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from Lars Syll

In 1817 David Ricardo presented — in Principles — a theory that was meant to explain why countries trade and, based on the concept of opportunity cost, how the pattern of export and import is ruled by countries exporting goods in which they have comparative advantage and importing goods in which they have a comparative disadvantage.

Heckscher-Ohlin-HO-Modern-Theory-of-International-TradeRicardo’s theory of comparative advantage, however, didn’t explain why the comparative advantage was the way it was. In the beginning of the 20th century, two Swedish economists — Eli Heckscher and Bertil Ohlin — presented a theory/model/theorem according to which the comparative advantages arose from differences in factor endowments between countries. Countries have a comparative advantages in producing goods that use up production factors that are most abundant in the different countries. Countries would a fortiori mostly export goods that used the abundant factors of production and import goods that mostly used factors of productions that were scarce.

The Heckscher-Ohlin theorem –as do the elaborations on in it by e.g. Vanek, Stolper and Samuelson — builds on a series of restrictive and unrealistic assumptions. The most critically important — beside the standard market clearing equilibrium assumptions — are 

(1) Countries use identical production technologies.

(2) Production takes place with a constant returns to scale technology.

(3) Within countries the factor substitutability is more or less infinite.

(4) Factor-prices are equalised (the Stolper-Samuelson extension of the theorem).

These assumptions are, as almost all empirical testing of the theorem has shown, totally unrealistic. That is, they are empirically false. 

That said, one could indeed wonder why on earth anyone should be interested in applying this theorem to real world situations. As so many other mainstream mathematical models taught to economics students today, this theorem has very little to do  with the real world.

From a methodological point of view one can , of course, also wonder, how we are supposed to evaluate tests of a theorem building on known to be false assumptions. What is the point of such tests? What can those tests possibly teach us? From falsehoods anything logically follows.

  1. March 15, 2016 at 12:50 pm

    Dear Prof. Syll,

    You have been decrying the elimination of courses of history of economic thought from the economic curriculum. I could not agree more with you. The study of the history of economic thought is indeed crucial for understanding the true origin of ideas, concepts and theories in economics.

    In this respect, I would like to draw your attention to the following. You affirm in the above post that Ricardo explained the concept of comparative advantage based on opportunity costs. The erroneous association of Ricardo with the opportunity costs approach is one of the most common misconceptions surrounding his famous numerical example today. It overlooks the fact that this approach was originally developed by Austrian economist Friedrich von Wieser as part of his marginal theory of value many decades after Ricardo’s death. Moreover, Wieser explicitly conceived his value theory as an opposing view and main alternative to Ricardo’s labour theory of value.

    It was another Austrian economist, Gottfried from Haberler, who reformulated the original proof of comparative advantage in terms of opportunity costs during the late 1920s. Haberler’s declared purpose back then was to free the theory of comparative advantage from its alleged association with the labor theory of value. As I argue in a paper which I’m going to present in the XXth Annual Conference of the European Society for the History of Economic Thought in May 2016, Haberler’s reformulation of Ricardo’s numbers in terms of opportunity costs was nothing more than the flawed response to an unfounded critique towards the original proof of comparative advantage.
    See: https://www.researchgate.net/publication/294418987_Ricardo%27s_numerical_example_versus_Ricardian_trade_model_A_comparison_of_two_distinct_notions_of_comparative_advantage

    Furthermore, it is also not accurate to affirm that Ricardo did not explain “why the comparative advantage was the way it was”. In the following passage of the Principles Ricardo refers to the importance of achieving a better international division of labour based on the respective natural and artificial advantages of countries: ‘It is quite as important to the happiness of mankind, that our enjoyments should be increased by the better distribution of labour, by each country producing those commodities for which by its situation, its climate, and its other natural and artificial advantages, it is adapted, and by their exchanging them for the commodities of other countries, as that they should be augmented by a raise in the rate of profits’ (Vol. 1, p. 132). Ricardo explicitly mentions here two natural advantages, namely climatic conditions and the geographic location of countries, but his general reference to other natural advantages suggests that he also thought of additional factors like the abundance of fertile land and raw materials. With “artificial advantages” Ricardo meant of course the product of human endeavour. Demand-side differences like taste and cultural traditions in specific countries, economies of scale and historical accident – all of these may be considered as artificial sources of comparative advantage.

