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133-679: Similar bodies had been evolving for a generation. An Economic Advisory Council had been set up in 1930, chaired by the Prime Minister and including leading economists John Maynard Keynes and Josiah Stamp . In 1941 a National Production Advisory Council was set up, chaired by the Chancellor of the Exchequer. In 1947 there was an Economic Planning Board under Sir Edwin Plowden ; it included industrialists and civil servants, and on Plowden's retirement in 1953

266-730: A customs union between its member states. After expanding its membership, the EEC became the European Union in 1993. The European Union, now the world's largest single market, has concluded free trade agreements with many countries around the world. Most countries in the world are members of the World Trade Organization which limits in certain ways but does not eliminate tariffs and other trade barriers. Most countries are also members of regional free trade areas that lower trade barriers among participating countries. The European Union and

399-639: A "Henry Clay tariff Whig", strongly opposed free trade and implemented a 44% tariff during the Civil War , in part to pay for railroad subsidies and for the war effort and in part to protect favored industries. William McKinley (later to become President of the United States) stated the stance of the Republican Party (which won every election for president from 1868 until 1912, except the two non-consecutive terms of Grover Cleveland ) as thus: Under free trade

532-563: A clerk in the India Office . He enjoyed his work at first, but by 1908 had become bored and resigned his position to return to Cambridge and work on probability theory , through a lectureship in economics at first funded personally by economists Alfred Marshall and Arthur Pigou ; he became a fellow of King's College in 1909. By 1909 Keynes had also published his first professional economics article in The Economic Journal , about

665-518: A consultant. Keynes had completed his A Treatise on Probability before the war but published it in 1921. The work was a notable contribution to the philosophical and mathematical underpinnings of probability theory , championing the important view that probabilities were no more or less than truth values intermediate between simple truth and falsity. Keynes developed the first upper-lower probabilistic interval approach to probability in chapters 15 and 17 of this book, as well as having developed

798-459: A country from developing a domestic economic system that ironically mirrors competitive free trade. Many anti-globalization groups oppose free trade based on their assertion that free-trade agreements generally do not increase the economic freedom of the poor or of the working class and frequently make them poorer. Some opponents of free trade favor free-trade theory but oppose free-trade agreements as applied. Some opponents of NAFTA see

931-526: A generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable, – abhorrent and detestable, even if it was possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe. Also present was striking imagery such as "year by year Germany must be kept impoverished and her children starved and crippled" along with bold predictions which were later justified by events: If we aim deliberately at

1064-463: A graduate student for one term, which constituted his only formal education in the subject. He took civil service exams in 1906. The economist Harry Johnson wrote that the optimism imparted by Keynes's early life is a key to understanding his later thinking. Keynes was always confident he could find a solution to whatever problem he turned his attention to and retained a lasting faith in the ability of government officials to do good. Keynes's optimism

1197-475: A high cost producer has a free trade agreement while the low cost producer faces a high tariff. Applying free trade to the high cost producer and not the low cost producer as well can lead to trade diversion and a net economic loss. This reason is why many economists place such high importance on negotiations for global tariff reductions, such as the Doha Round . The literature analyzing the economics of free trade

1330-445: A higher level of education are more likely than those with less education to believe that trade lowers prices. The notion of a free trade system encompassing multiple sovereign states originated in a rudimentary form in 16th century Imperial Spain . American jurist Arthur Nussbaum noted that Spanish theologian Francisco de Vitoria was "the first to set forth the notions (though not the terms) of freedom of commerce and freedom of

1463-520: A level where employers could profitably offer them jobs. An innovation from Keynes was the concept of price stickiness  – the recognition that in reality workers often refuse to lower their wage demands even in cases where a classical economist might argue that it is rational for them to do so. Due in part to price stickiness, it was established that the interaction of " aggregate demand " and " aggregate supply " may lead to stable unemployment equilibria – and in those cases, it

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1596-533: A man of science I have ever read". Mary Paley Marshall was "entranced" by the memorial, while Lytton Strachey rated it as one of Keynes's "best works". In 1922 Keynes continued to advocate reduction of German reparations with A Revision of the Treaty . He attacked the post-World War I deflation policies with A Tract on Monetary Reform in 1923  – a trenchant argument that countries should target stability of domestic prices, avoiding deflation even at

1729-491: A middle course between deflation and inflation. This novel interpretation was inspired by the desperate search for control over the economy which permeated the academic world after the Depression. The General Theory challenged the earlier neoclassical economic paradigm, which had held that provided it was unfettered by government interference, the market would naturally establish full employment equilibrium. In doing so Keynes

1862-618: A net basis, Germany received support equal to four times the amount of the post-Second World War Marshall Plan . Schuker also shows that, in the years after Versailles, Keynes became an informal reparations adviser to the German government, wrote one of the major German reparation notes, and supported hyperinflation on political grounds. Nevertheless, The Economic Consequences of the Peace gained Keynes international fame, even though it also caused him to be regarded as anti-establishment – it

1995-402: A net gain for society. An almost identical analysis of this tariff from the perspective of a net producing country yields parallel results. From that country's perspective, the tariff leaves producers worse off and consumers better off, but the net loss to producers is larger than the benefit to consumers (there is no tax revenue in this case because the country being analyzed is not collecting

2128-420: A profit. Another key theme of the book is the unreliability of financial indices for representing an accurate – or indeed meaningful – indication of general shifts in purchasing power of currencies over time. In particular, he criticised the justification of Britain's return to the gold standard in 1925 at pre-war valuation by reference to the wholesale price index . He argued that

2261-405: A recession Say's Law suggests government intervention. This government intervention can be used to prevent any further increase in savings in the form of a decreased interest rate. Decreasing the interest rate will encourage people to start spending and investing again, or so it is stated by Say's Law. The reason behind this is that when there is little investing, savings start to accumulate and reach

