A New Construction of Ricardian Theory of International Values: Analytical and Historical Approach
Abstract
The classical theory of value is characterized as value determined by productioncosts. Ricardo based many of his propositions (propositions on distribution, taxation, and dynamics) on the labor theory of value, a special form of the production cost theory of value. He was aware of difficulties with the labor theory, but did not find a consistent formulation of the production cost theory that could uphold the whole of his propositions. It was in the latter half of the twentieth century that the classical vision of value was reestablished by using simultaneous equations without recourse to the labor theory. It was established that relative prices were regulated by production costs determined by technological, as well as distributional, variables.
This development of the value theory was, however, confined to economies withoutinternational trade. Ricardo himself left the question of how relative prices are determined in economies with international trade unresolved, whereas neoclassical explanations developed after J. S. Mill’s declaration that international values should be determined by the law of supply and demand. Attempts to formulate international values in accordance with the classical vision of value faced difficulties in dealing with multiple countries and commodities, including intermediate commodities traded internationally.
A breakthrough was made by Shiozawa. He established that there is a combination
of international prices and wages that enables a set of techniques to be carriedout competitively as to produce any points on a facet that is part of the maximal boundary of the production possibility set. The prices and wages are determined by production costs in the sense that they are uniquely determined once a facet of the production possibility set is chosen, and the law of supply and demand has no role. Technologies are assumed to be different among countries, and the difference in wages enables multiple countries to produce a commodity by using different methods of production.
This is the first book written in English on the new theory of international values.
From Preface (3 top paragraphs and a aprt of the fourth)
Chapters (9)
This chapter is a general introduction of the new theory of international values, which is an extension of the cost-of-production theory of value to the international trade situations. Within a general framework comprising input trade and choice of production techniques, the new theory analyzes the international values (i.e., the system that consists of wages of each country and prices of goods), gains and losses from trade, and the patterns of specializations. It is the first theory to treat traded input goods in this general form. It facilitates the analysis of recent conspicuous trade aspects, such as rapidly increasing trade volume of intermediate goods, fragmentations of production processes, and the complex network of global value chains. Besides the Introduction (Division I), this work is divided into four parts: (1) the presentation of the theory (Division II), (2) extensions of the theory to more complex situations (Division III), (3) some examples of applications of the theory (Division IV), and (4) possible implications to three neighboring fields (Division V). Terms and concepts are explained in detail and theorems are fully stated. A mathematical proof of the fundamental theorem is given in the Appendix.
In this article we introduce readers to the new theory of international values by placing it in the context of the Ricardo-Sraffian theory of value and distribution. Ricardo’s theory is described as that in which exchangeable values of commodities are regulated by the quantities of labour bestowed in their production, on which he established his theory on the distribution of the produce of the earth. Contemporary classical theory, founded by Sraffa, is described as preserving Ricardo’s perspective of the value independent of distribution and of demand by replacing the labour theory with the production-cost theory. After noting that Ricardo left the question of determination of values of the commodities traded internationally, it is shown that J. S. Mill argued that the law of demand and supply determines them, which conflicts with the classical perspective. We then demonstrate how the new theory of international values solves the question in line with the classical vision. Lastly, the similarity between this theory and Sraffa’s treatment of multiple products is indicated.
The principal theorem of the new theory of international values for a Ricardo-Sraffa trade economy is presented and then illustrated using a two-country, two-commodity model and a two-country, three-commodity model. It is shown that the classical vision of values as independent of demand is preserved, even when international trade takes place. In other words, values are mainly determined by costs of production or, ultimately, by technology. The values are, however, not determined uniquely, and demand plays a role in selecting a set of values from among those that are admissible under present technology and mark-up rates. Three different production possibility frontiers are introduced: R-efficient locus, physical maximal frontier and capitalistically feasible frontier. It is argued that distinguishing among these three frontiers is necessary in order to comprehend the role of demand in determining international value. Lastly, the similarity of this relation of value and demand to that of rent theory is pointed out.
Ricardo’s (On the principles of political economy, and taxation, 1817) theory of comparative advantage is the first rigorous theory that demonstrates that free trade benefits every country. He explained his theory using a numerical example of two countries and two commodities. However, the fact that the theory cannot be true when we expand his model to the multicountry and multicommodity case, or to the model that assumes intermediate goods, became clear. Following the study by Graham (Q J Econ 46:581–616, 1932) and McKenzie (Rev Econ Studies 21: 165–180, 1954), the neo-Ricardian theories of international trade as developed by Steedman (Fundamental issues in trade theory, Macmillan, London, 1979) reconsidered gains from trade and showed the possibility of losses from free trade. Recently, Shiozawa (Evol Inst Econ Rev 3: 141–187, 2007) indicated the differences in the number of countries and goods and analyzed cases in which prices did not depend on demand but were determined by production cost. This chapter surveys the development of trade theories and analyzes the gains from trade using the most generalized model. Furthermore, it also considers how the new theory of international values proposed by Shiozawa (Evol Inst Econ Rev 3: 141–187, 2007) provides a new horizon to the previous results.
The Ricardo–Sraffa trade economy model is notable for the vital role it plays in determining international normal prices as well as link commodities. It has also laid a new foundation for the study of employment conditions in trade analyses. After comparing the views of Keynes (“National Self Sufficiency” in (1982) The Collected Writings of John Maynard Keynes, vol 21, Cambridge University Press, Macmillan, 1933), Parrinello (The notion of national competitiveness in a global economy In: Vint J, Metcalfe S, Kurz H, Samuelson P, Salvadori N (eds) Economic theory and economic thought : essays in honour of Ian Steedman. Routledge, London, 2009), and Shiozawa (Evol Inst Econ Rev 3(2):141–187, 2007, A final solution of Ricardo problems on international values. Iwanami-shoten, Tokyo (in Japanese), 2014) on the market mechanisms not eliminating unemployment, this study reviewed the elements regarding the long-term competitiveness of corporations and semiautonomous bodies.
Parrinello clearly shows that a bottom line of national competitiveness is established, that is, the condition that the international profit rate must be higher than the self-sufficiency profit rate during complete specialization. However, the RSte model shows that the complete specialization point does not occur in a more general international economic environment. Moreover, when full employment is not guaranteed by trade in the country, Keynes proposed spending time and carefully ascertaining the section that should be brought up in the country.
