Trade and Markets

The ideal of free markets is a cornerstone of many beliefs about modern economies. Chapter 7 shows, however, that markets are only one way of distributing goods and services and that the functioning of the market mechanism requires institutional prerequisites. The chapter first discusses the principle of free trade and explains the origin and relevance of David Ricardo’s relevant theory of comparative cost advantages. It then shows that different types of capitalism and regions of the world differ considerably in terms of the importance of international trade in generating prosperity. Finally, the chapter discusses the emergence of serious imbalances (particularly between China and the USA), but also the stagnation of the global trade regime and the vulnerability of increasingly complex international supply chains.