An Outline of International Price Theories

The history of economic thought has a twofold function; to explain the past and to help us to understand the present. By examining the economic theories of the past we can learn to see the problems of earlier times, as it were, through the eyes of their contemporaries. By comparing them with the theories of the present we can realize better the implications and the limitations of the knowledge of our own day.

There is no branch of economics which more repays this kind of study than the theory of international trade. Modern economics originated in ad hoc investigations concerning trade and the exchanges; the theory of prices and the theory of circulation were first elaborated to explain particular problems of international commerce. Moreover, when attempts began to be made to cast theoretical analysis into a more systematic form, the generalizations which were made to fit what were thought to be the exceptional circumstances of exchange between the non-competing groups called nations, took a form which, in subsequent developments, has proved to be much more fruitful than the general theories to which they were supposed to be a supplement. No one to-day, except the most devout of the Marxians, has much use for the classical theory of value; the assumptions which give it validity are too specialized. But the classical theories of comparative cost and reciprocal demand have proved to provide principles of explanation of most far reaching generality. Similarly with the theory of money; it is in the classical discussion of the problems of the regulation of the exchanges, rather than in the more formalistic versions of the quantity theory, that many of the most important propositions of modern monetary theory take their rise.

The treatise which follows is the work of a young Chinese scholar who is at present endeavouring to maintain the traditions of humane culture in the remote fastnesses of Western China into which he and his fellow teachers have been driven by the recent troubles. It was commenced when he was a member of the economics seminar at the London School of Economics. The main sections were drafted under the shadow of impending catastrophe and the final version has been corrected amid the distractions of actual war. Dr. Wu has not attempted to write a comprehensive study of all the literature concerning the subject with which he deals. His method rather has been selective. He has attempted, not so much to show the minute origins and affiliations of the different theories he analyses, as to take representative specimens of these theories and to consider their logical relations. In this I think he has performed a real service. Few, surely, can read his penetrating classifications and commentaries without feeling that he has added substantially to knowledge, both in his elucidations of particular lines of thought and in his presentation of the general perspective of development. It is a contribution which merits the respect and the gratitude of all serious students of these subjects.

Lionel Robbins.

The London School of Economics,

May, 1939.