Contradictions in International Trade - Essay Example

Market is a medium that allows trade. In the olden days trade was called barter, where people used to exchange mostly goods directly. But with the invention of money (and credit, non-physical money and paper money very much later on), trading has now become convenient and been made easier. There are many reasons why trade exists. People trade for other products because of specialization and division of labor, concentrating on small factors of production. Another, different regions have a relative advantage in terms of producing of some exchangeable products.

Mass production is allowed owing to the regions' size. That's why both locations benefit from trading at market prices. Trading could also be applied to the action done by the traders and agents in the stock markets. (Bond, E. W., and Syropoulos C., 1996) In the prehistoric times, trade began with the advent of communication. People there bartered goods and services from each other. In the Egyptian times, materials used for making jewerly had been bartered since 3000 BCE. (Wikipedia contributors 2006) A financially lucrative commerce began in during the Greek civilization until the fall of the Roman Empire.

It brought spice to Europe to the Far East. In the Roman Empire, commerce there flourished. Instability to Western Europe and a near downfall of the trade network brought about by the downfall of the Roman Empire and the following Dark Ages. The Vikings and the Varangians made trades as they sailed to and from Scandinavia. Vasco de Gama carried on the spice trade in 1498, which became a major economic importance. Holland became a hub of free trade during the 16th century, encouraging free flow of commodities and burdening with no exchange controls.

In 1776, in his paper "An Inquiry Into the Nature and Causes of The Wealth of Nations", Adam Smith criticized Mercantilism, and debated that both country and firms could both benefit from economic specialisaton. Free trade was originated in the 19th century, and was based on national ascendancy and its self-interest to open its doors to imports. (Smith, A. 1776) John Stuart Mill argued that a nation could operate and manipulate the terms of trade (which are defined as "the ratio of the price of an export commodity/-ies to the price of an import commodity/-ies.") through keeping tariffs (Bagwell, K, Staiger R. W. 1998), and that the result to this might be repayment in trade policies.

he so-called "infant industry" outlook by Mill came after and foretold the New Trade Theory which states that the state had a "responsibility" to protect young industries. This theory became the system in many countries trying to outdo English exporters. (Watson, P. 2006) The major economic recession was brought by the Great Depression throughout the 1920's-1930's, causing a great decline in trade, and others in the economic areas. The lack of free trade was viewed by many as the chief reason for the depression and the Second World War.

During the war 44 nations signed the Bretton Woods Agreement, which was made to avoid national trade