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International economic relations

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Introduction

International economic relations In modern form The theoretical basis of a study of international economic relations in its modern form was formed as a result of a long and difficult process, full of successes but, nevertheless, with important mistakes. The early roots are to be found, perhaps, in Antic Greece in the works of Aristotel, Platon and Xenophon. In general, the antic philosophers opposed to the big commerce, supporting the idea of a closed domestic economy. The closed character of the production of a self-supply type, dominating from the antiquity up to 15th century gave no incentives for developing any profound and constant studies on international trade. In these conditions is in no way occasional that the theorists of antiquity and Middle Ages (scholastics) exaggerated the role of production (especially agricultural) and pleaded against the "art of making money", the chrematistics (after Aristotel). At the dawn of the Modern Age (16th century) there appeared the first trials of more systematic analyses of the international economic relations. Developed during the period of the downfall of feudalism and the transition to capitalism, the mercantile theory was the first trial to explain integrally the principles of international trade in a paradigm of the analysis of economic reality. Perhaps, the field of international trade was first closely studied by men of affaires, in private or governmental employment, as no other topical area, as a part of an effort to increase the wealth and the power of the nation, with which these men tended to identify their own welfare. This body of doctrines, later named by Adam Smith the "mercantile system" or "mercantilism", insisted that the acquisition of wealth, particularly wealth in the form of gold, was of paramount importance for national policy. Mercantilists took the virtues of gold almost as an article of faith; consequently, they never undertook to explain adequately why the pursuit of gold deserved such a high priority in their economic plans. ...read more.

Middle

After the imposition of a "matching" tariff duty, a form of equalizing adjustment no larger portion of domestic labor and capital would be devoted to the particular domestic industry of a country than what would naturally go to it. "It would only hinder any part of what would naturally go to it from being turned away by the tax, into a less natural direction..." Smith does not underrate the difficulty arising from the fact that imported commodities are seldom perfect equivalents of the domestic produced variety. Adam Smith took up two secondary cases in which he held it to be a "matter of deliberation" whether or not to follow a laissez-faire policy. The first deals with the advisability, pro and con, of imposing a retaliatory duty designed to bring about the repeal of a duty imposed by a foreign country. The success of taking such a step, Smith holds, will always be open to guess; and unless the odds are distinstly in its favor, the "...transitory inconviniency of paying dearer during a short time for some sorts of goods" would not be justified. The second possibility, where the issue is not the imposition of a new tax but rather the return to free trade from the evils of protection, centers around the need of preventing a sudden painful shock to a domestic industry. This will be largely a question of size: only when a "great multitude of hands" would all at once be deprived of their ordinary employment and livelihood by the removal of high duties and prohibitions in some special regard to their welfare in order. Indeed, Smith feels, it becomes a matter of equity in this case that the return to exposure to competition from foreigners be undertaken "...slowly, gradually, and after a very long warning". Bounties on exports, that is, government payments to exporters of goods who could not otherwise effectively compete with their foreign rivals, were, as we might expect, another device of the "mercantile system" scorned by Smith. ...read more.

Conclusion

For List, the ultimate goal of economic activity should be national development and the accretion of economic power. In this, he (as Marx was to do later) perceived industry as more than the mere result of labor and capital. Rather, he conceived industry as a social force that itself creates and improves capital and labor. In addition to effecting present production, industry gives an impetus and a direction to future production. Therefore, List recommended the introduction of industry into underdeveloped countries even at the expense of temporary loss. List's originality in economic theory and method consisted in his systematic use of historical comparison as a means of demonstrating the validity of economic propositions and in his introduction of new and useful points of view in contradistinction to the economic orthodoxy of classical liberalism. In stretching the dynamic fabric of classical economic growth by representing economic development as a succession of historical stages, he provided a methodological rallying point for the economists of the German historical school. Thus List may appropriately be considered the forerunner of that school. This reaction in favor of protection spread throughout the Western World in the latter part of the 19th century. Germany adopted a systematically protectionist policy and was soon followed by most other nations. Shortly after 1860, during the Civil War, the United States raised its duties sharply; the McKinley Tariff Act of 1890 was ultra-protectionist. England was the only country to remain faithful to the principles of free trade. But the protectionism of the last quarter of the 19th century was mild by comparison with the mercantilist policies that had been common in the 17th century and were to be revived between the two World wars. Extensive economic liberty prevailed by 1913. Quantitative restrictions were unheard of, and customs duties were low and stable. Currencies were freely convertible into gold, which in effect was common international money. Balance-of-payments problems were few. People who wished to settle and work in a country could go where they wished with few restrictions; they could open businesses, enter trade, or export capital freely. ...read more.

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