Finally, this study viewed the RSte model as a possible theoretical basis for the national self-sufficiency concept of Keynes. In this concept, Keynes indicated that some domestic industries should be preserved from a long-term viewpoint and not merely be regarded as a short-term cost consideration.
The neoclassical revolution was a shift from economics of production to economics of exchange. The study shows from an internalist point of view that one of the origins of the neoclassical revolution can be traced back to young John Stuart Mill, who tried to sort out a problem left unresolved by David Ricardo. Due to a peculiar reason that I would later clarify, he was led toward examining a pure exchange economy. In this setting, Ricardo’s cost of production theory of value was invalid. When Mills found the answer to this, he came to the following conclusion: “we must revert to a principle anterior to that of cost of production, and from which this last flows as a consequence,—namely, the principle of demand and supply” (On Laws of Interchange between Nations. First essay in J.S. Mill, Essays on some unsettled questions of political economy, 1844. Citation is made from Library of Economics and Liberty, 1844, I.19). This thesis caused a long-lasting and strong influence on the research programs in economics. The study describes how Mill’s thesis profoundly influenced three founding fathers of British neoclassical economics, namely, Stanley Jevons, Francis Ysidro Edgeworth, and Alfred Marshall. Different alternatives were researched and discovered, but it was Alfred Marshall, with his concept of demand and supply functions, who paved the way for today’s mainstream economics.
It is generally considered that the theoretical development in supply-demand equilibrium theory by J.S. Mill from supply and demand ratio theory by Adam Smith and David Ricardo is the most important event in the history of economics. Marshall (On Mr. Mill’s theory of value. Fortnightly Review, April, reprinted in Pigou AC (ed) Memorials of Alfred Marshall, London, 1925, 1876) and Schwarz (The new political economy of J.S. Mill. Duke University Press, Durham, 1972) identify Mill’s pricing model about absolutely limited commodities in quantity as a partial equilibrium theory. However, his pricing model is not governed by the laws of simultaneous determination between a quantity and a price at all. Followers have been misunderstanding the term “equation” that Mill used in the pricing. Mill’s system is not supply-demand equilibrium theory, but rather sequential process model with time, like Robinson (Econ J 63(251):579–593, 1953) and Leijonhufvud (On keynesian economics and the economics of keynes. Oxford University Press, Oxford, 1968).
The chapter examines the historical process of how the comparative advantage theory developed from James and John Stuart Mill to the modern theory, by way of Viner’s real cost approach, Haberler’s opportunity cost approach and Ohlin’s factor endowment approach, in the light of old value theories. Since J. S. Mill, the theory of values had met with a succession of modifications, while the doctrine of comparative costs remained unchanged. Thus, the divergence between the general theory of values and the value theory used in the theory of international trade widened. The debate between Viner’s real cost approach and Haberler’s opportunity cost approach in the 1930s was an important turning point and resulted in the emergence of the new mainstream theory – the HOS model. Its unrealistic assumptions were derived from Haberler’s opportunity cost approach.
In Japan, research into international values has been conducted
vigorously since the latter half of the 1940s. From a global perspective, studies
that emphasize demand factors in the determination of international values have
been dominant; however, this has not been the case in Japan. Neoclassical studies of
this subject have not been as vitalized. Rather, many of the studies have succeeded
the works of Ricardo, Marx, Graham, and Sraffa who placed a high priority on
supply factors in the determination of commodity prices. Research on this topic is
divided roughly into two periods owing to its contents and characteristics. One is
the period until the 1980s and the other is that since the 1990s. Research in the first
period was chiefly carried out by Marxian economists, and that in the second period,
based on Graham and Sraffa, has led to the birth of the new theory of international
values developed in this book. In this chapter, we provide an overview of research
into international values in Japan. In addition, we explain Graham’s relatively
unknown theory of international values and show the fundamental structure of the
Graham-type model (a modified version of Graham’s original model and a multicountry
multi-commodity Ricardian trade model). Furthermore, we present a way
in which to derive an equilibrium solution of this model practically.
... given in two chapters Shiozawa (2017a) and Shiozawa (2017b) of Shiozawa, Oka, and Tabuchi (2017). ...
... Unfortunately, Shiozawa, Oka, and Tabuchi (2017) as well as Senga, Fujimoto and Tabuchi (2017) are missing in the references (probably in "Secondary literature (in foreign languages)"). In the end of this comment, I will produce full references for the two books. ...
... (1) in Shiozawa, Oka, and Tabuchi (2017) as a couple of vectors that is "normal" to a facet of world production possibility set. As Tabuchi criticized, this means that the concept depends on full employment assumption. ...
This is a comment added to Susumu Takenaga's paper Ricardo's Theory on Foreign Trade
https://www.researchgate.net/publication/352297094_Ricardo's_theory_on_foreign_trade
As italic and bold styles are not usable there, it may not be very readable. I reproduce it here as my private report. As the title tells, this explains quickly how various papers of mine is related with each other. This may serve as a short guide for the new theory of international trade that can treat Global Value Chains on the extended line of David Ricardo.
... Samuelson (2001) introduced the term 'Sraffa bonus' to denote the gains from trading inputs. However, it took considerable time until Shiozawa (2017) successfully remedied this deficiency, leading to the development of new theory of international values, which now stands as the sole theory capable of comprehensively handling input trade in a general context. Drawing on ideas from Fujimoto, an expert in the automobile industry and a philosopher of international competitiveness, Fujimoto (2001) and Shiozawa (2017) delved into discussions on how factories of the same multinational firms compete across borders. ...
... However, it took considerable time until Shiozawa (2017) successfully remedied this deficiency, leading to the development of new theory of international values, which now stands as the sole theory capable of comprehensively handling input trade in a general context. Drawing on ideas from Fujimoto, an expert in the automobile industry and a philosopher of international competitiveness, Fujimoto (2001) and Shiozawa (2017) delved into discussions on how factories of the same multinational firms compete across borders. This notion of international intra-firm competition represents a novel aspect of international competition in the era of so-called global competition. ...
