On Free Trade Ideology
According to conventional “wisdom” free trade leads to prosperity. Usually the idea is based on a version of David Ricardo’s (1817) theory of “comparative advantage” which is taught in most high-school economics classes. There is, however, a fundamental problem with that theory, as was shown by Frank Graham in 1923, and unfortunately that problem tends to be ignored. In the following, I will briefly summarize Ricardo’s theory and Graham’s correction thereof, and discuss why the latter is ignored and the effects and implications of that neglect. Ricardo’s model Assume a world with two countries, “country A” and “country B”, and...