Welfare and Trade

Abstract

So far we have been concerned essentially with positive economics and have put to one side normative issues. In this section the problems of normative economics are reviewed and consideration is given to the way it has been applied to the problems of international trade. In positive economics it is generally agreed that the conclusions of a theory are to be validated (or falsified) rather than the assumptions. In welfare economics it is important to validate the assumptions rather than the conclusions; moreover, each assumption must be shown to hold in isolation. This partly explains the general concern over the particular welfare criterion adopted. It follows, therefore, that the student who wishes to understand normative issues in international trade – and most of the important problems involve normative issues – must first acquaint himself with the pertinent developments in welfare economics.¹ To see this, consider the following two questions: (i) Can economists pass judgements on international trade policies without invoking ethical judgements about the distribution of income? (ii) Can economists develop useful conclusions on the basis of explicit, generally accepted, ethical norms?