NOTES TO CHAPTER 2 20. [Vicomte François René de Chateaubriand (1768-1848), a forerunner of the romantic movement in French literature, and a royalist of the Bourbon stamp in politics. He served the restored Bourbon monarchy, after Napoleon's fall, as ambassador to England and Germany and as Minister of Foreign Affairs. His most famous works were The Genius of Christianity and Memoirs from beyond the Tomb. —Translator.] End of Notes Start PREVIOUS 6 of 18 NEXT End
After two years at MIT (supported in the second year by the National Science Foundation), I received a Fulbright fellowship to Cambridge for 1965-1966. At the time, there were three High Churches in the economics profession: Chicago on the right and Cambridge, . on the left, with MIT being in the center. Cambridge was still basking in the reflected glory of Keynes, who had revolutionized economics some thirty years earlier. Lord Kahn, of the Kahn multiplier (which explained how a dollar of government expenditure had a multiple effect in increasing GDP), Joan Robinson, Nicky Kaldor, James Meade, David Champernowne, Piero Sraffa, these were among the gods that populated the colleges of Cambridge. I wanted to see as many views as I could, and I worried about coming too much under the influence of Samuelson and Solow. Joan Robinson was assigned as my tutor. She had originally wanted me to redo my undergraduate degree - she thought it would take some time to undo the damage of my MIT education, but eventually she was prevailed upon instead to take on the responsibility of my re-education. We had a tumultuous relationship. Evidently, she wasn't used to the kind of questioning stance of a brash American student, even a soft-spoken one from the mid-west, and after one term, I switched to Frank Hahn. He was flamboyant, and always intellectually provocative. Cambridge was in ferment. The quality of the students and the young lecturers matched that of the gray eminces: Jim Mirrlees (later to get the Nobel prize), Partha Dasgupta, Tony Atkinson; Geoff Heal, David Newbery and a host of others. There was a sense of excitement that was associated not just with the generation of new ideas, but with the belief that those ideas were important, and not just for economics, but for society more broadly. As Frank Hahn demonstrated the dynamic instability of the economy (a problem posed by the absence of futures markets going out infinitely far into the future; in technical terms, the absence of a transversality condition), he would excitedly exclaim that he had put another nail in the coffin of capitalism.
Theory and observation set out the conditions such that market prices of outputs and productive inputs select an allocation of factor inputs by comparative advantage, so that (relatively) low-cost inputs go to producing low-cost outputs. In the process, aggregate output may increase as a by-product or by design .  Such specialization of production creates opportunities for gains from trade whereby resource owners benefit from trade in the sale of one type of output for other, more highly valued goods. A measure of gains from trade is the increased income levels that trade may facilitate.