From: clyder@gn.apc.org
Date: Wed Feb 12 2003 - 17:25:45 EST
Quoting Alejandro Valle Baeza <avalleb@prodigy.net.mx>: > Jerry, perhaps this is a response for your question: > " > Re: Comparative advantage discussion > a.. Messages sorted by: [ date ][ thread ][ subject ][ author ] > b.. Next message: John M. Legge: "Capital controls" > c.. Previous message: =?iso-8859-1?Q?G._Sebasti=E1n_Menescaldi?=: "(no > subject)" > d.. In reply to: aldo balardini: "Comparative advantage discussion" > Fri, 13 Nov 1998 13:23:14 -0800 > Jim Devine (jdevine@popmail.lmu.edu) > > >Now, if we assume a different theory of money, like that found in > >CAPITAL or in THE GENERAL THEORY, Ricardo's outcome will be > >completely different. As gold flows out of England, bank reserves > >decline, interest rate increase, investment declines and output > >declines. England experiences a chronical trade account deficit. Why should this lead to a chronic trade deficit. A decline in output of domestic industry will lead to a decline in demand for imported raw materials which will tend to reduce the trade deficit. > >Portugal on the other hand receives gold, which makes bank reserves > >increase, lowering interest rates, increasing investment and output. > >Portugal experiences a chronical trade account surplus and a capital > >account deficit as capital flows into England attracted by the higher > >interest rate. This is confused. On the one level a deficit on the current account is necessarily reflected on the capital account, but that is all this is saying. One can not deduce from this that the deficit will be persistent in the absence of other factors holding the interest rate up in the long term. > England, ironically, becomes the chronically indebted > >country and Portugal the chronically creditor country. > >A different theory of money therefore destroys the happy ending of > >Ricardo's model, and absolute rather than comparative advantage > >determines the direction of trade benefits. >
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