This study delves into dynamics and determinants of agricultural exports from India. India’s agricultural export basket is heavily reliant on a limited range of commodities, including basmati rice, buffalo meat, spices, tea, coffee, and marine products. Such concentration poses risks, making the sector vulnerable to price fluctuations, changes in global demand, and challenges in accessing specific markets. Furthermore, the declining ratio of export value to import value in recent years indicates an unfavourable trade imbalance. To address these challenges and foster sustainable growth in the agricultural export sector, policymakers must gain a comprehensive understanding about the determinants for agricultural exports. So, this study utilizes panel data encompassing 40 agricultural export items over an 11-year period. The researchers employ the system Generalized Method of Moments (GMM) estimation and the findings showed positive and significant impact of past export performance on current export decisions. Moreover, the study highlights the positive and significant influences of gross output of agriculture, value-added activities in agricultural sector, gross domestic product, trade openness, foreign direct investment, water use efficiency, corruption index and exchange rate dynamics on quantum of agricultural exports. However, higher consumer prices have a negative effect on export quantities, emphasizing the importance of price competitiveness in international markets. The findings of this study provide valuable insights for diversifying the export basket, enhancing productivity, value addition, and sustainability. Addressing challenges related to trade imbalances and price competitiveness is crucial for driving growth in India’s agricultural sector, benefiting farmers, the economy, and the nation as a whole.
... The CPO price that tends to rise will increase the IDR exchange rate as demand for the IDR will also rise (Cashin et al., 2004). Shiozawa (2017) also stated that the distinction between tradable and non-tradable products is relevant in the arguments concerning the Balassa-Samuelson model. There are no intrinsic properties but the difference between tradable and non-tradable products. ...
... Further, our findings were not supported by the Balassa-Samuelson model (Shiozawa, 2017;Shiozawa & Fujimoto, 2018). When the prices have risen in the nontraded goods sector, there was no impact on commodity prices to Indonesia's exchange rate. ...
Objective: International trade plays a major role in increasing the output of each country. Crude Palm Oil (CPO) is one of Indonesia’s major export commodities. Facts show over the past two decades, CPO has become a fast-growing product. However, there are obstacles from one of Indonesia’s CPO importers, namely the European Union. The aim of this study is to explore the nexus between the exchange rate and the world price of CPOs.
Research Design & Methods: This study uses both the exchange rate of Indonesia and the price data of the world CPO from 1981-2017 as secondary. Granger Causality was used to explain the nexus between the exchange rate and the world price of CPOs.
Findings: The results of the Granger Causality showed there was no causality between the exchange rate and the price of the world CPO. The lack of causality between the two variables suggests the trade balance’s position is stronger and able to explain the exchange rate.
Contribution & Value Added: This study indicated that the IDR exchange rate is more sensitive to trade balance rather than the world CPO price. Moreover, It is necessary to refined palm oil products to increase the contribution of the non-oil sector in Indonesia. In addition, the Indonesian government needs to be aware of the European Union’s raised barriers to world trade. It means that Indonesia can make a positive campaign about the ad-vantages of palm oil production.
... Source: Adapted from Wang, Wei and Zhu (2013) Formulated from an international perspective, there are N countries and K traded products, each product being identified with one industry. Following the notation in Shiozawa (2017) as much as possible, the formal model can be written as: 5 ...
... Given these technology sets, there exists an international value where all firms 5 This section draws on Escaith and Miroudot (2016). It is based on reduced-form input-output models and differs from other theoretical models, as in Shiozawa (2017), where each country exports a distinct variety of K products, leading to a total of N.K differentiated commodities. 6 Note that this inequality also holds when applying the analysis to an input-output framework. ...
This paper builds on input-output and trade analysis to propose a new method to derive plausible scenarios in the case of trade conflicts that could disrupt international supply chains. It measures three spill-over effects affecting third countries: trade deviation, trade destruction and trade deflection. It can also be used to generate “in silico” a large data set of numerical “observations” of the mode of insertion of countries and industries in the international market that can be further analysed using appropriate exploratory statistical techniques.
The paper counts with three parts, besides introduction and conclusion. The first one is theoretical, starting with a formal model of inter-industry trade before describing the empirical model. The second part is didactic, implementing step-by-step the method to a small six-countries/three-industries model.The third part applies the methodology to the bilateral trade conflict that arose between China and the USA in 2018. Applying exploratory data statistical analysis to the results obtained by simulating a large series of bilateral shocks, the paper shows how the method can also be used for generating analytical data and identify modes of insertion in the global economy. The R program is presented in annex.
... However, the theorem is no longer valid in an open economic system because of the disparity in wage rates among countries. Unlike in the closed economic system, the effective (maximal) boundary of the production set is not generally unique in the open economic system (Sato 2021;Shiozawa 2014;Shiozawa et al. 2017). Oka (2024) examined the robustness of the price independence of the change in quantities in an open economic system. ...
This is a preface of the special issue: Microfoundation of evolutionary economics and its application: Part 2. I summarized the papers collected in the special issue.
... First, we discuss the model of flying geese presented by Akamatsu (1945Akamatsu ( , 1961Akamatsu ( , 1965. Kojima (2003), Ozawa (2016), Shiozawa (2017), and Suenaga (2018) also discuss it in detail, but we briefly introduce three forms of the model. Regarding the theoretical framework, Economies 2022, 10, 238 6 of 30 Kemanai (1998, pp. ...
In this article, we study corporate behavior and develop a model for trends and factors in Japanese Multinational Corporations (MNCs) in the electrical and electronic industry that have played an important role in the economic development of East and Southeast Asia. We focus on Thailand, where Japanese MNCs are still increasing, and examine the practical applicability of the model. Basically, the model will be developed based on the existing flying geese model and regional agglomeration, but it will also be developed to explain new events such as progress in the division of labor by fragmentation and intra-regional agglomeration in East and Southeast Asia. Japanese MNCs in the electrical and electronic industry have shifted their production bases to developing countries one after another, as a variant of the third type of flying geese model. While the network of the international division of labor is forming with the development of fragmentation, the area around the eastern seaboard from Bangkok is playing an increasingly important role in the network of Japanese companies. In that sense, this study contributes to the body of literature on flying geese models with a modified model embodied with dynamic and systematic features of the ASEAN integrated economies.
... Piuttosto i risvolti legati alla soluzione che egli propose per i valori internazionali sono da considerarsi "unintended consequences". 54 Shiozawa (2017) 55 Tuttavia, è bene precisare che le ragioni di scambio non sono totalmente indipendenti dalla domanda neanche per Ricardo. Basti pensare all'esempio che egli fa a proposito della produzione di grano in Francia che può essere influenzata dal grande volume della domanda inglese. ...
