Abstract
The Wealth of Nations (1776) launched the new science of political economy. Its foundation was the maximising behaviour of individuals in free and competitive markets. Its objective was twofold: (i) to explain and interpret the workings of developing capitalism; and (ii) to advise, guide and direct policy according to the sound principles of political economy. Central to its concerns was an interest in economic growth, a topic Adam Smith placed prominently on the agenda of intellectual and political debate right from the start. Another was the role of international trade in the process of economic development. These were, of course, the very concerns of mercantilism; but the approach and perspective of the classical economists were radically different. Like Smith, they rejected blundering mercantilist (or government) regulation and placed their bets on the competitive market as the best mechanism for promoting growth. Foreign trade — which connects the national market with the wider world market — had an important role to play in this process. To be sure, these economists did not all speak with the same voice, but, in general, they had optimistic visions of prosperity and progress based on the potentials of developing capitalism. Classical political economy is associated in the popular mind with domestic laissez-faire and international free trade. At least in respect of foreign trade this portrayal of classical orthodoxy is substantially correct.
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Notes and References
See C. F. Bastable, The Theory of International Trade (London, 1903) pp. 168–9.
L. Robbins, Money, Trade and International Relations (London: Macmillan, 1971) p. 191.
Arthur I. Bloomfield, ‘Adam Smith and the Theory of International Trade’, in A. Skinner and T. Wilson (eds) Essays on Adam Smith (Oxford U.P., 1975) p. 481.
Adam Smith, The Wealth of Nations, ed. E. Cannan (New York: Random House, Modern Library Edition, 1937) book IV. ii. 12.
Smith summarises the widening of the market through foreign trade as follows: ‘By opening a more extensive market for whatever part of the produce of their labour may exceed the home consumption, it encourages them to improve its productive powers, and to augment its annual produce to the utmost, and thereby to increase the real revenue and wealth of the society.’ Wealth of Nations, book IV. i. 31.
H. Myint, ‘The “Classical Theory” of International Trade and the Underdeveloped Countries’, Economic Journal, vol. 68 (June 1958) pp. 317–37. And
‘Adam Smith’s Theory of International Trade in the Perspective of Economic Development’, Economica, vol. 44 (Sep 1977) pp. 231–48.
See J. S. Mill, Principles of Political Economy, ed. W. J. Ashley (London: Longman, 1923) p. 581.
David Ricardo, The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the collaboration of M. H. Dobb (Cambridge U.P., 1951–5) vol. 1, pp. 291 n, 294–5.
See Gottfried Haberler, ‘International Trade and Economic Development’, The Cairo Lectures (1959) reprinted in R. S. Weckstein (ed.) Expansion of World Trade and the Growth of National Economies (New York: Harper & Row, 1968) pp. 103–4 n. 6.
Samuel Hollander, The Economics of Adam Smith (London: Heinemann, 1973) pp. 268–76.
For a brief, useful survey of the various interpretations of Smith on this issue, see E. G. West, ‘Scotland’s Resurgent Economist: A Survey of the New Literature on Adam Smith’, Southern Economic Journal, vol. 45, no. 2 (Oct 1978) pp. 359–61.
Another good discussion is C. E. Staley ‘A Note on Adam Smith’s Version of the Vent for Surplus Model’, History of Political Economy (Fall 1973) pp. 438–48.
For an analysis of general ‘surplus’ models of trade and growth see Richard E. Caves, ‘Vent for Surplus Models of Trade and Growth’, in Robert E. Baldwin et al., Trade, Growth and the Balance of Payments: Essays in Honor of Gottfried Haberler (Amsterdam: North-Holland, 1965) pp. 95–115.
Hollander, op. cit. p. 276.
Wealth of Nations, book IV, ii. 3, 13.
Wealth of Nations, ed. Campbell and Skinner (1976) p. 687.
See Harry G. Johnson, ‘Commercial Policy and Industrialization’, Economica, vol. 39 (Aug 1972) p. 265.
Wealth of Nations, ed. Campbell and Skinner, p. 470.
Adam Smith, The Theory of Moral Sentiments (New York: Kelley, 1966) pp. 266–7.
Wealth of Nations, ed. Campbell and Skinner, p. 471.
W. L. Taylor records that ‘Smith was intimately acquainted with Hume and his works’. W. L. Taylor, Francis Hutcheson and David Hume as Predecessors of Adam Smith (Durham, N.C.: Duke U.P., 1965) p. 131.
