CONTRA RICARDO: AN ESSAY
Edward E. Rochon
Edward E. Rochon on Shakespir
Contra Ricardo: An Essay
Copyright © 2016 by Edward E. Rochon
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Some Other Works by the Author
[Compound Interest: An Essay
Dollar Inflation: An Essay
Dollar Inflation II: An Essay
Green Gold: An Essay
Inflation Court: An Essay
Jobmasters: An Essay
Minimum Wage & Economics: Essays
Monetary Stability: An Essay
[Axioms & Theorems: An Essay
Global Warming: An Essay
Pest Control: An Essay
Pollution Solution: An Essay
Pollution Soup Cook: An Essay
Unified Field Theory: An Essay
Table of Contents
David Ricardo (1772-1823), British financier, Member of Parliament, economist and writer, was noted for certain ‘laws’ of economics. He supposed a tendency of wages to always drop to bare subsistence level, that specialization is always better than a well rounded economy. Along with Adam Smith, he deemed labor to be the essential component of wealth, unrestricted free markets as ideal, and that maximizing productivity of scarce resources leads to loss of wealth in the form of what he called: rent. That is, too much labor and time is spent bringing marginal farmland (for example) into productivity. This increases costs passed onto the consumer, and tends to allow all prices of foodstuffs to rise.
A general critique of Ricardo’s notions follows, in particular, his notion of ‘comparative advantage’ justifying excessive specialization of production.
Chapter 1: Parable of the Isles
Two islands rise from the sea, Isle A and Isle B. Isle A has an efficient economy, the latest technology, competent engineers, managers and artisans. Its business concerns produce everything more efficiently than the business concerns of Isle B. Reflecting the economy, the government and educational system are top notch as you might suppose. Well trained students make for well trained engineers, etc. A people accustomed to efficiently ran economic activity are less likely to tolerate inefficient government. And inefficient government generally is detrimental to a well run economy.
The GNP of the isles adds up to A + B = C. Isle A has no reason to trade with B, and B has nothing to trade with A, with the following possible exceptions. Isle B might trade with places on the mainland that desire its products, bringing in goods to B that Isle A might desire. B might have reserves of money that Isle A merchants will take in return for products. When the money runs out, a one way flow of cash, Isle B will have nothing to trade, unless it sells elsewhere to acquire money or goods that Isle A will want. We suppose some mainland goods are not available on Isle A or of better quality.
David Ricardo argues that the value of C can be increased by trade between the two isles regardless of any mainland trade. He supposes some of the industry on Isle B is closer in efficiency to the efficiently run equivalent industry on Isle A. In turn, some industry on Isle A is proportionately less efficiently run compared to those on B than some other B industries. The B folk should focus on the most efficiently run industries, specializing and concentrating intellectual activity, financial investment at the expense of the other industries, effectively forcing them out of business. As a side comment, the resultant unemployment in Isle B would drive down wages, free up labor and resources for the the more efficient industries. Isle B would be forced to buy goods it needs from Isle A from wages earned on B. Isle B could try and sell its limited specialized production to the mainland or to Isle A. If Isle A still did not want the goods of B, they would lower prices in desperation to equivalent products on A, and perhaps to the mainland, to get more money and more competitive advantage against goods in Isle A. Isle A might consider this to be dumping, undercutting their industry at the expense of local employment, available assets for commerce, and government taxation. But they should not put up tariffs, as this, according to Ricardo, violates the sanctity of free trade and the ultimate long range goal of maximizing the total production of the two isles: C.
In the end Isle B should produce fewer goods more efficiently and Isle A should focus on those most efficient of its efficient industries. Now what is the real state of affairs between the two isles?
It is possible or likely that some advantages of Isle A industry has to do with ease of extraction of raw materials. It may have material not available on Isle B. But the overall state of the island economies does not indicate this to be the main problem. The real problem is a discrepancy in organization or wisdom of production. Ricardo supposes his specialization will lead to a value in place of C: A + B = C’, and that C’ will be greater than C. What Isle B really needs to do is figure out why A is so much more efficient than B and emulate it. We need free trade in knowledge rather than and over free trade in goods. This would produce the more ideal state of: A + B = C’‘, and C’‘ would be higher than C’. In addition, resources limitations can often be overcome by superior technology and substitution to produce products of equivalent value.