2394-479: A slump as the present one, so great as to bring production altogether to a standstill." At the height of the Great Depression, in 1933, Keynes published The Means to Prosperity , which contained specific policy recommendations for tackling unemployment in a global recession, chiefly counter-cyclical public spending. The Means to Prosperity contains one of the first mentions of the multiplier effect . While it

2527-426: A society, is defined by the sum of consumption and investment. In a state of unemployment and unused production capacity, one can enhance employment and total income only by first increasing expenditures for either consumption or investment. Without government intervention to increase expenditure, an economy can remain trapped in a low-employment equilibrium. The demonstration of this possibility has been described as

2660-411: A stopping point in the flow of money. During the normal economic activity, it would be justified to have savings because they can be given out as loans but in this case, there is little demand for them, so they are doing no good for the economy. The supply of savings then exceeds the demand for loans and the result is lower prices or lower interest rates. Thus, the idea is that the money that was once saved

2793-737: A vacancy in the Court of Directors of the Bank of England , and subsequently carried out a full term from the following April. In June 1942, Keynes was rewarded for his service with a hereditary peerage in the King's Birthday Honours. On 7 July his title was gazetted as " Baron Keynes , of Tilton, in the County of Sussex " and he took his seat in the House of Lords on the Liberal Party benches. Free trade Free trade

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2926-612: Is a trade policy that does not restrict imports or exports . In government, free trade is predominantly advocated by political parties that hold economically liberal positions, while economic nationalist and left-wing political parties generally support protectionism , the opposite of free trade. Most nations are today members of the World Trade Organization multilateral trade agreements. States can unilaterally reduce regulations and duties on imports and exports, as well as form bilateral and multilateral free trade agreements. Free trade areas between groups of countries, such as

3059-457: Is a broad consensus among economists that protectionism has a negative effect on economic growth and economic welfare while free trade and the reduction of trade barriers has a positive effect on economic growth and economic stability. However, in the short run, liberalization of trade can cause significant and unequally distributed losses and the economic dislocation of workers in import-competing sectors. Two simple ways to understand

3192-411: Is highest among respondents with the lowest levels of education. Hainmueller and Hiscox find: that the impact of education on how voters think about trade and globalization has more to do with exposure to economic ideas and information about the aggregate and varied effects of these economic phenomena, than it does with individual calculations about how trade affects personal income or job security. This

3325-468: Is known as the "father of macroeconomics". During the Great Depression of the 1930s, Keynes spearheaded a revolution in economic thinking , challenging the ideas of neoclassical economics that held that free markets would, in the short to medium term, automatically provide full employment, as long as workers were flexible in their wage demands. He argued that aggregate demand (total spending in

3458-575: Is largely considered ineffective for currently developing nations. The chart at the right analyzes the effect of the imposition of an import tariff on some imaginary good. Prior to the tariff, the price of the good in the world market and hence in the domestic market is P world . The tariff increases the domestic price to P tariff . The higher price causes domestic production to increase from Q S1 to Q S2 and causes domestic consumption to decline from Q C1 to Q C2 . This has three effects on societal welfare. Consumers are made worse off because

3591-500: Is nevertheless the norm throughout the world. From 1820 to 1980, the average tariffs on manufactures in twelve industrial countries ranged from 11 to 32%. In the developing world, average tariffs on manufactured goods are approximately 34%. The American economist C. Fred Bergsten devised the bicycle theory to describe trade policy . According to this model, trade policy is dynamically unstable in that it constantly tends towards either liberalization or protectionism. To prevent falling off

3724-473: Is now re-invested or spent, assuming lower interest rates appeal to consumers. To Keynes, however, this was not always the case, and it couldn't be assumed that lower interest rates would automatically encourage investment and spending again since there is no proven link between the two. The General Theory argues that demand, not supply, is the key variable governing the overall level of economic activity. Aggregate demand, which equals total un-hoarded income in

3857-407: Is on the state, not the market, that economies must depend for their salvation. In contrast, Keynes argued that demand is what creates supply and not the other way around. He questioned Say's Law by asking what would happen if the money that is being given to individuals is not finding its way back into the economy and is saved instead. He suggested the result would be a recession. To tackle the fear of

3990-581: Is precisely with these plants and these men that we shall afford them." The General Theory is often viewed as the foundation of modern macroeconomics . Few senior American economists agreed with Keynes through most of the 1930s. Yet his ideas were soon to achieve widespread acceptance, with eminent American professors such as Alvin Hansen agreeing with the General Theory before the outbreak of World War II. Keynes himself had only limited participation in

4123-404: Is rich. Economists have done extensive work on the theoretical and empirical effects of free trade. Although it creates winners and losers, the broad consensus among economists is that free trade provides a net gain for society. In a 2006 survey of American economists (83 responders), "87.5% agree that the U.S. should eliminate remaining tariffs and other barriers to trade" and "90.1% disagree with

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4256-726: Is that trade increases wages, with 31 percent of people believing it does, compared to 27 percent who believe it does not. In emerging economies, 47 percent of people believe trade increases wages, compared to 20 percent who says it lowers wages. There is a positive relationship of 0.66 between the average GDP growth rate for the years 2014 to 2017 and the percentage of people in a given country that say trade increases wages. Most people, in both advanced and emerging economies, believe that trade increases prices. 35 percent of people in advanced economies and 56 percent in emerging economies believe trade increases prices, and 29 percent and 18 percent, respectively, believe that trade lowers prices. Those with

4389-452: The Economist of Irwin's 2017 book Clashing over Commerce: A History of US Trade Policy notes: Political dynamics would lead people to see a link between tariffs and the economic cycle that was not there. A boom would generate enough revenue for tariffs to fall, and when the bust came pressure would build to raise them again. By the time that happened, the economy would be recovering, giving