... Leaving a rigorous proof given by Shiozawa (2017) in Shiozawa et al. (2017), we can easily summarize how the goods and countries generate a complex network structure. In the following, by the use of simplex geometry, we first depict that domains in which each country has cost advantage. ...
When production theory is discussed in the traditional economic custom, somehow, either intermediate goods or price determination is often not examined precisely. The prices are usually fixed, while scarcity of resources is exceptionally attached importance. The efficiency of production is consequently forced to be adapted to a given price system of goods. However, this kind of restrictive treatments of production came up against several difficulties when the theory of international trade is argued in terms of Ricardo and Heckscher–Ohlin, i.e., comparative cost theory. The object of international transactions may not be limited to such resources as regulations are often imposed. It is rather important to trade not only among the different intermediate goods but also even among the same kinds of intermediate goods empirically shown in Ikeda et al. (RIETI Discuss Pap Ser 16(E26):1–35, 2016). Thus, the introduction of intermediate goods for production is indispensable to develop the theory of international trade. Even in the 21st century, however, economists were still frustrated to escape from a special two country–two commodity case. Fortunately, by remarking geometry, Shiozawa (Evolut Inst Econ Rev 3(2):141–187, 2007; Evolut Inst Econ Rev 12(1):177–212, 2016; A new construction of Ricardian theory of international values: analytical and historical approach, pp 3–73. Springer, Berlin, 2017) has been successful to establish a price determination in a more general case of three country–three commodity. In Shiozawa (Evolut Inst Econ Rev 12(1):177–212, 2016), he smartly employed a sub-tropical geometry to examine a general case of international trade, i.e., three country–three commodity case. Behind his idea, there is the idea of Minkowski space of production, in particular, zonotope. This approach will give a different view of production set, and possibly suggest a further generalization more than three of the number of country and commodity. First of all, this article gives a brief look of the new essence of Shiozawa’s theory, and then gives by some numerical simulation a new characterization of international trade in line with Shiozawa’s theory. Furthermore, this article examines the effect of the introduction of free international trade. The introduction of the optimization rule to international trade results in drastic changes in network structures. Finally, the link with the network analysis and econophysics will be argued.
Shiozawa, Morioka and Taniguchi (2019)’s Microfoundations for Evolutionary Economics (Springer Japan) provided an alternative view (SMT view) of the economy to the orthodox equilibrium view of the economy. According to the SMT view, demand and supply are matched by quantity adjustment under fixed prices, and prices function as a transmitter of cost information downstream as well as a guide for choice and development of techniques. This paper examines the impacts of international trade on the SMT view based on the new theory of international values (NTIV). In a closed economy, prices are uniquely determined even if there are many choices of techniques by the minimal price theorem. With international trade, due to the multiplicity of wages, prices are not uniquely determined. Whether this fact allows demand to participate in the determination of prices is examined, and it is clarified that because of the disparity of real production possibility set from the hypothetical one, which is effective in determining prices, demand loses the power of equilibration. This fact opens up the possibility and even necessity of production taking place below the maximal boundary, which is accompanied by unemployment. Individual firms’ behavior in the choice and development of techniques and the process of price conversion that are consistent with the SMT view and the NTIV is formulated. A residual unsolved question of wage adjustment following technological changes is identified.
This chapter provides an overview of evolutionary economics in Japan, focusing on the activities of the Japan Association for Evolutionary Economics (JAFEE). First, it describes JAFEE’s foundation in 1997 and its background in Japanese economic academism. The idea of evolutionary economics met the desires of researchers who were unsatisfied with the static and sterile system of equilibrium economics and the deterministic traits of Marxian economics. In the progress of evolutionary economics in Japan after JAFEE’s foundation, the concept of “complexities” played a significant role in extending the evolutionary view into interdisciplinary areas beyond economics, in addition to biological evolution.
Then, this chapter introduces the themes of the following nine chapters, mixing the editor’s comments. This part is based on the abstracts provided by the chapter authors. Finally, this introduction closes by suggesting the tasks remaining for the growth of evolutionary economics in Japan.
When production theory is discussed in traditional economic custom, somehow, either intermediate goods or price determination are often not examined precisely. The prices are usually fixed, while scarcity of resources is exceptionally attached importance. The efficiency of production is consequently forced to be adapted to a given price system of goods. However, this kind of restrictive treatments of production came up against several difficulties when the theory of international trade is argued in terms of Ricardo and Heckscher-Ohlin, i.e., comparative cost theory. The object of international transactions may not be limited to such resources as regulations are often imposed. It is rather important to trade not only among the different intermediate goods but also even among the same kinds of intermediate goods empirically shown in Ikeda (2016). Thus the introduction of intermediate goods for production is indispensable to develop the theory of international trade. Even in the 21st century, however, economists were still frustrated to escape from a special two country-two commodity case. Fortunately, by remarking geometry, Shiozawa (2007, 2016), Shiozawa et al. (2017), has been successful to establish a price determination in a more general case of three country-three commodity. In Shiozawa (2016), he smartly employed a sub-tropical geometry to examine a general case of international trade, i.e., three country-three commodity case. Behind his idea, there is the idea of Minkowski space of production, in particular, zonotope. This approach will give a different view of production set, and possibly suggest a further generalization more than three of the number of country and commodity. First of all, this article gives a brief look of the new essence of Shiozawa’s theory, and then gives by some numerical simulation a new characterization of international trade in line with Shiozawa’s theory. Furthermore, this article examines the effect of the introduction of free international trade. The introduction of the optimization rule to international trade results in drastic changes in network structures. Finally, the link with the network analysis and econophysics will be argued.
This paper elucidates the theoretical foundations of the “growth regime” and its international interdependence, based on the results of recent research on the régulation theory and the post-Keynesian theory (Boyer, Economie politique des capitalismes: Théorie de la régulation et des crises. La Découverte, Paris, 2015; Lavoie, Post-Keynesian economics: new foundations, 2nd edn. Edward Elgar, Cheltenham, 2022). In so doing, the theoretical analyses of price determination and quantity adjustment are used as a fruitful contribution of current evolutionary and post-Keynesian economics. In particular, this pioneering analysis is based on the Shiozawa–Morioka–Taniguchi theory (SMT theory) (Shiozawa et al. Microfoundations of evolutionary economics. Springer, 2019). Furthermore, we also consider the dynamics of “growth regime,” paying attention to the macro linkages between income distribution and demand formation that M. Lavoie emphasizes (Lavoie, Post-Keynesian economics: New foundations, 2nd edn. Edward Elgar, Cheltenham, 2022). From this theoretical perspective, this paper attempts to theoretically examine the international Leontief-multiplier process and the international Keynes-multiplier process that mediate the international interdependence of “growth regimes,” while considering their dynamic processes with the time dimension. In this way, we aim to develop the theoretical foundations of the régulation theory and the post-Keynesian theory.
