Understanding Free Trade

             This essay suggests that the concept of 'free trade' is fuzzily defined and.

             possesses both theoretical and practical flaws which render it unusable as a.

             rational basis of government policy making. [For alternative national trade.

             policies, see http://www/mkeever.com/essay].

             'Free Trade' Defined.

             'Free trade' seems to mean that trade between countries occurs with no.

             government regulation or restraint. Or, in other words, no quotas, licenses,.

             taxes, safety concerns, inspections, or limits of any kind. Business people.

             are free to do what they will in buying and selling products and services.

             between countries.

             This theory of trade has two categories of flaws: theoretical and practical.

             Consider the theoretical underpinnings of 'free trade' theory:.

             Adam Smith's Invisible Hand.

             'Free Trade' is a fuzzy concept which applies the concept of Adam Smith's.

             Invisible Hand [IH] to international trade. In order to fully understand.

             'free trade', we must first look at the IH concept. 'Free trade' shares many.

             characteristics and flaws with the IH.

             Basically, the IH holds that the greatest good will accrue to the greatest.

             number of people when each agent in a market, both buyers and sellers, act.

             in their own self interest. This is so, goes the theory, because buyers want.

             to buy more of any good at a lower price while sellers will sell more of any.

             good at a higher price. Market forces will conspire to force the price and.

             quantity offered and sold to an equilibrium price. If the price is higher.

             than the equilibrium price, sellers will offer more than the equilibrium.

             quantity for sale; the excess quantity will remain unsold until sellers, in.

             their own best interest, lower the price until equilibrium is reached and.

             the sellers sell the quantity they wish and buyers buy the quantity they.

             wish at that price. This automatic balancing system ensures that a nation's.

             productive resources are allocated to the most efficient use of resources.

             Theoretical Flaws of the Invisible Hand.

Related Essays: