Is free trade always good for workers? Gene Tunny explores the Stolper-Samuelson theorem, which shows how trade can lower wages for some while benefiting others. He discusses key economic insights from Wolfgang Stolper and Paul Samuelson, real-world historical examples, and the implications for today’s global trade debates.
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Timestamps for EP272
- Introduction (0:00)
- Explanation of Comparative Advantage and Free Trade (1:50)
- Background on Wolfgang Stolper and Paul Samuelson (5:50)
- The Heckscher-Ohlin Model and Indirect Factor Arbitrage (16:37)
- Stolper-Samuelson Theorem and Its Implications (26:35)
- Empirical Evidence and Historical Applications (31:53)
- Conclusion and Future Directions (32:19)
Takeaways
- Free Trade Creates Winners and Losers – The Stolper-Samuelson theorem predicts that free trade benefits the owners of a country’s relatively abundant factors (e.g., capitalists in capital-rich countries) but can harm the owners of relatively scarce factors (e.g., workers in industrialised economies).
- Economic Theory Still Favors Free Trade Overall – While trade can hurt specific groups, economists argue that overall national income rises, making it possible (though not always politically feasible) to compensate the losers.
- Historical Evidence Supports the Underlying Theory – Examples from 19th-century trade patterns show factor price convergence, with land rents rising in the U.S. while falling in Britain due to increased trade.
- Trade Policy Shapes Political Alliances – Farmers in land-rich nations like Australia and the USA often supported free trade, while industrial workers in capital-rich nations tended to favor protectionism.
Links relevant to the conversation
The previous episode with Ian Fletcher:
Stolper and Samuelson’s 1941 paper “Protection and Real Wages”:
https://academic.oup.com/restud/article-abstract/9/1/58/1588589
William Bernstein’s book “A Splendid Exchange: How Trade Shaped the World”:
https://www.amazon.com.au/Splendid-Exchange-Trade-Shaped-World/dp/0802144160
Roger Backhouse’s book “Founder of Modern Economics: Paul A. Samuelson: Volume 1: Becoming Samuelson, 1915-1948”:
https://www.amazon.com.au/Founder-Modern-Economics-Samuelson-1915-1948/dp/0190664096
Edward Leamer’s paper on the Hecksher-Ohlin model in theory and practice:
https://ies.princeton.edu/pdf/S77.pdf
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Transcript: Does Free Trade Benefit Everyone? A Deep Dive into the Stolper-Samuelson Theorem – EP272
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:00
Gene, welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene, Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. In this episode, I want to talk about an important issue that came up in my conversation with Ian Fletcher last episode. That was an episode on industrial policy. The issue is the distributional impact of international trade. So how does trade affect different groups within the community? Many commentators have expressed concerns over the impacts of China’s emergence as a new global manufacturing power and exporter in the 2000s have expressed concerns on that, the impact of that on workers in the US and other advanced economies. Before that, in the 90s, there were concerns about the impact of NAFTA, the North American Free Trade Agreement there were, there was a famous interview with Ross Perot. I think it was a presidential candidate who said NAFTA represented it was a giant sucking sound out of America, by which he meant jobs and an investment would would go south to Mexico. Now economists generally support free trade. We see free trade as benefiting consumers. It means lower prices. It’s better from a macro economic perspective, because economists can specialize according to their comparative advantage. That’s the critical intellectual contribution of David Ricardo, so the famous British classical economist in the early 19th century, so countries can specialize in goods that they produce at lower opportunity costs relative to their trading partners. They can sell those goods to their trading partners and buy products that are better produced by their trading partners. So products that their trading partners have a lower opportunity cost of producing relative to to the other country. Now this means that production across all countries together is higher, and it means that there’s an opportunity for countries to gain from international trade. So I have an explanation of comparative advantage. I have some illustrations in my Top 10 Principles of Economics ebook. You can get that off my my website. It’s probably a topic we should come back to and spend a whole episode on and go through a few illustrations, but for now, we’ll just acknowledge that, as Ian Fletcher pointed out last week, the the case for free trade depends on this, this concept of comparative advantage. I think it was Paul Samuelson who famously said something along the lines of comparative advantages, is one principle in economics that is both undeniably true and non trivial. So something along those lines and Samuelson is going to get mentioned in this episode, of course, because this episode, we’re