French Liberal School

Refences

• French Liberal School Wikipedia Article

Notes

The French Liberal School, also called the optimist school or the orthodox school, is a 19th-century school of economic thought that centered on the Collège de France and the Institut de France. The Journal des Économistes was instrumental in promulgating the ideas of the school. Key thinkers include Frédéric Bastiat, Jean-Baptiste Say, Antoine Destutt de Tracy and Gustave de Molinari.

The school voraciously defended free trade and laissez-faire. They were primary opponents of interventionalist and protectionist ideas. This made the French school a forerunner of the modern Austrian School.

Free Trade

Free trade is a trade policy that does not restrict imports or exports. In government, free trade is not 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 today are 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.
• Most governments still impose some protectionist policies that are intended to support local employment, such as applying tariffs to imports or subsidies to exports.
• Historically, openness to free trade substantially increased from 1815 to the outbreak of World War 1. Trade openness increased again during the 1920s, but collapsed (in particular in Europe and North America) during the Great Depression. Trade openness increased substantially 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.
• In the short run, liberalization of trade can cause significant and unequally distributed losses and the economic dislocation of workers in import-competing sectors.

Features

1. Trade of goods without taxes, including tariffs, or other trade barriers (quotas on imports or subsidies for producers)
2. Trade in services without taxes or other trade barriers
3. The absence of trade-distorting policies (such as taxes, subsidies, regulations, or laws) that give some firms, households, or factors of production an advantage over others.
4. Unregulated access to markets
5. Unregulated access to market information
6. Inability of firms to distort markets through government-imposed monopoly or oligopoly power
7. Trade agreements which encourage free trade

Economics

Two simple wats to understand the proposed benefits of free trade are through David Ricardo's theory of competitive 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.

• There is disagreement on how developing countries should implement tariffs. Implementing tariffs may help those nations stimulate infant industries.

• The immediate effects of tariffs, as seen above, are negative for consumers and positive for producers and the government.
• Economic models indicate that free trade leads to greater technology adoption and innovation.

Opinions

• Although it creates winners and losers, the broad consensus among economists is that free trade provides a net gain for society.
• An overwhelming number of people internationally - both in developed and developing countries - support trade with other countries but are more split on whether or not they believe trade creates jobs, increases wages, and decreases prices.

History

• The notion of free trade encompassing multiple sovereign states originated in a rudimentary form in 16th century imperial Spain.
• Two British economists, Adam Smith and David Ricardo, developed the idea of free trade into its modern and recognizable form.
• Economists who advocate free trade believed trade was the reason why certain civilizations prospered economically. Smith pointed to increased trading as the reason for flourishing of Mediterranean cultures.
• Many classical liberals believed that free trade promoted peace.
• 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.
• 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.

Politics

• A general argument against free trade is that it represents neocolonialism in disguise.
• Domestic industries often oppose free trade on the grounds that lower prices for imported goods would reduce their profits and market share.
• Socialists frequently oppose free trade on the ground that it allows maximum exploitation of workers by capital.

Alternatives

• The following alternatives to free trade have been proposed: protectionism, imperialism, balanced trade, fair trade, and industrial policy.
• • Protectionism
  • • Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations.
  • Imperialism
  • • Imperialism is the practice, theory, or attitude of maintaining or extending power over foreign nations, particularly through expansionism, employing both hard power and soft power.
  • Balanced Trade
  • • Balanced Trade is an alternative to economic free trade. Under balanced trade, nations are required to provide a fairly reciprocal trade pattern; they cannot run large trade deficits or trade surpluses.
  • Fair Trade
  • • Fair trade is the term used for an arrangement designed to help producers in developing countries achieve sustainable and equitable trade relationships. The fair trade movement combines the payment of higher prices to exporters with proved social and environmental standards.
  • Industrial Policy
  • • Industrial policy is a government policy to encourage the development and growth of all or part of the economy in pursuit of some public goal. Historically, it has often focused on the manufacturing sector, militarily important sectors, or on fostering an advantage in new technologies.

laissez-faire

Laissez-faire is a type of economic system in which transactions between private groups of people are free from any form of economic interventionism. As a system of thought, laissez-faire rests on the following axioms: the individual is the basic unit of society, i.e., the standard of measurement in social calculus; the individual has a natural right to freedom; and the physical order of nature is a harmonious and self-regulating system.

• The original phrase was laissez faire, laissez passer, with the second part meaning let (things) pass. The first part means let [it/them] do
• Proponents of laissez-faire argue for a near complete separation of government from the economic sector.

• The term likely originated in a meeting that took place around 1681 between French Controller-General of Finances Jean-Baptiste Colbert and a group of French businessmen.