Modern economics often credits Adam Smith as its cornerstone, but another key figure, David Ricardo, has shaped our world in ways we rarely examine.
Ricardo, the wealthiest stock trader of his day, developed the theory of comparative advantage, a concept that helped justify globalisation but concealed deeper ties to power, empire and slavery.
In this episode, Jess Miles speaks to Nat Dyer, author of ‘Ricardo’s Dream: How Economists Forgot the Real World and Led Us Astray’. They unpack Ricardo’s legacy, from his famous theory involving English cloth and Portuguese wine to its surprising connections to the welfare state. They also explore why abstract economic models, despite their flaws and potential for manipulation, remain so dominant in shaping policies today.
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Nat Dyer is a Fellow of the Schumacher Institute, the Royal Society of Arts (RSA) and the Bath Royal Literary and Scientific Institution (BRSLI).
Ricardo’s Dream by Nat Dyer is available on the Bristol University Press website. Order here for £14.99.
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(Please note this transcript is autogenerated and may have minor inaccuracies.)
Jess Miles: From the workings of financial markets to our response to the ecological crisis, economic theory shapes the world. But where do these ideas come from and how do they take hold? Adam Smith is spoken about as the founding father of modern economics. But many argue that David Ricardo, who lived from 1772 to 1823, is a close rival. The wealthiest stock trader of his day,
Ricardo developed the theory of comparative advantage that has underpinned globalization and hides behind its mathematical facade a history of power, empire, and slavery. My name is Jess Miles and today I’m speaking to Nat Dyer, a writer and researcher specializing in global political economy and a fellow of the Schumacher Institute and the Royal Society of Arts. His new book, ‘Ricardo’s Dream: How Economists Forgot the Real World and Led Us Astray’, puts the founders of economics and their ideas in context and calls for a broader, wiser and more humble approach. Welcome Nat!
Nat Dyer: Thank you Jess. Pleased to be here.
JM: Thank you for taking some time to chat to us today.
ND: Definitely.
JM: So before we get into the book, can we hear a little bit about your background and what led you to write it?
ND: Yes. So I’ve been working for the last almost 15 years for various NGOs. So I used to work for NGOs such as Rainforest Foundation and Global Witness, largely looking at deforestation, and then later corporate abuses overseas, sort of mining and oil contracts, working in some of the poorest countries in the in the earth, in the world, such as the Democratic Republic of Congo, who sits on amazing natural resources, but whose populations, as I said, are some of the least advantaged in the world.
And I was worked with some amazing people and enjoyed that work. It was quite combatative some times sort of digging into offshore networks and working out how some of this money went missing. But I wanted to take a step back and look at some of the broader reasons that these problems persisted. And through working for new economics organizations like promoting economic pluralism, I came across this idea of the I’m sure we’ll get into it later, but something called the Ricardian vice, which is the idea of driving policy by very abstract theories and models.
And that is something that chimed with what I’d seen in my work previously. And I also came across, I’m sure we will talk about it too, the theory behind comparative advantage is often explained with England and Portugal, and there is a third country and third commodity underlying both of those, which radically changes the story once you put it in its historical context.
So I wanted to try and put those two insights together and share that in a book for the general reader.
JM: I really love that approach of just questioning our assumptions and looking at perhaps why we take things for granted, that maybe we shouldn’t. So many of our listeners won’t have an economics background and may not have heard of David Ricardo, so I wanted I thought I’d open up the discussion about the book by breaking down the title. So the title is Ricardo’s Dream.
Who was David Ricardo and what was his dream?
ND: Great. And I’m slightly putting you on the spot. I was wondering if you, had you come across David Ricardo before. Did it did the name mean anything to you? Was it a complete blank slate?
JM: I hadn’t, but I did speak to a couple of people, and they had so had perhaps it was an unfair question to say people haven’t heard of him, because it might just have been me. And I’m. I’m always a bit scared of economics, to be honest.
ND: No. Fair enough. And I think that’s quite a widespread and broad feeling. And hopefully what I’m trying to do is attempt to demystify and, talk about the subject in a more, more human and more understandable and relatable way.
JM: And I do have to say, having having read the book, you’ve achieved that. Like so as someone I’m reading it as someone who’s not got that background at all, and you do tell the story incredibly well, and you give so much context and like human, the humanness to it, it does make it does make these concepts easy to understand.
ND: Oh, great. Thank you. I’m pleased, I’m pleased that worked. So, yeah. So David Ricardo. Yeah. As you said, he was alive at the end of the 1700s, beginning the 1800s. He was sort of contemporary with, you know, historical figures like Napoleon and the Duke of Wellington, you know, poets like Lord Byron and writers like Jane Austen.
