Argument For Free Trade Research Articles

Adam Smith’s Cosmopolitan Liberalism: Taste, Political Economy, and Objectification

The cosmopolitan character of liberalism has been debated since its beginnings. The status of mercantilism, colonialism, and market relations is central to this debate. While most scholars agree that among eighteenth-century thinkers in the liberal tradition, Adam Smith is remarkably anti-colonial on both moral and economic grounds, they do not engage his theory of taste as part of his normative critique of the mercantilist and colonial projects and argument for free trade. Smith’s theory of taste, largely developed in Theory of Moral Sentiments and History of Astronomy, highlights the importance he placed on connecting with distant others despite the limitations of sympathy. I argue that for Smith, aesthetic judgment acts as an impetus to moral judgment because taste can overcome barriers to sympathy. However, taste has a dual-nature in Smith’s political economy. Bad taste widens the sympathetic gap. I show that the framework of taste in Smith’s moral theory applied to mercantilism and colonization demonstrates that substituting poor aesthetic judgment—love of order instead of true beauty—for sympathy objectifies distant others and prevents them from developing moral judgment through freely engaging in the market and sympathetic interaction.

The Curious Tale of Libanius, Grotius and Jacob Viner’s Universal Economy Doctrine

This paper investigates the sources of Jacob Viner’s universal economy doctrine, which is part of his argument that theological arguments for free trade preceded and shaped the economic arguments. Viner’s key source is the influential fourth-century pagan orator Libanius, quoted by Hugo Grotius, but identification of the passage in Libanius has eluded contemporary scholars, even though Viner’s Libanius quotation and the universal economy doctrine it supports has been used in many subsequent works on the history of international trade theory. Investigating the context of the passage and Libanius’ economic views suggests that he meant something very different to the ways that Grotius and Viner and many subsequent authors used the passage. Rather than merely convicting these authors of crimes against the canons of contextual historiography, we suggest that viewing the curious tale of the quotation and its subsequent use through the lens of reception history would be more fruitful.

The global economy: a framework for teachers of microeconomics

Economics instructors who take a pluralistic view may find useful a framework to show the relationship among the different schools of thought in economics. I construct a taxonomy based on Gassler's notion of political and social economics. It consists of non-market activities that either set up the market for success or correct for market failure. This framework illustrates how both neoclassical, and other approaches, can contribute to our understanding of the complexities of international political economy. First, I review the argument for free trade in the form of the first fundamental theorem of welfare economics, stressing the underlying assumptions. Second, using the same framework, I construct the neoclassical argument against free trade and show that it is much stronger than the argument in favour. I do this by simply describing the cases of market failure which are not difficult to find at the global level. Third, I argue that heterodox economics can help construct an alternative view of globalisation that is better both positively and normatively; and the neoclassical theory does not stand in its way.

On the Gain and Loss from Trade

This article considers a model of international trade in which the number of produced commodities does not exceed the number of countries engaged in trade. Technology is modeled such that each commodity can be produced in each country from a finite series of dated labor inputs. The existence of a positive rate of profits may lead a country to specialize differently than how it would with a zero rate of profits. Trade may leave consumers in a country worse off, as compared with autarky, when the rate of profits is positive. The existence of more than two countries provides a possibility that the Production Possibilities Frontier (PPF) with trade is neither unambiguously above or below the PPF under autarky. This article re-iterates, in a setting with more than two produced commodities and more than two countries, demonstrations that the argument for free trade is logically invalid, given positive rates of profits.

