28 November 2022
Peter Smith1, Steve Kates2, John Quiggin3 are economists. Smith and Kates are on the right while Quiggin is on the left. Despite their political differences all three have serious doubts about the benefits of free trade. I’ll begin with Steve Kates who made this important observation on free trade:
But you know what was also current then [in the nineteenth century]? The gold standard. There are many ways this process of comparative advantage breaks down, but with the abandonment of the gold standard and fixed exchange rates, there are all kinds of ways to cheat in foreign trade relations that are not discussed as part of the basic theory4.
Unfortunately, this was too much for Professors Sinclair Davidson and Judith Sloan with Davidson making the absurd accusation that Kates believes the theory of comparative advantage is wrong because the world is not on gold. Sloan wasn’t much better, calling Kates’ point about gold a “dud”. The only duds here are Davidson and Sloan. At a later stage we shall see why classical economists considered gold crucial to maintaining free trade and why Kates’ view that comparative advantage broke down is misguided. Peter Smith, like nearly all economists, does not link the gold standard to the principle of free trade, even going so far as to emphatically state that there is no such thing as “free trade”5.
Professor Quiggin, who confesses to being something a “heretic on free trade”, takes a macroeconomic approach to nineteenth free trade, arguing that it created the “impossible trinity”, according to which governments