He’s sort of working in this world. It’s about 40 years after Adam Smith, who’s seen as the founder of economics, had produced his great book, The Wealth of Nations. And there’s not been another book like that that’s really defined economics for the generation. And Ricardo comes along and produces it in his Principles of Political Economy. His background is very interesting, though he was the wealthiest stock trader of his day.
He’d worked in London’s financial markets since the age of 14, and he made a ton of money during the Napoleonic Wars, essentially helping to finance British government spending during those wars. And there are lots of dramatic stories told about, you know, how he made lots of money around the Battle of Waterloo that are sort of sometimes a little bit exaggerated, but essentially true.
And then he retired to a country house which is now owned by Princess Anne, the Queen’s daughter. And he wrote this treatise on economics. And what I argue is that essentially, although he left the stock exchange, the stock exchange didn’t leave him. And so he continued to see the world as this sort of fairly neatly ordered place that is exceptionally focused on price and that that determines everything, and that he often wrote very brilliantly around things that he had direct knowledge of, such as the Bank of England and things that were further out from his everyday experience, for example, agriculture or international trade.
His arguments become more and more abstract and depart from the sort of reality of his time and our time.
JM: He was an MP as well, wasn’t he?
ND: Yes, yes. So he did. He did become an MP. It was during the days when you could buy, you know, your seats. When in what’s called a rotten borough. And he bought a seat in Ireland that he never visited and, yes, spoke and became one of the principal defenders of these new economic ideas, which he said, as I’m sure we’ll get on to at times, you know, were as certain as the principle of gravitation.
You know, he made very big claims for his new intellectual edifice that he’d created.
JM: So that was his dream, wasn’t it, really, to be able to describe the world in these kind of not simple terms, but in these logical, these logical explanations?
ND: No. Exactly. Yeah. you know, I, I describe it, you know, there’s numerous ways of looking at it, but the, the frame that I use is saying that, you know, during the centuries preceding that, thinkers like Isaac Newton had come up with these incredible quantified predictive theories of the natural world. And that many, many thinkers attempted to try and do the same thing for the social world and the economic world. And as I explain in the book, I see a rise, a decline, and then a rebirth of that dream of capturing national and global dynamics within these, you know, universal laws, laws, a bit like law of gravity, where people could say, well, you know, you might not like it, but that’s just that’s just how it is.
And that people need to adapt to those laws and the, the opposing view which, which took over more during the decline as I as I describe those three phases and pushed by people who were more historically informed or focused on institutions, was that, no, these are, you know, economic systems are manmade systems and, human made systems, I should say.
And they can be adapted and changed to the benefit of the people who live in those societies.
JM: So this is going on to the subtitle of the book, which is ‘How Economists Forgot the Real World and Led us Astray’. So basically, what we’re saying is that Ricardo’s ideas failed to account for the complexity of humans, and like assumed that the markets would always work perfectly and there wouldn’t be anyone pulling the strings in the background. And you tell this story like we mentioned earlier in the book, through English cloth and Portuguese wine. So can you explain that example?
ND: Yeah, no. And you’re, you know, I’m… Ricardo is a broad and very interesting thinker, and I and I don’t want to say that, you know, every single idea he came up with was terrible. There are many ways in which the Ricardo that has been taught to students recently is a small slice of what he actually wrote.
And that the ideas that modern economic thinkers have liked, they’ve taken and the rest they’ve just junked saying that I do. Yeah, I do argue that, yeah. Ricardo’s theoretical world, his his dream, as I describe it, kind of assumed away any question of power in the, in the economy. And it meant it. Yeah. It has also the origin.
I describe it as being the origin of the idea of the economic human, which is this rational actor sometimes called homo economicus, which is laid at the middle of so many of our economic models, which have caused a lot of trouble in the last few decades, which I’m sure will come on to later. But you asked particularly around, English cloth and Portuguese wine.
So, so, yeah. So, this might take a little, you know, a few minutes just to break down, but it is sort of, you know, the subject of a few chapters at the beginning of the book. And it’s a sort of, I think, a key example of how the theoretical departs from reality.
JM: It’s a good way of illustrating it, isn’t it? Yeah.
ND: Yeah. No, that’s, that’s one of the things that I, that I liked about it. So yeah. So Ricardo is known as the father of international trade, his example of English cloth and Portuguese wine was much used, you know, during the 90s and 2000s, during the what some people called hyper globalization for saying, look, trade benefits everyone. It’s win win.
You know, trade barriers are so yesterday we need to have free trade deals. We need we need the World Trade Organization. This needs to be enforced. And anything else is just, stupid and actually anti-scientific. And we have moved on from that somewhat. But yeah, as I said, this idea was backed by Ricardo’s theory of comparative advantage. And the classic example is English cloth and Portuguese wine.
