ABSTRACT
The beginning of the pure theory of international trade is usually traced back to David Ricardo and his 1817 theory of comparative advantage or, even before, to Adam Smith and his Vent for surplus’ argument emphasising potential gains from trade. Empirical investigation of the determinants of international trade flows is a later development, counting among its first contributions J.M.Keynes’ pamphlet The Economic Consequences of Mr Churchill (1925) on the causes of the deep 1925 recession. This short essay provides a good example of the macroeconomic policy relevance of international trade analyses: Keynes argued that the rise in relative export prices, following the return to the prewar goldsterling parity, had caused foreign demand of British manufactures to fall despite the high level of world demand.