4522-769: The European Economic Area and the Mercosur open markets , establish a free trade zone among members while creating a protectionist barrier between that free trade area and the rest of the world. Most governments still impose some protectionist policies that are intended to support local employment, such as applying tariffs to imports or subsidies to exports. Governments may also restrict free trade to limit exports of natural resources. Other barriers that may hinder trade include import quotas , taxes and non-tariff barriers , such as regulatory legislation . Historically, openness to free trade substantially increased from 1815 to

4655-566: The European Union the United Kingdom was a member of a similar international body, namely the European Union 's Economic and Social Committee . This article about an organisation in the United Kingdom is a stub . You can help Misplaced Pages by expanding it . John Maynard Keynes Heterodox John Maynard Keynes, 1st Baron Keynes CB , FBA ( / k eɪ n z / KAYNZ ; 5 June 1883 – 21 April 1946),

4788-705: The North American Free Trade Agreement in the 1990s, and the Dominican Republic–Central America Free Trade Agreement in 2006. In Europe, six countries formed the European Coal and Steel Community in 1951 which became the European Economic Community (EEC) in 1958. Two core objectives of the EEC were the development of a common market, subsequently renamed the single market , and establishing

4921-454: The Treasury . Among his responsibilities were the design of terms of credit between Britain and its continental allies during the war and the acquisition of scarce currencies. According to economist Robert Lekachman , Keynes's "nerve and mastery became legendary" because of his performance of these duties, as in the case where he managed to assemble a supply of Spanish pesetas . The secretary of

5054-553: The "astronomically" high war compensation they wanted to demand from Germany. Keynes was forced to try to exert influence mostly from behind the scenes. The three principal players at the Paris conferences were Britain's Lloyd George, France's Georges Clemenceau and America's President Woodrow Wilson . It was only Lloyd George to whom Keynes had much direct access; until the 1918 election he had some sympathy with Keynes's view but while campaigning had found his speeches were well received by

5187-460: The 1920s. The work, Treatise on Money , was published in 1930 in two volumes. A central idea of the work was that if the amount of money being saved exceeds the amount being invested – which can happen if interest rates are too high – then unemployment will rise. This is in part a result of people not wanting to spend too high a proportion of what employers pay out, making it difficult, in aggregate, for employers to make

5320-424: The 1929 crisis, Keynes also turned away from a fundamental pillar of neoclassical economics: free trade . He criticized Ricardian comparative advantage theory (the foundation of free trade), considering the theory's initial assumptions unrealistic, and became definitively protectionist. He detailed these ideas in his magnum opus, The General Theory of Employment, Interest and Money , published in early 1936. By

5453-438: The 1933 London Economic Conference opinions remained too diverse for a unified course of action to be agreed upon. Keynesian-like policies were adopted by Sweden and Germany, but Sweden was seen as too small to command much attention, and Keynes was deliberately silent about the successful efforts of Germany as he was dismayed by its imperialist ambitions and its treatment of Jews. Apart from Great Britain, Keynes's attention

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5586-548: The 1950s, augmented by the natural protectionism of high transportation costs in the 19th century. The most consistent practitioners of free trade have been Switzerland, the Netherlands and to a lesser degree Belgium. Chang describes the export-oriented industrialization policies of the Four Asian Tigers as "far more sophisticated and fine-tuned than their historical equivalents". The Global Enabling Trade Report measures

5719-484: The 1970s, partly as a result of the stagflation that plagued the British and American economies during that decade, and partly because of criticism of Keynesian policies by Milton Friedman and other monetarists , who disputed the ability of government to favourably regulate the business cycle with fiscal policy . The 2007–2008 financial crisis sparked the 2008–2009 Keynesian resurgence . Keynesian economics provided

5852-639: The Americans, like it or not". In March 1801, the Pope Pius VII ordered some liberalization of trade to face the economic crisis in the Papal States with the motu proprio Le più colte . Despite this, the export of national corn was forbidden to ensure the food for the Papal States . In Britain, free trade became a central principle practiced by the repeal of the Corn Laws in 1846 . Large-scale agitation

5985-525: The Belgian Order of Leopold . Keynes's experience at Versailles was influential in shaping his future outlook, yet it was not a successful one. Keynes's main interest had been in trying to prevent Germany's compensation payments being set so high it would traumatise innocent German people, damage the nation's ability to pay and sharply limit its ability to buy exports from other countries – thus hurting not just Germany's economy but that of

6118-481: The British, while on security grounds, France argued for an even more severe settlement than Britain. Wilson initially favoured relatively lenient treatment of Germany – he feared too harsh conditions could foment the rise of extremism and wanted Germany to be left sufficient capital to pay for imports. To Keynes's dismay, Lloyd George and Clemenceau were able to pressure Wilson to agree to include pensions in

6251-540: The Great Depression of the 1930s, that capitalism caused war. He argued that if capitalism were managed domestically and internationally (with coordinated international Keynesian policies, an international monetary system that did not pit the interests of countries against one another, and a high degree of freedom of trade), then this system of managed capitalism could promote peace rather than conflict between countries. His plans during World War II for post-war international economic institutions and policies (which contributed to

6384-567: The Ottoman Empire as "an instance of the injury done by unrestrained competition" in the 1846 Corn Laws debate, arguing that it destroyed what had been "some of the finest manufactures of the world" in 1812. Trade in colonial America was regulated by the British mercantile system through the Acts of Trade and Navigation . Until the 1760s, few colonists openly advocated for free trade, in part because regulations were not strictly enforced (New England

6517-467: The Peace , published in 1919. This work has been described as Keynes's best book, where he was able to bring all his gifts to bear – his passion as well as his skill as an economist. In addition to economic analysis, the book contained appeals to the reader's sense of compassion : I cannot leave this subject as though its just treatment wholly depended either on our pledges or on economic facts. The policy of reducing Germany to servitude for