And in the theory each comes, the production of English cloth and Portuguese wine. Portugal is better at producing both, England’s worse at producing both. But actually, if you crunch the numbers, it still makes sense for them to exchange. And both countries and the world as a whole are better. But there was a real historical treaty in English cloth and Portuguese wine concluded more than a century before Ricardo wrote and discussed at length by Adam Smith, actually, who who Ricardo probably got the idea from.
And in this real treaty, it was a treaty to exchange English cloth and Portuguese wine. But for decades and decades, Portugal never, never produced enough wine to make up for the English cloth that it imported and cloth at the time was the high tech manufactured goods of, you know, of of the time. And so how did Portugal make up for this?
Well, the answer that I give in the book, and I get this from a paper by I should give a shout out to Matthew Watson, who is political economist at Warwick, whose paper sparked my interest in this is, essentially Brazilian gold, Brazil was a colony of Portugal at the time, and there were massive quantities of Brazilian gold that was sent back to Portugal in the 1700s, and it’s estimated around two thirds of that ended up in English hands and helped actually underpin England’s rise to financial dominance in the 18th century.
Wasn’t the only reason, but it’s one of, but it’s one of the reasons. And this gold was obviously extracted from a colony in in Brazil and it was mined by enslaved workers. And so it was mined primarily by Africans who had been taken from Central and West Africa. So you’ve got on one level, you’ve got this win win version of the trade, including English cloth and Portuguese wine, which is taught to generations of students.
And then on another level, you’ve got the more historically accurate version, which includes English cloth and Portuguese wine. But once you zoom out, you also see that you cannot tell that story without Brazilian gold and without enslaved peoples from Africa. So yeah, that that’s an example of the dramatic break between theory and historical reality.
JM: So Portugal had to make up the difference basically with this Brazilian gold.
ND: Yeah, essentially. I mean, you can, you know, essentially they they wouldn’t have been able to keep on importing so much cloth if it were not for something going back the other way. And actually the cloth itself is not free of the slave, the slave trade either, because I can’t remember the exact stats, but in some years it was upwards of 50% of the cloth that was imported to Portugal was reexported and used in to exchange for men, women and children for the slave trade.
JM: Wow okay, yeah.
ND: So you can actually see Portugal as a bit of an intermediary. It’s a, it’s a, it’s a gateway to a global empire. And it’s a time when the northern sort of maritime powers England, France, the Dutch are trying to and somewhat successfully trying to take over the sort of, you know, extra European imperial mantle from Portugal and Spain, who were the first major powers and so Portugal, sort of working through Portugal is a really key way of tapping in, tapping into Portugal’s network.
And the Portuguese did gain something from it themselves. They gained sort of British Royal Navy support and money to help, you know, maintain their independence from Spain. But it was primarily a political rather than necessarily just an economic treaty.
JM: So the point being is that you can zoom in, you can put your focus right on this particular trade relationship between the cloth and the wine and apply an abstract theory. And it works. But you’re not accounting for a whole complex world of stuff that’s going on around it.
ND: Yeah, that’s exactly it. And one of the phrases that I use in the book sometimes is that economics. And by that I mean by that, I mean, you know, the dominant you know, there are many schools of economics, but the dominant mode of, you know, orthodox neoclassical economics makes things disappear. It focuses very narrowly on a small patch, and it can produce very neat, quantified answers.
But often that is done by excluding other things which might be in that instance, the colonial context. It might be power, it might be the natural world, it might be how humans really are, rather than the sort of, you know, simplified version that we have of them and as I argue that’s caused great damage not just in Ricardo’s time, but also in recent decades.
JM: Yeah. Point, the whole the whole point of the book really is that this is still happening now, and we’re still not questioning it enough. You said something back there, I think. Did you saying that Portugal was better at producing cloth and wine to start with?
ND: So in, so in the classic theory in, in in the way that Ricardo set it up he’s got something called the four magic numbers, which is essentially how efficient each country is at producing each quantity. Portugal was apparently better at producing both cloth and wine, but they were certainly better at producing wine. But they were almost certainly not better at producing cloth. But that-
JM: Okay, they weren’t better at producing cloth.
ND: Yeah, but but but again, that’s a, that’s the difference between the theory and the and the history.
JM: Yeah.
ND: And another you know, another reason why I mean, this is getting maybe slightly into the historical weeds, but a lot of this is, is England and then Britain essentially fighting the French and not wanting to give French their money for French wine and so looking for other types of wine, which is one reason why, Portuguese wine and eventually it becomes port becomes very popular with, with British, you know, certain sections of British people, cause it’s seen as a patriotic thing.
And so again, these, you know, economic concepts are really, really shot through with, with politics and, you know, tussles for political power.
