Ricardo’s Theory of International Trade versus Antiglobalist Arguments

There is one particular reason why my study of economics is very interesting: I am confronted, repeatedly, with traditional economic models, theories, and arguments. Some of them are of some value, many are not (maybe for training some basic economic understanding, but not for analysis of real world problems). Recently I attended a lecture in Advanced International Economics, in which the theory of international trade by David Ricardo was presented. For non-economists: Ricardo developed the first major theory of international trade (in the beginning of the 19th century). It is a very simple theory built upon the foundation of the so-called “comparative advantage”, stating that trade between two countries is mutually beneficial when their relative productivities are differ (not as in Adam Smith’s theory, where only absolute productivity was of meaning). For a short introduction see here.

After having explained the theory, the teacher wanted to show us how it can be applied to real world problems (though he himself had pointed out to some deficiencies due to basic assumptions of the theory): he picked up some “frequent antiglobalist arguments” against free trade and “defeated” them using Ricardo’s simple comparative-advantage model. Continue reading

Trade Should Not Be Free as a Matter of Dogmatism

In the mainstream economic thought there is hardly any place for constructive criticism of free trade. But, while the idea of free trade is not wrong in itself, it has become a dogma – no matter what it looks like in reality, in the eyes of many free trade is of unquestionable benefit. It was not always so. John Maynard Keynes once made a highly interesting remark that, regrettably, seems almost forgotten:

I sympathize therefore, with those who would minimize, rather than those who would maximize, economic entanglement between nations. Ideas, knowledge, art, hospitality, travel – these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible; and, above all, let finance be primarily national. Continue reading