The Global Free Trade Error: The Infeasibility of Ricardo’s Comparative Advantage Theory

181 Pages·2016·7.82 MB·English

by  ron Baiman

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The Global Free Trade Error
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The doctrine of “free trade” is second only to that of “free markets” in undergirding
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1 ideological support for our current global economic structures and rules. From
7 David Ricardo’s “comparative advantage principle” to James Meade’s Neoclas-
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6: sical or mainstream economics proof of self-adjusting free trade equilibrium,
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t the free trade doctrine has had a lasting and destructive hold on Neoclassical
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] economic thinking since its inception.
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g The Global Free Trade Error provides a detailed analysis of these founda-
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i tional models and counter-poses these to alternative Neo-Marxist “unequal
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n exchange” models of global trade and finance. In the first part of the book the
Sa three core free trade models alluded to above are respectively demonstrated to
a, be: overdetermined, inapplicable, and infeasible. In particular, Ricardo’s parable
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n is shown to support managed trade rather than free trade as Ricardo and two cen-
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o turies of economic texts have claimed. In the second part of the book, unequal
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al exchange analyses of global trade are shown to provide logically coherent and
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useful insights into global trade and finance. In the third and final part of the book,
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o this unequal exchange perspective is used, within a general “demand and cost”
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t setting, to develop a set of global managed trade principles for a more equitable
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r and sustainable world trade regime.
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v This book will be of great interest to those who study political economy, his-
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U tory of economic thought, and international trade, including trade agreements
y [ and tariffs.
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e Ron Baiman teaches economics in the MBA program at Benedictine University,
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a U.S. He has written numerous academic and policy papers, served for many years
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l on the Editorial Board of the Review of Radical Political Economics, and is the
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w author of The Morality of Radical Economics: Ghost Curve Ideology and the
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D Value Neutral Aspect of Neoclassical Economics, and co-author and co-editor
of the Choice award winning collection: Political Economy and Contemporary
Capitalism.
Routledge Frontiers of Political Economy
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1 For a full list of titles in this series please visit www.routledge.com/books/series/
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6 218. The Economic Ideas of Marx’s Capital
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t Steps towards post-Keynesian economics
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] Ludo Cuyvers
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g
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i 219. A New Economics for Modern Dynamic Economies
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n Innovation, uncertainty and entrepreneurship
Sa Angelo Fusari
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n 220. Income Distribution and Environmental Sustainability
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o A Sraffian approach
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al Robin Hahnel
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o 221. The Creation of Wealth and Poverty
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U 222. Labour-Managed Firms and Post-Capitalism
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a A Normative Approach
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D 224. The Political Economy of Trade Finance
Export Credit Agencies, the Paris Club and the IMF
Pamela Blackmon
225. The Global Free Trade Error
The Infeasibility of Ricardo’s Comparative Advantage Theory
Ron Baiman
The Global Free Trade Error
The Infeasibility of Ricardo’s Comparative
Advantage Theory
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2 Ron Baiman
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First published 2017
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
 2017 Ron Baiman
The right of Ron Baiman to be identified as author of this work has been
7 asserted by him in accordance with sections 77 and 78 of the Copyright,
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0 Designs and Patents Act 1988.
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l All rights reserved. No part of this book may be reprinted or reproduced or
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r utilised in any form or by any electronic, mechanical, or other means, now
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A known or hereafter invented, including photocopying and recording, or in
1 any information storage or retrieval system, without permission in writing
1 from the publishers.
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1 Trademark notice: Product or corporate names may be trademarks or
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6 registered trademarks, and are used only for identification and explanation
0 without intent to infringe.
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a
] British Library Cataloguing in Publication Data
o A catalogue record for this book is available from the British Library
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e
i Library of Congress Cataloging in Publication Data
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Names: Baiman, Ron, 1951- author.
n Title: The global free trade error : the infeasibility of Ricardo’s comparative
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S advantage theory / Ron Baiman.
a, Description: Abingdon, Oxon ; New York, NY : Routledge, [2017]
ni Identifiers: LCCN 2016044546| ISBN 9781138852952 (hardback) |
r ISBN 9781315723129 (ebook)
o
f Subjects: LCSH: Free trade. | Comparative advantage (International trade)
i
al Classification: LCC HF1713 .B26 2017 | DDC 382/.7101—dc23
C LC record available at https://lccn.loc.gov/2016044546
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y ISBN: 978-1-138-85295-2 (hbk)
it ISBN: 978-1-315-72312-9 (ebk)
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v Typeset in Times New Roman
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n by Swales & Willis Ltd, Exeter, Devon, UK
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To my life partner Michelle, and my children, Jeremy, Rachel,
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1 and Rebecca, without whom this book would not have been
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1 possible.
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Contents
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List of figures ix
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1 List of tables x
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1 Acknowledgements xi
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a 1 Introduction 1
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D PART I
n The illogical foundations of free trade ideology 5
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ia, 2 The infeasibility of free trade in classical theory: Ricardo’s
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r comparative advantage parable has no solution 9
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al 3 The limits of free trade in Neoclassical theory: from
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f Heckscher-Ohlin to unequal exchange 29
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y 4 Globally sustainable and balanced international trade based
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rs on exchange-rate adjustment is mathematically unstable
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v and therefore economically infeasible 49
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y PART II
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d The logical (and moral) foundations of unequal
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d exchange trade theory 69
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w 5 Unequal exchange without a labor theory of prices:
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D on the need for a global Marshall Plan and
solidarity trading regime 71
6 Unequal exchange and the rentier economy 91
viii Contents
PART III
Globalization that supports human and planetary
well-being 123
7 Toward a new political economy for the U.S. 125
8 There is no alternative to managed global trade 135
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1 Index 164
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Figures
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1 3.1 Equilibrium in the AHO model 32
1 3.2 Trade indifference curve 34
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1 3.3 Offer curve 34
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0 3.4 Meade’s free trade equilibrium 35
at 3.5 Haberler international trade equilibrium 37
o] 3.6 Free trade with very unequal factor costs 41
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e 3.7 Free trade with very unequal production capacities 44
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4.1 Three-country trade flows 56
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a 6.1 Value added in industry 100
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a, 6.2 Value added in banks, insurance, real estate, and other
ni business services 101
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o 6.3 Gross fixed capital formation in machinery and equipment 102
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al 6.4 Current account balance of payments 103
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f 6.5 Total tax revenue 104
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y 6.6 Public social expenditure 105
it 6.7 Value of iPhone components and labor by country of origin 106
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e 7.1 Tax revenues as a percent of GDP 126
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ni 7.2 U.S. 2007 trade balance in goods 130
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7.3 U.S. 2007 trade balance excluding petroleum 130
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y 7.4 2007 U.S. current account in services 131
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d 8.1 The supply and demand model (SDM) 142
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d 8.2 SDM consumer surplus and producer surplus dead weight loss 144
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l 8.3 The demand and cost model (DCM) 147
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w 8.4 DCM consumer surplus and producer surplus dead weight loss 151
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