ABSTRACT
This is a presentation of the critique of the theories of free trade, in both of the versions of comparative advantage. Concentrating on the unreal nature of the assumptions of the models that are required to arrive at a mutually beneficial outcome, but also examining the underlying theoretical proposition of the need for free markets. It is shown that the existence of public goods and externalities, natural monopoly, merit and demerit goods and distributional distortions, means that state intervention to correct adverse market outcomes is essential and that market equilibrium is not necessarily an outcome that we would welcome. We then scrutinise the neo-classical argument that, given free trade, there would be factor price equalisation over time: This is examined using the Prebisch-Singer hypothesis as to the instability of primary product prices, which has adverse consequences for underdeveloped economies that engage in free trade. Power relationships are highlighted, as unequal power between parties negotiating trade deals results in disadvantageous terms for the weaker party. Empirical evidence also suggest that factor price equalisation will not occur.