Den neoklassiske frihandelsfejlslutning

Free trade has traditionally been seen as an indisputable ‘moral law’ that benefits all trading partners and thus stimulates peaceful relations between nations. However, recent years have seen the emergence of a whole range of critical voices that articulate various types of free trade critique. The overall intention of the current paper is to discuss this tendency by reviewing Hermann Daly’s critique of the free trade argument as found in neoclassical economic theory. Daly’s argument is that neoclassical theorists on the one hand posit David Ricardo’s theory of comparative advantage as the overarching argument for free trade while on the other hand pushing through free trade arrangements in which Ricardo’s theory ceases to work. In more concrete terms: Ricardo’s theory shows that all trade partners benefit from free trade as long as capital cannot be allocated across national borders, yet current free trade agreements are representative of a neoliberal ideology that opposes all kinds of trading barriers, including national borders. On this basis, it seems reasonable to conclude that proponents of free trade use Ricardo’s argument as a strawman to build a neoliberal world economy based on absolute advantages.

W. Grampp's 'What Did Smith Mean by the Invisible Hand?' Overlooks Smith's Analysis of Uncertainty-Ambiguity Aversion Based on His Definition of Uncertainty in the Wealth of Nations

Grampp, as well as all other economists who have written on Smith, overlooked Smith’s original contributions to decision making under uncertainty. Grampp’s main point, that “The invisible hand is not a power that makes the good of one the good of all, and it is not any of a number of other things it is said to be. It is simply the inducement a merchant has to keep his capital at home, thereby increasing the domestic capital stock and enhancing military power, both of which are in the public interest and neither of which he intended”, is correct. However, his claim that “Smith’s exposition discloses how his rhetorical sallies could disfigure his economics, confuse his argument for free trade, and make him play fast and loose with facts and the ideas of others.”, overlooks the great originality of Smith’s penetrating application of uncertainty – ambiguity aversion to the decision making approaches of merchants and businesses.

Free Trade then and Now, or Still Manchester United

Liberal thinkers from the Enlightenment era onwards supported international free trade, on grounds that it promoted prosperity, peace, and mutual knowledge and tolerance among peoples. The argument was powerful and not merely theoretical. The Italian trading cities, the Dutch Golden Age, England in the free trade era, all were conspicuous for prosperity and tolerance in their time. Similarly, the US Constitution created a nationwide free-trading common market as the foundation for American economic success, and for American political and social solidarity as well. The association of free trade with greater prosperity has surely been demonstrated across the globe and through time: it is difficult or impossible to think of counter-examples. There has always been, however, a “complex critique” of free markets – and hence of free trade – “that has united traditionalist and revolutionary opponents of capitalism”. The neo-feudalist and radical critiques are often joined by economic interests who stand to lose from free trade, typically by losing their monopoly or semi-monopoly position. In the nineteenth and twentieth centuries, however, the argument for free trade often carried the day: intellectually if not always practically. The question is whether the nineteenth and twentieth century case for international free trade has lost some or all of its force; or even if it hasn’t, whether other considerations, such as claims for “social justice”, now outweigh it. It is difficult to see how support for free trade based on its promoting overall prosperity has lost any of its force. Countries with freer trade are generally more prosperous than states with more restrictive trade policies. Moreover freer-trading societies tend to be more tolerant – religiously, intellectually, and in other ways – than economically more closed societies. Trade creates a practical incentive for travel, for acquiring knowledge about unfamiliar people and places, and for fostering relationships – at a minimum, actual or potential trading relationships – regardless of human differences. Today’s opposition to free trade is often couched, not as outright opposition to commerce, but as a call for more regulation: of wages, hours, and conditions for foreign workers or in behalf of environmental concerns. Two considerations, however, raise warnings about ambitious regulation of world trade, especially in the interests of social justice, even by comparison to regulation of domestic markets. The first, in the spirit of Hayek, is the problem of knowledge. Difficult as it may be for any one authority to know how best to allocate resources within a single country or society, it is all the more difficult to know what rules or even what principles would be best in many different countries and societies around the world. The second cause for wariness is that barriers in the name of international social justice are not open to democratic correction in the way that domestic over-regulation might be. When domestic markets are subjected to regulation, the losers as well as the winners are (usually) voters. But if regulations of foreign working conditions actually damage the interests of foreign workers, or if environmentalist restrictions turn out to bring on environmental damage or disproportionate cost to poor farmers, those workers and farmers have no effective way of objecting, and often the global law-givers will never learn of unintended consequences in far-off lands. This lack of democratic answerability promotes deception, or self-deception, about the nature of the restrictions. A trade barrier can be put forward in the name of social justice for foreign workers or peasants, but the real effect (and often the real motive) is to insulate a domestic industry or interest against foreign competition. The foreign workers or peasants who lose out on opportunity and a chance for better lives are in no position to make their objections known. Support for free trade does not preclude reasonable regulation: surely against force and fraud, perhaps for other social interests as well. But knowledge costs, and diminished democratic checks, make international trade especially vulnerable to stifling over-regulation, whether in behalf of special interests or in pursuit of ethical illusions. The insights of Enlightenment thinkers – on the symbiosis of free trade with prosperity, tolerance, and peace; and against the seductions of protectionism and autarky – still have great force, in our own day as in theirs.