    • blocke
      March 15, 2016 at 2:21 pm

      “Ricardo explicitly mentions here two natural advantages, namely climatic conditions and the geographic location of countries, but his general reference to other natural advantages suggests that he also thought of additional factors like the abundance of fertile land and raw materials. With “artificial advantages” Ricardo meant of course the product of human endeavour. Demand-side differences like taste and cultural traditions in specific countries, economies of scale and historical accident – all of these may be considered as artificial sources of comparative advantage”

      I have never been able to use this comparative advantage argument to explain the favorable trade advantages of Japan and Germany in the contemporary world. Neither has any natural advantages nor artificial advantages, except perhaps historical accident that gave them a superior mental capital that produced trade advantages. The whole argument is vague if not silly.

      • March 15, 2016 at 2:40 pm

        Perhaps this inability has something to do with your lack of understanding of the argument. It is in fact quite simple to explain why countries like Germany or Japan produce cars instead of planes or bananas by applying the original notion of comparative advantage (= relative facility of a country to produce certain products compared to other products).

      • blocke
        March 16, 2016 at 6:34 am

        “Germany or Japan produce cars instead of planes or bananas by applying the original notion of comparative advantage (= relative facility of a country to produce certain products compared to other products)”

        What was the relative facility of Germans or Japanese to produce cars instead of planes. As I remember it, Germany and Japan were forbidden to go into many industries after WWII, by the victorious allies, e.g., computers, atom weapons, airplanes. Don’t know what you are talking about.

      • March 16, 2016 at 8:43 am

        Isn’t that an historical accident? I’m not aware that these bans are still in place. Why they don’t start producing their own planes?

      • blocke
        March 16, 2016 at 1:55 pm

        Visitor, in reply to you, explained that Japan and Germany do have a substantial aircraft industry.

        The problem, however, is the basis of your entire argument. Friedrich List, when Richardo was formulating his views on comparative advantage, pointed out that classical economics was just a con game that the British foisted on the world to justify the dominance of the London trade emporium. In other words economic arguments are a mask for historical circumstances that are rooted in great power rivalries.

      • March 16, 2016 at 2:24 pm

        I’m not questioning that Japan and Germany had built airplanes in the past. That is a historical fact. Whatever aircraft industry they might have today, though, it is not comparable in size nor prestige to their respective auto industries.
        Yes, I’m well aware of List’s critique of classical political economy. You can read my analysis of it in page 158-178 of my dissertation. http://epub.wu.ac.at/2952/
        It is partially based on Marx’s List Critique, which I highly recommend you to read. It is a devastating analyses of List’s pretentious book.

        Here a small sample:
        Marx states: “The bourgeois wants protective tariffs from the state in order to lay his hands on state power and wealth. But since [in Germany] unlike in England and France, he does not have state power at his disposal and therefore cannot arbitrarily guide it as he likes, but has to resort to requests, it is necessary for him in relation to the state, the activity (mode of action) of which he wants to control for his own benefit, to depict his demand from it as a concession that he makes to the state, whereas [in reality] he demands concessions from the state. Therefore, through the medium of Herr List, he [the German Bourgeois] proves to the state that his theory differs from all others in that he allows the state to interfere in and control industry, in that he has the highest opinion of the economic wisdom of the state, and only asks it to give full scope for its wisdom, on condition, of course, that this wisdom is limited to providing “strong” protective tariffs. His demand that the state should act in accordance with his interests is depicted by him as recognition of the state, recognition that the state has the right to interfere in the sphere of civil society” (List Critique, p. 274).

      • blocke
        March 16, 2016 at 5:53 pm

        JMM, Thanks for the tip. I respond in kind by referring you to Daastøl, Arno Mong (2014). Friedrich List’s Heart, Wit, and Will: Mental Capital as the Productive Forces of Progress. Dissertation Erfurt University. Staatswissenschaftliche Faculty. Document 24133. Doctorate awarded 29 Nov. 2011, which is available online, and is a hefty piece that gives the reader a through appreciation of List’s work in his time and subsequently. Daastøl quotes the economist Christopher Freeman: “If we are really to understand international competitivity, then it is of no use to go back to Adam Smith and still less to Ricardo and the ‘school’ of neo-classical comparative advantage theory. …[W]e must go to the original source of the national competitivity school, “Read List in the original, and notice” that the first of his “fundamental points … [is] the importance of mental capital …:” (Quoted in Daastøl, 236)

