How does free trade actually work?
There were three groups in the capitalist system in Ricardo’s world (and there still are):
Workers / Employees
Capitalists / Employers
Rentiers / Landowners / Landlords / other skimmers, who are just trading, speculating, taking out of the system, not contributing to its success.
Identifying the unproductive group at the top of society didn’t go down too well.
They needed a new economics to hide the discoveries of the classical economists - "neoclassical economics".
It confuses making money and creating wealth, which hides rentier activity in the
economy.
Rentiers make money, they don’t create wealth.
What does this mean for free trade?
The interests of the capitalists and rentiers are opposed with free trade.
This nearly split the Tory Party in the 19th century over the Repeal of the Corn Laws.
The rentiers gains push up the cost of living.
The capitalists want a low cost of living as they have to pay wages.
The UK knew how to prepare for free trade in the 19th century because they used classical economics.
The wider West didn’t how to prepare for free trade in the 20th century because they used neoclassical economics.
How did the UK prepare to compete in a free trade world in the 19th century?
They had the Empire to get in cheap raw materials; there were no regulations and no taxes on employees.
It was all about the cost of living, and they needed to get that down so they could pay internationally competitive wages.
UK labour would cost the same as labour anywhere else in the world.
Disposable income = wages – (taxes + the cost of living)
Employees get their money from wages and the employers pay the cost of living through wages, COGS reducing profit.
Ricardo supported the Repeal of the Corn Laws to get the price of bread down.
They housed workers in slums to get housing costs down.
Employers could then pay internationally competitive wages and were ready to compete in a free trade world.
That's the idea. You level the playing field first; then you engage in free trade.
Of course, that’s why it’s so expensive to get anything done in the West.
It’s our high cost of living.
Disposable income = wages – (taxes + the cost of living)
Employees get their money from wages and the employers pay the cost of living through wages, reducing profit.
Off-shore from the West ASAP to maximise profit.
The cost of living is way too high.
The cost of living is too high? Brexit will
drive those costs even higher because your pound is now worth less.
It's just knowing how things really work.
Housing costs should be kept low to make you internationally competitive.
Ricardo was part of the new capitalist class, and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.
“The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist
What does our man on free trade, Ricardo, mean?
Disposable income = wages – (taxes + the cost of living)
Employees get their money from wages and the employers pay the cost of living through wages, reducing profit.
Employees get less disposable income after the landlords rent has gone.
Employers have to cover the landlord’s rents in wages reducing profit.
Ricardo is just talking about housing costs, employees all rented in those days.
Low housing costs work best for employers and employees.
Of course, employees get their money from wages and it is the UK’s employers that are paying high housing costs in wages reducing profit.
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