Economic growth: trade, public finance, and the paradox of thrift

The classical argument for free trade stressed the possibilities of economic growth by exploiting the gains from trade. A trade surplus per se was not the main objective; presumably the argument was that trade would be balanced at the new higher growth rate. Moreover, the arguments for free trade were made against the background of an assumed hard peg (the gold standard) which would enforce balance of payments equilibrium. This means that contemporary free trade agreements (FTAs), with floating exchange rates, cannot be defended on the traditional grounds. With a floating exchange the appropriate policy advice for each individual jurisdiction is monetary mercantilism – the use of macroeconomic policy in an attempt to achieve a trade surplus as a percentage of GDP. If one partner pursues such a strategy alone, this will translate into a one-for-one increase in the growth rate, and potential regional hegemony for the first mover. To restore balance amongst the trade partners (not necessarily with the outside world) and yet still keep higher growth rates there would have to be a union-wide expansion. This need not be formally coordinated, but at least all the partners should be in broad agreement about the stance of policy.

Alexander Del Mar: Free Trade and the Chinese Question

In 1878, in the midst of anti-Chinese agitation, four letters from “an educated Chinaman,” Kwang Chang Ling, in the San Francisco Argonaut argued that Chinese commerce and labor were essential to California’s future progress. The letters, which caused a nationwide stir, were actually written by economist and statistician Alexander Del Mar. His arguments for free trade were prescient, and his economic position on “the Chinese Question” drew from a global perspective. Del Mar’s points resonate in current Sino-US relations and world economic issues.

From Religious Revivals to Tariff Rancor: Preaching Free Trade and Protection during the Second American Party System

The religious awakening of the early-nineteenth-century United States opened deep rifts in the generation that overlapped and followed it. The rifts emerged from questions of religious doctrine and evangelical method, then widened to encompass worldly politics and ideologies, including the tariff. Two authors and advocates who represent well the religious influence on the U.S. tariff controversy are the Reverend Joshua Leavitt (1794–1873) and the Reverend Calvin Colton (1789–1857). Both were swept up in the religious revivals of the 1820s, and both became, over the following two decades, leading contributors to the second party system's debates over slavery and the tariff. Their contributions to the tariff debate were to conjoin the arguments for free trade and protection, within and on the periphery of the Whig Party, to their religiously inspired views about the abolition of slavery.

Trade Liberalisation and the Australian Labor Party

The three most substantial decisions to reduce Australia’s trade barriers — in 1973, 1988 and 1991 — were made by Labor Governments. Labor’s policy shift preceded the conversion of social democratic parties in other countries to trade liberalisation. To understand why this was so, it is necessary to consider trade policy as being shaped by more than interest groups and political institutions. Drawing on interviews with the main political figures, including Gough Whitlam, Bob Hawke, Paul Keating and John Button, this article explores why the intellectual arguments for free trade had such a powerful impact on Labor’s leadership, and how those leaders managed to implement major tariff cuts, while largely maintaining party unity.

What Did Smith Mean by the Invisible Hand?