See D. P. O’Brien, The Classical Economists (Oxford: Clarendon Press, 1975) p. 146.
However, in the earlier Lectures on Justice, Police, Revenue and Arms, ed. Edwin Cannan (New York: Kelley & Millman, 1956) p. 197, Smith wrote approvingly of Hume’s theory.
See R.V. Eagly, ‘Adam Smith and the Specie-Flow Doctrine’, Scottish Journal of Political Economy (Feb 1970) pp. 61–8.
James W. Angell, The Theory of International Prices (New York: Kelley, 1965) p. 34.
Humphrey and Keleher, op. cit. p. 139.
For this resolution of Viner’s puzzle see F. Petrella, ‘Adam Smith’s Rejection of Hume’s Price-Specie-Flow Mechanism: A Minor Mystery Resolved’, Southern Economic Journal (Jan 1968) pp. 365–74.
This is O’Brien’s conjecture; see O’Brien, op. cit. p. 147.
Bloomfield, op. cit. p. 480.
See T. Wilson, ‘Some Concluding Reflections’, in B. Skinner and B. Wilson (eds) op. cit. pp. 605–6 n. 1.
See G. J. Stigler, ‘The Successes and Failures of Professor Smith’, Journal of Political Economy, vol. 84, no. 6 (1976) p. 1208.
The model is analysed well in Akira Takayama, International Trade (New York: Holt, Rinehart & Winston, 1972) ch. 4;
R. E. Caves and R. W. Jones, World Trade and Payments (New York: Little Brown & Co. 3rd ed. 1981) ch. 5, and
M. Chacholiades, International Trade Theory and Policy (New York: McGraw-Hill, 1978) ch. 2.
Ricardo, Works, vol. I, p. 136.
Ricardo, ibid. p. 145.
E. R. A. Seligman and J. H. Hollander, ‘Ricardo and Torrens’, Economic Journal, vol. 2 (1911) pp. 448–68;
L. Robbins, Robert Torrens and the Evolution of Classical Economics (London: Macmillan, 1958) pp. 22–3.
For The Economists Refuted see the reprint in R. Torrens, The Principles and Practical Operation of Sir Robert Peel’s Act of 1844 Explained and Defended, 2nd ed. (London: Longman, 1857).
See the first of Chipman’s classic survey, Chipman, op. cit. p. 480.
Torrens, External Corn Trade, pp. 263–4.
Robbins, op. cit. p. 23.
Ricardo, Works, vol. IV.
Robbins, op. cit. p. 23.
P. A. Samuelson, ‘Economists and the History of Ideas’ and ‘The Way of an Economist’ reprinted in The Collected Scientific Papers of Paul A. Samuelson, ed. R. C. Merton (Cambridge, Mass.: MIT Press, 1972) vol. 2, p. 1507, and vol. 3, p. 678.
Sir John Hicks, Classics and Moderns: Collected Essays on Economic Theory, vol. III (Oxford: Blackwell, 1983) p. 61.
Chipman, op. cit. pp. 479–80.
Hollander, The Economics of David Ricardo, op. cit. p. 462.
William O Thweatt, ‘James Mill and the Early Development of Comparative Advantage’, History of Political Economy, vol. 8, no. 2 (1976) pp. 207–34.
Hollander, op. cit. p. 462.
P. A. Samuelson, ‘The Way of an Economist’, in Paul Samuelson (ed.) International Economic Relations (London: Macmillan, 1969) p. 4.
Henry William Spiegel, The Growth of Economic Thought (Durham, N.C.: Duke U.P., 1971) p. 344.
Dennis R. Appleyard and James C. Ingram, ‘A Reconsideration of the Additions to Mill’s “Great Chapter”’, History of Political Economy, vol. 11, no. 4 (Winter 1979) p. 503.
James Mill, Elements of Political Economy, 3rd ed. (London: Baldwin, Cradock & Joy, 1826) p. 123.
J. S. Mill, Essays on Some Unsettled Questions on Political Economy (London, 1877) (originally published 1844) p. 1.
Joan Robinson, ‘Reflections on the Theory of International Trade’ in her Collected Economic Papers, vol. 5 (Oxford: Blackwell, 1979) p. 130.
Stigler, ‘Nobel Lecture: The Process and Progress of Economics’, Journal of Political Economy, vol. 91, no. 4 (1982) p. 534.
