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David Ricardo and outsourcing

It is fashionable to quote Adam smith, even to wear Adam Smith ties, We hear little about David Ricardo (1772-1823), whose Political Economy and Taxation (1817) promulgated the labor theory of value.

Virginia Abernethy quotes his classic statement on free trade in an attempt to show that he would have been against outsourcing:

"To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would mport it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth."

Virginia says: "Ricardo never envisioned a world where capital moved across national borders more freely than goods. But today, capital flows whip-saw workers through investors' search for "absolute advantage." Labor must progressively lower the price of their work [wages] because jobs go to where labor is absolutely cheapest.

Hence the recent free trade agreements, and open borders, are putting America's middle class into direct competition with the masses of very poor laborers in third world countries. As recently as the 1930s, Keynes stated that capital is best employed at home. This is the lesson forgot, and the reason that the United States is being de-industrialized".

Ronald Hilton - 11.07.03