I might add that Ricardo is a microeconomist passing himself off as a macroeconomist. The same can be said for Adam Smith. The factory spews out poison into the river. This poison was a clever invention that improved production. The effects of the poison were not readily understood. The profits of the factory owner are at the expense of poverty and death to fishermen and consumer, to firms that require clean water and fish products. The river is causing other environmental problems at great expense to the economy, hardly worth the increased productivity of the factory. But, hey, the factory owner spends most of his time isolated in his office, lives up on the hill with his own spring water tap.
Ricardo readily ignores the pain, poverty, lost wages and productivity that invariably result from free trade specialization of production. Keeping people at work while adjusting to changes of new knowledge is much less stressful. For one thing, they keep their jobs. For another, learning ennobles men, teacher and student alike. We add that the real value of money is neither gold nor labor, but a well run economy and society that gives confidence in the future and stability for plans that are derived from that stability and confidence.
Ricardo was also a speculator. Separating means of production from consumers makes it easier for speculators to manipulate prices, government power to control speculators (weakened), and by its very nature is more likely to create price fluctuations. Why is that?
Suppose we have a number of countries that produce a range of agricultural products. Using Ricardo, each country specializes in one product. Now we have plagues, blights, bad weather, natural catastrophes in general, civil strife, and anything else you can think of. Any major impact on monoculture is a catastrophe of enormous impact, whereas a mixed economy would be less likely to suffer social dislocations. Well, maybe we can create an international insurance corporation that will buffer each country? Insurance is money based and much more inclined to embezzlement, market crashes, quarrels about honesty of claims made by each country, possibly resulting in war. Overcentralization invariably leads to sectional rivalry and chaos. This supplies an argument for more centralization that leads to more sectional resentment, not to mention conspiratorial factions at the center of power. This is no way to run a planet.
The tendency for unrestricted business to drive down wages is compounded by the tendency to drive up profits. International trade makes it easier for middlemen to take ever larger shares of production. Indeed, this trade guarantees that middlemen income take will increase in percentage to the overall economy. Driving down wages makes middlemen profits more valuable, because lower labor costs lead to a relative increase in the value of money, and what is the result? We have unemployment leading to lost productivity. We have social unrest leading to loss of income due to violence and impaired commerce, with an increase of crime that always attends social conflict. Mr. Ricardo’s benefits fly down the sewer of death, decay and poverty.
In sum, organization is much more vital to productivity than labor, minimizing division of labor as a factor in productivity. In point of fact, superior organization increases the wealth generated by division of labor to the maximum attainable given the knowledge base. I might add, organization justifies the wealth of the rich more forcibly than labor factors, giving more confidence to the rich, less reason for class resentment among the poor and modest income recipient, and inures into the rich the vital importance of superior organization in generating wealth, rather than trying to screw people out of good wages with competition as the excuse.
I might add that much or all of the wealth supposedly gained recently by more free trade is in fact the result of superior technology and organization in producing foodstuffs, goods and services. To be sure, the free flow of wisdom benefits the whole world.
As an afterword, just because the ignorance and weakness of men incite them to use division of labor to increase wealth, this does not make ignorance and weakness virtues that should be encouraged by excessive reliance on division of labor. Strong men make strong families, communities, strong nations. Wisdom and can-do-capacity make strong men. This should be encouraged. We have strayed much too far into overspecialization. The next parable deals with that.
Chapter 2: Parable of the Work Crews
The dark satanic mills of fin du siècle whirl away producing the wonder machines of the industrial revolution. Competition is fierce. Production costs must be kept down. The major component is generally organization, but that entails dealing with the writhing breath stealing snake of management. The industrial magnate is familiar with management. They play together, socialize together, work together closely, in contradistinction with his laborers. By the way, the rat race is a dirty rat race, and these managers are precisely the ones who have the dirt on the great tycoon. Blackmail is not out of the question, or stealing trade secrets for the benefit of the opposition, etc. (Some of the engineers might do this too, and a few of the highly skilled laborers. But division of labor mitigates this for the laborers.)