looking at a famous theorem that he was partly responsible for, called the Stolper Samuelson theorem. And this helps us understand the distributional consequences of international trade. So because of this theorem, economists aren’t so naive, they’re not so ignorant that they they will expect that everyone’s better off under free trade. That would be just too optimistic, right? The fact that some groups in the community can be made worse off by free trade has long been recognized. Well, well, it’s been recognized since the Stolper Samuelson theorem was. Presented in the early 1940s and what this theorem does is it predicts the winners and losers of international trade. It explains why, among other things, manufacturing unions typically favor tariff protection, why farmers typically favor free trade, although not always. It depends on the conditions in particular countries, as we’ll talk about. It depends on whether a particular factor of production can be considered scarce or abundant in that country relative to the situation in the rest of the world. So this is where it gets a it gets a bit tricky, but I’ll try and give some examples that explain this important, important theorem. So it’s named after two economists, Wolfgang Stolper, who lived from 1912 to 2002 and Paul Samuelson, who lived from 1915 to 2009 Samuelson will be familiar to anyone who’s studied economics, even at the introductory econ 101 level, he was definitely the more famous of the two. He won the Nobel Prize in Economics in 1970 however, as I’ll explain, the Stolper Samuelson theorem actually came out of an insight of Stolper. So Stolper, Stolper deserves a lot of the credit for this theorem, as possibly does Paul Samuelson’s wife, Marion, who didn’t get enough credit at the time for her contribution. She typed up the paper that she had she was a student of economics herself, and she’d written some some articles on international trade previously. And so it looks like she might, by typing up the article, she may have improved it in some way. There’s a bit of debate about that that’s covered in the there’s this great book that I’m drawing on extensively in this, in explaining the Stolper Samuelson theorem. It’s a book by Roger Backhouse, who’s a historian of economics, Paul Samuelson, founder of modern economics, founder of modern economics. So that’s definitely worth reading among another book I’ll mention later. Let’s begin with Stolper. So Wolfgang Stolper, he was a German American economist. He was born in Vienna in 1912 so in the days of Austria, Hungary, the Empire, he moved to the United States and studied for a PhD under the renowned economist Joseph Schumpeter at Harvard University. It was at Harvard that Stolper met Samuelson. We’ll talk about that a bit later. He spent much of his career teaching at the University of Michigan, where he influenced many future economists and beyond his great contribution to the theory of international trade, the Stolper Samuelson theorem. He was also known for writing an insightful biography of his mentor, Joseph Schumpeter. Schumpeter is also a fame I mean, he’s a super famous economist responsible for the idea of creative destruction. We’ve probably talked about that on the show, and if I haven’t, I better make sure I do that soon. Very, very important concept. Schumpeter made some great contributions to the study of innovation, to the study of economic growth and development, and he made some rather profound observations about the progress of economies over time. How he saw there was a tendency, a move toward socialism, away from laissez faire capitalism. So it’s lots of interesting contributions. We’ll have to come back to Schumpeter another time now. Paul Samuelson, he was an American economist. He was celebrated for transforming the discipline through rigorous mathematical modeling. He was born in Gary, Indiana, studied at the University of Chicago before earning his PhD at Harvard. His academic reputation, well, a lot of it, I mean, I guess he’s, you know, he’s made a huge amount of contributions, but his, his initial great contribution was a book published in nine. 147 called Foundations of economic analysis, which was an amazing exposition of how you can apply mathematical tools to economics. It unified a range of different areas in economics, so very profound contribution to economics. He spent much of his career at MIT and shaped the field for generations with his innovative research and influential teaching. And I mean he touched, ended up touching or affecting or teaching millions of students, really, through his famous textbook economics and introductory analysis that went through, it’d be over a dozen editions and generations of of college students have been have been taught using that textbook. As I mentioned, the renowned historian of economics, Roger Backhouse, he’s described Samuelson as the founder of modern economics, and that relies largely on Samuelson’s application of mathematics to economics, and so an approach to economics that has has been very influential. So we have to talk about how the Stolper Samuelson theorem came about. It was published in 1941 in the Review of Economic Studies, which is one of the