
http://voxday.blogspot.com/2012/07/mailvox-best-defense.html#813426357969026809

You asked.

Anonymous VD July 16, 2012 6:51 AM  

Translation: you're tired of me embarassing you.

Not at all. You simply tend to detract from intelligent discussion on the blog. Notice how no one even bothers to discuss things with you any more. It's not because your arguments are so astonishingly powerful. So, I will have a look at your claims and if at least seven of the twelve are not accurate - you are still lacking one - I will ban you from further commenting here.

Blogger Vox July 16, 2012 7:22 AM  

Adios, Unger. I've already counted five falsehoods out of the first five of your 11 claims I examined. It's almost a pity, because you were actually correct about the very minor misreading of Hazlitt not postulating a $5 tariff on sweaters, but rather such high tariffs as to eliminate all imports, thus leading to a $5 increase in the domestic price of sweaters.

However, that you got literally everything else wrong about that, especially in your ludicrous assertion that the misreading, which did not affect the calculations of the correction to Hazlitt's claim of the effect on non-sweater manufacturers in any way, somehow magically invalidated the 22 other criticisms of Hazlitt.

Anyhow, you'll have to find some other blog to infest as your comments will henceforth be deleted unread as spam.

Blogger Dan Hewitt July 16, 2012 8:23 AM  

Britain can now produce the same amount of cloth for the cost of what was previously 50 units of labor and the same amount of wine for 55

Production costs comprise of more than just labor costs. I believe that your assumption of perfectly immobile capital is what undermines the above statement, since the cloth factories in Britain would not be able to pull in a proportional amount of capital to match the influx of laborers. So it’s true that wages would be cut in half, but output would not necessarily be doubled, as the capital costs relative to the total production costs would also change. Make sense?

Furthermore, if labor were assumed to be perfectly mobile labor, all wine & cloth laborers in Portugal would not move to Britain in the first place. Only enough to bring the wages to parity with Portugal, right?

Anonymous VD July 16, 2012 8:27 AM  

So it’s true that wages would be cut in half, but output would not necessarily be doubled, as the capital costs relative to the total production costs would also change. Make sense?

Yes, of course, but it goes well beyond the variables that Ricardo allows. Remember, we're playing by his rules here.

Furthermore, if labor were assumed to be perfectly mobile labor, all wine & cloth laborers in Portugal would not move to Britain in the first place. Only enough to bring the wages to parity with Portugal, right?

Now you're bringing the additional variable of time into the equation, which also isn't allowed. It's all or nothing with Ricardo. I'm simply demonstrating the absurdity of his methodology.

Blogger Dan Hewitt July 16, 2012 8:35 AM  

it goes well beyond the variables that Ricardo allows

It does? I tried to keep the assumptions you listed. Where did I slip up?

Anonymous The other skeptic July 16, 2012 9:46 AM  


assume the perfect mobility of labor, maintaining, as Ricardo does, the perfect immobility of capital


Isn't the fact that these assumptions are exactly opposite to observable reality, ie that labor is fairly immobile and capital is fairly mobile, enough to demonstrate the Ricardian Fantasy?

Blogger Dan Hewitt July 16, 2012 10:27 AM  

Isn't the fact that these assumptions are exactly opposite to observable reality, ie that labor is fairly immobile and capital is fairly mobile, enough to demonstrate the Ricardian Fantasy?

Vox’s assumptions aren’t really Ricardian. I have Money, Bank Credit and Economic Cycles (Jesus Huerta de Soto) on my kindle, so here is a passage copied and pasted, discussing what Hayek called the Ricardo Effect (the relative mix of labor and capital that entrepreneurs use is dynamic, and will change as their costs change in relation to one another).

