The Fallacy of Free Trade *

The purpose of this paper is to explode the myth of free trade. Productivity and real wages in the United States rose sharply between 1950 and 1972, but since then real earnings have been falling in spite of a continuous rise in productivity. It turns out that America was more or less a closed economy until 1972, as its trade/GNP ratio was close to 10%; but since then it has become an open economy. the theoretical model shows how real wages may fall in an open economy, but not in a closed economy, in spite of rising productivity.