William Bernstein on the History of Trade
Apr 28 2008

William Bernstein talks with EconTalk host Russ Roberts about the history of trade. Drawing on the insights from his recent book, A Splendid Exchange: How Trade Shaped the World, Bernstein talks about the magic of spices, how trade in sugar explain why Jews ended up in Manhattan, the real political economy of the Boston Tea Party and the demise of the Corn Laws in England. The discussion closes with the political economy of trade today and the interaction between trade and income inequality.

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Martin Brock
Apr 28 2008 at 8:44am

I’m all for free trade. Really, I am, but I want to make a point about buying things from people who can make them more cheaply than I will.

Suppose I can buy license plates from men living in small cages? These men produce license plates more cheaply than I can, because they live in these small cages and rarely leave them and never stray far from them; therefore, they don’t consume a house as costly as mine and don’t consume a car at all.

The men also wear plain clothing that’s less costly than mine, and they eat plain meals that are less costly than my typical meal and much less costly than my occasional dinner at Applebees. They don’t have personal televisions or cable television service or computers or the internet or cell phones, so they don’t consume any of these things either.

All in all, these men work much more cheaply than I because they consume much less than I consume. They just don’t really have a choice. They justly don’t have a choice, because justice requires them to live in these cages and make these license plates.

Of course, I can buy license plates this way, and I do. I attribute the cost of these license plates to the state of justice. I’m entitled to buy the plates at whatever price, because other justly live in cages and make the plates this way.

So I’m not completely convinced that the Ricardian theory of comparative advantage explains everything there is to explain about the lower cost of clothing and toys and laptop computers made in China. I know how license plates are made, so I know that other organizational models are possible and actually exist, and I know that the other models produce things at lower cost than I will produce them, and I know that Ricardo’s theory doesn’t well describe these other models.

I’m not suggesting that Ricardo’s theory is wrong. I’m only suggesting that it doesn’t explain everything. Maybe I buy laptop computers (like the Averatec I’m using now) from China because typical Chinese workers are more efficient laptop computer producers than typical U.S. workers. Maybe that really explains it all. I’m skeptical of this explanation.

I’m also not suggesting that Chinese workers are just like people in U.S. prisons making license plates. Maybe the truth lies somewhere between Ricardo’s theory and some theory modeling Chinese workers as subjects of a one party state akin to prisoners making license plates, or maybe we should consider a third or a fourth or a fifth theory.

The theory I can’t take seriously is the one that models Chinese workers as lawyers advising people how to stay out of prison rather than remodeling their kitchens, because people will pay more to stay out of prison than they’ll pay to have their kitchens remodeled. Or maybe this model is relevant somehow but not exactly as Ricardo’s theory supposes.

Russ Roberts
Apr 28 2008 at 9:07am

Martin Brock,

The Ricardian theory (and the Smith theory which I think is under-appreciated) says that if you buy things from people who can make them more cheaply than you can you will have a higher standard of living than if you don’t. It says nothing about moral issues and moral issues certainly matter to me. Having said that, I believe that the prisoner analogy is unproductive in that buying from prisoners doesn’t help them. Buying from the Chinese does help the Chinese people. Boycotting Cuban products because Cuba is not a free country does not help Cubans.

Martin Brock
Apr 28 2008 at 11:12am

I suppose buying from prisoners does help them. It just doesn’t help them as much as it would they were competing more freely, because they’d charge more.

I agree, as a moral matter, that buying things from China helps the Chinese, and I don’t want trade barriers with China akin to the Cuban barriers. I don’t want the Cuban barriers either. If common Chinese were literally slaves, I’d still oppose the barriers, even though I don’t want anyone to be a slave. I’m a zealous free trader myself.

I don’t worry about “losing jobs” here, because we’ll always find other things to produce, no matter how much we consume from China, as long as we maintain the will to be productive. Even with five times our population, China can only produce so much, and the supply of possible produce is effectively infinite, so we lose nothing by buying discounted goods from them. If the Chinese state suppresses of Chinese consumption to gain markets through price competition, their suppression can only cost them. It can’t cost us. I understand this theory.

