ABSTRACT
In the course of the past thirty-five years, prevailing opinion among economists regarding the influence of commercial policy on economic development has changed radically. The central tradition of economics, set by the English classical economists, viewed free trade as a potent engine for economic growth, and protection as a policy making for waste of resources and the impediment of economic development. The classical advocacy of free trade evolved out of Adam Smith’s attack on mercantilism. On the theoretical side it rested not only on the static theory of comparative advantage developed by Ricardo and Mill, but on a broader sociological recognition of the beneficial effects of exposure to foreign culture and foreign competition in generating the urge for social change and economic improvement. While two exceptions to the case for free trade were early recognised – the terms of trade argument and the infant industry argument – these were not regarded as of great practical importance. Nor did the heretics who advocated protection as a means of promoting the economic development of the relatively backward regions – notably Hamilton in the United States and List in Germany – have any significant influence on the central corpus of economic theory. Towards the end of the nineteenth century, the policies of using protection to promote the industrial growth of the United States and Germany attracted the scientific interest of Marshall, and induced Taussig to undertake a major study of the economic effects of the United States tariff; but the results of Taussig’s research were at best inconclusive, and both he and Marshall became increasingly sceptical about the efficacy of protection for promoting economic growth. Until the 1930s, free trade was the orthodox position of economists on questions of commercial policy, an orthodoxy based on the principle of comparative advantage and reinforced by the cosmopolitan perspective of the liberal tradition of classical economics.
