Sunday, April 08, 2012

An Interesting Debate

Jon, of the Prove Me Wrong Blog (see previous post) has replied to my critical comment on his post. They follow below. I shall reply to them later today when I return to my home, after the family's Easter celebrations at my daughter's. Jon's post is a careful, non-personal, post and shall be treated as such.

Jon writes:

"What Chomsky is saying is not that Smith is addressing modern globalization and neoliberalism. In his day the phenomenon was different. But it was also similar in important ways. It's a critique of a centuries old Friedmanite like policy.

Smith says that a merchant would sooner accept a lesser profit rate at home than a greater profit rate abroad. I translated that to a modern equivalent. Better labor rates abroad. That's a major means of improving profits today via globalization. That's not Smith's focus and I didn't mean to suggest it was.

I agree Smith says that a man prefers to stay at home because of risk. But then he says this:

Home is in this manner the centre, if I may say so, round which the capitals of the inhabitants of every country are continually circulating, and towards which they are always tending, though, by particular causes, they may sometimes be driven off and repelled from it towards more distant employments. But a capital employed in the home trade, it has already been shown, necessarily puts into motion a greater quantity of domestic industry, and gives revenue and employment to a greater number of the inhabitants of the country, than an equal capital employed in the foreign trade of consumption; and one employed in the foreign trade of consumption has the same advantage over an equal capital employed in the carrying trade. Upon equal, or only nearly equal profits, therefore, every individual naturally inclines to employ his capital in the manner in which it is likely to afford the greatest support to domestic industry, and to give revenue and employment to the greatest number of people of his own country.

As I read this he seems to be saying that because more capital in a home country provides certain benefits (revenue and employment to more people) the merchant will be content to accept even a lesser profit in order to stay at home because he prefers the betterment of his home country. This is part of the invisible hand, and it's not Chicago School economics.

So I'm seeing a both/and argument here. Yes, he prefers to stay home because capital in a foreign country is more risky. But he also prefers more revenue and employment for those around him. That's only self-interest, but it provides a public good in any case."


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