Allen, op. cit. p. 75.
Ronald L. Meek, Studies in the Labour Theory of Value (London: Laurence & Wishart, 1965), p. 21.
Mark Blaug, Economic Theory in Retrospect, 3rd ed. (London: Heinemann, 1978) p. 140.
Ibid. p. 6.
AndréGunder Frank, Dependent Accumulation, vol. 1 (London: Macmillan, 1979) pp. 94–5.
R. Ballance, J. Ansari and H. Singer (eds) The International Economy and Industrial Development: Trade and Investment in the Third World (London: Wheatsheaf Books, 1982) pp. 14, 15.
For Robinson’s comment see ‘What are the Questions?’ Journal of Economic Literature, vol. XV, no. 4 (Dec 1977) p. 1336.
Fernand Braudel, Civilization and Capitalism, 15th–18th Century, vol. III The Perspective of the World (London: Collins, 1984) p. 48.
See G. J. Stigler, ‘Ricardo and the 93 Per Cent Labour Theory of Value’, American Economic Review, vol. 48 (1958) pp. 357–67.
Ricardo, Works, op. cit. vol. I, p. 128.
Ibid. p. 135.
Ibid. pp. 135–6. If not in Ricardo’s time, certainly by the middle of the century, this assumption was patently untenable. The export of British capital, the peopling of North America, the gold rush to the mines of California, South Africa, Alaska and Australia belied the international immobility assumption. As early as 1817 McCulloch criticised Ricardo for denying ‘the equilibrium of profit in different countries’ resulting from international capital movements. See O’Brien, op. cit. p. 194.
Ricardo, Works, p. 128.
For the construction and properties of a world production-possibilities frontier see any good intermediate text on international economics, e.g. Chacholiades, op. cit. pp. 34–5.
J. S. Mill, Principles of Political Economy (ed. W. J. Ashley) (London: Longman, 1920) p. 587.
Viner, Studies, op. cit. p. 490.
Gottfried Haberler, The Theory of International Trade, with Its Applications to Commercial Policy (London: Hodge, 1936) p. 126.
For a survey of the various interpretations of ‘real costs’ as well as a trenchant critique of the use of the labour theory in the classical trade model see Edward S. Mason, ‘The Doctrine of Comparative Cost’, Quarterly Journal of Economics, vol. 38 (Aug 1926) pp. 582–606.
Karl Marx, Capital, vol. III (Moscow, 1971) p. 238.
For an analysis of Marx’s foreign-trade doctrines, pieced together from his published writings see G. Kohlmey, ‘Karl Marx Theorie von den Internationalen Werten’, Jahrbuch des Instituts fur Wirtschaftswissenschaften, no. 5 (1962) pp. 18–122.
Marx, Theories of Surplus Value, part III (MOSCOW: Progress Publishers, 1975) pp. 105–6.
Marx, Capital, vol. I (Moscow: Foreign Languages Publishing House, 1977) p. 525.
One well-known work of this type is A. Emmanuel, Unequal Exchange: A Study of the Imperialism of Trade (New York: Monthly Review Press, 1972).
For criticisms of Emmanuel see Leslie Stein, Trade and Structural Change (London: Croom-Helm, 1984) pp. 143–62;
David Evans, ‘A Critical Assessment of Some Neo-Marxian Trade Theories’, Journal of Development Studies, vol. 20, no. 2 (Jan 1984) pp. 202–26;
P. A. Samuelson, ‘Illogic of Neo-Marxian doctrine of Unequal Exchange’, in D. A. Belsley et al. (eds) Inflation, Trade and Taxes: Essays in Honor of Alice Bourneuf (Columbus Ohio: Ohio Univ. Press, 1976)
Ricardo, Works, vol. I, p. 128.
T. R. Malthus, Principles of Political Economy, 1st ed. (London: John Murray, 1820) pp. 460–1.
Ibid. p. 462.
Ricardo, Notes on Malthus (1820) p. 215. For an evaluation of the Ricardo-Malthus debate on this point see Viner, Studies, op. cit. ch. IX, pp. 527–32.
Ricardo, Works, vol. I, p. 128.
Ibid. pp. 132–3.
Ibid. p. 129.
See E. G. West, ‘Ricardo in Historical Perspective’, Canadian Journal of Economics, vol. XV, no. 2 (May 1982) pp. 314–16.