JM: Yeah, yeah, yeah. And even at the time, like Ricardo’s work was criticized, it wasn’t like he had this idea and everyone said, yeah, great. That’s obviously a law. So how do you think a theory that was so abstracted from reality and some people recognized as so at the time, how was it able to become so influential?
ND: Yeah. So I think Ricardo has you know, he has attracted both incredible praise and incredible criticism from, you know, from both sides. And in his day, some people, some people said, wow, you know, he’s he’s got the answer. And and it did seem to it did seem that he managed to explain so many disparate things that were going on in the world in one mechanism and the different parts of it.
He told you how they interacted, and it was a way of looking at the world. As you said, there were others who complained that, yeah, even. Yeah, there were many others even in his day. And part of what I try to do is sort of retell that story and show that almost that criticism has, has not stopped ever since.
You know, Ricardo Ricardo died in 1823 who said, you know, this is this is this is absolutely not what happens in in reality. But yeah, I should also say, obviously, you know, Ricardo is not just, you know, a pivot of history by himself. He’s working with other people. I talk a lot about his friend Thomas Malthus, who was another economist who, yeah, came up with similar laws, although he was one of the people who was pushing Ricardo to say, actually, you know, how how much does this how much does this link up to how people and nations actually operate?
But yeah, I think and, and, and another aspect of it is that it really fits his context very well. So Britain at the time was just emerging from the, from the Napoleonic Wars. It had defeated France. It was the it had the, you know, most powerful navy in the world and its manufacturing industries was looking were looking to export throughout the world and also they needed to import cheap raw materials and then export finished goods.
And Ricardo’s theories of free trade were very useful, both for English manufacturers to be able to export overseas and also to import cheaply. And a lot of that, you know, we think of free trade, you know, it sounds it sounds very nice and peaceful. And often people have described it as, you know, an alternative to war, you know, instead of instead of, you know, going and grabbing your resources, you trade for them.
And I think some of that is true. But a lot of this, a lot of the trade barriers were broken down by military force by, you know, gunboat diplomacy, by the Royal Navy, by the British. So it’s yeah, it’s a more it’s a more complicated story. but essentially, yeah. Just to sum up, I think it was intuitively, you could you could grasp it, it had a certain sort of intellectual and logical appeal.
And also it fits the interests of the sort of dominant rising power in society, which was the manufacturing and merchant class.
JM: And as a wealthy stockbroker and MP, Ricardo was very much part of that wasn’t he?
ND: He was he was and he was also fighting against he was fighting against the sort of landed aristocracy which was sort of, you know, had, you know, the feudal system which it which had controlled Britain, you know, probably, you know, since, since since the Norman Conquest kind of thing. But, so, yeah. So, yeah. So in some ways I explain how he, you know, he punched up against the aristocracy, but then he also punched down on, on the workers.
And he thought his he thought that the merchants and manufacturers profit is what kept the whole system going. But in order to do that, you needed to squeeze how much the aristocracy were getting essentially for nothing, which he called rent. And you need to squeeze the workers wages. And that’s, you know, that’s that’s my interpretation. Ricardo’s been written on endlessly.
Other people have different interpretations and they say, oh, he wasn’t quite so, so against the workers. But that’s but that’s what I see reading his work.
JM: So now we need to kind of bring all this Ricardo and the historical story to the present. And I wanted to kind of look at two areas to explore the impact of his legacy in the contemporary world. So firstly, what does having this idealized view of economics mean for individuals in the context of society and democracy? So you do talk about it in the book.
What’s the relationship between Ricardo’s legacy and the welfare state, for example?
ND: Yeah, obviously those are pretty, pretty large questions. But I can I can start to yeah, I can start to have a go at them. What I’d say. So the the period between about, you know, the late 1960s up to, the late 2000 has been called by some of the economists hour, time when a certain type of economics has had incredible power within the political system, often in the US, but also but also elsewhere.
And I think it’s difficult to argue that there’s a certain sort of nexus of ideas and stories, that have really sort of defined politics of, of, of both parties. This is, this is called, by some a political order. Gary Gerstle comes up with this term political order, meaning, it’s, it’s it’s a set of ideas that span, whether you are on the left or the right, whether you’re labour or conservative, Democrat or Republican, in the last, you know, 40 to 50 years, generally, people have signed up to this rawer version of capitalism, which is often called neoliberalism.
And I would say for people in society, I think it’s been massively disempowering in a number of ways for individuals. And I think it’s been disempowering because these sort of stories and these economic truths have been spoken about in a way that has excluded most ordinary people who don’t have, you know, PhDs or don’t have, you know, access to that kind of jargon or that kind of knowledge.
And often that has meant that people who might want to talk about justice in a certain situation or fairness or different areas, essentially those questions were excluded within elite policy discourse, and that you had to talk about things in terms of efficiency or cost benefit.
