Re the discussion of mainstream trade theory. The ideological function of undergraduate trade textbooks is to argue for free trade. But mainstream theory doesn't necessarily support this perspective.
All changes in trade leads to winners and losers. Neoclassical welfare theory has long recognized the problem in determining the "net effect" on welfare of adding these gains and loses. The only satisfactory resolution is to say that IF winners compensate the losers (and still have something left over) then trade will benefit the nation. If the winners do not compensate the losers than absolutely NOTHING can be said about the actual effect of trade on the welfare of a nation. This ain't my opinion; this is mainstream welfare economics. Undergraduate mainstream trade textbooks get very interesting when they try to justify adding together gains and loses (without compensation taking place). At best they say "you can't really add this stuff together but, you know, we will anyway so that we gain insight (sic) into the effect of trade." This is really strange logic. Another random statement: I never really saw the point of the critique of Ricardo and of efforts to beat up on notions of comparative advantage. That mainstream trade theory books start with Ricardo (and Smith) is really strange. I don't know of any other mainstream field that starts off with the oldest theories and then ignores how by the 1920s mainstream trade theory more-or-less dumped any link to Ricardo's theory once subjective utility and opportunity costs entered the discourse. I feel comfortable saying that if two regions have different currencies and different domestic price ratios, then the exchange rate might settle so that trade occurs between the two nations. Of course trade need not be balanced. Such an argument need not be based on relative productivity differences. It is simple mathematics. Of course, the explanation of why relative prices different in different countries must go beyond simplistic Ricardian and Heckscher-Ohlin stories. Further, it is obvious that sometimes trade is based on political power--e.g., colonies--and not on markets. And, of course, lots of trade is really intra-firm transfers across borders by MNCs and, so, need not follow the dictates of relative price differences. Eric Eric Nilsson Economics CSUSB
