I was the first one to like this... Yessss.. thank you Steven like always very informative and educating. I wish I had paid even more attention and chosen more of your subjects at UWS.
Ricardo didn't really know much about wine making. If the Portuguese gave up herding sheep for wool and instead diverted the labor towards making more wine, one, where would the extra land come from? From the land used to graze sheep, apparently. But it takes years to get a new vineyard up and running, so what do these workers do for income in the meantime? And what if the land isn't suitable for vineyards, or if it isn't as productive as the existing vineyards, or if it produces inferior quality wine because the "terroir" isn't right for good wine making? It's probably more likely the case that Portuguese had already found the best mix of uses for their land through the market process, so they would have been wise to ignore the theorizing of a stockbroker and economist in London who didn't know what he was talking about.
Why has this fallacy been so well supported? Corporations (making political donations, and undoubtedly other donations) benefit the most by the mobility of trade and capital: ie, buy in one country, manufacture in another country, sell in a third country, and be incorporated and pay taxes in a fourth country. It's as simple as that.
Yup. And it's also not interesting for established corporations from developed countries to begin facing more competition by companies from other countries, which would be the natural consequence of the abandoning of free trade ideology by developing economies.
In Ricardo's time production was not so capital intensive as now so the loss of use not so costly. Also labour not so specialised. Big adjustment problem still though.
Ricardo's theory of relative or comparative advantage was formulated for a global economy in which most of the GDP was accounted for by agriculture, forestry, and mining, industries in which naturally occurring factors of production are important. And even under those restrictive conditions, his theory included the caveat that relative advantage did not apply if labor OR CAPITAL was easily mobile between nations. Even today's economists acknowledge when pressed that unilateral free trade works out badly for the unilateral free trader, yet they pretend not to notice that this concession is tantamount to admitting that the theory of comparative advantage does not apply to conditions that prevail today. If comparative advantage still applied under today's conditions, than a unilateral free trading country would benefit more than the rival that practiced industrial protection, and might even benefit more than if both nations were trading freely with one another. So comparative advantage is a fraud in today's economic conditions. (Further, there were important but rarely dwelt on limitations to the theory even in Ricardo's time.)
I’d like to hear Professor Keen to Articulate his point on interchangeable machinery and labour ? It does happen and quite regularly in fact whether it happens easily or not is more were I would hear the argument! Workers have had to adapt in industrial environments for centuries the basic training of the modern worker has been built in for this fact I would argue! Standardisation of mechanics training would be one example, electrical training would be another IT would be another Engineers another!! As for Machines the same goes a crane can lift in any heavy industrial setting an earth moving machine can move earth in many industries whether that is mining or waste disposal or construction! Trucks ?? Another example
Try using a blast furnace to make a cappuccino. Yes there are some capital items used in a large range of industries, but the capital specific to each industry cannot be repurposed.
Free Trade. If it was really Free we would not have to sit down and have "Free" Trade Negotiations, would we? In reality, they are always just Trade Negotiations, and the bunny who gets done is the one who truly believes there is something special in that 'Free' tag. Everyone else knows it's a game of bluff, moves, and countermoves. (Yep, thus far, Australia is the bunny!). "Free" Trade. The biggest fallacy of our times. Factors in play are not just machinery: Employment rate, Education standards/technical skills, Training systems, Mobility of workforce, Flexibility of workforce, (can winemakers learn to make cloth?), Availability of raw materials/resources. Infrastructure and transportation costs Energy costs Taxation levels Currency relative values and movements. Availability of finance. Legal structures and their practice. The logical end point is one country (and eventually one company) will do everything, and the rest of us will work for them, and buy everything off them.
Ricardo's simplified example kind of presumes that Portugal and Britain only have each other as trading partners, or that the comparative productivities of labor and capital are the same when we examine those countries in relationship with their other trading partners, and furthermore assumes that a country producing a single commodity is as resistant to price shocks as a country which spreads its risk across several industries. Ricardo, as a banker, should have understood the value of spreading one's risk through diversification.