Based on the research of Japanese institutionalist post-Keynesians, we discuss a possible future of “institutionalism in the board sense” in the twenty-first century based on the “creative rivalry” (Sugimoto, Eiichi, The Elucidation of Modern Economics. Riron-sha, 1950) among Post-Keynesian and Post-Marxian theories. Particularly, we consider how political-economic analysis can be developed theoretically and empirically from the institutional perspective of contemporary capitalism, especially referring to the recent theoretical studies by various political economists who use and develop Post-Keynesian theories (Lavoie, Marc, Post-Keynesian Economics: New Foundation. Edward Elgar, 2014) and the régulation theory (Boyer, Robert, Economie politique des capitalismes: Théorie de la régulation et des crises. La Découverte, 2015). In this regard, Japanese institutionalist post-Keynesians’ research has important implications for a new development of political economy in the twenty-first century. Particularly, based on the complementary development of the Post-Keynesian economics and the régulation theory, we seek the new development of political economy, introducing the aspects of “institutions and evolution” and “multi-layered coordination with heterogeneous social preferences.” Particularly, the analysis focuses on the price system and quantity dynamics, wages and income distribution based on institutional coordinations, the interaction of financial and real factors, especially the stock–flow relations in the process of economic growth. Furthermore, we propose a framework to analyze international production and trade with price determination and quantity adjustment in the interdependence of growth regimes in contemporary capitalism.
The paper offers the first interpretation of David Ricardo’s famous numerical example fully compatible with the primary source. It claims that the sole purpose of the four numbers was to illustrate that the relative value of commodities made in different countries is not determined by the respective quantities of labor devoted to their production. This exception results from unequal ordinary profit rates between countries because capital does not move across national borders as easily as it does within the same country. Likewise, the paper also debunks some entrenched myths about the numerical example. It shows that Ricardo did not leave the terms of trade indeterminate, that the purpose of the four numbers was not about measuring the gains from trade, and that Portugal had no productivity advantage over England. All of this contradicts the way scholars have interpreted Ricardo’s numerical example since the mid-nineteenth century.
This paper provides a new formulation for the principle of effective demand. With this new formulation, the principle boils down to a specific behavior of producer firms (and sellers). After giving new definitions in Section 2, the main part of this paper (Section 3), based on the study by Shiozawa, Morioka, and Taniguchi (2019) Microfoundations of Evolutionary Economics, Springer, Tokyo, proves that the behavior of individual firms generates the macroeconomic result that is typically interpreted as the principle of effective demand. Sections 4 and 5 provide the price theory that explains the
irrelevance of price rigidity arguments. While the paper provides a new scheme of microfoundations, Section 6 presents a new framework for methodology arguments between micro and macro. Many Post Keynesians claim that microfoundations are impossible and unnecessary. The paper demonstrates why they are wrong. Finally, Section 7 shows that many fields of economics may find unexplored paths of development in the new scheme which sees micro and macro coherently linked. Open source paper: https://www.jstage.jst.go.jp/article/revkeystud/3/0/3_67/_article/-char/en
In this review-essay of the book Eating NAFTA (2018) by Dr. Alyshia Gálvez, I argue that Gálvez ultimately provides readers with a weak critique of David Ricardo's theory of foreign trade. I use an accurate textual reading of David Ricardo's four numbers to argue that Gálvez attacks a straw-man of the classical free trade position. I then critique Gálvez's discussion of efficiency and provide an alternative discussion of the debate over efficiency vs self-sufficiency. Finally, I raise concerns with Gálvez's claim that NAFTA contributed to Mexico's import dependency and provide a general critique of Dependency Theory; a popular framework employed by many economists, often used to analyze uneven economic development. Overall, while Gálvez presents readers with a thoughtful analysis of the impact of NAFTA on Mexico, Gálvez, unfortunately, misreads classical political economists like David Ricardo completely, and ends up providing readers with a weak analysis of production-exchange relations under the capitalist system. JEL Classification: B17, Y3, F10
The traditional economic theory of international trade has, from its inception, played a crucial role in sustaining the doctrine of economic policy that promotes free foreign trade overall as something beneficial for all parties involved. The paper specifically stresses the need, when assessing the consequences of free international trade (i.e., free imports) on social-economic well-being, to perform analyses that distinguish between social-sectors (within this or that country), as opposed to the usual practice of doing so at the whole country level. It is also discussed here the standard (implicit) assumption that there are sufficient possibilities regarding comparative advantages for every country in the world to exploit one to develop its exports to the point of countervailing the value of its imports under a no-tariffs rule.
