After reviewing Keynes' flipflop on free trade (from ardent supporter to ardent opponent and possibly back again at the end) we come to his return to the primitive, and erroneous, values of mercantilism ...
But our chief purpose here is not to point to Keynes's many inconsistencies, but to examine which of his ideas were right and which were wrong. And clearly the position he took in the General Theory on free trade versus mercantilism was untenable. He begins by stating what seems to him "the element of scientific truth in mercantilist doctrine" (p. 335). He admits that "the advantages claimed [by the mercantilists] are avowedly national advantages and are unlikely to benefit the world as a whole" (p. 335). But he neglects to add that they are all beggar-my-neighbor policies, the total result of which, even on the mercantilists' own assumptions, could only injure the world as a whole if universally applied. And he refuses to recognize that the typical mercantilist policies —the chief of which is protection—hurt even (and most often, especially) the nation that tries them alone. For such a nation either forces its own consumers to pay more for the products they wish than they would otherwise have to pay, or deprives them of these products altogether. Protection creates home industries that are less efficient than the corresponding foreign industries, at the cost of injuring home industries that are more efficient than the corresponding foreign industries.
Keynes concedes this in a parenthetic and left-handed way: "The advantages of the international division of labor are real and substantial, even though the classical school greatly overstressed them" (p. 338). But he never tells the reader explicitly what these advantages are; for when they are spelled out it becomes evident that even some of the authors of "the classical school" never really stressed them enough.
Keynes states and endorses practically all the ancient and long-exploded fallacies of the mercantilists. We may safely leave the refutation of these to Adam Smith, Ricardo, Bastiat, and Mill; or even to Henry George, William Graham Sumner, Taussig, and a hundred others. It really is not a task that needs to be done over and over again in every generation or decade.
Or is it? What keeps the mercantilist fallacies alive, in spite of a thousand refutations, is (1) the special short-run interests of particular producers within each country, who would always stand to benefit if competition against them alone could be kept out; and (2) the persistent inability or refusal, even of many ''economists," to look for or understand the secondary and long-run effects of a proposed policy. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.