Further in respect to Keen's comments about the wine industry and the spinning jenny he denies that machinery can move from one place to another but fails to understand that so much machinery in todays world of easy transportation makes it very easy to relocate machinery. Added to that is the fact that for any business there is depreciation on machinery (capital) due to several factors including obsolescence and just plain wear which makes a short life for much of the capital machinery. This results in whole factories in many industries being relocated very easily. The example that comes to mind is the huge relocation of footwear, textiles and clothing manufacturing that took place in the 1950's and 1960's and 1970's to Taiwan from the US and later to China.
For crying out loud, machinery etc is not transferable (or not easily/readily/costlessly so) from one INDUSTRY to another. And, notwithstanding the trends towards de-skilling etc, neither are workers and the working capacities.
Stavros Karageorgis it’s arguably both points are right and also wrong , a Diesel engine / gear box that is suitable for a crane which has worked in construction for example could quite easily be used in another industry there are many examples same is also true of workers having a basic training in any specific trade and it being interchangeable and updated and upgraded to suit other industries it’s actually a no brainer workers have had to do this for eons ! Diesel mechanics and Electricans are two such trades that do this all the time !
He said the opposite. Machinery is easily transferable from one country to another, but not from one industry to another. Capital in the form of money, on the other hand, is easily transferable from one industry to another, but not between countries (in Ricardo's time, of course).
@@rodericom Of course transferring money was easy in Ricardo's time. It was commodity based in many countries and transfers could be made in gold or silver or products like cotton or wool themselves.
@@rodericom The reality is today Keen himself does not even know how money is transferred from one country to another. He agues against his own MMT founder, Mosler on that and believes that the reserve bank must create more money every time a money payment is made to an overseas entity. He needs to listen to people who have experience in the matter rather than form his own opinions that are based on rationalizations rather than actual realities.
Following this estrangement he went into business for himself with the support of Lubbocks and Forster, an eminent banking house. He made the bulk of his fortune as a result of speculation on the outcome of the Battle of Waterloo. The Sunday Times reported in Ricardo's obituary, published on 14 September 1823, that during the Battle of Waterloo Ricardo "netted upwards of a million sterling", a huge sum at the time. He immediately retired, his position on the floor no longer tenable, and subsequently purchased Gatcombe Park, an estate in Gloucestershire, now owned by Princess Anne, the Princess Royal and retired to the country. He was appointed High Sheriff of Gloucestershire for 1818-19. en.wikipedia.org/wiki/David_Ricardo
ProfSteveKeen Yes, but I’m saying it’s a conflation with the story (or legend, it’s disputed) of Nathan Mayer Rothschild. The Waterloo spotter, and sell first, buy later market manipulation story is about Nathan Rothschild. I remember learning it about it university a couple decades ago, some finance class I assume. It might not be true but it’s pretty popular among Wall St. traders. That Ricardo made a fortune on speculation would be different than the Rothschild intelligence network story.
@@solank7620 So I thought, and was told. But it's the legend and Ricardo is the fact. I did a bit of checking after deciding to write a satire of Ricardo, and being surprised by this wikipedia entry attributing it (with sources) to Ricardo--including recording the fortune he made from the trade. See my satire BTW herre www.amazon.com/eCONcomics-Taking-Economics-Steve-Keen/dp/9527065976/
Keen's economic belief Machinery not being moble between countries (3.35 onward) is cleary wrong by evidence as it s is by straight logic. He claims " in the less competitive industry in both countries" . So when a company produces a product in one country then that product becomes undersold due to low prices of competition from imports originating in the other country that product will disappear completely from the market due to the second country colapsing in a like manner. hat has Not happend in fact as an observation in the US for instance . It is evident in the loss of industries to the lower cost producers in other counties making the same products that used to be made and sold in the US. The drift to Taiwanese textile clothing and footwear producers and later Chinese producers is an excellent example of what happened in the 1960 and later in the 1980's.
Prof. Keen's willingness to expose economic sacred cows is glorious. Excellent presentation.
Saved this a long time ago to watch later and now I finally did. Great lecture, thanks Professor!
I was the first one to like this... Yessss.. thank you Steven like always very informative and educating.
I wish I had paid even more attention and chosen more of your subjects at UWS.
Steve*
Ricardo didn't really know much about wine making. If the Portuguese gave up herding sheep for wool and instead diverted the labor towards making more wine, one, where would the extra land come from? From the land used to graze sheep, apparently. But it takes years to get a new vineyard up and running, so what do these workers do for income in the meantime?