top economics journals in the world. Comes out of Oxford, has both. I mean, I think it would started out as as a British American project, so you had economists in Britain and America collaborating on it. I mean, that have editors from all over the world now. But it’s, it’s a major economics Journal, the paper by Stolper and Samuelson. It was titled protection and real wages. Incidentally, I should note that when this paper, when they wrote the paper, and they said they first submitted it to the American Economic Review, which is the leading economics journal or one of the leading ones in the world. It’s the Journal of the American Economic Association. It was rejected by the AEA because it was seen as highly theoretical and not particularly practical. So yeah, really odd decision by the editors. I guess maybe it wasn’t obvious at the time the implications of this paper, because it is, it is an absolute brilliant paper. It’s one of those papers you read it, or you read you under, or you learn the theorem, and you go, wow, that’s really insightful. That’s something I may not have thought of. And it’s one of those, one of those pieces of economics that I think really makes you fall in love with the discipline, at least it’s one of those, one of those great contributions that I often think about as as really, you know, showing the power of of economics like Samuelson. Stolper was a Harvard graduate student. They lived near each other. So this is Cambridge, Massachusetts, in the greater Boston area. And Samuelson recollected the following about the origin of the Stolper Samuelson theorem. This is in back house’s book, and it’s written by Samuelson. And I might as I’m reading it, I’ll just, I’ll offer some clarifications as we’re going through it. One day in the late 1930s Stolper mentioned to me a curiosity, old Taussig. So Taussig was a famous economist at the time. He asserts that free trade raises American wages by drawing workers into the sectors of maximum comparative advantage. How do we square this with Olin’s notion? So Olin is a famous Swedish economist, how do we square this with Olin’s notion that the input America is most niggardly endowed with can have its return lowered by free trade, in comparison with autarky? Autarky is a situation of no trade, I should note. And so Samuelson reflects on this. This is a question from Wolfgang Stolper. He’s asked Samuelson, well, hang on, Taussig saying one thing trades going to raise wages of for Americans, but then. It. There’s another economist who points out, well, hang on, it could be the fact that trade reduces wages, or at least of some workers through Well, I mean, we’ll talk about this later, but the idea is trade actually means that laborers in the US end up competing with laborers overseas, whose labor is embodied in the products that that are imported. So this is a very good question that that Stolper has asked. And so Samuelson goes on in his recollection, he writes, The point was a new one to me. I said, you’ve got something there. Work it out. He did. And in the course of his explorations, we talked endlessly about the many ramifications of the problem. The analysis soon went beyond the point about free trade, which naturally fell into place after one had sorted out the issues. So that is the story of how we ended up with the Stolper Samuelson theorem regarding Olin. That’s Bertolt Olin. He’s a Swedish economist, as I mentioned, he was a politician. And if you, if you’ve studied economics, to say, a third year level or a graduate level, you you’d no doubt recognize that Olin is the Olin in the famous Heckscher Ohlin model of international trade. So we did talk about that, because the Stolper Samuelson theorem comes out of the Heckscher Ohlin model of international trade. In fact, I think what we call nowadays the Heckscher Ohlin model was first formalized in the paper by stopper and Samuelson. I seem to recall reading that in in some of the some of the articles I was reading while preparing for this episode. So to understand Stolper Samuelson, you need to understand the basics of the Heckscher Ohlin model. And I think one of the best explanations of this that I’ve read, it’s it’s in a paper or a chapter in a book I’ll link to it in the show notes. It’s it’s by Edward lemur, who was a professor of economics at UCLA, and he explains how the key to understanding Heckscher Ohlin is to understand that traded goods are essentially bundles of factors of production, so land labor and capital. So the land labor and capital that go into them, think about the the goods that are traded internationally. So if it’s a car or if it’s wheat, then you’ve got combinations of land, labor and capital going into those in in different in different ratios. So wheat, for example, that’s going to be embodying a ton of wheat is going to embody, you know, probably more land then, than a car for for example. So, and, you know, likewise, something that’s very labor intensive is going to embody more labor than something that is capital intensive to produce. So think about commodities being bundles of factors of production. Model predicts that countries specialize in producing goods that use factors they have in