6650-842: The Treasury Permanent Secretary took over as chair. In 1957 the Council on Prices, Productivity and Incomes (“the Three Wise Men”) was set up. NEDC was outlined to the House of Commons in July 1961 by then Chancellor, Selwyn Lloyd , and first met in 1962. It was modelled on the French Economic and Social Council , and it remained an influential player across the 1970s governments of Edward Heath , Harold Wilson and James Callaghan in terms of setting future strategy for UK business and industry, though not in terms of industrial relations. It

6783-528: The Treasury was delighted to hear Keynes had amassed enough to provide a temporary solution for the British Government. But Keynes did not hand the pesetas over, choosing instead to sell them all to break the market: his boldness paid off, as pesetas then became much less scarce and expensive. On the introduction of military conscription in 1916, he applied for exemption as a conscientious objector , which

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6916-529: The US, and in China less than 1/20), increased trade with those countries will put downward pressure on unskilled labor rates in the US. An overwhelming number of people internationally – both in developed and developing countries – support trade with other countries, but are more split when it comes to whether or not they believe trade creates jobs, increases wages, and decreases prices. The median belief in advanced economies

7049-743: The United States are negotiating a Transatlantic Trade and Investment Partnership . in 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership came into force, which includes eleven countries that have borders on the Pacific Ocean . Free trade may apply to trade in goods and services . Non-economic considerations may inhibit free trade as a country may espouse free trade in principle but ban certain drugs, such as ethanol , or certain practices, such as prostitution , and limiting international free trade. Some degree of protectionism

7182-662: The United States as a result of the American Revolution . After the British Parliament issued the Prohibitory Act in 1775, blockading colonial ports, the Continental Congress responded by effectively declaring economic independence, opening American ports to foreign trade on 6 April 1776 – three months before declaring sovereign independence. According to historian John W. Tyler, "[f]ree trade had been forced on

7315-438: The United States for much of the 20th century (e.g. Henry Ford and Secretary of State Cordell Hull ), believed that free trade promoted peace. Woodrow Wilson included free-trade rhetoric in his " Fourteen Points " speech of 1918: The program of the world's peace, therefore, is our program; and that program, the only possible program, all we see it, is this: [...] 3. The removal, so far as possible, of all economic barriers and

7448-702: The Whigs favored higher protective tariffs to protect favored industries. The economist Henry Charles Carey became a leading proponent of the American System of economics. This mercantilist American System was opposed by the Democratic Party of Andrew Jackson , Martin Van Buren , John Tyler , James K. Polk , Franklin Pierce and James Buchanan . The fledgling Republican Party led by Abraham Lincoln , who called himself

7581-467: The age of five and a half, Keynes started at the kindergarten of the Perse School for Girls for five mornings a week. He quickly showed a talent for arithmetic, but his health was poor leading to several long absences. He was tutored at home by a governess, Beatrice Mackintosh, and his mother. In January 1892, at eight and a half, he started as a day pupil at St Faith's preparatory school. By 1894, Keynes

7714-470: The agreement as materially harming the common people, but some of the arguments are actually against the particulars of government-managed trade, rather than against free trade per se . For example, it is argued that it would be wrong to let subsidized corn from the United States into Mexico freely under NAFTA at prices well below production cost ( dumping ) because of its ruinous effects to Mexican farmers. Research shows that support for trade restrictions

7847-468: The backlash against globalization and the motives for trades unions and politicians to call for protection of trade. In Kicking Away the Ladder , development economist Ha-Joon Chang reviews the history of free trade policies and economic growth and notes that many of the now-industrialized countries had significant barriers to trade throughout their history. The United States and Britain, sometimes considered

7980-460: The bike (the disadvantages of protectionism), trade policy and multilateral trade negotiations must constantly pedal towards greater liberalization. To achieve greater liberalization, decision makers must appeal to the greater welfare for consumers and the wider national economy over narrower parochial interests. However, Bergsten also posits that it is also necessary to compensate the losers in trade and help them find new work as this will both reduce

8113-662: The centuries. The Ottoman Empire had liberal free trade policies by the 18th century, with origins in capitulations of the Ottoman Empire , dating back to the first commercial treaties signed with France in 1536 and taken further with capitulations in 1673, in 1740 which lowered duties to only 3% for imports and exports and in 1790. Ottoman free trade policies were praised by British economists advocating free trade such as J. R. McCulloch in his Dictionary of Commerce (1834), but criticized by British politicians opposing free trade such as Prime Minister Benjamin Disraeli , who cited

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8246-421: The circumstances of its publication were such that his suggestions shaped the course of the 1930s. In addition, Keynes introduced the world to a new interpretation of taxation: since the legal tender is now defined by the state, inflation becomes "taxation by currency depreciation". This hidden tax meant a) that the standard of value should be governed by deliberate decision; and (b) that it was possible to maintain

8379-516: The collapse of the Weimar Republic and the outbreak of the Second World War. However, historian Ruth Henig claims that "most historians of the Paris peace conference now take the view that, in economic terms, the treaty was not unduly harsh on Germany and that, while obligations and damages were inevitably much stressed in the debates at Paris to satisfy electors reading the daily newspapers,

8512-510: The conference was a treaty which disgusted Keynes both on moral and economic grounds and led to his resignation from the Treasury. In June 1919 he turned down an offer to become chairman of the British Bank of Northern Commerce , a job that promised a salary of £2,000 in return for a morning per week of work. Keynes's analysis on the predicted damaging effects of the treaty appeared in the highly influential book, The Economic Consequences of

8645-413: The consumer surplus (green region) becomes smaller. Producers are better off because the producer surplus (yellow region) is made larger. The government also has additional tax revenue (blue region). However, the loss to consumers is greater than the gains by producers and the government. The magnitude of this societal loss is shown by the two pink triangles. Removing the tariff and having free trade would be

