Free Trade vs. Protectionism: The Great Corn-Laws Debate - Assignment Example

Especially once it had abandoned its deplorable agricultural protection (the Corn Laws) and other remnants of old mercantilist protectionist measures in 1846, it was able to play the role of the architect and hegemony of a new "liberal" world economic order. The famous economist, Ricardo presented the theory of comparative advantage, which stated that comparative advantages enable economies to maximize the production of goods which they specialize in making. This maximization inevitably makes maximum utilization of Economies of scale, which is beneficial for the economy in the short and long run.

However, this comparative advantage is supplemented by free trade, which can let economies import goods that it does not produce. Britain's Corn Laws were an attempt to limit free trade and encourage protectionism. The economic theory can be illustrated by the agriculture example. In agriculture, most price fluctuations are caused neither by exchange rate movements nor relative labor costs, but by Mother Nature. Hence, in societies such as the United States where farming is highly capital intensive, governments must protect their farmers' investments against poor harvests or, more damagingly, against good harvests in other parts of the world that produce temporary gluts of produce and prices too low to cover the farmer's fixed costs.

In the United States, Europe, and Japan, the solution to this since the 1930s has been to subsidize the farmer, often paying him for acreage taken out of production or dumping exports on other countries at subsidized prices. This is incredibly wasteful, an unfair barrier to imports from the Third World and destabilizing to the incomes of Third World farmers. However, objectives of farm subsidies (other than simply diverting wealth to the pockets of agribusiness) can be achieved much more elegantly by a mechanism that has been wrongly derided since it was abolished in 1846: the 1815 British Corn Laws, or rather their 1827-28 modification.

The problem of unemployment and the low standard of living was expected to be shifted from the home market sector of the economy. Furthermore, the country would have suffered from misallocation of resources because it was producing goods when there is no comparative advantage and which can be imported more cheaply from other countries. This knowledge of economics helps us determine the world's supply of coal, iron ore, petroleum and other such natural resources will not only affect the economic well-being of a nation nut of the whole world.

Oil, for example, is an irreplaceable fuel. The faster it is allowed to be used up, the shorter the time available for the development of a substitute. Furthermore, unskilled workers are straggling in the face of unemployment, job insecurity, and rising income inequality. Of all these developments, rising income inequality is of special concern to many scholars not only because of its political implications for the free trade agenda but also because of its possible economic consequence in terms of lower growth rates in the future.