See Ricardo, Works, vol. I, pp. 131–2.
E. K. Hunt, History of Economic Thought (Belmont, Calif.: Wadsworth, 1979) p. 107.
Hollander, ‘On the Substantive Identity of the Ricardian and Neoclassical Conceptions of Economic Organization: The French Connection in British Classicism’, Canadian Journal of Economics, vol. XV, no. 4 (Nov 1982) p. 591 n. 7.
N. Senior, Three Lectures on the Cost of Obtaining Money (1830) (LSE Reprints of Scarce Tracts, etc., 1931) p. 1.
For an authoritative account of Senior’s contribution to trade theory and policy see Marian Bowley, Nassau Senior and Classical Economics (London: Allen & Unwin, 1937) ch. 6, pp. 201–34.
Senior, Three Lectures, op. cit p. 11.
Ibid. p. 20.
Ibid. p. 28. Senior was not the first to develop a productivity theory of wages linked to the price of internationally traded goods. In 1820 John Clay did much the same in his book A Free Trade Essential to the Welfare of Great Britain (London, 1820) in which he contrasted this theory of manufacturing wages with the usual classical treatment in terms of the domestic price of food (i.e. the population and wage-fund theory of wages).
The late Bertil Ohlin, the principal originator of the Heckscher-Ohlin model regarded his new theory as the first decisive break with Ricardo’s law of comparative costs. In his keenness to emphasise the novelty of his approach he even refused to use the phrase ‘comparative advantage’. His strong criticism of the classical theory was partly explained by his dislike of the labour theory of value. See appendix III of his book, Interregional and International Trade (Harvard U.P., 1933).
G. D. A. MacDougall, ‘British and American Exports: A Study Suggested by the Theory of Comparative Costs’, Economic Journal, vol. 61 (Dec 1951) pp. 697–724; also ibid. vol. 62 (Sep 1952) pp. 487–521.
J. Bhagwati, ‘The Pure Theory of International Trade: A Survey’, Economic Journal (1964) reprinted in his book Trade, Tariffs and Growth (London: Weidenfeld & Nicholson, 1969) pp. 14–22.
This is the opinion of Caves and Jones, op. cit. p. 191.
For a good analysis of the empirical work surrounding the Ricardian hypothesis see Ronald Findlay, Trade and Specialization (Harmonds-worth, Middx: Penguin Books, 1970) ch. 5. Stein, op. cit. pp. 23–5
Ohlin, op. cit. p. 563.
J. S. Mill, Principles of Political Economy (1848) (W. J. Ashley ed. reprint, New York, 1965).
F. Y. Edgeworth, ‘Theory of International Values’, Economic Journal (Dec 1894) p. 610. Chipman, op. cit. p. 484.
Edgeworth, op. cit. p. 609. See Chipman, op. cit. pp. 183–4, for the comments of the economists mentioned.
Dennis R. Appleyard and James C. Ingram, op. cit. pp. 459–76.
Appleyard and Ingram, op. cit. p. 475.
John S. Chipman, ‘Mill’s “Superstructure”: How Well does it Stand up?’, History of Political Economy, vol. 11, no. 4 (Winter 1979) pp. 477–500.
Viner, op. cit. p. 536. More recently Sir John Hicks referred to Mill’s work on international values as ‘an epoch-making discovery’ and traced later developments (Marshall, Meade and Johnson) ‘back to that essay of Mill’s’. Hicks, op. cit. p. 61.
M. Longfield, Three Lectures on Commerce and Absenteeism (Dublin, 1845) (LSE reprint 1938) pp. 55–6.
Ronald W. Jones, ‘International Trade Theory’, in E. Cary Brown and Robert M. Solow (eds) Paul Samuelson and Modern Economic Theory (New York: McGraw-Hill, 1983) p. 82.
J. E. Cairnes, Some Leading Principles of Political Economy Newly Expounded (London: Macmillan, 1874) ch. III part 1, pp. 66–8.
Graham summarised his work on international values, begun since 1923 in F. D. Graham, The Theory of International Values (Princeton U.P., 1948).
F. W. Taussig, International Trade (New York: Macmillan, 1927), esp. chs 7, 9 and 10. The quotation is on p. 48.
Viner, op. cit. p. 512.
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Gomes, L. (1987). Classical Trade Theory. In: Foreign Trade and the National Economy. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-08992-5_4
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