I do worry that we’re simultaneously selling Chinese proprietors exclusive rights to produce things for us and rights to organize our capital here. I worry that as consequence we are less free to stop buying the Chinese products and reorganize ourselves to produce the same products at will. I worry that individual Americans are not making these choices. Statesmen and corporatists selling patents and similar entitlements make the choices. The choices benefit them, but they don’t necessarily benefit me, even though a patent monopoly might apply to me as much as it applies to them, even more so if it impedes my specialized productivity more than theirs.

I worry similarly about the Bush administration’s sale of Treasury securities, because I and my children owe the principal and interest, but these securities, massive in scale as they are, are only the tip of an iceberg. I only describe the forcible proprieties I know. I don’t know what I don’t know.

Here’s the point. Lots of people are skeptical of “free trade”, even if they do understand principles of free trade like comparative advantage, because they don’t believe that trade is really so free. Higher income people are less skeptical, because they know that trade is not so free, and they’re O.K. with that, not because they’re evil but because we all tend to think that forcible proprieties benefiting us are O.K. I think that forces benefiting me are O.K., and I’m not evil. I’m just human.

That’s just a theory of course, but I suppose the Treasury securities are real, and according to the Treasury itself, their value rivals the value of all of the S&P 500 companies, and the value of these few companies is 80% of the value of all publicly traded companies in the U.S. It’s just not a small problem. It can’t possibly be.

If the Chinese were freer, I suppose more of them would move to the U.S. and buy a house and work here. They’re not so free not only because their own state won’t permit it but also because our state won’t permit it, and these immigration restrictions are hardly the only restrictions on Chinese freedom.

Immigration restrictions are obviously huge restraints of trade, yet in common parlance and the legalistic language of “free trade” agreements, these restrictions are not “restraints of trade” at all. Before the WTO, allegedly a “free trade” organization, there were no international patents. Now, these new, global monopolies are not “restraints of trade” either. On the contrary, they’re “free trade”.

Martin Brock
Apr 28 2008 at 11:13am

But I really enjoyed the podcast. I’m just a curmudgeon by nature.

Lowcountry Joe
Apr 28 2008 at 8:00pm

Isn’t there a provision in the WTO agreements that covers government subsidies and offers mediation for this? Because, once again, Martin, while offering a veiled criticism of FREE trade, you stumble with your analogy because in it (the ill-advised analogy) government is distorting this market.

disclaimer: I have not listened to this podcast yet.

Apr 28 2008 at 10:04pm

I enjoy these style podcasts, as a fan of history I am always intrigued by alternate “revisionist” historical accounts.

I am also intrigued by Martin Brock’s comments. I believe the fault which you see (regarding free trade with perceived non free people) is you appear to have the notion that morality is some sort of tangible element which must exist in the world. I reject morality as a maxim simply because it requires a judge, and we have no judges on earth or in the proclaimed supernatural world.

The theories applied (Ricardian in this discussion) are nothing more than tools we use as humans to survive and evolve, no more different than when our primate ancestors used tools to extract insects from the ground for consumption or the teaming of wolves to attack a single prey. If multiple nations use the same tools to acquire wealth the inhabitants can choose to adapt or choose extinction. There is no morals when it comes to existence, there is only adapt or not. Morals to me is a euphemism for long term investment, if you exercise ‘good morals’ you will have better chances at survival.

There is no evidence of a global moral community which has existed that I have discovered. The license plate makers may have had less choices in their youth environment then I did, but the children of extremely wealthy people have more choices than I. Our intellect tells us to watch and learn, to want what we have not, to work to achieve it, if not for us than our children, this making us choose ‘morality’ as a long term investment for our offspring. Enough determination will get you free of the “chains”, even if that freedom is death.

In the mind of the modern Chinese, they have the choice to make my electronics and live in a building that offers better shelter than a hut, which may be less liberty under their government then mine, but the ultimate choice is theirs, the may live free or die. It is not for me to decide what their idea of freedom is, they will understand themselves as a culture, and as the wealth of China increases so shall the knowledge of the people. It is with this knowledge, (which can only be attained through the natural evolution of this growth), that they will as a people cut the Gordian knot and be masters of their own destiny.

You have no reason to feel pity for their own survival and desire to adapt to a modern world, nor do you need to feel regret if you choose to partake in the process. You ultimately have the choice to reject any instances you may find yourself in, that contribute to what defies your perception of morality. Let me be clear though, it is folly to think there is a morality wizard who deems things just and unjust, and if our relationship with countries like China make you feel uncomfortable because they are perceived as near slaves then you are the supreme authority to what a near slave is. You can cast down your judgment by refusing goods made by these people, or asserting so in the commentary section of an econ talk podcast.