The question of how prices and quantities interact and decisions and activities of large numbers of agents are coordinated in market economies has been a major theme in systematic economic investigations since their very inception at the time of French, British and Italian scholars in the seventeenth and eighteenth century. Adam Smith's analysis of the problem in The Wealth of Nations of 1776 is a locus classicus of the literature under consideration. Time and again, the definitive answer to the question has been proclaimed, from John Stuart Mill in his Principles of Political Economy in 1848 to Kenneth Arrow and Frank Hahn in their General Competitive Analysis in 1971. However, time and again, after careful scrutiny, the solutions put forward were found wanting for various reasons, from a lack of logical consistency to a lack of realism. Nevertheless, many economists accepted neoclassical general equilibrium theory of the Arrow–Debreu type as a coherent and convincing answer to the problem at hand. Critics of the theory and advocates of alternative approaches to economics either disregarded the problem of the price-quantity nexus altogether, dealt with it in a cavalier way or took diluted forms of the neoclassical theory to take care of it in an otherwise fundamentally different analytical framework. The resulting incomplete theories or attempted crossbreeding of essentially incompatible theories implied a competitive disadvantage in the market of ideas compared with general equilibrium theory, and accounts for the continuing dominance of the latter in economic theorising. // This is the view expressed in the book by Yoshinori Shiozawa, Masashi Morioka and Kazuhisa Taniguchi, Microfoundations of Evolutionary Economics. They argue that this unsatisfactory situation, unsatisfactory to non-neoclassical economists to which they count themselves, is over because solid and realistic ‘microfoundations of evolutionary economics’ are available now. // They stress that these are ‘as fine and logically sure as Arrow and Debreu's model of competitive equilibrium’ (p. vii). Their work, they claim, does not only offer the long-awaited breakthrough in this important field in economics, it also allows for a unification of several alternative theoretical currents in economics under a single umbrella. Although their focus of attention is on Evolutionary Economics, they insist that their findings provide support also for the Keynesian theory of effective demand and Post-Keynesian economics (PKE) (see p. vii) and the Classical approach to the theory of value and distribution as reformulated by Piero Sraffa in Production of Commodities by Means of Commodities in 1960. In fact, the authors emphasize the close relationship of their theory with Sraffa's: ‘The new theory stands basically on the same theory and formulation begun by Piero Sraffa’; they add that it is not limited to the study of long-period positions of the economic system, but can analyse both ‘short-and medium-period questions’ (p. 133). // Such auspicious promises were, of course, bound to attract the attention of all scholars on the lookout for alternatives to the neoclassical theory. Because Metroeconomica has always catered for novel developments and has provided a platform for such alternatives, it was close at hand to organise a symposium devoted to the book by Shiozawa, Marioka and Taniguchi. We invited a number of distinguished scholars who are familiar with Evolutionary, Classical and Keynesian Economics and have worked and published on related themes as those the authors of the book dealt with. We asked them to scrutinize critically whether the claims of the authors are justified and to comment on the book, its achievements, shortcomings (if any) and open questions. We asked in particular: Can the book be expected to provide solid foundations for economic theory without having to postulate ‘unrealistic capabilities’ (p. ix) of human agents and instead allowing for ‘limitations of human behaviour’ (p. vii) // Tony Aspromourgos, Kenji Mori, Arrigo Opocher and Barkley Rosser kindly accepted our invitation. Yoshinori Shiozawa, Masashi Morioka and Kazuhisa Taniguchi were asked to respond to the comments. We are grateful to all participants for their cooperation. May the symposium contribute to the dissemination and in-depth discussion of the challenging propositions of the book and inspire readers to advance the subject of economics. // (Editorial by Heinz D. Kurz and Neri Salvadori)
Global value chains (GVC) have propelled substantial expansion in international trade across the globe over the last two decades. Yet, the institution–GVC nexus in Africa suffers complete neglect in literature. Therefore, we evaluate the impact of different components of political and economic institutions on backward (BWDGVC), forward (FWDGVC), total GVC participation, and GVC position (upstreamness) in Africa. Using system‐GMM with United Nations Conference on Trade and Development GVC database (UNCTAD‐Eora MRIO) for 47 African countries over the period 2000–2018, the key findings show that the effects of the political and economic institutions on GVC participation are diverse. Specifically, property rights, government spending, monetary freedom, and tax burden negatively affect BWDGVC participation while government integrity, investment freedom, and financial freedom stimulate the BWDGVC. Also, all the components of institutional quality that propel BWDGVC, hinder FWDGVC participation and upstreamness, except investment freedom which promotes both BWDGVC and FWDGVC. Nonetheless, property rights, government integrity, monetary freedom, financial freedom, and tax burden engender total GVC participation, whereas government effectiveness, and investment freedom hinder the total GVC participation. Furthermore, good political institutions promote BWGVC and total GVC but reduce upstreamness. Thus, institutions are fundamental drivers of GVC participation in Africa.
The paper offers the first interpretation of David Ricardo’s famous numerical example fully compatible with the primary source. It claims that the sole purpose of the four numbers was to illustrate that the relative value of commodities made in different countries is not determined by the respective quantities of labour devoted to their production. This exception results from unequal ordinary profit rates between countries because capital does not move across national borders as easily as it does within the same country. Likewise, the paper also debunks some entrenched myths about the numerical example. It shows that Ricardo did not leave the terms of trade unspecified; that the purpose of the four numbers was not about measuring the gains from trade; and lastly, that Portugal had no productivity advantage over England. All of this contradicts the way scholars have interpreted Ricardo’s numerical example since the mid-nineteenth century.
As a general introduction, this chapter describes the perspective of evolutionary political economy. Understanding reproduction at three levels—the biological, the social or cultural, and the economic—the author introduces an evolutionary perspective into political economy in a broader sense. After criticizing the deterministic traits of the so-called materialistic view of history, he raises the problem of how “governance” can fit the view of evolutionary social science.
This chapter considers buying and selling transactions and arbitrage based on the Principle of Exchange and the Equivalence Relation. Since money has emerged and price can be observed objectively, buying and selling can be conducted by referring to objective indexes. In this instance, “evaluation” has to be explicitly distinguished from prices. It is important for executing buying and selling transactions that there be a different “evaluation” formed by each buying party and selling party. Arbitrage is defined as the use of differences in exchange rates to earn a profit. Presenting specific cases with respect to these phenomena, this chapter considers the stability and instability of prices in financial markets and product markets based on the formation of “evaluations” and the function of arbitrage.
Curiously, it has now been revealed that Ricardo’s own theory of international trade was different from “the Ricardian Model” commonly found in modern textbooks of international economics in some respects; for example, the understanding of the “four magic numbers,” gains from trade, terms of trade, and so on. Based on the Torrens-Mill understanding of Ricardo’s theory of trade, the major parts of the modern model was actually completed by Haberler in the early 20th century. Therefore, there are no rational grounds for attributing this model to Ricardo or crowning it with his name.
The neoclassical revolution was a shift from economics of production to economics of exchange. The study shows from an internalist point of view that one of the origins of the neoclassical revolution can be traced back to young John Stuart Mill, who tried to sort out a problem left unresolved by David Ricardo. Due to a peculiar reason that I would later clarify, he was led toward examining a pure exchange economy. In this setting, Ricardo’s cost of production theory of value was invalid. When Mills found the answer to this, he came to the following conclusion: “we must revert to a principle anterior to that of cost of production, and from which this last flows as a consequence,—namely, the principle of demand and supply” (On Laws of Interchange between Nations. First essay in J.S. Mill, Essays on some unsettled questions of political economy, 1844. Citation is made from Library of Economics and Liberty, 1844, I.19). This thesis caused a long-lasting and strong influence on the research programs in economics. The study describes how Mill’s thesis profoundly influenced three founding fathers of British neoclassical economics, namely, Stanley Jevons, Francis Ysidro Edgeworth, and Alfred Marshall. Different alternatives were researched and discovered, but it was Alfred Marshall, with his concept of demand and supply functions, who paved the way for today’s mainstream economics.
