Academic journal article The American Journal of Economics and Sociology

Noneconomic Objectives in the History of Economic Thought

Academic journal article The American Journal of Economics and Sociology

Noneconomic Objectives in the History of Economic Thought

Article excerpt

I

What is a Noneconomic Objective?

EXAMPLES OF THE NONECONOMIC OBJECTIVES OF GOVERNMENT WERE RIFE in mercantilist times, and can also be found in classical writings, starting with Adam Smith's Wealth of Nations. The concept of a noneconomic objective, however, is more familiar to international trade economists than to historians of economic thought. It was defined formally for the first time by Harry Johnson in connection with noneconomic arguments for protection. Toward the end of one of his best-known articles, "The Cost of Protection and the Scientific Tariff." Johnson (1960, p. 341) argued that advocates of tariffs sometimes "want to use the tariff as a means of promoting non-economic objectives of various kinds, identified in one way or another with the effects of the tariff on domestic production and consumption of certain products." He identified five such objectives. The first is "national self-sufficiency and independence," whose promotion entails a reduction in imports, or an increase in the proportion of consumption supplied from domestic production. The second is "diversification, industrialization, or agriculturalization," measured by an increase in production (or income) in the favored industries. Third, "a tariff to promote a 'way of life'" implies the boosting or protection of employment in sectors such as farming. Fourth, "military preparedness" is an application of the objective of self-sufficiency to commodities considered as strategic for defense, and is likewise measured by a reduction in imports. Fifth, a "bargaining tariff ... is aimed at inflicting economic damage upon another country or countries in order to obtain advantageous tariff concessions" (Johnson 1960, pp. 342-345).

The concept of noneconomic objectives was refined later by Johnson when he viewed protection "as a means of achieving objectives with respect to the structure and composition of output that are desired for their own sake rather than as a means of increasing real income." Indeed, the test he proposed for identifying such objectives is that their attainment causes real income to be smaller than otherwise: "The distinguishing characteristic of non-economic as distinct from economic arguments for protection is that--at least if they are honestly advocated--they involve the willingness to forego potential real income in order to achieve other objectives of national policy" (Johnson 1964, pp. 6-7). The attainment of a noneconomic objective thus implies a tradeoff against more conventional economic goals such as the maximization of real income or the welfare from the consumption of goods and .services. This criterion of a tradeoff is used in this article to distinguish noneconomic from economic objectives.

In commenting on Johnson (1960) in his survey of the pure theory of international trade, Jagdish Bhagwati (1964, p. 72) noted that "[a]n important limitation of the foregoing analysis is that it specifies a non-economic objective and considers tariffs as the only available instrument variables. While, however, this approach does yield the scientific tariff structure, it is possible that the same non-economic objective could have been achieved at a smaller cost if the range of policy instruments had been wider." This had already been pointed out by Max Corden (1957), who showed that art economy facing fixed terms of trade can achieve a given level of production in a certain industry more efficiently by means of a subsidy than with a tariff, due to the gratuitous consumption cost that the latter entails. In "Optimal Trade Intervention in the Presence of Domestic Distortions," which according to Corden (2001, p. 642) "is now his most influential article," Johnson (1965) also acknowledged that a tariff is not the best means to attain a noneconomic objective, unless that objective is self-sufficiency, and in fact made this one of the key propositions of his article.

The analogy between an economy's endogenous distortions, such as external economies or unexploited monopoly power in trade, and its noneconomic objectives, which amount to policy-imposed distortions, was noted later by Bhagwati (1971). …

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