11. Foreign Trade

Adam Smith said that the exchange between nations would rationally be governed by absolute advantage, Ricardo by comparative advantage. Malthus was on the side of Smith. Malthus rejected mercantilism in favour of free trade that maximised the sum of consumer satisfactions. He said that a lower price is only one of the gains from trade. There was also the exploitation of a unique advantage and the faster growth that resulted from diversification and catch-up. Beggar-thy-neighbour policies could, however, negate the global benefits if countries were attempting to dump their exports without also creating a demand for their trading partners’ products. Malthus believed that foreign trade could go too far. The home market must remain the principal source of demand.