Fiscal Policy and Tariffs in Post-War International Trade

Abstract

Recent developments in economic theory are especially rich in policy implications for a single country seeking to maximize its welfare through international trade. They make necessary a restatement of certain parts of the ancient controversy over free trade and protection; namely, those affected by the theory of employment and the theory of imperfect competition.There is little to add to the broader classical conclusions on the maximization of welfare in the world economy, or to the general, if cautious, acceptance of the infant industries argument. However, the former must be qualified in the light of the theory of imperfect competition, particularly the theory of monopsony, and the implications of decreasing costs; while the latter depends on technological considerations normally impounded in ceteris paribus even in modern value theory.The special relevance of any of these universes of discourse in terms of which international trade policy may be discussed and evaluated is itself a controversial point. If, for example, a reasonable and steady approximation to full employment is considered of paramount importance, the practical alternatives of fiscal and international policy are considerably narrowed. The most efficient allocation of resources among alternative uses may have to wait on policies for getting all available human resources into some use. At another level, the optimum allocation of resources for one country may be defined for a national real income made possible by exploiting its neighbours. It is the duty of the economist, not to ignore or to condemn these judgments, but to show how the desired ends may be achieved in practice, and to point out any inconsistencies among ends of policy simultaneously desired.