JM: Ah right, okay. Yeah. Yeah.
ND: And yeah. So that yeah. So that’s so that’s so that’s one way.
JM: So if your argument doesn’t have that economic angle, it’s not seen as a valid argument.
ND: Yeah. I think that has been a major trend in the past. Yeah. In the past few decades I think it’s also permitted the, rise and rise of corporate power and the rise and rise of sort of financial power that is beyond, you know, beyond the power of, you know, territorially bound states to really question. And so that has meant that people who, you know, vote nationally are increasingly, yeah, unable to exert any control over large aspects of their life when that, that, that is actually controlled by multinational corporations.
And you can see that in so many different areas of life from, you know, big tech to, you know, big finance, financial crashes, etc.. And there’s been a certain what I try and break down in the book over several chapters when related to, say, free trade deals or the evolution of the financial system is the way in which the sort of abstract economic ideas in making certain things disappear, like making, for example, just the idea of corporate power disappear, the idea of financial crashes effectively disappear.
That’s that has. Yeah. It has, yeah. Has permitted this sort of concentration of economic and political power which has which has disempowered ordinary people. You mentioned the wealth- Sorry go ahead.
JM: So these ideas have these abstract ideas, legitimize and justify neoliberalism and things like that in a way that people can’t really argue against because they’re so taken for granted.
ND: Yes, yes, I would, I would, I would agree with that. Obviously people they’re obviously that contested, obviously, you know, not, you know, not not every single economist has signed up to every single one of these ideas. But there has been quite broad consensus, at least among mainstream economists, for the idea that, oh, yes, we need to, you know, you know, certainly, you know, in the 90s and stuff, we need to unshackle, you know, finance, markets do things more efficiently.
And I think also, you know, neoliberalism, some people argue that it, you know, that it’s it’s changed quite a lot. You know, in the in, in the 1980s, it was possible to say, okay, this is, you know, this is the magic of the marketplace. And you had this, you know, idea, again, where power doesn’t really feature, where you have lots of small entities and businesses working, you know, with the laws of supply and demand.
But actually, if you if you zoom forward to, you know, post financial crisis, looking at, you know, you know, really the power of politically connected businesses, whether that’s, you know, Wall Street, whether that’s, you know, big tech in order to bend regulation or the lack of regulation to their basically to support their profits, then I think a very different story emerges of, yeah, of, of the period.
I hope that makes some sense.
JM: I think so, yeah. And I think for the layperson, these ideas kind of become a common sense, don’t they? So for someone like me who feels they don’t know a great deal about economics, you have these kind of laws about free trade that you’re vaguely aware of, but you don’t really understand them. And they are some kind of common sense, I think.
ND: I think so. And I think language can help with that sometimes. So this is often, you know, the type of we often describe, you know, economic human, which is this, this imaginary being at the center of so many models or, you know, all the theories created with them. We often describe that as rational and other things as irrational.
And given a choice, you know, rational, you know, means sane and, you know, calm, and irrational is, is, you know, it’s a little crazy. You know, why? You know, given a choice, you’re going to you’re going to choose rational over irrational, but actually what it actually is, is, is, is calculating rather than rather than rational. And there’s, there’s other areas too.
Often economists will talk about, efficiency and that, you know, who, you know, who can be against efficiency, you know, getting, getting more from what you have already. But often what efficiency really means is maximizing wealth over all, over all values. And so, yeah, ultimately, I think the way that we use and misuse language can change the, you know, the public discourse over it.
JM: Massively. Yeah. I interrupted you then when you were going to say something about the welfare state.
ND: Yes. Yeah, I was, I was, I mean, it’s interesting. It’s interesting. You yeah, you you you raised that and I think I think you’re right too. And it’s something that I didn’t, don’t really get into massively in the book, although I do talk about how Ricardo helped to sort of pull down the existing, social welfare of his day, which was called the Poor Laws and argued very, harshly that they should be, dismantled.
He argued he was a strong believer that helping helping the poor was actually hurting them. This was according to, to to a theory by his friend Thomas Malthus. And the whole kind of move, which I think you can see from about the 1880s onwards, to sort of reining in the excesses of, of, of what you might call, you know, raw capitalism, which culminated in the welfare state comes from a completely different tradition, comes from the historical and institutional tradition and you can see that.
So we think about the welfare state in terms of obviously, you know, in the UK, the NHS and things like that. But but this, it’s part of this broader trajectory of, you know, the introduction of progressive income taxes and, and, and, and things like that, that started to, redistribute wealth and power in, in society. But yeah, it’s, it’s I think it’s fair to say that the welfare state as it was created in 1945, is completely contradictory with Ricardo’s view of the world.
