Tuesday, October 20, 2009

The Philanthropy of Financiers: excerpt 6

a fine critique of mid-20th century Ricardian theology is this, by Joan Robinson: the economist's case for free trade is deployed by means of a model from which all relevant considerations are eliminated by the assumptions - each country enjoys full employment - there is no migration of labor and no international investment, however great the differences in the level of profits in different countries may be - at the same time there is perfect mobility and adaptability of factors of production within each country - perfect competition prevails - fixed exchange rates are taken for granted - equality between the values of imports and exports of each country is quickly established, in the face even of large disturbances, by movements of relative prices brought about through the international monetary mechanism -- all this has to be taken for granted before the argument begins - yet prescriptions for policy were drawn from it, with great confidence, to apply to a world which by no means conformed to the assumptions.

of course, this dogma, Robinson acknowledged, had "solid interests behind it" - the imperial-corporate classes of Britain in the 19th century and the US in the 20th - Robinson's 1965 critique focused on the contradictions between assumptions and reality: theoreticians' dismissals of unemployment, currency and capital market irrationality, large trade imbalances, and what Robinson called the new mercantilism, the model of state-led export-promotion that makes every country a more eager seller than buyer - Clinton seems a much better New Mercantilist than Bush, an activism that can only intensify global competition.

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