Currently, everyday events are unfolding that are likely to play a significant role in future histories. The USA is no longer a dependable European ally, at best; the US government is undergoing dismantlement; Germany is rearming; the genocide of Palestinians by Israel is occurring in plain sight, with support from the West; international law is being challenged; and fascism is on the rise; and dangerous climate change is now a certainty… and so on.
I believe this is the perfect moment to use history to make sense of some of these momentous events, so this issue focuses on the history of economic ideas before the Second World War, possibly as we approach the Third World War. One of the biggest ideas which still holds sway with most mainstream economists is the mutual benefits of free trade. Now the far right in the US is attacking free trade and they are right, even if not for the reasons they give. It has always been a con.
Now the far right in the US is attacking free trade and they are right, even if not for the reasons they give. It has always been a con.
Trump’s ‘liberation day’ tariffs are grounded in a dynamic analysis of trade, rather than the static model established by Ricardo over 200 years ago to justify free trade. JD Vance argues that the ‘globalists’ erred in believing that the US could retain control over the high-value aspects of supply chains, such as design, while employing cheap labour in developing countries for manufacturing. Over time, some of those ‘developing countries’ have successfully taken over the high-value components as well. As a result, we are now witnessing cheaper, high-quality electric cars designed, produced, and sold by companies like BYD in China. I’m sure Vance and Musk engage in fascinating discussions on this topic (or not).
This argument is quite revealing. It suggests that the ‘globalists’ were never genuinely interested in the Global South ‘developing’ at all. The assertion of mutual benefits from trade was merely a facade for the ongoing economic dominance of the Global North, which now appears to be faltering due to China’s rising economic power. As Trump is about America First, his project now is about reinstating US economic dominance so he is also hitting the rest of the Global North with tariffs, which may not be sensible even within his self-interested, transactional paradigm. Rebuilding Global North dominance might work better as a collective project!
Our global trading arrangements were seen as a game we should win, while claiming it was a fair game, which it was never designed to be. Now, the US thinks they are losing and has decided to throw their toys out of the pram.
It is extraordinary that most of these big ideas were initially formulated prior to the First World War.
Meanwhile, the centre-right and centre-left seem to be stuck in a defensive stance, reluctant to be self-critical or to explore new directions, like rabbits caught in headlights. There is no alternative narrative on how trade should function that is truly mutually beneficial in a holistic sense. The conversation focuses exclusively on the risks of a trade war and, consequently, a recession that many might hope could signal the end of Trump. It may be worth recalling that the Thatcher-Reagan free market ideology was also presented as short-term pain leading to long-term gain and proved politically effective. This narrative also has powerful religious resonance, which should not be overlooked, particularly in the US.
Free trade is not the only significant economic idea losing legitimacy. More broadly, free markets face the same fate as the power of oligarchs and their dominating digital platforms becomes increasingly evident. The BBC is wheeling out David Dimbleby to narrate how the free-market idea gained political traction just as it lost its shine.
It is extraordinary that most of these big ideas were initially formulated prior to the First World War: the invisible hand of the market for ensuring benefits for all from Adam Smith in 1776, the advantages of free trade from Ricardo in 1817 and value being determined by markets from the marginalists at the end of the 1800s. Keynesian ideas, giving a positive role to government, may have held sway for a period following the Second World War, but there was a strong return to these old ideas from the 1970s to the present day. What other social science has changed so little?
It is ironic that much of early economic thought aimed to challenge the stifling dominance of the aristocratic landowning classes, yet it has now led to a similar dominance by finance and tech oligarchs, which Trump doesn’t have a problem with. Hopefully, increasing awareness of the origins of these ideas will help us escape their pull, break free from the current oligarchic power, and develop new concepts for the 21st century that will achieve true global well-being.
So, in this issue, we start with contributions on the history of economic thought. Jo Michell provides an overview of the development of thinking up to the Second World War, Mary V Wren explains how Thorstein Veblen took a different path, and Ingrid Harvold Kvangraven discusses the lack of recognition of economic subjugation by economic thinkers.
I have also experimented with using Gemini, an AI tool created by Google, to summarise two BBC Radio 4 In Our Time programmes on Adam Smith and David Ricardo, the two biggest names in early economic thinking.
Tim Jackson discusses his new book, The Care Economy; Steve Keen critiques the biophysical illiteracy of neoclassical economics, and Howard Stein and Horman Chitonge challenge the IMF’s assessment of Zambia’s debt crisis.
Frances Coppola considers the implications of Trump’s ‘Liberation Day’ while Verity Bastion questions David Dimbleby’s version of events and Donnie Maclurcan bravely offers some advice to philanthropic funders.
