Cambridge Protectionism: a Basic Macroeconomic Appraisal

In spite of earlier efforts (e.g. Hicks, 1953; Brown, 1961; and El-Agraa, 1978a, 1978b, 1978c, 1979 and 1981a), Professor Godley, Director of the Department of Applied Economics at Cambridge, has recently stated that Keynesian economics was never properly incorporated into international trade theory. He emphasised that even before the ‘monetarist counterrevolution’ international trade was one field where neo-classical concepts remained dominant and proceeded to claim that this helps to explain why ‘virtually the entire profession… supports the principle of free trade’ (Godley, 1981a, p. 2). He went on to point out that the most significant respect in which international trade theory has always been un-Keynesian is that it is built on the premise that output and full employment are taken for granted; that employment in aggregate might be altered by the existence of international trade is hardly considered. He found this state of affairs extraordinary: ‘It appears to me rather to be the case not merely that international trade performance influences aggregate demand and employment but that it has a dominant, almost an exclusive role in doing so. … The argument turns on the crucial role of the foreign trade multiplier’ (Godley, 1981a, p. 3).