The invisible hand is not a power that makes the good of one the good of all, and it is not any of a number of other things it is said to be. It is simply the inducement a merchant has to keep his capital at home, thereby increasing the domestic capital stock and enhancing military power, both of which are in the public interest and neither of which he intended. Smith's exposition discloses how his rhetorical sallies could disfigure his economics, confuse his argument for free trade, and make him play fast and loose with facts and the ideas of others.

Capital and Labor in the Emerging Global Economy

The theoretical structure supporting liberalization of international trade is becoming increasingly inappropriate for the study of the emerging global economy. The theory of international trade was formulated as the nation-state emerged as the dominant political structure. The assumptions of mercantilism were discredited by classical economic theory and replaced by theoretical arguments for free trade. The zenith of free trade theory and practice was the nineteenth century. However the assessment of free trade in that period must place trade relations in the institutional context of colonialism and the relatively primitive transportation technology of the time. In this paper, the focus is on the differences between the economic relations of the international system of the eighteenth, nineteenth, and early twentieth centuries and the global system that is now emerging. I ask what effect these differences have for relations between owners of capital and labor. The major point of the article is that public discussion of the emerging global relations provides institutional economists with the opportunity to make an effective argument that institutions do matter. If institutions matter, so does history. We cannot pretend, for instance, that former colonies have the same market culture as do the imperial nations. We must begin to design global economic institutions within the present web of institutions, rather than from a set of axioms. These institutions must account for the evolution of production from dependence on natural resources and physical capital to the increasing role of intellectual capital. The current public debate about global economic policies is being argued from the mental model of trade in finished goods when natural and capital resources cannot be moved across national borders. This mental model confines the debate to free

Against free trade: Neoclassical and steady-state perspectives

The author argues against free trade as a “default position” for international trade. He shows that arguments for free trade based on comparative advantage do not hold in reality. First, free trade makes cost-internalization for single countries difficult leading to standard-lowering competition and misallocation. Second, the international mobility of capital leads to absolute rather than comparative advantage for single countries, thus leading to maldistribution. Finally, the ecological basis seriously limits the scope for catching-up. Priority should be given alternatively to domestic production of a steady-state type with balanced trade.

A trade policy for free societies: the case against protectionism

Acknowledgments Preface The Philosophy of Protectionism The Protectionist Mentality The Trade Deficit Mentality Arguments for Free Trade The Cost of Protectionism Introduction Monetary Costs Nonmonetary Costs Antidumping Policy Antidumping Policy in the USA: Theory and Practice Some Examples of Dumping Harmful Effects of Antidumping Policy The Philosophy of Antidumping Policy Concluding Comments Concluding Comments References Index

Free Trade, Economic Integration and Nationhood

The ability to achieve 'national economic targets, including such considerations as the amount of redistribution of product by means of the central government actions, the establishment of time preference in terms of resource exploitation and other collective decisions, is de fined as nationhood. The effect of increasing degrees of international economic involvement are considered in terms of their costs of nationhood renounced : these costs need to be set against the gains from more efficient resource allocation in determining the desired degree of international economic involvement or integration. The arguments for free trade and economic integration are set out purely in terms of economic efficiency (better global resource allocation and particularly so in the pres ence of substantial economies of scale) and pay no heed to any aspects of life which cannot be resolved efficiently by a system of (static) competitive decentralized markets. Free trade eliminates barriers to the exchange of goods (and, potentially, to services) while economic integration eliminates boundaries as impediments to a broader range of economic activities including international movement of factors of production.1 In a world in which some concept of national character or identity exists (i.e. there is a distinctive set of collective values with respect to economic policies which enter into

The Internationalization of Global Labor Markets

The rapid industrialization of labor-surplus countries will present serious problems for the achievement of high levels of employment in the industrialized world. The employment consequences of a flood of imports from developing countries is jeopardizing the liberal international trading system that has contributed to the world's prosperity since World War II. The argument for free trade and a liberal system of world trade is based on a static analysis that does not countenance the rate of change imposed on the importing nation. Some intermediate stance that avoids the employment costs of unimpeded imports and the rigidities that permanent, die-hard protection will inflict on an industrialized economy may prove desirable as an aid to the process of economic adjustment.

