Normative Trade Theory

Abstract

It is more than two hundred and fifty years since Montesquieu (1749) wrote his ‘Lettre à William Domville’. In that essay Montesquieu discussed what would now be called the welfare implications of international trade. The chief novelty of the essay lay in its focus on the well-being not of the Prince but of the People, that is, of the population at large. The central questions suggested by it concern the sense in which a country may be said to benefit from the opportunity to trade with other countries and the variety of circumstances under which trade is indeed beneficial. The first of these questions was answered, although not to everyone’s satisfaction,² by Pareto (1894), at the end of the nineteenth century. Early in the twenty-first century, the second question still awaits a complete answer. This is a somewhat alarming state of affairs for, without a reliable normative branch of our subject, we cannot evaluate the potential policy-relevance of the propositions of descriptive trade theory on the development of which we spend so much of our time and other resources.

This chapter was presented at the International Workshop on Positive and Normative Analysis in International Economics held at Aoyama Gakuin University in March 2010.