8778-399: The cost of European reconstruction on the United States. Lloyd George agreed it might be acceptable to the British electorate. However, America was against the plan; the US was then the largest creditor, and by this time Wilson had started to believe in the merits of a harsh peace and thought that his country had already made excessive sacrifices. Hence despite his best efforts, the result of

8911-527: The cost of allowing their currency to depreciate. Britain suffered from high unemployment through most of the 1920s, leading Keynes to recommend the depreciation of sterling to boost jobs by making British exports more affordable. From 1924 he was also advocating a fiscal response, where the government could create jobs by spending on public works. During the 1920s Keynes's pro-stimulus views had only limited effect on policymakers and mainstream academic opinion – according to Hyman Minsky one reason

9044-702: The creation at Bretton Woods of the International Monetary Fund and the World Bank , and later to the creation of the General Agreement on Tariffs and Trade and eventually the World Trade Organization ) were aimed to give effect to this vision. Although Keynes has been widely criticised – especially by members of the Chicago school of economics  – for advocating irresponsible government spending financed by borrowing, in fact he

9177-506: The developing countries are able to adopt technologies from abroad whereas developed nations had to create new technologies themselves and that developing countries can sell to export markets far richer than any that existed in the 19th century. If the chief justification for a tariff is to stimulate infant industries , it must be high enough to allow domestic manufactured goods to compete with imported goods in order to be successful. This theory, known as import substitution industrialization ,

9310-412: The domestic sugar producers would lose a lot while each of a great number of consumers would gain only a little, domestic producers are more likely to mobilize against the reduction in tariffs. More generally, producers often favor domestic subsidies and tariffs on imports in their home countries while objecting to subsidies and tariffs in their export markets. Socialists frequently oppose free trade on

9443-481: The economic category (trade hurts the economy or groups in the economy) or into the moral category (the effects of trade might help the economy but have ill effects in other areas). A general argument against free trade is that it represents neocolonialism in disguise. The moral category is wide, including concerns about: Economic arguments against free trade criticize the assumptions or conclusions of economic theories. Domestic industries often oppose free trade on

9576-460: The economist Ha-Joon Chang , a proponent of industrial policy, believes higher levels may be justified in developing nations because the productivity gap between them and developed nations today is much higher than what developed nations faced when they were at a similar level of technological development. Underdeveloped nations today, Chang believes, are weak players in a much more competitive system. Counterarguments to Chang's point of view are that

9709-416: The economy) determined the overall level of economic activity, and that inadequate aggregate demand could lead to prolonged periods of high unemployment, and since wages and labour costs are rigid downwards the economy will not automatically rebound to full employment. Keynes advocated the use of fiscal and monetary policies to mitigate the adverse effects of economic recessions and depressions . After

9842-716: The effect of a recent global economic downturn on India. He founded the Political Economy Club , a weekly discussion group. Keynes's earnings rose further as he began to take on pupils for private tuition. In 1911 Keynes was made the editor of The Economic Journal . By 1913 he had published his first book, Indian Currency and Finance . He was then appointed to the Royal Commission on Indian Currency and Finance  – the same topic as his book – where Keynes showed considerable talent at applying economic theory to practical problems. His written work

9975-434: The establishment of equality of trade conditions among all the nations consenting to the peace and associating themselves for its maintenance. According to economic historian Douglas Irwin, a common myth about United States trade policy is that low tariffs harmed American manufacturers in the early 19th century and then that high tariffs made the United States into a great industrial power in the late 19th century. A review by

10108-462: The ethical system of G. E. Moore . Keynes was elected to the University Pitt Club and was an active member of the semi-secretive Cambridge Apostles society, a debating club largely reserved for the brightest students. Like many members, Keynes retained a bond to the club after graduating and continued to attend occasional meetings throughout his life. Before leaving Cambridge, Keynes became

10241-482: The factors, policies and services that facilitate the trade in goods across borders and to destinations. The index summarizes four sub-indexes, namely market access; border administration; transport and communications infrastructure; and business environment. As of 2016, the top 30 countries and areas were the following: Academics, governments and interest groups debate the relative costs , benefits and beneficiaries of free trade. Arguments for protectionism fall into

10374-450: The first decision weight approach with his conventional coefficient of risk and weight, c , in chapter 26. In addition to his academic work, the 1920s saw Keynes active as a journalist selling his work internationally and working in London as a financial consultant. In 1924 Keynes wrote an obituary for his former tutor Alfred Marshall which Joseph Schumpeter called "the most brilliant life of

10507-724: The gains from free trade are larger than the losses. A 2021 study found that across 151 countries over the period 1963–2014, "tariff increases are associated with persistent, economically and statistically significant declines in domestic output and productivity, as well as higher unemployment and inequality, real exchange rate appreciation, and insignificant changes to the trade balance." Economic models indicate that free trade leads to greater technology adoption and innovation. A 2023 study in Journal of Political Economy found that reductions in trade costs since 1980 caused increases in agricultural productivity, food consumption and welfare across

10640-447: The gold standard and in 1925 they were able to convince the then Chancellor Winston Churchill to re-establish it, which had a depressing effect on British industry. Keynes responded by writing The Economic Consequences of Mr. Churchill and continued to argue against the gold standard until Britain finally abandoned it in 1931. Keynes had begun a theoretical work to examine the relationship between unemployment, money and prices back in

10773-407: The government), rather than deficit spending , to avoid inflation. Compulsory saving would act to dampen domestic demand, assist in channelling additional output towards the war efforts, would be fairer than punitive taxation and would have the advantage of helping to avoid a post-war slump by boosting demand once workers were allowed to withdraw their savings. In September 1941 he was proposed to fill