He he he wouldn’t have understood it. And he wouldn’t have liked it.
JM: No. As you’re speaking, this might be totally irrelevant, but it makes me think of, like, ideas about meritocracy and stuff. And in some ways, the law of comparative advantage is just a big like thing about meritocracy. Like, okay, we’re good at this, so we should we’re good at this and we’ve got the opportunity to do this. So that’s what we’ll do.
You’re good at that. You got the opportunity of that. So that’s what you’ll do. That’s just the way it is. There’s no nuance there somehow.
ND: No I think that’s right. I haven’t looked a ton into meritocracy. But where I came across it was in some of the idealized, tax theory, which has been quite troubling because it’s been used as a justification for lowering taxes on the very wealthiest. And essentially what it assumes is that those who are earning the most do so because they are the most productive and they are the most able.
And so you already assume that society is just and you assume that it’s a complete meritocracy. So, you know, if you know, a CEO is earning 300 times the amount of a worker, that’s because he or she is 300 times as productive and 300 times as good. And that’s just a really wild assumption and strange assumption. And it kind of completely ignores the whole idea of undeveloped potential, because it says that what you’re doing now is, yeah, is is what you can do. And it’s another one of these…
JM: And opportunity to develop potential as well. Yeah. Opportunity as well.
ND: Totally.
JM: Yeah. Yeah yeah. So it kind of shows I I’m making massive jumps now. But these general laws become like ways of thinking and ways of thinking of about ourselves in relation to other people. They set a tone maybe.
ND: Totally, totally. I see it as different ways of seeing the world and what you can see and what you can’t see. And one of the analogies that I use in the book is a spotlight in the theater. And if it’s focused on, you know, the main actors at the front of the stage, then it can really help fully sharpen our focus and help us understand what’s going on.
But if it’s focused on a primary character on the side, what a spotlight does is plunge the rest of it into darkness. So actually, they can be, yeah, causes of massive destruction and also harm if they’re misused.
JM: Yeah. So speaking of causes of massive destruction, keeping it in the contemporary world with another big example, how have these abstract theories of the economy contributed to climate change. You talk about that in the book.
ND: Yeah. So I’m going to be talking about the work of William Nordhaus, who’s one of the primary leaders of the economics of climate change. And he won the Nobel Memorial Prize in economics in 2018. And during his acceptance speech, he said that the optimal warming of the planet should be, between around 3 or 4 degrees warming from pre industry, which is way beyond the international agreed target of 1.5 or 2 degrees, which was agreed in Paris.
And, you know, I’m not saying that target is easy, easy to reach or anything, but Nordhaus has reached that through a cost benefit analysis. So essentially he has put all of the benefits of reducing carbon emissions on one side of the scale and all of the costs on another. But when you actually dig into the way in which he has summed up the costs and the benefits, I mean, it was one of the more eye opening chapters, doing, you know, doing, doing research, looking into it.
So Nordhaus accepts climate change. He spends spends a long time saying that it’s a real thing that people need to have, you know, higher, higher carbon taxes. But he writes about it in such a in such a way that it makes it seem like it’s not a really huge problem. You know, his, his, his theories have often said, oh, it might shave, you know, half a percent off GDP, you know, 1%, possibly 2% off GDP.
They’re actually actually rather minor, areas. But it’s only done this by excluding most of the most damaging ways in which climate change will or is likely to actually impact society, for example.
JM: I mean, when I think about climate change, I don’t think my first thought isn’t about how much off GDP it will make. It’s like the world’s going to burn.
ND: Yes. Yeah. No. Yeah. As you could say. You know, there’s, you know, there’s no GDP on a dead planet, which you could, you could say. But I think, I think that, the underpins the extent to which GDP and wealth has become, you know, the primary value of nearly every single policy discourse. And I’ve got a quote in the book from Larry Summers, who’s an American economist, former Treasury secretary, saying, you know, economists have had more influence on, on atmospheric pollution than climate scientists.
That’s that’s, you know, that’s, that’s, I would say a problem. These are not Ricardo’s direct ideas, but this is what I would see as the continuation of what he started with, these very sort of abstract ways of looking, of. Yeah, of of looking at things and, you know, some of these, you know, there have been debates within this field.
Of course, there’s a guy called Marty Weissman who was one of, you know, Nordhaus’, colleagues who, you know, really pushed Nordhaus, saying, look, actually, you’ve got this, infatuation with crisp results. You know, basically, which is producing an illusion of of precision and illusion of certainty. And I think that is a very damaging and dangerous thing to have if you if you’re absolutely convinced that you know what’s going to happen, then that’s.
Yeah, that’s that’s very, dangerous going into the, the world that we’ve created. And I want to say, too, that climate change is just one aspect of a broader, you know, environmental crash, environmental crisis. So and I think it needs to be seen in that broader context.
