True Free Trade Is Still True

• DOI: http://doi.org/10.1111/ajes.12308
• Author: Fred E. Foldvary
• Date: 01 January 2020
• Published date: 01 January 2020

True Free Trade Is Still True

By Fred e. Foldvary*

abstract. Protection or Free Trade (1886) by Henry George remains

the classic argument for complete free trade. The arguments against

free trade were either anticipated and refuted by George, or they are

unanticipated arguments that claim changed or overlooked

circumstances have altered the case for free trade. This article refutes

these unanticipated arguments by restating the classic economic case

for free trade, analyzing counterarguments to free trade, and examining

the continuing relevance of George’s theory of the distribution of the

benefits of free trade.

The Economic Basis of Trade

The economic basis for trade is well known and summarized here for

reference. Trade occurs because of absolute advantages—the exporter

has a lower factor cost of production than the importer. The factor

cost is composed of production inputs: labor, capital goods, and land

value. Thus if one country can produce a machine using 100 hours

of labor, while another country requires 150 hours of labor, and other

costs are equal, the first country has an absolute advantage.

A comparative advantage brings lower opportunity cost, which is

the loss of potential gain when one opportunity is chosen over an-

other. If a lawyer can earn $200 per hour doing legal work, and needs

to have typing done, should the lawyer do the typing or hire a typist?

If a typist can be hired for $20 per hour, then, even if the lawyer can

type twice as fast as a good typist, the lawyer is still better off hiring a

typist because the opportunity cost—$200 of lost wages per hour—is

greater than the cost of two hours of typing, or $40. Trade is advanta-

geous when there is a comparative advantage, despite not having an

American Journal of Economics and Sociology, Vol. 79, No. 1 (Januar y, 2020).

DOI: 10.1111/ajes.12308

© 2019 American Journal of Economics and Sociology, Inc

*Teaches economics at San Jose State University and is the author of numerous arti-

cles and books, including The Soul of Liberty, Public Goods and Private Communities

(Gutenberg Press 1980) and the Dictionary of Free Market Economics (Edward Elgar

1998). B.A. in economics, University of California, Berkeley. M.A. and Ph.D. in econom-

ics, George Mason University. Email: fred.foldvary@sjsu.edu