You can see that it is much safer to put the squeeze on the workers to cut costs. Besides, they are not fit to live in the war of darwinist struggle. How do you do that? You make them work long hours, fewer hours of their life proportionately tied up in transit to work, fewer proportionate hours in set up and break down of work chores, etc. You just pay them less for more work. You push them beyond the breaking point. If they die or are maimed at work, you let them go. By having surplus labor, you can replace them cheaply to your microeconomic advantage, but not to the advantage of the commonwealth. You try to rush them, less time spent for safety precautions, cut on safety equipment and infrastructure. Let society pay the cost for their broken bodies. You plot to keep them disorganized in any fashion available to you, infiltrate spies in to the labor pool to do so. If they organize, you set up or infiltrate the unions. This does not make for happy campers. Let me tell you how the workers feel about this.
They hate their employers, have no loyalty to them. When the assembly process breaks down, they are glad. They see it as a reprieve from their burden and a way of avoiding injury, providing the breakdown is not life threatening. If they can sabotage the factory to slow down the work without risking getting caught, they will do so. Their brain and body do not work at optimal level. They are less efficient laborers. In Carnegie’s steel mills, we hear one in eleven workers died on the job each year. We hear half the linemen died on the job when Westinghouse built his A/C power grid from Niagara Falls.
Let us look at some good things. If you have a team effort building a car, let us say, you have the option of substitution of work details. Eight workers need not do the same backbreaking assignment for 11 to 12 hours a day. They switch jobs. If an employee has a sore back, with some friendliness, his coworkers may let him off that job for a while to recover. The employees know more about the car as a whole, since they work on all parts of the car in cycles. Though they do not like the company, they are likely to spot quality problems. They are better joiners, mechanics, though tired and unhappy.
We jump over to a mass production line. The workers need less training. The line works faster by comparison (to the miserable workers.) The employers demand less hours and pay higher wages per hour, because of these efficiencies. This looks good but at a price, and the price is deceptive as well.
We see the Henry Ford story above. We note that less tired workers are prone to make less mistakes. We know that higher wages increase morale and company loyalty to a point. They do not want to work building cars for longer hours and less pay. However, we note that group assembly morale and loyalty would increase proportionately if such were forthcoming. We note that they would not be as motivated to see the work routine of assembly breakdown due to problems. We also note that group work requires more managerial skill in keeping material flow to each unit. You need better management and supply logistical skills. (The fat cats traditionally prefer to harass workers over management.) In return for improving work conditions, you get a healthier work environment, more highly skilled workers. All of this is blunted by long work hours and low morale coupled with skimping on safety. And to press the point on management. How much comparative advantage did Henry Ford obtain due to better logistical support to the assembly line? Perhaps more efficient shipping/receiving, purchasing, finance, warehousing, and so on? I suspect that Ford’s hardscrabble start up company was better run than his opposition. And his staff had less blackmail options against Ford due to the newness of the plant. And perhaps Ford was a bit more honest, having less torts on his slate to be blackmailed with? Do not place all savings on the bug colony assembly line.
What am I getting at? As a man who has done labor, I would much prefer the group work team over an assembly line. You use the same muscles over and over again in piece work, creating more likelihood of injury. It is mind numbing and dumbs down the man. When group work is done properly, empirical evidence supports that the workers produce better cars, saving on warranty costs, post warranty costs to the consumer. Henry Ford is to the American spirit of rugged individualism what monkey brain in the skull served as the main dish at Thanksgiving is to that American holiday. It is not American. It is not good for human beings, and I am not talking about the nutritional value of monkey brain.
Basically, the division of labor stinks. Every effort should be made to build well rounded citizens. We must admit that one man would not be able to make the modern complement of household goods. This is less true for a community, much less true for a province, even more untrue for a nation. Once economies of scale reach a certain point, counterproductive effects occur in overhead costs and flexibility. These add to expense. You may still see a minor advantage in direct savings on variable costs but it is misleading. Throughout history, smaller armies have defeated larger armies due to the unwieldiness of the larger armies. Yes, numbers count in battle, but smaller armies have advantages in efficiencies of movement, quickness in changing tactics and strategy as the battle develops. Besides, the virtuous man is not the cog in the wheel of the mass production line. Ignorance and incapacity are not desirable. We as individuals and citizens of a city, state, nation should strive to get as much of our needs within our own borders consistent with reasonable economic necessities. It makes for more efficient government, more honest government, more respect for labor, less class warfare. All of these add up to more prosperity. David Ricardo was a greedy fool. He pointed to the corrupt so called nobility of blood to justify his division of labor scam and free trade, viewing the nobility as wasteful, sybaritic etc. (Unlike himself?) These were the great supporters of tariffs in Britain. There is no nobility of blood and the notion vile in its own rationale. Intelligence, integrity, moral virtue cannot be inherited by blood. These are spiritual, immaterial values. A virtuous man might raise a virtuous son, but only by setting an example that is immaterial in essence, not by genetic inheritance. We got rid of this nonsense to some extent in America, though the filth of Charles Darwin, and other idiots is always trying to make it reemerge.