      • March 17, 2016 at 12:25 am

        Thanks for the tip, blocke. I will take a look at it. Although of course one cannot asses the quality of a dissertation by a single quote, this one from Christopher Freeman is quite wanting. I consider most of the talk about international competitiveness as pure nonsense. Moreover, I am also critical of the term “mental capital”. It seems that in order to give value to anything these days, one has to attach the word “capital” to it, like the popular term “human capital”. In classical political economy, capital is defined as the part of the wealth of a country which is employed in production, and consists of food, clothing, tools, raw materials, machinery, etc. Knowledge and ideas belong to human beings, and humans are not capital. Finally, it seems that Mr. Freeman believes that Ricardo and the school of neoclassical comparative advantage theory are the same thing. They are not.

      • blocke
        March 17, 2016 at 9:01 am

        Here is a quote from Levi=Faur about List and the importance of mental capital.

        “This notion stresses that the forces of globalization are products of the augmentation of mental capital, a learning process which includes the creation of new forms of knowledge as well as the products of new forms of political organization. The nation-state in this interpretation has a crucial role in promoting, guiding and regulating the process of globalization. The nation-state is crucial to the process of globalization as it nurtures it, protects it and gives it meaning. [I]n modern terminology we may say that Friedrich List emphasized the importance of human capital in economic development, which has been neglected in mainstream economic theory… On the basis of the concept of productive powers, List was able to offer an analysis that connected government educational policies
        and the notion of human capital with the desired outcome of economic
        development. List was able to distinguish between the characterizations
        or outcomes of development and the causes of development.

        [As a result] it is possible to identify two concepts of economic development, one that stresses material factors and another that emphasizes politics and human capital. These two concepts are embedded in the current popular notion of globalization. Globalization…implies that certain economic processes, often understood as unavoidable imperatives, carry human society towards economic and political reorganization on a global scale. This interpretation of globalization is materialistic. … It is a Smithian or a laissez-faire
        concept of globalization as it associates globalization with the economic
        processes of accumulation and the division of labour. According to this
        view we are now in a new stage of economic development, where the
        movement towards a more efficient (i.e. global) accumulation of capital
        and division of labour will create favourable conditions for the setting
        of a new global–political order.”
        Levi-Faur went on:
        “A second notion of globalization, Listian or that of economic nationalism may also be introduced. … The nation-state in this interpretation has a crucial role in promoting, guiding and regulating the process of globalization. The nation-state is crucial to the process of globalization as it nurtures it, protects it and gives it meaning. (David Levi-Faur (1997) Friedrich List and the Political Economy of the Nation State,” Review of International Political Economics, 4:1, 154-178., p. 160)

      • March 17, 2016 at 7:52 pm

        Levi-Faur gives the impression here as if List had invented the term productive powers. Right from the start of the Wealth of Nations, Smith is preoccupied with the causes of improvement of the productive powers of labor. Just look at the title of Book I. The division of labor is crucial for the improvement of the productive powers of labor, because it favours the acquisition of specialised skills and knowledge. I don’t see any truly original contribution of List here.

      • blocke
        March 18, 2016 at 2:07 pm

        “I do not see any truly original contribution of LIst here.”

        Why is it important for there to be original contributions in the history we are discussing. If you want to think your hero Smith made truly original contributions look at what Murray Rothbard’s vigorous denunciation of Adam Smith and the Wealth of Nations i.e., Smith was “an inveterate plagiarist,” but one who “plagiarized badly, adding new fallacies to the truths he lifted.” Smith’s “economics was a grave deterioration from his predecessors, from Cantillon, from Turgot, from his teacher Hutcheson, from the Spanish scholastics, even . . . from his own previous works” (Rothbard, pp. 435–36). Smith’s book distracted people away from these meritorious earlier works. The “Wealth of Nations is a huge, sprawling, inchoate, confused tome, rife with vagueness, ambiguity and deep inner contradictions” (Rothbard, p. 436). Journal of Austrian Economics, 1:1 1998.