10906-517: The ground that it allows maximum exploitation of workers by capital . For example, Karl Marx wrote in The Communist Manifesto (1848): "The bourgeoisie [...] has set up that single, unconscionable freedom – free trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation". Marx supported free trade, however, solely because he felt that it would hasten

11039-453: The grounds that lower prices for imported goods would reduce their profits and market share. For example, if the United States reduced tariffs on imported sugar, sugar producers would receive lower prices and profits, and sugar consumers would spend less for the same amount of sugar because of those same lower prices. The economic theory of David Ricardo holds that consumers would necessarily gain more than producers would lose. Since each of

11172-549: The homes of free trade policy, employed protectionism to varying degrees at all times. Britain abolished the Corn Laws which restricted import of grain in 1846 in response to domestic pressures and reduced protectionism for manufactures only in the mid 19th century when its technological advantage was at its height, but tariffs on manufactured products had returned to 23% by 1950. The United States maintained weighted average tariffs on manufactured products of approximately 40–50% up until

11305-431: The impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing. Keynes's followers assert that his predictions of disaster were borne out when the German economy suffered the hyperinflation of 1923 , and again by

11438-436: The impression that tariff cuts caused the crash and the reverse generated the recovery. Mr Irwin also methodically debunks the idea that protectionism made America a great industrial power, a notion believed by some to offer lessons for developing countries today. As its share of global manufacturing powered from 23% in 1870 to 36% in 1913, the admittedly high tariffs of the time came with a cost, estimated at around 0.5% of GDP in

11571-451: The index understated the effects of changes in the costs of services and labour. Keynes was deeply critical of the British government's austerity measures during the Great Depression . He believed that budget deficits during recessions were a good thing and a natural product of an economic slump. He wrote, "For Government borrowing of one kind or another is nature's remedy, so to speak, for preventing business losses from being, in so severe

11704-513: The intention was quietly to give Germany substantial help towards paying her bills, and to meet many of the German objections by amendments to the way the reparations schedule was in practice carried out". Only a small fraction of reparations was ever paid. In fact, historian Stephen A. Schuker demonstrates in American 'Reparations' to Germany, 1919–33 , that the capital inflow from American loans substantially exceeded German out payments so that, on

11837-551: The interwar period, economic protectionism took hold in the United States, most famously in the form of the Smoot–Hawley Tariff Act which is credited by economists with the prolonging and worldwide propagation of the Great Depression . From 1934, trade liberalization began to take place through the Reciprocal Trade Agreements Act . Since the end of World War II , in part due to industrial size and

11970-521: The late 1930s, leading Western economies had begun adopting Keynes's policy recommendations. Almost all capitalist governments had done so by the end of the two decades following Keynes's death in 1946. As a leader of the British delegation, Keynes participated in the design of the international economic institutions established after the end of World War II but was overruled by the American delegation on several aspects. Keynes's influence started to wane in

12103-518: The long run these gains are much larger than any effects on employment". Paul Krugman stated that free trade is greatly beneficial to the world as a whole, and especially beneficial to people in poorer nations, since it allows them to increase their standards of living. He also stated in 2007 that, as the US trades more with less-industrialized countries whose workers are paid less than equivalent US workers (2007 wages in Mexico were 1/10 what they were in

12236-430: The mid-1870s. In some industries, they might have sped up development by a few years. But American growth during its protectionist period was more to do with its abundant resources and openness to people and ideas. According to Paul Bairoch , since the end of the 18th century, the United States has been "the homeland and bastion of modern protectionism". In fact, the United States never adhered to free trade until 1945. For

12369-582: The most part, the Jeffersonians strongly opposed protectionism. In the 19th century, statesmen such as Senator Henry Clay continued Alexander Hamilton 's themes within the Whig Party under the name American System . The opposition Democratic Party contested several elections throughout the 1830s, 1840s and 1850s in part over the issue of the tariff and protection of industry. The Democratic Party favored moderate tariffs used for government revenue only while

12502-554: The onset of the Cold War , the United States has often been a proponent of reduced tariff-barriers and free trade. The United States helped establish the General Agreement on Tariffs and Trade and later the World Trade Organization , although it had rejected an earlier version in the 1950s, the International Trade Organization . Since the 1970s, United States governments have negotiated managed-trade agreements, such as

12635-519: The outbreak of World War I. Trade openness increased again during the 1920s, but collapsed (in particular in Europe and North America) during the Great Depression . Trade openness increased substantially again from the 1950s onwards (albeit with a slowdown during the 1973 oil crisis ). Economists and economic historians contend that current levels of trade openness are the highest they have ever been. Economists are generally supportive of free trade. There

12768-492: The president of the Cambridge Union Society and Cambridge University Liberal Club . He was said to be an atheist. In May 1904, he received a first-class BA in mathematics. Aside from a few months spent on holidays with family and friends, Keynes continued to involve himself with the university over the next two years. He took part in debates, further studied philosophy and attended economics lectures informally as

12901-436: The proposed benefits of free trade are through David Ricardo 's theory of comparative advantage and by analyzing the impact of a tariff or import quota. An economic analysis using the law of supply and demand and the economic effects of a tax can be used to show the theoretical benefits and disadvantages of free trade. Most economists would recommend that even developing nations should set their tariff rates quite low, but

13034-476: The public only if he promised to harshly punish Germany, and had therefore committed his delegation to extracting high payments. Lloyd George did, however, win some loyalty from Keynes with his actions at the Paris conference by intervening against the French to ensure the dispatch of much-needed food supplies to German civilians. Clemenceau also pushed for substantial reparations, though not as high as those proposed by

13167-504: The reason for the flourishing of not just Mediterranean cultures such as Egypt , Greece and Rome , but also of Bengal ( East India ) and China . Netherlands prospered greatly after throwing off Spanish Imperial rule and pursuing a policy of free trade. This made the free trade/mercantilist dispute the most important question in economics for centuries. Free trade policies have battled with mercantilist , protectionist , isolationist , socialist , populist and other policies over