abundance. The theorem states that countries will export goods that use their abundant factors and they will import goods that use factors that they lack. Okay, so if you’re a country with a lot of land or a lot of land suitable for agriculture as Australia has, then you’re more likely to be exporting goods that rely on those that abundant factor well, such as wheat, such as beef, etc. So, I mean, it seems rather obvious. Yes, but it’s important to have a formal model like this, because then it allows you to to generate fascinating theorems like the Heckscher Ohlin theorem. This is the really important part of Heckscher Ohlin, in my view, or one of the key lessons from it, and this is what leads us to Stolper Samuelson. This is a point that that that Lima makes, that the the Heckscher Ohlin model really implies what you call indirect factor arbitrage. So it’s a way of taking advantage of lower well more abundant, lower cost resources or factors of production in other countries, and effectively importing them into your own country, so that could be taking advantage of abundant land in another country, taking advantage of abundant labor in another country, that is where there’s lower so the abundant land would have lower rents, the abundant labor would have lower wages. International Trade allows a country to to benefit from that, and what we what we see is that the empirical evidence tends to support this convergence of factor prices, although maybe not as strongly as as a abstract model would predict, but there is certainly evidence that this has occurred over time. So there is evidence of this factor price convergence occurring to an extent, and there’s a great example in one of the books that is a good source for this conversation on the Stolper Samuelson theorem. The book is called a splendid exchange, how trade shaped the world, and it’s by William Bernstein. So really terrific book. It was nominated for, I think it’s Goldman Sachs, Financial Times, Business Book of the Year in 2008 so really highly regarded book, and it has this fascinating bit of data in it on the convergence of rents for land between the United States and Europe in the 19th century. This is based on research by economic historians Kevin O’Rourke and Jeffrey Williamson. O’Rourke and Williamson found that between 1870 and 1913 us rents rose 249% while British rents fell 43% so what was going on is with international trade in this period before the First World War, that’s generally regarded as the sort of high point of free trade in the 19th century. What you had is this convergence, because you had goods produced using abundant land in the US, they could then be sold into Britain and Europe. They would be competing with the agricultural products produced on the the land in in Britain and Europe, which was relatively scarce relative to the other factors of production, like labor and capital. And so there’s this competition that drives down the rents in Britain, or this trade that drives down the rents, and it increases the returns in the US, because the US produces, the farmers are they have a larger market now they can sell into Britain and Europe. So what we had was, well, this is, this is associated with the free trade error. It’s also due to cheap, cheaper transport, development of railways and I suppose, steamships, etc. And what we had was the cheap transport leading to Britain and Europe being flooded with grain and meat. From the US. So prices were driven down, and that lowered the value of the farmland in the old world and increased it in the new so that’s an example of this factor price convergence. It’s consistent with hex Olin. Okay. Now this, this is suggesting, you know one of these, one of the well, what is the key insight of the the heck sure Olin model that the predicted impact on on the returns to the factor so whether it’s rent or whether it’s wages, that depends on how abundant or scarce the factor of production is in a particular country relative to so in their famous paper, in a simplified and abstract model, initially with two countries and two commodities, but you can, you can generalize this. It’s all, there’s a, I won’t go into it here, but I think it this theorem is generally considered robust to different assumptions. So in this simplified and abstract model, the theorem proves that if labor is the scarce factor of production, then protection, so the application of a tariff can raise wages in in the country. But what it’s doing is it’s it’s effectively redistributing income from capital to to labor. William Bernstein, the neurologist, the finance writer whose book I mentioned previously, he has used this Stolper Samuelson theorem to explain the impacts of international trade in different places and times. And I’ll put a link in the show notes to the book, because it really is a brilliant exposition of this theorem and how useful it is in explaining different episodes in in economic history. And it really brings this Stolper Samuelson theorem, which, if you read it in an in an international economics textbook, you go, Well, I guess that’s that’s really interesting. However, it may not have the color, the life that that it gets when you when you