Some aspects of the pure theory of international trade

Abstract

A traditional dichotomy exists in the theory of international trade between, on the one hand, the monetary theory and its associated problems which arise because different money circulates in different countries, because each country has its own central bank and controls its own monetary policy, and because money is treated as a commodity with a direct utility of its own and, on the other hand, the pure theory which is concerned with the real factors underlying the monetary problems. This thesis is concerned solely with the latter. More precisely, our interest centres upon the application of the neo-Walrasian analysis of value and welfare to some of the traditional questions posed in trade theory. The pure theory of international trade itself can be subdivided broadly between 'positive' contributions, intended for purposes of explanation and prediction, and normative contributions relating international trade to economic welfare. In the positive field, and it is with problems arising here that we are primarily concerned, there has been a recent trend towards the empirical verification of different hypotheses. However, though this trend is quite marked in the theory of comparative costs [107] and in connection with the Heckscher-Ohlin theorem that a country's exports use intensively the country's abundant factor of production [108; 109]> id is scarcely noticeable among the great bulk of pure theory writings which are concerned with the formulation of ' logically true' propositions which, in the nature of things, cannot be refuted empirically. The majority of these have been developed within the context of the familiar two-good, two factor model with its additional assumptions of linear and homogeneous production functions with diminishing return*along isoquants, full employment, profit maximisation and perfect competition.