- Cafe Hayek - https://cafehayek.com -

Out of date trade theory

Tweet [1]

People like to make fun of the theory of comparative advantage because it was discovered by David Ricardo and Robert Torrens at the beginning of the 19th century.  So many things have changed since then.  Could the theory still apply?  But those who mock comparative advantage and the alleged naivete of free traders usually are worried about the trade deficit.  Turns out that worrying that the trade deficit is bad for the economy is even older than the theory of comparative advantage.  And it’s just as out of date and inapplicable as it was when it was first put forward at least 600 years ago.

From Jacob Viner’s, Studies in the Theory of International Trade [2]:

The most pervasive feature of the English mercantilist literature was
the doctrine that it was vitally important for England that it should
have an excess of exports over imports, usually because that was for a
country with no gold or silver mines the only way to increase its stock
of the precious metals. The doctrine is of early origin, and some of
the mercantilists, in the earlier period when it was still customary to
scatter miscellaneous tags of classical wisdom through one’s discourse,
succeeded in finding Latin quotations which seemed to expound it. It
was clearly enough stated as far back as 1381 by Richard Leicester, a
mint official, in answer to an official inquiry as to the cause of, and
remedy for, the supposed drain of gold out of England:

 

First, as to this that no gold or silver comes into
England, but that which is in England is carried beyond the sea, I
maintain that it is because the land spends too much in merchandise, as
in grocery, mercery and peltry, or wines, red, white and sweet, and
also in exchanges made to the Court of Rome in divers ways. Wherefore
the remedy seems to me to be that each merchant bringing merchandise
into England take out of the commodities of the land as much as his
merchandise aforesaid shall amount to; and that none carry gold or
silver beyond the sea, as it is ordained by statute…. And so me-seems
that the money that is in England will remain, and great quantity of
money and bullion will come from the parts beyond the sea.*6 [3]

Comments