        Most people borrow ideas; that shouldn’t matter to you. The key point about List is that he emphasized the importance of mental capital and the nation state in its formulation. I learned a lot about the comparative economic development of Europe during the 19th century from him, and others who followed up his insights. Remember List died in 1846.

      • David Chester
        March 18, 2016 at 3:20 pm

        Plagiarist activity is not relevant here! The opposition to what Smith wrote, if true, should be expressed by more significant facts. What has changed so basically that competition no longer dominates macroeconomic progress, the invisible had has gone or the 3 production factors still apply with their 3 returns? In my opinion, nothing of major significance.

      • blocke
        March 19, 2016 at 7:28 am

        “What has changed so basically that competition no longer dominates macroeconomic progress, the invisible had (hand) has gone or the 3 production factors still apply with their 3 returns? In my opinion, nothing of major significance.”

        David Chester, Nothing has changed, because these postulates never applied in the first place and, despite the claim of classical economics that it had successfully dealt with mercantilism, it hadn’t. Germany industrialized between 1850 and 1913, to replace Britain and France, under a leadership class strongly influenced in thought and deed by camerialism, behind high tariff walls, in a cartelized economy – to replace Britain and France as the major industrial nation in Europe. Your postulates cannot explain it. So what do we do; in your case, keep the hypothesis and abandon reality, in mine, drop the hypothesis because it doesn’t explain reality.

    • March 15, 2016 at 4:34 pm

      I disagree. Though Ricardo did not employ the term ‘opportunity cost’ the gains from trade in Ricardo are indeed the opportunity costs of NOT engaging in this trade. In short, his argument for trade is based on the recognition that NO trade imposes what are, in effect, forgone costs, i.e., ‘opportunity costs’.

      • March 15, 2016 at 5:01 pm

        I’m sorry to disagree with you. In Ricardo’s original numerical example, the gains from trade can be easily calculated. These gains consist in the amount of labor time saved by importing the commodities instead of producing them internally. Thus, England saves the labor of 40 men working for a year while Portugal saves the labor of 10 men.

      • March 15, 2016 at 5:09 pm

        I meant to say that England saves the labor of 20 men – not 40.

      • March 16, 2016 at 10:31 pm

        Labour hours required
        Cloth Wine

        Portugal 90 80
        England 100 120

        Thus if Portugal and England do NOTspecialize, then these hours of labour will produce

        Cloth Wine
        Portugal 10 10
        England 10 10
        Agg. Pro. 20 20

        But, if they DO specialize where production is highest, then, for the same numbers of labour hours, production is:

        Portugal 0 21.25
        England 22 0
        Agg. Pro. 22 21.5

        Change in Cloth Production + 2.0
        Change in Wine Production + 1.5

        Ricardo has not posited a saving in hours of work, but net gains in the production of both goods cloth and wine by redirecting hours of work to where these are most productive.

      • March 16, 2016 at 11:22 pm

        I think this is an incorrect interpretation of Ricardo’s numerical example. He defined the original four numbers as number of men working for a year required to produce a certain amount of cloth or wine traded between England and Portugal. If England does not import this unspecified amount of wine from Portugal, she would require the labor of 120 men in order to produce it internally. Thus, England saves the labor of 20 men by importing the wine from Portugal in exchange for a certain amount of cloth that requires the labor of only 100 men. Portugal gains the labor of 10 men by importing a certain amount of cloth from England that would require the labor of 90 Portuguese working for a year to produce internally, but can be obtained by exporting a certain amount of wine to England that only requires the labor of 80 men.

      • March 17, 2016 at 3:04 am

        The only thing I changed in Ricardo’s example was to specify the units of output at ten times his example. Where he used one of x and one of y, I use 10 of x and 10 of y. Spain then exports the added wine above its initial home consumption/production to England; and England exports the additional cloth produced beyond it’s needs..

        His point was not that trade was labour saving, but that specialization in more productive uses of labour saving good by both countries led to increased overall production of x and y: I.e., a more efficient use of labour hours occurs in both countries. It is this net gain in overall production that represents the gain from trade.

        I do not ‘see; labour saving as implicitly or explicitly within his explanation. Because of Say’s law, this increase in production was anticipated to create its own demand, which, for that time and place, was most likely true.

