International Trade and Monopolistic Competition

The fundamental hypotheses of the classical theory of international trade are discussed. The works of Haberler, Ohlin, Yntema and Mosak are analysed as attempts to adjust the classical theory of international trade to that of general economic equilibrium. None of these contributions is held to afford decisive evidence of the advisability of continuing to support a “pure”, “special” theory of international trade. Indeed, it has not been proved that the relations between traders located in different countries are regulated by economic laws differing from those affecting the relations between traders living in the same country.
The reasons for dissent are stated. In the opinion of the Author their starting point is to be found in the Ricardian exposition itself. The incongruity of the two examples given by Ricardo is asserted. But criticism is directed more especially against the central point of the classical hypothesis which presupposes the unhampered mobility of the factors of production on the home market and their international immobility. The conclusion reached is that it is  scientifically  “inadvisable” to have a  “special” theory for international trade, and that it is desirable to make “special” enquiries on the subject of international trade, studying the modern schemes relating to monopolistic competition.
All the latest theoretical conceptions on the subject of monopolistic competition are examined - covering all the intermediate situations between “pure and free competition” and “pure and free monopoly”.
A study is made of  “duopoly” as a characteristic terminal case, in conformity with the theory of Conrnot-Amoroso and of Bertrand-Edgeworth-Bowley; and the writings on the subject by Stackelberg, Chamberlin, Hotelling, Frisch and others are commented on. The opinion is expressed that the situation created by a duopoly - and also that arising under an oligopoly – cannot but be characterised by instability and indefiniteness, a situation in which every position of equilibrium would be strictly dependent on the economic “strength” of the traders. The state of instability and indefiniteness - undoubtedly more marked in international than in national trade - could be neutralised to some extent by Government intervention. This would justify any economic policy based on the desire to remove the harmful effects of monopolistic competition, on producers and consumers, and which would facilitate the growth and distribution of the national income and of international economic relations.