Protectionnism and Free Trade in Economical Doctrines — страница 4

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disturbs economic agents from seeking the most efficient mode to invest factors of production it posesses. 5. In the international trade must be promoted the policy of free competition (without monopolies) and a policy of free exchange (non-discriminating). Much as Smith was aware of the benifits of free trade and was able to influence the British economic thought, he was not an unqualified free trader. He singled out two primary cases which in his view justified the imposition of barriers on imports for the purpose of encouraging domestic industry. First, some particular industries may be necessary for the defense of a country. From this point of view, the British Navigation Acts, inasmuch as they promoted the building up of a merchant marine to be used in peace and war alike,

were perfectly sensible. The second case is an application of the principle that normally competitive conditions should not be distorted by government intervention. Consequently, it will be proper to place a burden on foreign industry if this merely neutralizes the disadvantage under which domestic industry operates because it is burned with some taxes from which the foreign producers are exempt. After the imposition of a "matching" tariff duty, a form of equalizing adjustment no larger portion of domestic labor and capital would be devoted to the particular domestic industry of a country than what would naturally go to it. "It would only hinder any part of what would naturally go to it from being turned away by the tax, into a less natural direction..." Smith

does not underrate the difficulty arising from the fact that imported commodities are seldom perfect equivalents of the domestic produced variety. Adam Smith took up two secondary cases in which he held it to be a "matter of deliberation" whether or not to follow a laissez-faire policy. The first deals with the advisability, pro and con, of imposing a retaliatory duty designed to bring about the repeal of a duty imposed by a foreign country. The success of taking such a step, Smith holds, will always be open to guess; and unless the odds are distinstly in its favor, the "...transitory inconviniency of paying dearer during a short time for some sorts of goods" would not be justified. The second possibility, where the issue is not the imposition of a new tax but

rather the return to free trade from the evils of protection, centers around the need of preventing a sudden painful shock to a domestic industry. This will be largely a question of size: only when a "great multitude of hands" would all at once be deprived of their ordinary employment and livelihood by the removal of high duties and prohibitions in some special regard to their welfare in order. Indeed, Smith feels, it becomes a matter of equity in this case that the return to exposure to competition from foreigners be undertaken "...slowly, gradually, and after a very long warning". Bounties on exports, that is, government payments to exporters of goods who could not otherwise effectively compete with their foreign rivals, were, as we might expect, another

device of the "mercantile system" scorned by Smith. They can only warp the natural allocation of resources. Since a country cannot force the buying of its exports on other countries, the next best expedient may be found in one country paying another for the buying of exports. But doing so, through bounties, will force a country's trade in less advantageous channels than that in which it would go if left alone. Domestic consumers will be the losers: under conditions of full employment they would pay a higher price for a smaller portion of the total supply, and in addition they would have to foot the bill for government payments to exporters. Such are the highlights of the attack on the absurdities of mercantilist restrictions, which had flowered too long to suit Smith's

disposition. The Comparative Advantage Theory Smith did not expand these ideas at much length; but David Ricardo, the second great classical economist, developed them into the "principle of comparative advantage", a principle still to be found, much as Ricardo spelled it out, in every textbook on international trade. The principle of comparative advantage is based on what kind of product the country can produce best, in comparing not with other countries, but with the producing of other kinds of goods. In this case the country doesn't necessarily need an absolute advantage to specialize in producing and exporting it. The major purpose of the theory of comparative advantage is to illustrate the gains from the international trade. Each country can gain by specializing in