Factor proportions and international trade.
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In his distinction between precious metals and wealth, Adam Smith destroyed the basis of the Mercantilist doctrine of protectionism. He provided a more positive rationale for international trade in explaining that the wealth of a nation depended primarily on an increase in productivity as a result of the division of labor and that the extent of this division, and therefore the potential gain, was restricted by the size of the market for the goods. Removal of the inhibitions to international exchange added foreign demand to that of the domestic market. Ricardo pointed out that trade between nations does not require that each be more efficient in the production of at least one commodity. The theory of comparative advantage shows that it is only necessary that one of the countries involved be not equally more efficient in all lines of production. Mill's equation of International Demand explained that the gains to a country were a function of the strength of its demand for foreign products in relation to the foreign demand for its goods. Marshall combined the older classical analysis, with its explanation in terms of supply and the Austrian approach which concentrated on demand. (TRUNCATED)
Thesis (M.A.)--Boston University
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