      • March 17, 2016 at 7:14 pm

        Sorry to disagree with you again. I guess when you write “one of x” you mean one unit of cloth or wine, do you? If this is the case, then it is the common misinterpretation of Ricardo’s numbers as unitary labor costs. Moreover, he clearly stated the gains from trade in terms of amount of labor time saved. This saved labor time can be used in producing all sorts of commodities, not only cloth and wine. The 2 countries x 2 goods model of international trade is a neoclassical fiction that has nothing to do with Ricardo’ original purpose with respect to the numerical example.

      • March 18, 2016 at 12:34 am

        Ricardo stated the following:

        “No extension of foreign trade will immediately increase the amount of value in a country, although it will very powerfully contribute to increase the mass of commodities, …”

        “Foreign trade, then, though highly beneficial to a country, as it increases the amount and variety of the objects on which revenue may be expended…”

        [7.13] If Portugal had no commercial connexion with other countries, instead of employing a great part of her capital and industry in the production of wines, with which she purchases for her own use the cloth and hardware of other countries, she would be obliged to devote a part of that capital to the manufacture of those commodities, which she would thus obtain probably inferior in quality as well as quantity.

        [7.14] The quantity of wine which she shall give in exchange for the cloth of England, is not determined by the respective quantities of labour devoted to the production of each, as it would be, if both commodities were manufactured in England, or both in Portugal.

        [7.15] “England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it her interest to import wine, and to purchase it by the exportation of cloth.

        [7.16] To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain MORE CLOTH from England, THAN she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth.

        [7.17] Thus England would give the produce of the labour of 100 men, for the produce of the labour of 80.

        I find it fascinating that you have an opposite interpretation. He does not talk about labour saving, but, and rather, the increase in production that results from the specialization into areas where labour is most productive.

        We appear to disagree very fundamentally about what he is saying. I could have chosen any numbers I wanted for the annual outputs (with and without trade) in both countries. They would have shown what I have shown.

      • March 18, 2016 at 10:40 am

        If you want to make the point that Ricardo viewed the increase of production as the main benefit of trade, you can find better quotes in the Principles, for example: “the end of all commerce is to increase production (Vol. I, p. 271). This is not our point of disagreement.

        Labor productivity is usually measured by dividing the amount of production by amount of labor time. It can be increased either by increasing the numerator or reducing the denominator, or both at the same time.

        Ricardo does not need to bring a numerical example in order to prove this rather obvious proposition. The main purpose of his numeral example was a different one. In order to catch it, one has to read a paragraph that you have missed quoting: “The same rule which regulates the relative value of commodities in one country, does not regulate the relative value of the commodities exchanged between two or more countries” (Vol. 1, p. 133). He repeatedly mentions it in the paragraphs you have quoted.
        Regarding your capitalized words. Ricardo is saying there that if Portugal divert the 80 men and some unspecified amount of capital she currently employs in the production of wine to the production of cloth, she would obtain less amount of cloth than what she is obtaining from England by the exportation of wine.

        You can certainly present a different numerical example, but then it is your numerical example – not Ricardo’s.

    • visitor
      March 15, 2016 at 4:56 pm

      “It is in fact quite simple to explain why countries like Germany or Japan produce cars instead of planes ”

      I would like to read your explanation, as Germany and Japan both have a substantial aircraft industry.

      In Germany, corporations like Messerschmidt, Focke-Wulf or Blohm had a long history spanning decades, before they progressively merged to form what became EADS, later renamed Airbus, designing and building aircraft and helicopters.

      In Japan, firms like Mitsubishi and Kawasaki also have a distinguished history, and currently design and build airplanes and helicopters.

      • March 16, 2016 at 12:01 am

        I have sat on many German and Japanese cars, but not in a single plane form either country, but perhaps it’s just me.

        Regarding the explanation, I kindly refer to Ricardo: “The motive which determines us to import a commodity, is the discovery of its relative cheapness abroad: it is the comparison of its price abroad with its price at home” (Vol. I, p. 170).

  2. Paul Schächterle
    March 15, 2016 at 2:54 pm

    Quote: “From falsehoods anything logically follows.”

    Again? We already had this once here: https://rwer.wordpress.com/2016/01/06/delong-summers-krugman-on-models/

    That statement is not correct. You cannot draw arbitrary conclusions from empirically false assumptions.

    The statement “ex falso (sequitur) quodlibet” does actually mean “ex contradictione (sequitur) quodlibet”. Compare https://en.wikipedia.org/wiki/Principle_of_explosion.

