Introduction

The case for international specialization is firmly based on considerations of economic efficiency. The world is not rich enough, to be able to despise efficiency. The optimum pattern of specialization is governed by the principle of comparative advantage. This principle remains as valid today as it was in Ricardo's time. And yet there is some question whether it alone can give all the guidance needed by countries whose dominant and deliberate aim is “economic development” (i.e. increasing real income per head).

Trade between countries rests on the realization of mutual gains. Objection may be raised to the “uneven” division of these gains. Within the range of opportunities for gainful trade, it is true that one country may be able to improve its terms of trade at the expense of another. For a single country, therefore, the logic of the classical position does not necessarily lead to a free-trade recommendation, but only to one of some trade as opposed to no trade at all. Moreover, the effects of trade restriction on a country's barter terms are not necessarily offset by retaliation, since different countries have different demand and supply elasticities. It may be that primary producing countries are in a relatively favorable position for playing this kind of game. But even for them the possibilities suggested by the so-called “optimum tariff” argument are limited and in practice very unreliable.