And what if the land isn't suitable for vineyards, or if it isn't as productive as the existing vineyards, or if it produces inferior quality wine because the "terroir" isn't right for good wine making?
It's probably more likely the case that Portuguese had already found the best mix of uses for their land through the market process, so they would have been wise to ignore the theorizing of a stockbroker and economist in London who didn't know what he was talking about.
Why has this fallacy been so well supported?
Corporations (making political donations, and undoubtedly other donations) benefit the most by the mobility of trade and capital:
ie, buy in one country, manufacture in another country, sell in a third country, and be incorporated and pay taxes in a fourth country.
It's as simple as that.
Yup. And it's also not interesting for established corporations from developed countries to begin facing more competition by companies from other countries, which would be the natural consequence of the abandoning of free trade ideology by developing economies.
Thank you so much for doing ricardian theory & principles. I'm a big fan of Ricardo economics! Also please do more videos on Ricardo.
I've always maintained that Brexit will lead to a mini bull market in productivity, ie. manufacturing.
Put your lectures into podcasts form! You will reach more people, That's Surely the point. Big fan by the way.
In Ricardo's time production was not so capital intensive as now so the loss of use not so costly. Also labour not so specialised. Big adjustment problem still though.
Great talk
Thank you Prof Keen, real instructive and concise
Great lecture, very inspiring. Thanks!
26:00
Absolutely dialectical.
Whats your opinion on Paul Cockshott?
This clarifies.
Ricardo's theory of relative or comparative advantage was formulated for a global economy in which most of the GDP was accounted for by agriculture, forestry, and mining, industries in which naturally occurring factors of production are important. And even under those restrictive conditions, his theory included the caveat that relative advantage did not apply if labor OR CAPITAL was easily mobile between nations. Even today's economists acknowledge when pressed that unilateral free trade works out badly for the unilateral free trader, yet they pretend not to notice that this concession is tantamount to admitting that the theory of comparative advantage does not apply to conditions that prevail today. If comparative advantage still applied under today's conditions, than a unilateral free trading country would benefit more than the rival that practiced industrial protection, and might even benefit more than if both nations were trading freely with one another. So comparative advantage is a fraud in today's economic conditions. (Further, there were important but rarely dwelt on limitations to the theory even in Ricardo's time.)
I’d like to hear Professor Keen to Articulate his point on interchangeable machinery and labour ? It does happen and quite regularly in fact whether it happens easily or not is more were I would hear the argument! Workers have had to adapt in industrial environments for centuries the basic training of the modern worker has been built in for this fact I would argue! Standardisation of mechanics training would be one example, electrical training would be another IT would be another Engineers another!! As for Machines the same goes a crane can lift in any heavy industrial setting an earth moving machine can move earth in many industries whether that is mining or waste disposal or construction! Trucks ?? Another example
Try using a blast furnace to make a cappuccino. Yes there are some capital items used in a large range of industries, but the capital specific to each industry cannot be repurposed.
Thanks Steve.
Free Trade. If it was really Free we would not have to sit down and have "Free" Trade Negotiations, would we? In reality, they are always just Trade Negotiations, and the bunny who gets done is the one who truly believes there is something special in that 'Free' tag. Everyone else knows it's a game of bluff, moves, and countermoves.
(Yep, thus far, Australia is the bunny!).
"Free" Trade. The biggest fallacy of our times.
Factors in play are not just machinery:
Employment rate,
Education standards/technical skills,
Training systems,
Mobility of workforce,
Flexibility of workforce, (can winemakers learn to make cloth?),
Availability of raw materials/resources.
Infrastructure and transportation costs
Energy costs
Taxation levels
Currency relative values and movements.
Availability of finance.
Legal structures and their practice.
The logical end point is one country (and eventually one company) will do everything, and the rest of us will work for them, and buy everything off them.
Ricardo's simplified example kind of presumes that Portugal and Britain only have each other as trading partners, or that the comparative productivities of labor and capital are the same when we examine those countries in relationship with their other trading partners, and furthermore assumes that a country producing a single commodity is as resistant to price shocks as a country which spreads its risk across several industries. Ricardo, as a banker, should have understood the value of spreading one's risk through diversification.
