The Gains from International Trade

Abstract

[1] In a recent paper the thesis was advanced that while it is not possible to demonstrate rigorously that free trade is better (in some sense) for a country than all other kinds of trade, it nevertheless can be shown conclusively that (in a sense to be defined later) free trade or some trade is to be preferred to no trade at all. I should like here to amplify these remarks with respect to the last point, that some trade is better than no trade.This is by no means a novel proposition. Indeed, it can be traced back to the beginnings of the Classical theory of international trade. It has become associated, however, quite unnecessarily in my opinion, with a labour theory of value, or a “real cost” theory of value, or more recently, with an opportunity cost theory of value. All of these have come in for considerable criticism in recent years as restrictive special cases of the so-called theory of general equilibrium. Those writers who have insisted on the need for a modern theory of value for a positive description of behaviour in international trade have in general ignored the normative aspects of international trade, presumably in the belief that as soon as one gives up the inadmissible special theories indicated above, nothing can be said concerning this problem. It will be argued here that this is a mistake, that from the most general theories of equilibrtlim all valid normative propositions can be derived.