    Logically you can draw valid conclusion from false assumptions. Just if the assumption is always false the conclusion is never given.

    So you *can* say that x => y, even if always ¬x.

    But if ¬x then you don’t know whether y or ¬y.

    So the corrected sentence should read: “From (empirical) falsehoods *nothing* logically follows.”

    • March 15, 2016 at 4:26 pm

      Well, I’d say that “From falsehoods, falsehoods :: I.e., false deductions :: then logically follow.”

      That, I believe, is where Lars Syll is coming from.”Blackboard economics”, based on empirically false assumptions, lead to empirically false deductions masked as empirically likely conclusions.

      As for ‘anything follows’, the state of economic theory is such that the most minor variations in ‘assumptions’ lead to vastly different conclusions. Or, as George Bernard Shaw famously concluded, “[I]f all the economists were laid end to end, they’d never reach a conclusion.” Which is a witty way of saying that economists could never agree on which economic conclusion was empirically sound.

      • Paul Schächterle
        March 15, 2016 at 4:53 pm

        I understand and agree that (neoclassical) economics is wrong. But I think for a better understanding we have to differentiate between
        — logical errors and
        — empirical falsehood.

        From a logical error anything follows (in a binary logic) because you assume one thing and also the opposite.

        Empirical errors have a different nature. In an empirical error you assume something to be true that is not.

        Neoclassical economists commits both types of error. They make (a) nonsensical assumptions about the world (empirical error) and they make (b) assumptions that are incompatible with each other so that their theorems can not be connected into a greater theory.

        I concede that that distinctions gets blurred when ad-hoc “assumptions” are introduced (like e.g. the “representative agent” that fakes a connection between “macro” and “micro” models).

        But we as heterodox economic scientists have to try to make our own statements as clear and understandable as possible. Thus I advocate to make clear that there is a fundamental difference between logical error and empirical wrongness.

      • March 15, 2016 at 11:06 pm

        Okay. I thin we are on the same page and don’t think we disagree at the margin. Axiomatic-deductive systems are logically coherent, I.e. “valid”. Ptolemaic astronomy, as a set of deductions based on the ideas of a geocentric universe and the heavens exhibiting perfect circular motions, was logically “valid”. Empirical observations were used to ‘improve’ the model with the hypothesis of the equant.

        When observations are ‘fitted’ to unrealistic theory, then I’d say a false sense of empiricism prevails within a notionally false theory.

        In my view, mainstream micro-theory is Ptolemaic. It purports to describe the behavior of individual agents by recourse, on the one hand, to maximizing an undefined thing called utility, and, on the other, to maximizing the difference between costs of production and revenues from sales, I.e., units of profit in terms of money.

        Yet, both agents are users of goods to attain defined ends. Both, in other words, are consumers/users of goods for different ends. Those ends are not always definable in monetary units, especially if money is itself an essential resource for functioning in a monetary society.

        If economics is to become scientific, it must define consumption as use to obtain varied ends. That is the situation with both people and ‘firms’, each of which uses goods to provide for various needs essential to their well-being. This is why I stress that values-in-use and values-in-exchange are very, very different phenomena that, to be captured, require objective measures of ends pursued, realized or not.

        Another problem is the methodological individualism mainstream economists use. The social benefits of consumption or production activity cannot begin to be captured when such an approach is used.

    • March 15, 2016 at 4:58 pm

      Paul, what I’m referring to is the (I thought) well-known logic “principle of explosion,” according to which if both a sentence S and its negation -S are considered true any sentence whatsoever can be inferred. Nothing deep, nothing strange.

      • Paul Schächterle
        March 15, 2016 at 7:21 pm

        I know, I am just pointing out that the formulation you used in your post, “From falsehoods anything logically follows.“ is mistakable, because one can make a factually, empirically false assumption without committing a logical error.

  3. March 16, 2016 at 2:42 pm

    Samuelson in one of his last papers in AER (i think in the 2000’s) wrote that actually his stolper -samuelson was not applicable to the real world. It was fairly obvious at the start (eg they assume ‘full employment’ which doesnt apply except by some nonstandard interpretations (which are ones held by milton firedman and robert lucas for example). but krugman used it to argue ‘free trade’.

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