Martin Brock
Apr 29 2008 at 12:24am

Isn’t there a provision in the WTO agreements that covers government subsidies and offers mediation for this? Because, once again, Martin, while offering a veiled criticism of FREE trade, you stumble with your analogy because in it (the ill-advised analogy) government is distorting this market.

I nowhere criticize FREE trade. I nowhere discuss any provision on subsidies in the WTO. I discuss immigration and international patents. Your reply addresses neither. You instead change the subject.

Of course, governments distort this market. If governments don’t distort the market, why do we need a “free trade” treaty at all? Knowing that governments must distort the market, I’m supposed to believe that a document written and approved by many governments ceases this distortion or even lessens it more than increasing it? That’s what you believe? I’m more skeptical of documents written and approved by many governments myself. You may believe what you like.

Martin Brock
Apr 29 2008 at 1:12am

I believe the fault which you see (regarding free trade with perceived non free people) is you appear to have the notion that morality is some sort of tangible element which must exist in the world.

No. That’s not it. Trade labeled “free” with people who are not free is mislabeled. “Free trade” properly labels trade in which both parties to a bargain are free. I suppose that my exchange with someone who is less free than I benefits me more than it benefits him. Whether this asymmetry is “moral” or not is a separate issue. I’m only saying that it isn’t “free trade”.

My great, great grandfather owned slaves. My uncle still lives on the family property with a slave cabin preserved for posterity. I was there for Christmas. I’ll inherit a bit of the value of this land. We’re a horny lot, so the value is spread thinly now, but I’ll have a bit of it. I’m not imagining these things.

Bondage is not part of the past. We’re not ideally free. It’s a pleasant thought, but I don’t think so. I think we’d improve out lot by being freer still, so I think greater freedom is moral in some sense, but my point here is simply that we could be freer, not that we should be, and that politicians promising greater “freedom” are not simply to be trusted, even when they draft “free trade” agreements with other politicians.

I reject morality as a maxim simply because it requires a judge, and we have no judges on earth or in the proclaimed supernatural world.

Morality is not the issue. The definition of “free trade” is the issue. If we want to say that Fascist Italy was a “free market”, we can do that, but at some point, these words lose their classical meaning as we adapt them to ever changing politics.

There is no morals when it comes to existence, there is only adapt or not. Morals to me is a euphemism for long term investment, if you exercise ‘good morals’ you will have better chances at survival.

I agree with you, but it’s beside the point; however, I’ll follow your line of thinking here, because it interests me.

In this Darwinian view of economic organization (which I share with you), productive organizations are like organisms subject to natural selection. An investment that fails is like an organism that doesn’t survive to reproduce successfully. Right?

If every organism survives to reproduce, evolution by natural selection doesn’t occur. Similarly, if every investment succeeds, economic progress doesn’t occur. I associate this idea with the term “creative destruction”.

How many failures do we need for evolution by natural selection to operate effectively? Can we expect that organisms survive to reproduce “on the average” somehow? More precisely, if we view the cost of a parent’s investment in bearing and raising progeny as investment, and if we view the offspring’s offspring as the yield of this investment, and if we quantify this “investment” and “yield” in some meaningful way, does anything about evolution by natural selection imply that investments are profitable on the average?

Is it possible (even likely) that evolution by natural selection is more effective if investments are not profitable on the average?

I suspect that capitalism, as typically imagined, by essentially requiring investments to be profitable on the average, can tolerate too little failure. Inflation can be a monetary policy tolerating more failure, so that investments need not be profitable on the average, and an economy with a bit of inflation thus can progress more rapidly in some sense than an economy without inflation. What do you think?

You can cast down your judgment by refusing goods made by these people, or asserting so in the commentary section of an econ talk podcast.

I don’t know who you’re addressing here, but I explicitly state that I wouldn’t forbid trade with China even if all of the Chinese were literally enslaved (or more literally enslaved). That’s just not my point at all. If it were up to me, trade would be much freer, because we’d have fewer restrictions on immigration and fewer patent monopolies. We don’t need treaties to remove these restrictions so much as we need to remove treaties enacting the restrictions.

