When one studies international economics, one will inevitably encounter the topic of “free trade.” As always, it is a good idea to start with a definition, to avoid any possible confusion. Webster’s Collegiate Dictionary defines the expression “free trade,” whose earliest recorded use in the English language dates back to 1606, as “trade based on the unrestricted international exchange of goods with tariffs used only as a source of revenue.” Nowadays, free trade has come to mean the conduct of international business without any governmental interference, such as tariffs, quotas, subsidies, etc. Such a policy allows prices to be the result of nothing but pure supply and demand, without any artificial distortions entering into the process.

The term “free trade” is often used these days in multinational agreements such as the North American Free Trade Agreement (NAFTA), although such arrangements do not eliminate government involvement in trade but create multinational entities to regulate it.

From Whence Free Trade?

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