Chapter 3: Iron Law of Wages
It is to the advantage of every employer to encourage loyalty, gratitude, self-interest in keeping their job, and a vast knowledge base of that particular company’s situation in his employees. He should avoid firing, demotions to the extent consistent with justice and need. The Iron Law is consistent with a money grubbing mindset that cares nothing of the commonwealth, is prejudicial to it, conspiratorial in that other greedy magnates conspire to sabotage good employers out of greed, lust and malice. This law is not conducive to the generation of wealth and is no law at all, but simply the result of lawlessness. Moreover, it ignores the main cause of inefficient production, bad management, not bad laborers.
Chapter 4: Tariffs
We suppose a country like early America. We have tariffs. The tariffs help other regions and segments of society disproportionately. Let us suppose that the tariff is protecting shoddy goods across an industry, rather than promoting economic growth. Public resentment and government action can threaten to lower or remove tariffs to force improvements in that industry. In other words, shape up or be ran out of business. What do you think these companies would prefer? Let us say that domestic industry is using the tariff to protect and aid conspiracy in setting prices. Let us say an attempt to monopolize an industry is underway by first price undercutting, then conspiracy with transport companies and the usual means. In both cases, government and public ire can threaten to reduce or remove tariffs to blunt the conspiracies of either sort. Since foreign goods are not readily available to intimidation or collusion with the price fixers, the country uses the threat of tariffs to control the conspiracies. After all, you have to prove conspiracies. The conspiracies may have corrupted the courts. Legislating tariffs is above board and can blunt the conspiracies. Congressmen can also be bribed, but they stick out more than judges and more easily removed by the ballot box.
What happens when companies become multinationals? Should the people assume that this will rid them of conspiracies against the consumers? Ha, ha, ha! But there are no longer tariffs to use as a weapon. The conspiracies cut across national borders, so local government is paralyzed or blunted in taking legal or legislative action to force compliance with fair trade. Then what happens? The one world, Commie liars use this to bring about international central control to “help the people.” The problem is that the new magnates are evil and vile, not promoters of justice as they claim. The centralized Commie, Satan spawned oligarchy will cause factions, plots, resentment all around. Society will go into turmoil. The center will not hold. This will be used as an excuse for more centralization, leading to perpetual war and oppression. What party should we choose? Let me explain something about the options.
The left wing, right wing agenda: You can have affordable health care that isn’t worth having or has long waiting lines, or quality health that many cannot afford. You can have affordable housing that does not exist or is hardly worth having, or quality housing that many cannot afford. Perhaps your neighbor loses his job and you can pick up real estate on the cheap. You can have overt oppressive government and regulations, or covert oppressive government run from clubs and cabals. Government officials are low paid and few, controlled by plutocratic and occult forces. In effect you live under an oppressive state with a hypocritical veneer of freedom. You can have overt control of most wealth in the hands of a few under capitalism, or covert control of the wealth of the few under socialism. They are democratic vanguards of the masses, except they are not democratic. They claim to be an elite just as the plutocrats and cabals do. The more things change the more they remain the same, as Talleyrand claimed. How is that? Nothing changed except in appearance only; that is why. Justice cannot be based on fraud.
