Free Trade and Laissez Faire: Has the Wheel Come Full Circle?
Author(s)
Lal, Deepak
Abstract
This paper notes that there is a need to get to a fourth stage in the evolution of the relationship of free trade to laissez faire going beyond the three stages identified in Max Cordon’s magisterial book Trade Policy and Economic Welfare. In the first stage free trade was a special case of the argument for laissez faire. In the second stage many arguments for protection arose with various qualifications to the case of free trade and laissez faire. In the third stage the link between free trade and laissez faire was broken and in the theory of domestic distortions it was noted that all arguments for protection except in the case of monopoly power in trade were second best arguments. Moreover, it was possible to devise measures such as taxes and subsidies that reduced the distortion through government intervention. But noting that government intervention itself carries with it problems of rent seeking and directly unproductive activities as well as the taking into the proper role of Government, laissez faire seems the best policy. Hence the need for a fourth stage in the evolution of free trade and laissez faire to link them together again.