JM: So despite the clear dangers of applying abstract laws to human beings and using these kinds of models, perhaps over evidence, in a lot of cases, kind of why are economists okay with that? I think we’ve kind of almost answered the question by talking about things like wealth and justification and meritocracy, but yeah, how how are economists able to kind of trust these abstract models and defend them, perhaps not just economists, actually.
How are we able to, why do we trust these models and defend them?
ND: So I guess one thing that I’ve tried to show and say in the book is actually these issues have nearly always been controversial within economics as well as outside, outside economics, but that the type of economics which has been taught generally in the last, you know, 3 to 4 decades has largely excluded that history. And the the people who thought otherwise, who distrusted these simplified models have been ridiculed or, you know, excluded, excluded from the canon and also, as I said, at the top, there’s many different types of economists.
So there’s feminist economists, ecological economists, heterodox economists who have rejected this approach, but there’s no doubting that it has been extremely influential, I think. Yeah. I mean, and I, I try and trace what I call, you know, the rebirth of this abstract economics. And there’s certain, you know, mainly American, you know, professors such as Paul Samuelson and then Milton Friedman, who’ve had a very.
Yeah, who, who, who were very influential in this. And I think what it is, is that it has been seen as more scientific. It has been seen certainly more quantified, that the older ideas that might take into account history and institutions and power were seen as fuzzy and, you know, less rigorous. And there’s been this strong desire, you know, as I said, at the top, to try to, have some sort of, you know, Newtonian law, you know, you know, a law of economics and society, a bit like a bit like the law of gravity.
And that’s been seen as, that’s been seen as the gold standard. I think the computer revolution helped quite a lot in that, in that the early computers, you needed to simplify the questions that you asked them in order to get in order to get answers. Policymakers certainly have wanted, you know, precise answers and that and that has pushed economics down that, down that route.
I’m not sure if I fully answered the question there.
JM: No. Yeah. You have. You mentioned, some of the different kinds of ideas that are coming through. And in the book you say, like since the 2010s especially, that there are challenges to this kind of thinking in mainstream economics. And you mentioned just now feminist economics and ecological economics. So what kinds of ideas are starting to come through, that do challenge this a bit more?
ND: Yeah. So, you know, these other these other schools of thought have been around for decades and decades and decades. And what I think we’ve seen since the 2010s is that even in this sort of, you know, stronghold of the Orthodox, it has broadened, you know, broadened its view or has been forced to broaden its view somewhat. And you can see that related to, for example, you know, in the 1990s, there was a strong consensus that it was just absolutely basic economics 101, common sense that raising the minimum wage was bad for everyone and bad for people at the bottom of society because it meant increasing unemployment. And actually when it when economists looked at what actually happens in so-called natural experiments, for example, when one state in the US raised minimum wage and not another, they found that there wasn’t actually a huge difference.
And so that has given added impetus for the raising of minimum wages, although much more needs to be done on that. But I also see sort of yeah, new hope in very active areas basically. How can I put it? We talk sometimes about, there’s this phrase economic imperialism sometimes, which is essentially different areas of collective social and political life coming under the sort of purview of economists. So, for example, whether that be financial markets or whether that be, for example, law around anti-monopoly.
So how, how, how big this does it, does a company have to be in order to be a problem. And that was there’s a, there’s a new movement, especially strong in the States but also elsewhere, a new antitrust, anti-monopoly movement which has really come to the fore, to show that it’s not just in consumer price that corporations can be a problem if they grow too big, but also in the ways that they can squeeze their suppliers or their employers or media concentration or the political control that they can have and political influence they can have. So I think that’s an area for hope. And also there’s some, you know, cross-party interest in this. This isn’t just an idea that’s interesting to the left. There’s also some people on the right who are starting to say, oh, yeah, I mean, we have state tyranny, but you can also have, you know, corporate tyranny, for example.
And I think I see renewed hope too in the way that inequality has massively increased in the political discussion. And a lot of that, you know, these things are, you know, not not solely down to any one person often, but the the way that I talk about it in the book is through the French economist Thomas Piketty, who and I, you know, he’s got he produced this blockbuster book that’s, you know, sold 2.5 million copies called ‘Capital in the 21st Century’.
In in 2014, it was a surprise hit. But he had a really interesting story of of how he got there. Essentially, he was this inequality researcher and he and he went to the States. I think it was MIT in his 20s, and they loved what he was doing. And but he says essentially he was just churning out papers basically without any real knowledge of the real data of inequality.
So he went on this 30 year, sorry, he went on this sort of 20 year quest in order to try and get the real data, working with many other researchers, obviously looking at tax records instead of surveys. And then he published this blockbuster book showing that, you know, from the 1920s, the percentage of wealth held by the top 1% was quite high.
