The Economics Book

34

F

or the last half century

many economists have

championed free trade.

They argue that only by removing

restrictions on trade (such as

tariffs) can goods and money flow

freely around the world and global

markets develop without inhibition.

Some disagree, arguing that where

there is a huge imbalance of trade

between two countries, it can

impact jobs and wealth.

A mercantilist view

The argument over free trade dates

back to the mercantilist era, which

began in Europe in the 16th

century and continued until the

late 18th century. With the rise of

Dutch and English seaborne trade,

wealth began to shift from southern

Europe toward the north.

This was also the age when

nation-states began to emerge,

along with the idea of the wealth of

the nation, which was measured by

the amount of “treasure” (gold and

silver) it possessed. Mercantilists

believed that the world drew from a

“limited pot,” so the wealth of each

nation depended on ensuring a

favorable “balance of trade,” in

which more gold flows into the

nation than out. If an excess of gold

IN CONTEXT

FOCUS

Global economy

KEY THINKER

Thomas Mun (1571–1641)

BEFORE

c.1620 Gerard de Malynes

argues that England should

regulate foreign exchange to

stop the nation’s gold and

silver from going abroad.

AFTER

1691 English merchant Dudley

North argues that the main

spur to increased national

wealth is consumption.

1791 US Treasury Secretary

Alexander Hamilton argues for

protection of young industries.

1817 British economist David

Ricardo argues that foreign

trade can benefit all nations.

1970s US economist

Milton Friedman insists

that free trade helps

developing countries.

PROTECT US

FROM FOREIGN

GOODS

PROTECTIONISM AND TRADE

A country’s wealth

is its gold.

Imports of foreign goods

cause gold to be lost.

Exports bring in gold.

A country should preserve

its stock of gold by

restricting imports.

Protect us from

foreign goods.