The Backward-leaning Approach to Controls

Abstract

\OLUME I of this work, with an accompanying mathematical supplement, was entitled The Balance of Payments and was published in 1951. It dealt with the maintenance of equilibrium in international balances of payments, while keeping domestic full employment, by means of price adjustment alone, including adjustment of exchange rates-that is, without special recourse to import restrictions or other direct controls over trade, payments, or factor movements. Volume II (with its own mathematical supplement) is devoted primarily to the examination of the conditions under which such controls could contribute to economic welfare. This task is carried out with the superlative combination of carefulness and clarity that one has come to expect from Professor Meade, and the carefulness is not purchased at the price of sacrificing or even hiding away the fundamental moral force that inevitably underlies all considerations of welfare, in economics as everywhere else. Meade is clearly against the use of controls and wishes to make full use of the price mechanism wherever possible for the sake of the efficiency and freedom (labeled maximum product and optimum trade) that it can contribute to human welfare. The arguments for the various kinds of controls are therefore examined mainly in order to bring out the limits to their usefulness, which in most cases comes to the same thing as suggesting their rejection from the point of view of economics. Yet, far from being unfair to these arguments, the book provides the latest and the greatest demonstrations that the best arguments for protection are those devised by free-traders. Indeed, Meade's continual leaning over backward to provide the most ingenious justifications for controls (before pointing out the limitations) is carried to such extremes that the awkwardness of the stance frequently becomes a painful strain on the patience of the readerthat is, of the reader who shares the author's free-trade preferences. What it would do to the protectionist reader is more difficult to say. A thousand years ago a similar approach was used by Maimonides in his Guide to the Perplexed, in which he listed the arguments of the heretics before providing the refutations. The rabbis, although full of praise for the refutations, banned the book because of the undesirability of having the faithful suffer the doubts before coming to the refutations. But while the faithful are more likely to skip reading the heresies than the refutations and although the advocates of controls will find much more subtle arguments here than they are wont to use and will for the most part skip or fail to understand the importance of the limitations, students and teachers of economics will long be grateful to Meade for a magnificent piece of scholarship that adds greatly to the understanding of the problems involved. The welfare concept used throughout the book is of the old fashioned 'utilitarian' kind. The philosophical theorem of the impossibility of demonstrating the existence of (comparable) utility is not permitted to interfere with the universal common-sense assumption of its existence, which Meade follows in arguing 'as if' there were an entity 'economic welfare' which is made up of the sum of the separate (but not necessarily independent) 'economic welfares' of each member of the community. Meade is I A review note of J. E. Meade, The Theory of International Economic Policy, Vol. II: Trade and Welfare and Mathematical Supplement (New York: Oxford University Press, 1955, under the Auspices of the Royal Institute of International Affairs).