This chapter is a general introduction of the new theory of international values, which is an extension of the cost-of-production theory of value to the international trade situations. Within a general framework comprising input trade and choice of production techniques, the new theory analyzes the international values (i.e., the system that consists of wages of each country and prices of goods), gains and losses from trade, and the patterns of specializations. It is the first theory to treat traded input goods in this general form. It facilitates the analysis of recent conspicuous trade aspects, such as rapidly increasing trade volume of intermediate goods, fragmentations of production processes, and the complex network of global value chains. Besides the Introduction (Division I), this work is divided into four parts: (1) the presentation of the theory (Division II), (2) extensions of the theory to more complex situations (Division III), (3) some examples of applications of the theory (Division IV), and (4) possible implications to three neighboring fields (Division V). Terms and concepts are explained in detail and theorems are fully stated. A mathematical proof of the fundamental theorem is given in the Appendix.
This paper compares three inter-country input-output (ICIO) databases with official statistics as well as their respective results for trade in value added (TiVA) indicators. The three ICIO databases under review have been constructed by the Global Trade Analysis Project (GTAP), the Organization for Economic Cooperation and Development (OECD), and the World Input Output Database (WIOD) project. First, the three ICIO tables are harmonized into the same country and sector classification, and their consistencies with each country's GDP (based on expenditure accounts) and balance of payments figures are checked. Then, the differences between the three databases in major economic variables, including gross output, value-added, domestic and imported intermediate inputs, as well as final demand are presented. Next, major TiVA indicators based upon the three ICIO tables are estimated, and each country's gross exports are decomposed into various value-added and double counted components, using the method proposed by Koopman, Wang and Wei (2014). The similarities and differences of the estimates among the three databases are discussed. The paper concludes with suggestions on the directions of how the construction of ICIO databases could be improved.
A paper published in Evolutionary Institutional Economics Review (2015) 12:177–212. This study introduces a new crossover between economics and mathematics. The Ricardian theory of international trade is one of oldest economic theories, but its mathematical structure remained hidden until only a few years ago, when the present author discovered an exotic mathematical structure behind the theory. The relevant mathematics is generally referred to as tropical mathematics, and is based on a min-plus semi-ring. Ricardian trade theory requires a min-times semi-ring, with its geometry referred to as subtropical geometry. A min-times semi-ring is isomorphic to a min-plus semi-ring via a logarithmic function. Thus, the major results of tropical geometry are readily usable. Although tropical geometry is relatively recent (the past two decades), it has already accumulated a rich body of research, and has revolutionized our understanding of the Ricardian theory of international trade. Conversely, the long tradition of Ricardian trade theory provides us with new research objects and problems. In this way, economics may also contribute to mathematics in helping us to gain new insight into tropical mathematics.
Contents
Preface v
Contents xvii
Chap.1 Significance of the Ricardo problem solution to our days 1
Chap.2 The core idea of this book 31
Chap.3 The final solution to the Ricardo problem 83
Chap.4 That which has lead the conversion of theories of value 163
Chap.5 Mathematical analysis of Ricardo-Sraffa trade economy 321
Appendix: Duopolistic competition which implies mark-up pricing 383
References 401
Contents
1. Introduction
2. Classical theory of value
3. Neoclassical revolution
4. Neoclassical vs. Classical
5. Further challenges
6. Conclusion
See also (1) Power Point Presentation and (2) the First Draft of the Full Paper.
Abstract
Economics has a responsibility to the actual state of economy, even if it is a small and indirect one. In this sense, every economist is responsible for the economy. This responsibility does not stop at the level economic policies, for the state of the art defines our field of imagination and restrict the repertory of our policies. In my understanding, the crisis of economics is deeper than the present crisis of the world economy. What is necessary for a reconstruction of the economics? This is the main theme of this paper.
After Lehman shock, many economists cried “Return to Keynes”. If it means the return to the original Keynes, or Keynes of the General Theory, I think it is a bit too optimistic, if I don’t say too opportunistic. Remind why that anti-Keynesian revolution took place in 1970’s. We may raise many reasons for that, but we cannot avoid thinking of the fundamental defects which underlay in the General Theory. Keynes adopted neoclassical economics framework, or more precisely that of Marshall. Keynes did not distinguish classical and neoclassical value theories. In my opinion, the adoption of equilibrium framework was the fundamental reason of Keynes’s failure. I do not deny that the General Theory contained a revolutionary idea i.e. that of effective demand. But Keynes or other economists after him could not arrive to formulate the concept in a proper way. One of the results of this fact is the disappearance of the concept of effective demand from New Keynesian economics.
The present paper contends that the first thing to do is to replace neoclassical theory of prices with classical theory of values. I discuss what is classical value theory, how to develop it as a theory of 21st century economics, citing two important achievements of 20th century economics. One is Sraffa’s theory of value and the other is the Oxford Economists’ Research Group’s observations. A recent development in international value theory is also referred to.
This paper surveys recent studies on trade and wage inequality. We first introduce some trade-based explanations for increased wage inequality. There are, however, a number of criticisms of this line of thought based on the ‘trade-wage inequality anomaly’, the ‘price-wage anomaly’, and the small volume of trade. Mainly due to these criticisms, trade-based explanations for rising wage inequality have been limited in the economic literature. Rather, the primary explanations for wage inequality have been based on skill-biased technological change. Some trade models, however, have weakened the above criticisms, and more economists now argue that the effect of trade, though relatively small compared to that of technological change, is more significant than generally believed. Finally, we attempt to link new trends in inequality, such as job polarization and within-group inequality, to the trade and wage inequality literature.