read it in a, you know, very well written book aimed at a, at a, you know, an audience that’s not of people studying economics or academics. It’s aimed at an educated, lay person audience. It’s a very good book, and I like Bernstein’s explanation of Stolper Samuelson, so I’m going to read it, and we’ll just so we’ll just go through the logic of it. Bernstein writes, If labor is scarce in nation a and abundant in nation B, then wages will be lower in B. So think of a as an advanced economy where, relative, to say, an emerging economy with a with a high population, but very little capital, very little well relative to the the advanced nation, nation a, then wages will be lower in B, so okay, and labor intensive products made in B will consequently be cheaper there as well. With free trade, merchants and consumers will prefer the less expensive goods made in B to those made in a. So imagine those less expensive goods could be T shirts that are that are being manufactured in B relative to to A. So they’re manufactured in the emerging economy rather than the advanced economy. So workers in in B will benefit, and workers in a will lose. Okay, so if there’s international trade, then nation a starts buying the product produced by the abundant labor, which could be T shirts in Country B, and that benefits the workers in B, but it it, it harms or the workers in a. So that what the Stolper Samuelson theorem shows is that they will have lower wages relative to the situation if you had had protected that that sector or that the production of that commodity using that. Factor labor that is relatively scarce in nation a, the advanced economy relative to capital relative to other countries, nation a has more capital less labor, whereas nation B, the emerging economy, has an economy where there’s much more labor relative to to capital. So that’s, that’s a simplified explanation of what’s happening with Stolper Samuelson and Bernstein goes on to to say that this is true of the other two factors as well. Free trade helps farmers in countries with abundant land. Okay, so that would be Australia, the United States historically. Well, it was the United States for in the late 19th century, for sure. And it hurts those so we’re talking about free trade, it hurts those factors in country. It hurts, sorry. It hurts those in countries with scarce land, and it helps capitalists in rich nations. So it hurts farmers in countries with scarce land and it helps capitalists in rich nations with abundant capital and Hertz capitalists in poor nations. So what you’ll see is that this stealth or Samuelson theorem can give you some really interesting predictions into what will happen if you either go from a situation of free trade to imposing a tariff, or go from a system of protection and then going to free trade. It’ll give you a sense of who will win and lose. Now, it’s not always perfect, because other things can change in economy. There can be technological change. There could be changing demand for a product. Globally, for some reason, there’s there’s a whole bunch of other things that could move this is all, all else equal, ceteris paribus, as economists say it’s, it’s a prediction from a model. At a point in time you change your trade policy, this is what’s going to happen. But of course, other course, other things can happen, which mean that, in practice, these predictions may not end up occurring. Okay, so that’s, uh, that’s Stolper Samuelson. It doesn’t mean that economists are wrong to argue for free trade. So I think this is, this is something that Stolper and Samuelson themselves made sure that they emphasized, because they wouldn’t want to be the economists that turned economists away from free trade, not at all. And hence they wrote a conclusion that clarified that fact. So this is the final paragraph from the Stolper Samuelson paper. I’m going to leave out a few words that are actually their qualifications or their extensions of of the the argument, but I don’t we’ll just get they’ll probably just go off on a tangent if I start talking about those. So I’ll just leave out a few words, so you can go to the the paragraph the article, and just check out. Check it out. But I’m going to give you the essence of what they say here. And this is, this is them responding to to what was called the pauper labor type of argument for protection, which is essentially that, well, if you have free trade, your workers will, indirectly end up competing with a whole bunch of, well, you know, lots millions of workers in in other economies, so emerging, developing economies that have lower wages. So that’s the the pauper labor type argument for protection. Okay, so they begin. We have shown that there is a grain of truth in the poor labor type of argument for protection. Thus in Australia, where land may perhaps be said to be abundant relative to labor, protection might possibly raise the real income of labor. The same may have been true in colonial America. We are anxious to point out that our argument provides no political ammunition for the protectionist it has been shown that the harm which free trade inflicts upon one factor of production is necessarily less than the gain to the