Further in respect to Keen's comments about the wine industry and the spinning jenny he denies that machinery can move from one place to another but fails to understand that so much machinery in todays world of easy transportation makes it very easy to relocate machinery.
Added to that is the fact that for any business there is depreciation on machinery (capital) due to several factors including obsolescence and just plain wear which makes a short life for much of the capital machinery. This results in whole factories in many industries being relocated very easily.
The example that comes to mind is the huge relocation of footwear, textiles and clothing manufacturing that took place in the 1950's and 1960's and 1970's to Taiwan from the US and later to China.
For crying out loud, machinery etc is not transferable (or not easily/readily/costlessly so) from one INDUSTRY to another. And, notwithstanding the trends towards de-skilling etc, neither are workers and the working capacities.
Stavros Karageorgis it’s arguably both points are right and also wrong , a Diesel engine / gear box that is suitable for a crane which has worked in construction for example could quite easily be used in another industry there are many examples same is also true of workers having a basic training in any specific trade and it being interchangeable and updated and upgraded to suit other industries it’s actually a no brainer workers have had to do this for eons ! Diesel mechanics and Electricans are two such trades that do this all the time !
He said the opposite. Machinery is easily transferable from one country to another, but not from one industry to another. Capital in the form of money, on the other hand, is easily transferable from one industry to another, but not between countries (in Ricardo's time, of course).
@@rodericom Of course transferring money was easy in Ricardo's time. It was commodity based in many countries and transfers could be made in gold or silver or products like cotton or wool themselves.
@@rodericom The reality is today Keen himself does not even know how money is transferred from one country to another. He agues against his own MMT founder, Mosler on that and believes that the reserve bank must create more money every time a money payment is made to an overseas entity. He needs to listen to people who have experience in the matter rather than form his own opinions that are based on rationalizations rather than actual realities.
2:44
23:55 I think he’s conflating the stories of Nathan Rothschild and David Ricardo here.
Following this estrangement he went into business for himself with the support of Lubbocks and Forster, an eminent banking house. He made the bulk of his fortune as a result of speculation on the outcome of the Battle of Waterloo. The Sunday Times reported in Ricardo's obituary, published on 14 September 1823, that during the Battle of Waterloo Ricardo "netted upwards of a million sterling", a huge sum at the time. He immediately retired, his position on the floor no longer tenable, and subsequently purchased Gatcombe Park, an estate in Gloucestershire, now owned by Princess Anne, the Princess Royal and retired to the country. He was appointed High Sheriff of Gloucestershire for 1818-19. en.wikipedia.org/wiki/David_Ricardo
ProfSteveKeen
Yes, but I’m saying it’s a conflation with the story (or legend, it’s disputed) of Nathan Mayer Rothschild.
The Waterloo spotter, and sell first, buy later market manipulation story is about Nathan Rothschild.
I remember learning it about it university a couple decades ago, some finance class I assume. It might not be true but it’s pretty popular among Wall St. traders.
That Ricardo made a fortune on speculation would be different than the Rothschild intelligence network story.
@@solank7620 So I thought, and was told. But it's the legend and Ricardo is the fact. I did a bit of checking after deciding to write a satire of Ricardo, and being surprised by this wikipedia entry attributing it (with sources) to Ricardo--including recording the fortune he made from the trade. See my satire BTW herre www.amazon.com/eCONcomics-Taking-Economics-Steve-Keen/dp/9527065976/
Boeing move plane parts all over the world they must not be listening to Steven Keen. Bummer.
Keen's economic belief Machinery not being moble between countries (3.35 onward) is cleary wrong by evidence as it s is by straight logic. He claims " in the less competitive industry in both countries" . So when a company produces a product in one country then that product becomes undersold due to low prices of competition from imports originating in the other country that product will disappear completely from the market due to the second country colapsing in a like manner.
hat has Not happend in fact as an observation in the US for instance . It is evident in the loss of industries to the lower cost producers in other counties making the same products that used to be made and sold in the US. The drift to Taiwanese textile clothing and footwear producers and later Chinese producers is an excellent example of what happened in the 1960 and later in the 1980's.
Mobile between industries.
Some of these clowns must have moved into climate science...