Apr 29 2008 at 12:52pm

I’m all for free trade. Really, I am, but I want to make a point about buying things from people who can make them more cheaply than I will.

Suppose I can buy license plates from men living in small cages? These men produce license plates more cheaply than I can, because they live in these small cages and rarely leave them and never stray far from them; therefore, they don’t consume a house as costly as mine and don’t consume a car at all.

Martin, just how in the world do you expect me to not conclude that you’re being critical of trade when you write this supposition. The comparison being made by you is outrageous for the topic at hand. On moral grounds it (your analogy/supposition) has its merit, sure, but it seems you bring it up as a way of questioning all trade while you choose your words carefully enough to be shielded from counter-criticism.

The tenaciousness of your arguement and the way you vehemently post these, “yeah, but…” responses to most things truly laissez-faire, leads me to believe that you speak out of both sides of your mouth while sitting on the perch of your fence top.

Martin Brock
Apr 29 2008 at 1:57pm


Prisoners making license plates are an extreme example of suppressed consumption. It’s an archetype. I’m not suggesting that Chinese consumption is suppressed to this extent, but I am suggesting that trade with China is not simply a matter of comparative advantage. It’s not simply about Chinese workers maximizing their comparative advantage while American workers maximize theirs. The comparative advantage analysis paints a misleading picture, because people are not freely maximizing their comparative advantage in the exchange. Comparative advantage is half the story at best. I’d like some analysis of the other half.

Just how applicable is the example of a thousand dollar an hour lawyer who also excels at woodworking to the Chinese textile industry anyway? My example is no more hyperbolic than that. Your critique is highly selective.

If trade with a Communist Party dictatorship is your idea of “laissez-faire”, you and I don’t speak the same language. I don’t care what you think of me personally. I’m not on your team. You can be sure of that. I’m not on anyone’s team.

Apr 30 2008 at 1:26pm

Russ, you sounded disappointed with Bernstein’s theory that the importance of the spice trade was a function of a small elite class’ demand for a luxury good. Let’s hear what you think, because I could almost taste your saffron skepticism.

Russ Roberts
Apr 30 2008 at 2:41pm


The elites are small in numbers, by definition. Demand from the elite alone can’t explain boatloads of spices. Was it the masses wanting to appear as if they were part of the elite? Seems like an awfully expensive unproductive way to do it. I just wondered if there was more to it. I also am fascinated by the focus on spices in the past and how little we notice them today.

Apr 30 2008 at 4:11pm

The luxury good explanation doesn’t do it for me, either. It seems more likely that once Asian spices were introduced to European society, they quickly became inelastic goods. Spices were both tasty and (thought to be) medicinal, and these are properties of goods desired by people of all classes.

Apr 30 2008 at 6:40pm

If I remember correctly the spice trade the Dutch controlled was not solely between Europe and the Spice Islands. The Dutch took over the entire existing Asian distribution network, basically moving the product from spice-producing areas to India, Japan, China, Phillippines, Persia, Turkey etc. Only a small part of the profits the Dutch East India company earned was from the Spice Islands-to-Amsterdam route.

I think that explains why the spice trade had such a large effect on Europe (repatriated profits) while only being a niche product for the wealthy European.

Also, the Dutch East India’s trade was not just spices. Dutch ships would pick up silver in Japan, tea and silk in China, spices in Indonesia and move them within Asia for profit.

Paul Tacon
May 1 2008 at 8:08pm

Hello everyone (this is my first comment to EconTalk),

I found the final discussion on the podcast very illuminating (protectionism versus free trade).

On the one hand, it would appear that protectionism can assist a individual nation’s production and development (by restricting foreign access to local markets), yet on the other hand, it can prevent the same nation from ‘discovering’ their comparative advantage, and advancing even further. [This concurs with the arguments of Adam Smith on the American colonies in the Wealth of Nations].

I think that one ingredient that is essential to the discussion is that of the flow of information. For example, the internet is a vessel for the free trade of information across the world, and even though individual nations may attempt to hinder the importation of physical produce, it has and will become increasingly difficult to prevent the flow of information. Accompanying this come all manor of things (e.g., education, ways of doing things more efficiently, etc.). From my observations, the burgeoning growth of the internet is evidence itself that human nature desires to communicate freely (without restriction), and I think that this should naturally flow to the free trade of goods.

