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INTERNArrIONAL TRADE
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The only really systematic theory of international trade we
possess is the' so-called classical theory, of which practically all
the component parts were worked out by such early writers as Hume,
.Adam Smith and Ricardo.! It is -eharacterised, on the one hand,
by the doctrine of' comparative \costs and, on the other hand, by
the principle that prices, exchan~e rates and money Hows provide a
mechanism which links together the monetary systems of different
countries and ensures the automatic adjustment of the balance of
\
payments. In England the classi~al theory still holds the field
and it is accepted by the more theor,~tically-minded economists in
the United States.2 In continental 'countries, however, with the
partial exception of Italy, it has never found much favour.
Criticisms have been frequent, but the critics have not succeeded
in substituting for it anything that deserves t. be called a new
theory of international trade. Certain details of the classical theory
have had to be modified, and there has been, of course, much
interesting statistical and. descriptive work. But the only important
theoretical advance has been the application, notably by Pareto,
of general equilibrium analysis3 to the problems of international
trade. The classical doctrine-in particular the theory of comparative
costs-is exhibited as a special case of the more general theory.
The classical theory starts from the fact that in international
trade, as in all other economic activities, it is the individu.~l
economic subject who buys and sells, pays and is paid, grants and
receives loans, and, in short, carries on the activities which, taken
as a whole, constitute international trade.' It is not, for example,
Germany and England, but individuals or firms located in Germany
and England, who carryon trade with one another. The nrst
question, therefore, which has to be answered is whether these
economic activities callior a special theory at all
Saylor - Personal Name
2nd Edition
NONE
INTERNArrIONAL TRADE
Management
English
2000
1-422
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