13300-410: The reparations bill. Towards the end of the conference, Keynes came up with a plan that he argued would not only help Germany and other impoverished central European powers but also be good for the world economy as a whole. It involved the radical writing down of war debts, which would have had the possible effect of increasing international trade all round, but at the same time thrown over two-thirds of

13433-487: The rest of his life his professional energies were directed largely towards the practical side of economics: the problems of ensuring optimum allocation of resources for the war efforts, post-war negotiations with America, and the new international financial order that was presented at the Bretton Woods Conference . In the General Theory and later, Keynes responded to the socialists who argued, especially during

13566-401: The revolutionary formal achievement of the work. The book advocated activist economic policy by government to stimulate demand in times of high unemployment, for example by spending on public works . "Let us be up and doing, using our idle resources to increase our wealth," he wrote in 1928. "With men and plants unemployed, it is ridiculous to say that we cannot afford these new developments. It

13699-510: The same house throughout their lives, where the children were always welcome to return. Keynes received considerable support from his father, including expert coaching to help him pass his scholarship exams and financial help both as a young man and when his assets were nearly wiped out at the onset of Great Depression in 1929. Keynes's mother made her children's interests her own, and according to Skidelsky, "because she could grow up with her children, they never outgrew home". In January 1889, at

13832-406: The seas". Vitoria made the case under principles of jus gentium . However, it was two early British economists Adam Smith and David Ricardo who later developed the idea of free trade into its modern and recognizable form. Economists who advocated free trade believed trade was the reason why certain civilizations prospered economically. For example, Smith pointed to increased trading as being

13965-403: The social revolution. He also viewed the tendency to support protectionism out of spite for free trade to be unsound. That is because Marx viewed protectionism as a means for domestic firms to establish "large-scale" industry within its borders, which would inevitably make it dependent on the world market so that it could make more revenue for example. He also argues that protectionism does not stop

14098-474: The suggestion that the U.S. should restrict employers from outsourcing work to foreign countries". Quoting Harvard economics professor N. Gregory Mankiw , "Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards". In a survey of leading economists, none disagreed with the notion that "freer trade improves productive efficiency and offers consumers better choices, and in

14231-452: The suspension of specie payments – the gold equivalent of banknotes  – but with Keynes's help, the Chancellor of the Exchequer (then Lloyd George ) was persuaded that this would be a bad idea, as it would hurt the future reputation of the city if payments were suspended before it was necessary. In January 1915 Keynes took up an official government position at

14364-497: The tariff). Under similar analysis, export tariffs, import quotas and export quotas all yield nearly identical results. Sometimes consumers are better off and producers worse off and sometimes consumers are worse off and producers are better off, but the imposition of trade restrictions causes a net loss to society because the losses from trade restrictions are larger than the gains from trade restrictions. Free trade creates winners and losers, but theory and empirical evidence show that

14497-542: The theoretical debates that followed the publication of the General Theory as he suffered a heart attack in 1937, requiring him to take long periods of rest. Among others, Hyman Minsky and Post-Keynesian economists have argued that as a result, Keynes's ideas were diluted by those keen to compromise with classical economists or to render his concepts with mathematical models like the IS–LM model (which, they argue, distort Keynes's ideas). Keynes began to recover in 1939, but for

14630-643: The theoretical underpinning for economic policies undertaken in response to the 2007–2008 financial crisis by President Barack Obama of the United States, Prime Minister Gordon Brown of the United Kingdom, and other heads of governments. When Time magazine included Keynes among its Most Important People of the Century in 1999, it reported that "his radical idea that governments should spend money they don't have may have saved capitalism". The Economist has described Keynes as "Britain's most famous 20th-century economist". In addition to being an economist, Keynes

14763-399: The trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. [It is said] that protection is immoral [...]. Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of

14896-466: The wider world. Unfortunately for Keynes, conservative powers in the coalition that emerged from the 1918 coupon election were able to ensure that both Keynes himself and the Treasury were largely excluded from formal high-level talks concerning reparations. Their place was taken by the Heavenly Twins  – the judge Lord Sumner and the banker Lord Cunliffe , whose nickname derived from

15029-429: The world. The welfare gains were particularly large in some developing countries. According to mainstream economics theory, the selective application of free trade agreements to some countries and tariffs on others can lead to economic inefficiency through the process of trade diversion . It is efficient for a good to be produced by the country which is the lowest cost producer, but this does not always take place if

15162-419: The world. We cannot take a step in the pathway of progress without benefitting mankind everywhere. Well, they say, 'Buy where you can buy the cheapest'…. Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: 'Buy where you can pay the easiest.' And that spot of earth is where labor wins its highest rewards. During

15295-585: Was a firm believer in balanced budgets and regarded the proposals for programmes of public works during the Great Depression as an exceptional measure to meet the needs of exceptional circumstances. During the Second World War , Keynes argued in How to Pay for the War , published in 1940, that the war effort should be largely financed by higher taxation and especially by compulsory saving (essentially workers lending money to

15428-453: Was addressed chiefly to the British Government, it also contained advice for other nations affected by the global recession. A copy was sent to the newly elected President Franklin D. Roosevelt and other world leaders. The work was taken seriously by both the American and British governments, and according to Robert Skidelsky , helped pave the way for the later acceptance of Keynesian ideas, though it had little immediate practical influence. In

15561-620: Was also a civil servant , a director of the Bank of England , and a part of the Bloomsbury Group of intellectuals. John Maynard Keynes was born in Cambridge , England, in June 1883 to an upper-middle-class family. His father, John Neville Keynes , was an economist and a lecturer in moral sciences at the University of Cambridge and his mother, Florence Ada Keynes , a local social reformer. Keynes

