35
French farmers demonstrated on
tractors in Paris, 2010, to denounce
a sharp fall in grain prices after import
quotas were liberalized.See also: Comparative advantage 80–85 ■ International trade and Bretton Woods 186–87 ■ Market integration 226–31 ■
Dependency theory 242–43 ■ Global savings imbalances 322–25
LET TRADING BEGIN
flows out, the nation’s prosperity
declines, wages fall, and jobs are
lost. England sought to cut the
outflow of gold by imposing
sumptuary laws, which aimed to
limit the consumption of foreign
goods. For instance, laws were
passed restricting the types of
fabric that could be used for
clothes, reducing the demand
for fine foreign cotton and silk.
Malynes and Mun
Gerard de Malynes (1586–1641), an
English expert on foreign exchange,
believed that the outflow of gold
should be restricted. If too much
flowed out, he argued, the value
of English currency would fall.
However, the century’s greatest
mercantilist theorist, Englishman
Thomas Mun, insisted that what
matters is not the fact that
payments are made abroad, but
how trade and payments finally
balance out. Mun wanted to boost
exports and cut imports through
more frugal consumption of
domestic produce. However, he
saw no problem in spending gold
abroad if it was used to acquire
goods that were then reexported
for a larger sum, ultimately
returning more gold to the country
than had initially been spent.
This would boost trade, provide
work for the shipping industry,
and increase England’s treasure.
Free trade agreements
In the 18th century Adam Smith
(p.61) was to disagree with this
view. What matters, he insisted
in The Wealth of Nations, is not
the wealth of individual nations
but the wealth of all nations. Nor
is the pot fixed; it can grow over
time—but only if trade between
nations is unrestricted. If left
free, Smith insisted, the market
would always grow to enrich all
countries eventually.
For the last half century Smith’s
view has dominated, because most
Western economists argue that
restrictions on trade between
nations hobble their economies.
Today, free trade areas such as
the EU (European Union), ASEAN
(Association of Southeast Asian
Nations), and NAFTA (North
American Free Trade Agreement)
are the norm, while global
organizations such as the World
Trade Organization (WTO) and the
International Monetary Fund (IMF)
urge countries to reduce tariffs and
other trade barriers to allow foreign
firms to enter their domestic
markets. The creation of barriers
to foreign trade is criticized now
as protectionism.
However, some economists are
concerned that exposure to large
global businesses has the potential
to damage developing countries
who are unable to nurture infant
industries behind protectivebarriers, as the US, Britain,
Japan, and South Korea did
before they became economically
powerful. China, meanwhile,
pursues a trade policy that in
many ways echoes Mun’s thinking
by running large trade surpluses
and building up a huge reserve
of foreign exchange. ■Thomas Mun
Born in 1571, Thomas Mun grew
up in a family of wealthy London
merchants. His father died when
he was three, and his mother
married Thomas Cordell, who
became a director of the East
India Company, Britain’s largest
trading company. Mun began
trading as a merchant in the
Mediterranean. In 1615, he
became a director of the East
India Company. His ideas were
developed originally to defend
the company’s export of largeamounts of silver, on the
grounds that this generated
reexport trade. In 1628, the
company appealed to the British
government to protect their
trade against Dutch competition.
Mun represented their case to
Parliament. He had amassed
a considerable fortune by the
time he died in 1641.Key works1621 A Discourse of Trade
c.1630 England’s Treasure by
Foreign Trade