Economics - comparative advantage is slaver ideology

One of the most sacred doctrines of mainstream economics is the theory of “comparative advantage”, first developed by Adam Smith and then by David Ricardo in the early 1800s. At the time, American economists from Free States denounced the theory as “British imperialism” because it tried to justify a never-ending British domination of manufacturing.

Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by regarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal society of nations throughout the civilized world. It is this principle which determines that wine shall be made in France and Portugal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England. - David Ricardo, 1817

The is the ur-text of “comparative advantage”  and it is obviously false. Just 50 years after publication, “hardware and other goods” were being manufactured in and exported from America in defiance of the laws of economics.  In fact, the USA had become a world leader in manufacturing and technology. How did this happen? Only because the political struggle between the Slave State Interests (happy to be exporters of raw materials) and the Free States was partially won by the Free States. Tariffs on imported manufactured goods, government investment in industrial infrastructure (like canals), and direct public purchase of manufactured goods (mostly military)  jump started US manufacturing and protected it against the comparative advantage of the Brits. The military success of the Revolutionary War and Civil War United States armies defeated British  economic policies that were designed to keep America as a provider of raw materials and captive customer of British manufacturing. In contrast, the military defeats of Indian states allowed the British to destroy the existing manufacturing economy in India and flood the country with British goods.

The theory of comparative advantage as Ricardo develops it, tries to define what are actually modifiable differences between economic capabilities of nations as fixed universal truths that are determined by unchanging laws of economics. In a world where the Netherlands has retained a profitable industry based on export of flowers - despite the comparative disadvantage of its miserable climate, and where China has through a huge government investment in education, infrastructure, and corporate finance, created leading high technology industries from zero, it should be obvious that comparative advantage is as much political as it is geographic or demographic. But Ricardo’s theory is still championed by modern mainstream economists who use it to advocate  “free trade” and attack “industrial or manufacturing policy” just as Ricardo did.

It is obvious why a wealthy British investor, like Ricardo would have found the theory of “comparative advantage” so appealing. This theory says that it is natural economic law for the UK to export high value manufactured goods and import cheap raw materials. And, similarly, the Slave States were also big fans of the theory - the slavers were the other party to be able to profit from comparative advantage. They sold raw materials to the UK and imported luxury goods. Their wealth was based on low taxes and exports of raw materials produced by slaves. In fact, the massive US export of slave grown cotton was highly profitable to the plantation elite, the British textile manufacturing industry and the complex financing/shipping industry that tied them together. The Constitution of the Confederate States of America, the so-called government of the slave holders rebellion, is basically the same as the US Constitution except for its guarantee of slavery and of slave economics - comparative advantage.

Article 8 which enumerates the powers of Congress, just as in the real Constitution, was modified to forbid manufacturing policy.

nor shall any duties or taxes on importations from foreign nations be laid to promote or foster any branch of industry

And the Commerce Clause was specifically changed to say what the current neo-confederate members of the US Supreme Court want it to say today:

(3) but neither this, nor any other clause contained in the Constitution, shall ever be construed to delegate the power to Congress to appropriate money for any internal improvement intended to facilitate commerce; except for the purpose of furnishing lights, beacons, and buoys, and other aids to navigation upon the coasts, and the improvement of harbors and the removing of obstructions in river navigation; in all which cases such duties shall be laid on the navigation facilitated thereby as may be necessary to pay the costs and expenses thereof.

That passage even has the love of “tolls” still carried on by modern Conservatives.

Comparative advantage from the colonial side consists of squeezing wealth from slaves and forbidding manufacturing policy - because it would impose taxes on the wealthy and disrupt existing lucrative trading patterns. Strangely, modern economic doctrine, even in the hands of people who consider themselves liberals has so deeply internalized Ricardo’s propaganda for British economic power that it is widely held, as a matter of principle, that manufacturing policy cannot work. This despite the overwhelming historical evidence that it does work. In fact, manufacturing policy is the only thing that works if your objective is general prosperity and not just the wealth of a certain class and the success of exploitative trade.

See also: Manufacturing, Economics, and Democracy and Economics on the Slant.

Minor edits: March 14 2014