Economic Policy in a Small Economy

Abstract

General principles sometimes seem trite once they are properly articulated. Often, indeed, they govern our work long before they are recognised explicitly. Once discovered, however, they unify our understanding of specific instances and grant access to problems that had been intractable. Tinbergen’s analysis of economic policy is a major case in point [10]. Like the basic law of supply and demand, the principle was used before it had been formulated, and one prime application was international. As Mill had used the law of supply and demand to show how the terms of trade are determined [5], so Meade had discovered the need for separate instruments equal in number to one’s policy targets in his pioneering work on the Balance of Payments [4]. But the formal and general articulation of Tinbergen’s ‘rule’ placed Meade’s contribution in broader context.