Senile Industry Protection: A Proposal

Two separate and distinct forces will lead to certain American industries losing their international competitiveness over time. The first force is the gradual increase in net transfer receipts (mainly dividends, fees, and interest) that result from our increasing net creditor position. Slowly but surely, increasing receipts of this nature must diminish receipts from the net exports of goods and services. The second force is the acquisition of technology and skills-a closing of the skill gap-by competing industries in other nations [3; 4]. If in these industries the level of costs does not vary significantly with output, the switch from a sound industry supplying the domestic market to that of an industry decimated by cheap imports can be painfully sudden. This paper is addressed to this problem. One of the weaknesses of economic analysis based upon the concept of equilibrium and upon comparative statics in particular is the lack of attention paid to the problems of adjustment to the ultimate equilibrium. The case for free trade rests in essence upon an equilibrium model of a stationary state. Once the concepts of disequilibrium and adjustment are introduced, the prima facie argument for free trade loses some of its force. Nevertheless, positive costs of adjustment-even though recognized-pale into insignificance when compared with the gains to be derived from a perpetuity of optimum resource allocation.' One qualifi-

The Works and Correspondence of David Ricardo

David Ricardo was born in London in 1772. His father, a successful stockbroker, introduced him to the Stock Exchange at the formative age of fourteen. During his career in finance, he amassed a personal fortune, which allowed him to retire at the age of forty-two. Thereafter, he pursued a political career and further developed his economic ideas and policy proposals. A man of very little formal education, Ricardo arguably became, with the exception of Adam Smith, the most influential political economist of all time. Ricardo was the first economist to make extensive use of deductive reasoning and arithmetical models to illustrate the anticipated reactions to juxtaposed market forces and responsive human action. His modes of analysis have become identified with economics as an academic discipline. Like Smith, Ricardo believed that minimal government intervention best served an economy. His contributions to economics are numerous and include the theory of 'hard money' to hedge inflation, the law of diminishing returns, developed along with his close friend the classical economist T R Malthus, and the labour theory of value. One of Ricardo's most significant contributions to economics is the law of comparative advantage as applied to international commerce, which grew out of Adam Smith's division of labour and has become the central argument for free trade and open markets. It implies that countries best serve themselves when they trade with other countries abiding by their respective scales of efficiency. Besides being the most efficient method of international commerce, the comparative-advantage mode of trade also encourages international stability through multilateral business interests and global interdependencies. As Frederic Bastiat, the French journalist and politician, wrote, If goods do not cross borders, armies will.. Throughout the years, several economists have elaborated on fundamental Ricardo themes and developed compelling theorems. Using Ricardo's assertions about the interrelationships among capital, labor, output, and investment, the Nobel laureate F A Hayek posed the Ricardo effect, a retort to John Maynard Keynes's accelerator principle. Robert Barro of Harvard University used Ricardo's equivalence theorem to argue that the distinction between government taxing its citizens or deficit spending on credit is inconsequential to the long-term aggregate economy. Gordon Tullock, one of the founders of the public choice school, built upon Ricardo's rent theory to explain his rent-seeking phenomenon, which illuminates the inequitable and monopolistic distribution of excessive gains derived through discriminate government subsidies. This 11-volume set contains all of Ricardo's published and unpublished writings, and provides great insight into the early era of political economics by chronicling Ricardo's significant contributions to modern economics. The edition has been widely acclaimed as the best example, prior to the Glasgow edition of Adam Smith's writings, of scholarly editing applied to the work of an economist. It contains a general index and includes four volumes dedicated to his personal correspondence with such economic luminaries as Malthus, Jean-Baptiste Say, and James Mill, the father of John Stuart Mill. Complete sets of the edition have not been available for many years. This publication is an affordable paperback version of the hardcover edition prepared under the auspices of the Royal Economic Society by Piero Sraffa and printed by Cambridge University Press in 1951-1973.