other in. Hence, it is always possible to bribe the suffering factor by subsidy or other redistributive devices so as to leave all the factors better off as a result of trade. So this is the really good point about free trade. So free trade is making the pie bigger, but it doesn’t necessarily mean that the size or the slice that each group in the community gets. It doesn’t necessarily mean that that slice is bigger, even though the whole pie is bigger, but there is the opportunity to recut the pie so that everyone gets a bigger slice of pie. In economics, this is called the keldor Hicks criterion, after Nicholas, keldor and John Hicks, famous economists. Hicks was British, keldor was, I think it was Hungarian. But they’re both both famous economists. And there’s this potential, well, it’s also known as a potential Pareto improvement, technically, Pareto optimal and a Pareto optimum. Optimum in economics is where neither party can be made better off without making the other party worse off. So free trade does offer you that opportunity, but in practice, you may not see that redistribution occurring. You could see well as, as I talked about with Ian in the previous episode, you could see the the China shock, for example, that ends up, you know, causing significant job losses in, in in America, in, you know, outside of, outside of the capitals as so in in regional America, and you know, people you know, made they don’t get significant support. Social Security benefits are not, you know, they can be rather lacking in the US. The US doesn’t have a public health care system, as we do in Australia or the UK or Europe. And so these economic shocks can have, can have really profound and long, lasting consequences on on communities that that feel those shocks from from trade and look, I mean, economists have to acknowledge that, and I think Stolper Samuelson really helps us understand those impacts of trade and understand which groups in the community will be affected. Okay, so before we go, I’d just like to talk about the empirical basis of Stolper Samuelson. I think I’ve probably done a bit of that already, but, but let’s just, let’s just go over it again, my feeling or my sense, reviewing the literature. And there’s a, there’s a huge economic literature on the impacts of trade. We may need to have another episode going on over it after because, you know, I’ve spent, you know, a fair, you know, quite a lot of time this episode trying to just explain the logic of Stolper Samuelson as best I can, and it may be that I need to come back and do that again, so I’ll be interested in your thoughts on Stolper Samuelson. Does it make sense to you? Is, does how I describe it make sense? Do you think I, if you’re a fellow economist, do you think I actually got it right, or whether, whether issues with how I explained it, just let me know. So you’ll find my contact details of the show notes. I’ll be interested in hearing from you. I’d say, I would say that the the evidence is moderately supportive of the theorem. I think it you do see through economic history, stalled by Samuelson effects. And I mean, it’s, it’s going to be as much evidence supportive of the theory as, as you’ll see for for any, for most theorems in economics that that come out of these abstract models. So I am, I would say, I think that the Stolper Samuelson theorem is, is a good theorem. It’s a great bit, a great piece of of of economic theory. It’s part of the toolkit for economists in understanding the the impacts of protection. Versus free trade. So I think it’s a really good theorem. Bernstein, in his book, explained it exchange. He he argues, or he thinks it has a lot of explanatory power and economic history, and I gave the example of convergence of of rents before. And I’ll just go through this explanation or this elaboration from him, because I think this is really, really useful. Before 1870 England had, relative to other nations, abundant capital and labor and scarce land. By contrast, the United States had relatively scarce capital and labor, but abundant land. I mean, that makes sense, doesn’t it? Because, I mean, Britain is much smaller than the US and in the, in the, you know, 19th century, the US still had, you know, had huge, huge territory, so that makes sense. And then Bernstein goes on to say, right that tariffs rose dramatically during the period that period around the world, especially in the United States after the Civil War, but trade grew more free as rapidly decreasing. Shipping costs more than compensated for the higher tariffs the stopper Samuelson theorem predicts that the main beneficiaries of increased trade would be the owners of abundant factors in each nation, capitalist and laborers in England and landowners, that is, farmers in the United States, this is precisely what happened, and thus it was no coincidence that all these groups favored free trade. Okay, so according to Stolper Samuelson, the increased trade in this period that would benefit. It would benefit the capitalists and laborers in England, because they were abundant relative to to land. So capital and labor, there was plenty of it relative to the land in England, so they could take advantage of