[samgheb]

I have a course on Global Political Economy and my professors are marxists and generally support heterodox economics. They particularly like Ha-Joon Chang and his use of history to show that Western economies didn’t practice free trade in the way modern economists advocate. But rather protected industries(infant industries,etc). According to my professors there are predominantly two growth strategies with one called Ricardian and the other being Kaldorian with the former being a dead end according to my text book and my professors.

Now I know the Misesean argument is that you can’t argue from statistical facts against theory and I fully accept that. But what I was wondering is if there were any works that show how free trade was responsible for growth in the 19th century and after?

[jmherbener]

Nathan Rosenberg and L.E. Birdsell, How the West Grew Rich (New York: Basic Books, 1986).

http://www.deirdremccloskey.com/docs/pdf/Article_63.pdf

Thomas DiLorenzo, How Capitalism Saved America (New York: Crown Forum, 2004).

https://mises.org/journals/qjae/pdf/qjae8_1_6.pdf

McCloskey has written quite a bit about the industrial revolution. Here are a few examples:

http://www.deirdremccloskey.com/docs/pdf/Article_62.pdf

http://www.deirdremccloskey.org/articles/revolution.php

The cause of economic progress is not merely free trade. Free trade simply allows for an extension of the division of labor, which does raise productivity as people and places are rearranged into their areas of comparative advantage. But the steady improvements of living standards are the result of capital accumulation which requires saving by people and investing by entrepreneurs.

[samgheb]

Thank you very much for the links.

Am I right in saying that the critics of free trade are completely avoiding the raising of living standards that is the result of cheaper goods coming into a country?

The focus seems to only be on whether or not a country can compete on producing the same things as other countries. The only counterargument I have heard from critics is that if you only specialize in agriculture then you won’t make the move up to a more industrial economy and that an agricultural economy is more unstable since you are more likely to find developing countries competing on agricultural products.

[jmherbener]

Such a claim by the critics is a-historical. America started with a subsistence level of standards of living in colonial days. They were exporting agricultural (e.g., tobacco, rice, etc.) and extractive resources (e.g., timber, fish, etc.) to England. Yet, by the time of the American revolution, American standards of living were on par with those in England. America continued to have comparative advantage in agricultural and extractive industries during the 19th century as it was becoming an industrial power. Even today, we export large amounts of agricultural and extractive goods. America is the world’s leading exporter of natural gas.

Similar stories could be told about other countries such as Canada.

[samgheb]

Ok but as I understand their argument no country can perpetually rely on those things and that it was governments that helped spur growth in areas in these non-agricultural sectors.

Their point being that simply exporting agricultural goods means that from a competitive point of view, you will eventually get competition and that when it comes to agriculture it is easier to enter and dilute the market. Therefore even a sophisticated agricultural economy would not be able to match a manufactoring economy(19th century context) in terms of creating wealth.

[jmherbener]

It is always more favorable for standards of living to specialize in areas of comparative advantage. Doing so generates higher incomes than not doing so. With the higher incomes, people can save and invest to accumulate capital which makes them even more productive. With their greater wealth they then can save and invest even more.

Americans both exported agricultural and extractive industry goods and attracted capital investment from abroad at the same time. The capital investment was invested in lines of production that eventual integrated America’s economy into the world’s advanced capital structure.

To use an analogy, A family who owns a farm, but no capital equipment for mining on his land or building a blacksmith shop and tools would be better served in obtaining mining equipment and a blacksmith shop and tools by specializing in agricultural products and selling them to others in exchange for their capital investment in the mining equipment and the materials to construct a blacksmith shop and blacksmith tools than in abandoning farming and trying to produce the mining equipment, blacksmith materials, and blacksmith tools himself.

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