Welfare economics and international trade

International trade theory was developed by practical men interested in normative welfare problems. By making rigorously abstract assumptions, we may consider trade between two individuals instead of between countries. For each individual the technical conditions of production can be expressed in terms of a family of substitution curves. As between individuals three types of movements are distinguished: (1) both individuals get more of every commodity with less of every productive service; (2) each individual moves higher on his preference scale, even though less of particular commodities may be received; (3) one individulal moves to a higher position as the other moves to alower. The first two are clearly beneficial to both parties. About the third nothing can be said in the absence of special and complete welfare judgements. It is demonstrable that free trade (pure competition) leads to an equilibrium in which each country is better off than in the absence of trade, and that no movements of the first or second kinds are possible. Nevertheless, this does not prove that each country is better off than under any other kind of trade; indeed, if all others are free trading, it always pays a single country not to trade freely.