of trade and the landowners in the US, well, they would benefit because they were abundant. So Bernstein writes, that’s precisely what happened. And thus it was no coincidence that all these groups favored free trade. Likewise. It’s no surprise that the owners of scarce factors in each nation, English landowners and American laborers and capitalists sought protection. Okay? And he goes on to to explain that in in continental Europe, the nations had scarce capital and land but abundant labor. So Stolper Samuelson predicts falling transport costs after 1870 would have generated a wave of protectionism by Continental capitalists and farmers and farmers and again, the theory is dead on. European farmers reacted vehemently and brought to an end the free trade era that began with the corn law repeal, repeal in 1846 and the Cobden Chevalier treaty. So that was the Anglo French free trade area in 1860 right? So might have to come back in another episode and just go over the history of of free trade versus protectionism in that period, because it’s all rather, seems a bit messy, doesn’t it? Because, like, my impression is that, and this is the argument that that’s made by Polanyi. And the great transformation is that the pre World War One era was an era of of, of, you know, free trade relative to what came after. It initially well during the inter war period, and then in in early years after World War Two, then. But it does there are, there are cases where there were tariffs, there was protection, as is suggested here. So I think I might have to come back to that period and just really unpack what’s going on, just so we understand, because this is critical, in terms of understanding well, are tariffs important or critical, or do they help economic development? Because, well, there’s this, there’s now, there’s this debate about, will tariffs, can tariff support so called infant industries, and I mean the the rhetoric coming out of, uh. Politicians. So President Trump, he refers to William McKinley. He talks about the tariff king. And there’s a view that the tariffs were a contributing factor to economic growth, to economic development during that period. Now I’m skeptical of that view, and I think there’s evidence that the US had started taking off before those tariffs were imposed, but I do acknowledge that, you know, there’s a lot of a lot of evidence to review, and I think we probably should come back to that in a future episode, but for now, hopefully I’ve given you a flavor of of how you can use Stolper Samuelson to to understand what’s happened at different periods in history. And Bernstein has this terrific table in his book on Stolper Samuelson categories, and he’s he’s done his best to identify in different periods of time what the abundant factors, the abundant factors that favor free trade have been, versus the scarce factors that favor protectionism. And he’s identified, say, the US before 1900 the abundant factor was land, the scarce factors were labor and capital. And so therefore that explains why, before 1900 labor and capital would have favored protectionism, and the farmers would have favored free trade, and then after 1900 in his view, land and capital are the abundant factors. I think this is that’s fair enough relative to to other countries, and so they’re going to be favoring free trade versus protection versus labor. So labor as the scarce factor, it favors protectionism. So this goes to explain why, particularly manufacturing unions in industrial countries tend to favor protection, because it does involve a redistribution in their favor. Okay, so, gee, there’s a whole bunch of other evidence of we could talk about, but I better leave it there, because I think we’ve covered quite a bit of ground, and hopefully I’ve given you a sense of what the the key implications of Stolper Samuelson are, and how it can be used to understand or to predict the impacts of of a change in trade policy. So I think it’s a very important theorem. I wanted to get it into into the podcast so we can come back to it in future episodes and talk about a bit more look at the evidence. Also, as I mentioned, I want to go back to that 19th century period and really understand what’s going on there, because it’s coming back into the the political debate. There’s talk about William McKinley being the tariff King, and you know, our tariffs an important part, or are they a way that you can, you can stimulate your your economic growth and and development. So, I mean, I would say no, and I think there’s plenty of examples. I mean, I don’t think economic theory supports that, and I don’t, and I think examples around the world, they don’t support it either. So we’ll talk about that in a in another episode. Okay, so thanks for listening to this discussion of the stole plus Samuelson theorem. As always, if you’ve got any thoughts on it, have any questions, want me to clarify anything? Think I’ve that I that I need to fix something up in my exposition of it. Then, yep, please get in touch so you can find my contact details in the show notes, you can email me contact@economicsexplored.com.. Thanks for listening.
Credits
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