A few more points on tariffs:
A big cause of America’s Civil War: The Yankees wanted tariffs to build up industry. This allowed the US to arm itself against Albion and enemies, to create a diverse economy. The South was rural and plantation centered. The tariffs hurt the South more than the North. So more of the tariff’s proceeds should have gone to South Carolina than Massachusetts, a state getting jobs and income off the tariff. Meaning? A compensating expenditure in the South to build roads, infrastructure with money from the tariffs. If need be, rebates go to Southern towns and states to offset taxes, putting money into consumers to offset tariff increases on goods, directly and indirectly. Needless to say, this would have encouraged population growth and industry in the South, dampened secessionist sentiment, and gave the South more votes in Congress. But this would have helped the Commonwealth of America rather than the oligarchy of the Commonwealth of Massachusetts, at least in their lust filled distorted minds. The Yankees and Southern gentry were fighting a turf war over lifestyle and local influence. The North used slavery to bury this fight as an excuse to ‘Drive Old Dixie Down’. In fact most Yankees were racists and were against slavery for economic reasons. Southern conditions relied on slavery. Ultimately, compensating the South for emancipation and modern changes in life would have ended slavery to the satisfaction of both Northerners and Southerners. The fact is that the Civil War left the African-American a virtual slave well into the 20th Century. Hypocrite Yankees and hypocrite Southern Gentlemen destroyed the peace of the nation, because they put faction over commonwealth. Now the racist policy of favoring one race at the expense of individuals of another race was foisted on us to promote more unfairness. It is claimed that the tariff and states rights had nothing to do with the Civil War by many. But the nation was on the brink of civil war during the administration of Andrew Jackson. Jackson was a Southerner, owned slaves and came from the slave state of Tennessee. Civil war was definitely possible 30 years earlier. Do not tell me states rights and unfair tariffs did not contribute to the Civil War, you Yankee trash. You are a liar. I am from the North, oppose slavery, supported the North retrospectively in the war. I also know the history of New England, that there is nothing knew about it, the same frauds and liars from the old country. Oh, it just so happened that abolition served the narrow interest of New England. Slave ships from New York and Boston were captured the year before the war broke out off of Africa. Oh, see, the North was sincere. Oh? Or did some slave trading scumbag of a captain(s) fail to bribe the right people back home, or had enemies at home, were ratted on, set up to make the North look good in the coming war? These Yankee scum make me sick. What abominable hypocrisy! Just like the old country. England outlawed slavery and used suppressing the slave trade as an excuse to enslave the continent of Africa. England pushed drugs to China until China started producing most of its opium at home, and might have started to export it. Only then, did Perfidious Albion outlaw drugs and start a crusade against addiction, something the Emperor of China attempted, but was defeated by drug pushing England using the excuse of free trade. By the way, outlawing drugs made it more lucrative to organized crime, the bankers who laundered the money, and glossed the shame hovering over these British scum from their drug pushing deeds. Gangsters became the front men for the City of London and its worldwide confederates, and took the heat.
Other Works by the Author
Collected Poems I
Collected Poems II
Elements of Physics: Matter
Elements of Physics: Space
Elements of Physics: Time
Unified Field Theory: An Essay
Space as Infinity II
Golden Age Essays
Golden Age Essays II
Golden Age Essays III
Golden Age Essays IV
Golden Age Essays V
My current biography and contact links are posted at . My writings include essays, poetry and dramatic work. Though I write poetry, my main interest is essays about the panoply of human experience and knowledge. This includes philosophy, science and the liberal arts. Comments, reviews and critiques of my work are welcome. Thank you for reading my book.
A preface notes some basic concepts of David Ricardo and his background. Chapter 1 deals with comparative advantage as an economic theory. It notes that the real problem is the dissemination of wisdom, not a lack of specialization of labor. It notes that specialization results in economic problems, social strife, injustices of every sort. It notes that it hides the real source of wealth, the wisdom that guides labor and makes it worthwhile. Chapter 2 gives reasons why excessive division of labor has drawbacks that actually reduce wealth, ruin men's lives, passes the blame onto labor for faults in production, when the real problem lies in management. Chapter 3 discusses briefly the Iron Law of Wages. It maintains that employers are well advised to keep loyal employees by protecting their income to the benefit of both employer and employee, and the forces undermining this commonsense behavior. Chapter 4 discusses tariffs, the advantages of tariffs, how free trade can produce trouble, reduction in wealth. It notes how free trade hides the value of free dissemination of ideas as the real generator of wealth. I use the American tariff policy of the nineteenth century to illustrate the problems of the tariff.