And then it and then it reduced much lower in what he calls the great redistribution, around the, you know, 1950s and 60s welfare state as we’re talking about. And then since the 80s, it has is climbed up again. So I think, I think that’s greater attention to studying the world as it is animated by these broader political and social questions rather than just, you know, abstract models, I think is a hope, hope for the future.
JM: Yeah, it’s really interesting. And, I think a lot of the conversations about inequality quite often butt up against these, like economic ideas and laws, and then it becomes kind of a kind of confrontation between the two. And someone like Picketty is really interesting because he’s kind of jumping over that a bit with the economic data as well.
I was curious. The book is so detailed about Ricardo’s life and, I know you spent a long, long time researching him and putting him in context and his idea in context. I was kind of, I was really curious to know how you felt about him having spent that much time with him.
ND: Yeah. No, it’s that’s that’s a really good question. And this might sound a bit strange, but. Yeah. No. So I’ve worked on the book for about three years and, you know, essentially I’ve lived with parts of Ricardo for that time, and it’s a weird one, but it’s a little bit similar to how you might feel about a friend or family member.
Sometimes you might be, you know, you might, you know, at times be like, oh, this is, you know, this is great. I’m, you know, and then and then and then other times they might they might frustrate you and annoy you. I mean, generally the book is the book is very critical of of Ricardo. It is it is very critical of his massively overconfident theorizing.
And so that just infuriates me. And when I when I read his maiden speech in Parliament and he’s just bought his seat in Parliament, and then he’s there pouring scorn and saying that children shouldn’t be treated with tenderness, and humanity, I it just it makes my blood boil. But, you know, but at the same time, you then read, you know, I’ve, I’ve, you know, I’ve visited his grave, when I read, you know, the very tender letters that he’s that he’s written to his family.
When you look at, you know, the real capacity for friendship he had, even with people who didn’t fully agree with him. You know. Yeah, it’s it’s it’s difficult to, you know, to maintain that, to maintain that rage. So. Yeah. So I guess, yeah, the short answer is that I have thought differently about him at different times. And, yeah, I hope I hope that means that although it is a book critical of Ricardo, it’s not just a hatchet job.
It’s actually, you know, I’ve, I’ve, I’ve tried to engage with him as a full human being.
JM: And what’s really lovely is you almost do with the book, what he didn’t do with the ideas. So you’re not just taking that, like, abstract theory and looking at that. You are looking at the human and looking at the complexity of it all, and that really comes through. And I appreciated that reading it as well.
Finally, I just wondered what you are working on now as well.
ND: Yeah. So yeah, I’ve got I’ve got a few. So I’ve got a few ideas that have spun out of spun out of the book. Whenever you do something like this, there’s so many different rabbit holes that you can run down. And it’s quite important sometimes to say, well, no, I definitely can’t deal with that in this book.
So I’ve got a few standalone articles. I’m actually really looking forward to writing something shorter because, this is, this was, you know, great, great to do, but, it’s quite a juggling act to try and get everything in one book. So, yeah. So, yeah, working on some shorter pieces, both new stuff. But also trying to pull out some of the content of the book and also relate it to what’s going on.
Obviously, we’re speaking on, you know, the day of the US presidential elections.
JM: It is the day, yeah.
ND: We don’t know what’s going to happen at this stage. But I like to try and think that, you know, some, some of the ideas that I have been, you know, digging at here and trying to trying to expose are some of the, some of the sort of deeper themes that are running through today’s politics and economics. So I’d like to try and write some shorter pieces that link what I’ve written about that maybe 200 years ago or 100 years ago to what what is happening today that will hopefully, hopefully illuminate it in a new way.
JM: Oh, that’s fantastic. I’m so, I feel quite pleased with myself that I’ve read a book about economics and I’ve realized that, it’s so, it’s so relevant and it’s so important, and it does really help you understand the rest of all the like, politics and social science generally. These ideas apply across all different disciplines and between disciplines.
Thank you Nat.
ND: Thank you Jess. Pleasure to be here.
JM: Yeah, it’s been really good to speak to you. ‘Ricardo’s Dream: How Economists Forgot the Real World and Led Us Astray’ by Nat Dyer is published by Bristol University Press and is available on our website. That’s bristoluniversitypress.co.uk. Don’t forget, if you sign up to our mailing list, you can get 25% of all our books, including ‘Ricardo’s Dream’.
You can find out more about Nat on his website at natdyer.com. And finally, thank you for listening. If you’ve enjoyed this episode, please follow us wherever you get your podcasts. Thank you Nat.
ND: Thanks, Jess.
JM: Thanks, cheers, bye!