15694-672: Was also cultural, in two senses: he was of the last generation raised by an empire still at the height of its power and was also of the last generation who felt entitled to govern by culture, rather than by expertise. According to Skidelsky , the sense of cultural unity current in Britain from the 19th century to the end of World War I provided a framework with which the well-educated could set various spheres of knowledge in relation to each other and life, enabling them to confidently draw from different fields when addressing practical problems. In October 1906 Keynes began his Civil Service career as

15827-568: Was an English economist and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in mathematics, he built on and greatly refined earlier work on the causes of business cycles . One of the most influential economists of the 20th century, he produced writings that are the basis for the school of thought known as Keynesian economics , and its various offshoots. His ideas, reformulated as New Keynesianism , are fundamental to mainstream macroeconomics . He

15960-639: Was awarded the Tomline Prize for mathematics. At Eton, Keynes experienced the first "love of his life" in Dan Macmillan, older brother of the future Prime Minister Harold Macmillan . Despite his middle-class background, Keynes mixed easily with upper-class pupils. In 1902, Keynes left Eton for King's College, Cambridge , after receiving a scholarship for this also, to read mathematics. Alfred Marshall begged Keynes to become an economist, although Keynes's own inclinations drew him towards philosophy, especially

16093-518: Was effectively granted conditional upon continuing his government work. In the 1917 King's Birthday Honours , Keynes was appointed Companion of the Order of the Bath for his wartime work, and his success led to the appointment that had a huge effect on Keynes's life and career; Keynes was appointed financial representative for the Treasury to the 1919 Versailles peace conference . He was also appointed Officer of

16226-501: Was famous for smuggling), but also because colonial merchants did not want to compete with foreign goods and shipping. According to historian Oliver Dickerson, a desire for free trade was not one of the causes of the American Revolution . "The idea that the basic mercantile practices of the eighteenth century were wrong", wrote Dickerson, "was not a part of the thinking of the Revolutionary leaders". Free trade came to what would become

16359-417: Was headed by a series of consensual industrialists Sir Geoffrey Chandler and Bernard Asher and ex civil servants e.g. John Cassels and one academic Walter Eltis. Margaret Thatcher distrusted the body and scaled down its meetings from monthly to quarterly - of which the Chancellor only attended one per year. The National Economic Development Council was abolished by John Major in June 1992. However, within

16492-403: Was not until after the outbreak of the Second World War that Keynes was offered a directorship of a major British Bank, or an acceptable offer to return to government with a formal job. However, Keynes was still able to influence government policy-making through his network of contacts, his published works and by serving on government committees; this included attending high-level policy meetings as

16625-481: Was partly setting himself against his former teachers Marshall and Pigou. Keynes believed the classical theory was a "special case" that applied only to the particular conditions present in the 19th century, his theory being the general one. Classical economists had believed in Say's law , which, simply put, states that " supply creates its demand ", and that in a free-market workers would always be willing to lower their wages to

16758-420: Was persuaded by Felix Frankfurter to address President Roosevelt directly, which he did by letters and face-to-face in 1934, after which the two men spoke highly of each other. However, according to Skidelsky, the consensus is that Keynes's efforts began to have a more than marginal influence on US economic policy only after 1939. Keynes's magnum opus , The General Theory of Employment, Interest and Money

16891-464: Was primarily focused on the United States. In 1931, he received considerable support for his views on counter-cyclical public spending in Chicago, then America's foremost center for economic views alternative to the mainstream. However, orthodox economic opinion remained generally hostile regarding fiscal intervention to mitigate the depression , until just before the outbreak of war . In late 1933 Keynes

17024-406: Was published in 1936. It was researched and indexed by one of Keynes's favourite students, and later economist, David Bensusan-Butt . The work served as a theoretical justification for the interventionist policies Keynes favoured for tackling a recession. Although Keynes stated in his preface that his General Theory was only secondarily concerned with the "applications of this theory to practice,"

17157-502: Was published under the name "J M Keynes", though to his family and friends he was known as Maynard. (His father, John Neville Keynes, was also always known by his middle name). The British Government called on Keynes's expertise during the First World War . While he did not formally rejoin the civil service in 1914, Keynes travelled to London at the government's request a few days before hostilities started. Bankers had been pushing for

17290-605: Was sponsored by the Anti–Corn Law League . Under the Treaty of Nanking , China opened five treaty ports to world trade in 1843. The first free trade agreement, the Cobden-Chevalier Treaty , was put in place in 1860 between Britain and France which led to successive agreements between other countries in Europe. Many classical liberals , especially in 19th and early 20th century Britain (e.g. John Stuart Mill ) and in

17423-512: Was that at this time his theoretical justification was "muddled". The Tract had also called for an end to the gold standard. Keynes advised it was no longer a net benefit for countries such as Britain to participate in the gold standard , as it ran counter to the need for domestic policy autonomy. It could force countries to pursue deflationary policies at exactly the time when expansionary measures were called for to address rising unemployment. The Treasury and Bank of England were still in favour of

17556-475: Was the firstborn and was followed by two more children – Margaret Neville Keynes in 1885 and Geoffrey Keynes in 1887. Geoffrey became a surgeon and Margaret married the Nobel Prize-winning physiologist Archibald Hill . According to the economic historian and biographer Robert Skidelsky , Keynes's parents were loving and attentive. They attended a Congregational Church and remained in

17689-424: Was top of his class and excelling at mathematics. In 1896, St Faith's headmaster, Ralph Goodchild, wrote that Keynes was "head and shoulders above all the other boys in the school" and was confident that Keynes could get a scholarship to Eton. In 1897, Keynes won a King's Scholarship to Eton College , where he displayed talent in a wide range of subjects, particularly mathematics, classics and history: in 1901, he

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