The first to explicitly refer to this third effect was David Ricardo. He did so in his book, On the Principles of Political Economy and Taxation, the first edition of which was published in 1817. Here Ricardo concludes that [e]very rise of wages, therefore, or, which is the same thing, every fall of profits, would lower the relative value of those commodities which were produced with a capital of a durable nature, and would proportionally elevate those which were produced with capital more perishable. A fall of wages would have precisely the contrary effect.50 In the well-known appendix “On Machinery,” which was added in the third edition, published in 1821, Ricardo concludes that “[m]achinery and labour are in constant competition, and the former can frequently not be employed until labour rises.”51

And the footnotes:

50 See David Ricardo, The Works and Correspondence of David Ricardo, vol. 1: On the Principles of Political Economy and Taxation, Piero Sraffa and M.H. Dobb, eds. (Cambridge: Cambridge University Press, 1982), pp. 39–40.
51 Ibid., p. 395.

Anonymous Josh July 16, 2012 11:25 AM  

Banging away at ricardo doesn't really help you win against those who are leery of letting the government regulate commerce (and thus are toward the free trade end of the spectrum).

Blogger James Higham July 16, 2012 2:26 PM  

assume the perfect mobility of labor, maintaining, as Ricardo does, the perfect immobility of capital

Why, if it's a pointless exercise?

Anonymous Chad July 16, 2012 3:27 PM  

I would have to differ with Vox's conclusions on the model. If the conditions are as stated without a restriction on migration wage rates cannot be different. Portuguese industries would be constrained to increase their wages to retain their workforce (the way any business does when it doesn't have access to guns and badges)and British labourers would be constrained to reduce their wages to keep their jobs.

This would mean that the production advantages cited could not be the result of disparate wages if both countries are drawing on a common workforce.

Also aren't Ricardian trade comparisons usually expressed in time/unit produced?

Anonymous scoobius dubious July 16, 2012 3:35 PM  

NATE/WENDY: "Dude... you don't even understand that game I am playing."

Ah, so that's it!! Wendy is really an Ultra-Human from the planet Mysterion, playing Zargaxian Nine-Dimensional Brain Chess, where he moves the pieces WITH HIS MIND!!

Either that, or maybe he's just a boorish, oaf-like irritant living in some shit-hole backwater with a bozo education who needs to be taught some table manners, probably with a rolled-up (and unread) newspaper across his nose. Yeah, I'm gonna go with the whole boring-oaf thing. Alex?

ALEX TREBEK: Before we answer, we must first play the Annoying Game Show music!

(THIRTY SECONDS OF ANNOYING GAME-SHOW MUSIC, THEN...)

ALEX TREBEK: Your answer is correct! Nate/Wendy is a boring oaf, not an Ultra-Human from the planet Mysterion. Would you like to take the washer-dryer, or risk it all during the Lightning Round?

MYSELF: Eh, I'll just take the washer-dryer, Alex. I'm getting rather tired of paying attention to Nate.

Blogger Nate July 16, 2012 4:02 PM  

Scooby... for the third time...

Do you dismiss Vox?

Blogger Vox July 16, 2012 4:45 PM  

Drop it Scooby, you're cross-posting and it's gotten more than tedious.

Anonymous Greatheart July 17, 2012 8:14 AM  

The other skeptic >>July 15, 2012 11:35 PM
...in Faulty Towers,...

Make that Fawlty Towers.

Anonymous Chad July 17, 2012 1:30 PM  

I find Ricardo's logic to be sound. If two countries were to engage in goods for goods exchange trade would be beneficial to both parties. To me the catch occurs when two countries start to exchange currency (especially fiat) for goods.

What happens then is a pronounced trade deficit. If the Portuguese recieve money from the British the absolute production advantages come back into play. If the Portuguese are accepting of British currency then they would sell both wine and cloth to Britain and start trading within Portugal with British currency.

Blogger paul July 18, 2012 11:35 AM  

Of course Ricardo postulates "Labor immobility" no one could immagine large numbers of Portuguese would - or could - immigrate to Britain in the early 19th century. Also, how could wine makers immigrate to England when "Port" couldn't be grown in England? Isn't Ricardo using the old Adam Smith Free-trade example where we sent wheat to Jamaica and they sent us sugar? I believe no one has any objection to us importing banana's or oil; stuff we can't get at a reasonable price here.

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