was described as exceptional but held to be perfectly possible under standard assumptions; and with that assessment trade theorists appear to have agreed, without delay and without exception. That the conventional wisdom of more than a century was so readily abandoned is surprising, especially since Graaff failed to supply a clear argument in defense of his suggestion. He seems to have simply assumed that the cross effects of price changes could be such as to justify his conclusion. In the present note it will be shown that, under standard assumptions, the optimal tariff vector of a single country can be null only in the uninteresting case in which, under free trade, the country does not trade. Thus, effectively, we will restore the conventional wisdom circa 1949 and, with it, the common sense that an optimizing country with market power will exercise that power. Analysis Let there be n traded commodities and m trading countries of which the ï¬rst is called the home country and the rest, collectively, the foreign country.2 The aggregate foreign excess demand functions are denoted by â â â Ziâ = Ziâ (p1 , . . . , pn ), i = 1, . .
History of Political Economy – Duke University Press
Published: Sep 1, 2000