Ricardian trade theory is one of the most famous theories of economics but appears to have been little developed. Many attempts were made to extend the theory to multi-country, multi-commodity cases, but none succeeded to construct a general theory that included intermediate goods. A need to include intermediate goods within the theory was evident, but hurdles to introduce intermediate inputs were high. Intermediate goods change the entire structure of analysis; when they are traded, the price of a good is dependent of the prices of imported inputs. Consequently, prices should be determined simultaneously for prices of all countries. The present paper has succeeded in overcoming these difficulties and describes how wages, prices and productions are related. It analyzes the M-country, N-commodity case with choice of techniques and trade of intermediate goods in general terms, thus presenting a new basis for international trade theory. New light was shed on topics like gains and losses from trade, international wage rate discrepancies, and price and quantity adjustments. On a theoretical plane, the new construction eliminates a traditional weakness of the Ricardian theory. The traditional Ricardian theory acknowledged labor as the only input and excluded capital in any form. The new theory, presented here, analyzes capital goods as traded intermediate inputs.
When we talk about classical economics, we normally include almost all contentions proposed by economists from the days of classical economics. ... There were many disputes among them, and so it is out of question to think of classical economics as any consistent, cohesive system. / If classical economics is to be something that gives us hints for reconstructing and further developing economics, we should discard many elements. ... [T]he list of theories and contentions to be abandoned would include wage fund theory, natural wage rate theory and subsistence wage theory. Many economists except Marxists would agree to abandon the labour theory of value. .... / What is left, then? ... What I am considering the rational core of classical economics is the theory of value. / ... What I consider the essence of classical value theory is the cost of production theory of value. / This was what Ricardo wanted to formulate and yet could not arrive at. (Excerpt from Section 2 Classical economics and its rational core)
The principal theorem of the new theory of international values for a Ricardo-Sraffa trade economy is presented and then illustrated using a two-country, two-commodity model and a two-country, three-commodity model. It is shown that the classical vision of values as independent of demand is preserved, even when international trade takes place. In other words, values are mainly determined by costs of production or, ultimately, by technology. The values are, however, not determined uniquely, and demand plays a role in selecting a set of values from among those that are admissible under present technology and mark-up rates. Three different production possibility frontiers are introduced: R-efficient locus, physical maximal frontier and capitalistically feasible frontier. It is argued that distinguishing among these three frontiers is necessary in order to comprehend the role of demand in determining international value. Lastly, the similarity of this relation of value and demand to that of rent theory is pointed out.
Among a vast literature on the Asian economies, the book proposes a distinctive approach, inspired by Régulation Theory, in order to understand the current transformations of the Asian economies. The book follows their transformations after the 1997 Asian crisis until the subprime crisis. During this period, the viability of their growth regime was to coherence of five basic institutional forms: the degree of competition and insertion into the world economy, the nature of labour market organization, the monetary and exchange rate regimes and finally the style for State intervention via legislation, public spending and tax.
During the 1940s and 1950s a distinctive set of ideas emerged in development economics nomicst hat stressed the importance of increasing returns and pecuniary external economies arising from the effects of market size. Unfortunately, the economists who proposed these ideas were at first unable, and later unwilling, to codify them in clear, internally consistent models. At the same time the expected standard of rigor in economic thinking was steadily rising. The result was that development economics as a distinctive field was crowded out of the mainstream of economics. Indeed, the ideas of “high development theory” came to seem not so much wrong as incomprehensible.
This paper argues that in light of new developments in industrial organization, international economics, and growth theory, the old development economics now looks much more sensible than it seemed during the “counterrevolution” against interventionist development models. While development economics has been used to justify some highly destructive economic policies, there is a valid and useful set of core ideas that can be usefully resurrected. Thus this paper calls for a “counter-counterrevolution” that restores some of the distinctive focus that characterized development economics before 1960.
This article provides guidance to prudent use of the World Input–Output Database (WIOD) in analyses of international trade. The WIOD contains annual time-series of world input–output tables and factor requirements covering the period from 1995 to 2011. Underlying concepts, construction methods and data sources are introduced, pointing out particular strengths and weaknesses. We illustrate its usefulness by analyzing the geographical and factorial distribution of value added in global automotive production and show increasing fragmentation, both within and across regions. Possible improvements and extensions to the data are discussed.
This article describes the construction of the World Input–Output Tables (WIOTs) that constitute the core of the World Input–Output Database. WIOTs are available for the period 1995–2009 and give the values of transactions among 35 industries in 40 countries plus the ‘Rest of the World’ and from these industries to households, governments and users of capital goods in the same set of countries. The article describes how information from the National Accounts, Supply and Use Tables and International Trade Statistics have been harmonized, reconciled and used for estimation procedures to arrive at a consistent time series of WIOTs.
This chapter discusses the production function and the theory of capital. The dominance in neo-classical economic teaching of the concept of a production function has had an enervating effect upon the development of the subject. The neo-classical system is based on the postulate that, in the long run, the rate of real wages tends to be such that all available labor is employed. In spite of the atrocities that have been committed in its name, there is a solid core of sense in this proposition. The condition that the given amount of capital employs the given amount of labor entails a particular rate of profit. But the value of the stock of concrete capital goods is affected by this rate of profit and the amount of capital that was started with cannot be defined independently of it.
A. Wald has presented a model of production and a model of exchange and proofs of the existence of an equilibrium for each of them. Here proofs of the existence of an equilibrium are given for an integrated model of production, exchange and consumption. In addition the assumptions made on the technologies of producers and the tastes of consumers are significantly weaker than Wald's. Finally a simplification of the structure of the proofs has been made possible through use of the concept of an abstract economy, a generalization of that of a game.
Introduction, 98. — Samuelson's nonsubstitution theorem, 99. — Switching of techniques, 102.
В статье производится анализ агрегированной производственной функции, вводится аппарат, позволяющий различать движение вдоль такой функции от ее сдвигов. На основании сделанных в статье предположений делаются выводы о характере технического прогресса и технологических изменений. Существенное внимание уделяется вариантам применения концепции агрегированной производственной функции.
Demonstrates that technical change is attributable to experience. The cumulative production of capital goods is used as the index of experience. New capital goods are assumed to completely embody technical change. The assumption is made that the model will be operating in an environment of full employment although reference is made throughout to the case of capital shortage. The implications of this model on wage earners are discussed, and profits and investments are examined. The rate of return is determined by the expected rate of increase in wages, current labor costs per unit output, and the physical lifetime of the investment. Learning is an act of investment that benefits future investors. Further analysis shows that the socially optimal ratio of gross investment to output is higher than the competitive level. (SRD)