The classic of all political economy debates was that between free traders and protectionists concerning the "Repeal of the Corn Laws" in the 1840s. Participants displayed so much passion and eloquence that the arguments are still worth reading now. On the side of the free traders, the journalist theologian, Philip Harwood, gave as the "exactest and completest" definition of trade -- "the mutual relief of wants by the exchange of superfluities." This, according to him, was indeed the rationale of all trade.
He further expanded the notion, freedom of trade as "the unrestricted liberty of every man to buy, sell and barter, when, where and how, of whom and to whom he pleases. To buy in the cheapest market he can find and sell in the dearest market he can find". This, he said, was the very essence of free trade.
Since then much sophistication has been added and subtracted from these definitions of trade and free trade, but the essential concept has seldom been captured so succinctly. Buying in the cheapest market is socially beneficial because it helps reduce the stock of superfluous commodities, that is, from where they are least needed. Equally, selling the commodity where it is dearest ensures that it is made available where it is most needed.
That "buy cheap, sell dear" happens also to be a sound commercial maxim for avaricious businessmen is not a good argument for rejecting its social value. Indeed it is specifically this coincidence of commercial self-interest and social benefit that offers the most potent argument for trade. It adds to and indeed is arguably the essence of what makes the system efficient for satisfying superfluities and wants or, as economists might put it, for bringing supply and demand towards equilibrium at the cheapest cost.
However the purchase of goods in the cheapest market does not necessarily imply that they will be sold where they are most needed. The notion that greater needs will necessarily reflect higher prices is not always the case. Those most needing the relevant goods may not have the necessary income to purchase them. All that can be claimed for free markets is that for a given distribution of income those who can pay the highest price will be able to purchase them.
A further drawback with unregulated free markets is that in certain circumstances it could be of greater benefit to the owner of superfluities to withhold goods from markets where they are needed. He might do so in the expectation that a temporary denial of supplies could increase the price, and he would thereby be enabling superfluities to command an additional premium.
The free market answer to the last problem is to foster competition. The greater and simpler the access to markets of superfluities, the more likely it is that at least some commercial agents will be able to seek out cheap prices and satisfy wants. Equally, the more unrestricted the source of demand, the more likely it is that some agents will be able to fulfil needs. Competition, therefore, is an essential handmaiden to efficient trade.
Several complications confound the elegance of this simple model. The first, and in the Indian context most important, because Nehru was impressed by its logic, was the belief that co-ordination between buyers and sellers through competition was a matter of chance and, therefore, unscientific. In a letter written to his daughter in 1933, Nehru wrote: "Russia had one great advantage over capitalist countries. Under capitalism all these activities (of coordination) are left to individual imitative and chance, and owing to competition there is a waste of effort. There is no coordination between different producers or different sets of workers, except the chance coordination which arises in the buyers and sellers coming to the same market. There is, in brief, no planning on a wide scale." (Nehru: Glimpses of World History, p.854)
The genesis of Nehru's reasoning is unclear. Economics is after all a behavioural science and it is surely reasonable to suppose that buyers and sellers will seek each other out to satisfy their mutual needs. It cannot all be a matter of chance. An analogy is to be seen in the propagation of the human race or indeed of any species o