Certainly, in the short run, people may be hurt by a change in trade policy (some industries become redundant); however, in the long run, being able to identify what one is best at must be the best outcome. It would not only spawn innovation, but more people would be employed in the long run, and if not, the surplus returns captured from working to the comparative advantage should be adequate to assist those adversely affected.

Thanks for all of your podcasts, Russ.

Seth Roberts
May 2 2008 at 10:06am

Correction to the highlights: Bernstein said sugar is the heroin, not the “heroine”, of food stuffs.

[Thanks, Seth. Good catch. I’ve fixed it. I type those Highlights pretty much real-time while listening to the podcast. My fingers keep typing while I’m listening a few sentences ahead, and occasionally wrong spellings slip in. The unintended consequences can be pretty humorous.–Econlib Ed.]

May 2 2008 at 3:22pm

Russ wrote “Was it the masses wanting to appear as if they were part of the elite? Seems like an awfully expensive unproductive way to do it.”

Didn’t Brook cover a similar theme in his chapter on the Chinese tobacco trade in Vermeer’s hat? Perhaps expensive, but not at all implausible to me. Especially in a world where it is difficult to buy knock off Luis Vuitton purses down Canal street, so to speak.

A great podcast, by the way – in response, I’ve ordered the book while still in hard copy (something I rarely do). So you can see the premium value 🙂

May 3 2008 at 8:01pm

One probably should distinguish between spices. Pepper it seems was relatively cheap and abundant, and pepper made it into everybody’s kitchen, into salami’s and poor people’s meals. Saffron on the other hand is still more expensive than gold, because it must be picked by (fine) hands from the stalk of a each flower, etc…Is gold considered a luxury good? It has some specific uses, but it’s value depends more on its availability (what else?). Maybe some rare spices played the same role in the middle ages. Instead of investing in gold, rich people would invest in nutmeg. Could it be?

Joan Ditant
May 5 2008 at 9:53am

Hi Russ,

Enjoyed your podcast.

Just one thing: Although I understand you’re very proud to be a Jew, I’m sure we’d all appreciate if you didn’t ram it down our throat at every opportunity you get in these podcasts (which is rather frequently if you listen back). It’s tiresome and unnecessary. And getting Bernstein to state how Jews have genetically higher IQs is just plain tacky.

Please tone it down for us gentiles out there 😉


history of chocolate
May 6 2008 at 6:21am

But making the items very cheap is impossible but your doing great job.

Ethnic Austrian
May 7 2008 at 3:50pm

Great podcast. Enjoyed it very much. Learned alot.

@Martin Brock:
You are only scratching the surface with patents. Patents are in fact not that much of a problem. They are required to be publicized and the USA or the EU could simply refuse to recognize Chinese patents, just like the Chinese don’t seem to be enforcing foreign intellectual property very much. I believe that India doesn’t recognize medical patents at all.

But patents are just a tiny part of manufacturing. Established companies rely on decades of experience, training, pre-existing infrastructure, domain specific knowledge. All of this is not publicly known and once this knowledge and experience is gone, it would be difficult to regain it.

A lot of the examples to explain the virtues of free trade are too simplistic to capture this problem. Licence plates, pencils, …
What about LCD screens, cargo ships, trains, steel production, microwaves, industrial adhesives, air bags?

May 7 2008 at 9:33pm

Joan’s comment is out of line. You did nothing to coerce or suggest the comment that Bernstein made about Jews and intelligence. It was a perfectly rational, and very interesting, line of questioning. Russ has shown the same kind of interest on podcasts that explore other religions. The Michael Lewis and Iannacone interviews are good examples of this.

May 7 2008 at 9:41pm


I have not read A Splendid Exchange but I have read The Birth of Plenty. In fact, it was an important book in shaping my understanding and interest in economics. Bernstein is a superb writer. However, at the end of Plenty, he comes off the rails. His wholesale acceptance of happiness research and his bold assertions regarding the appropriate levels of taxation undermine his credibility. As usual, you do a wonderful job pressing Bernstein on some of his more questionable claims without putting him on the defensive. Great job as usual.


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Podcast Episode Highlights
0:36Intro. Survey of trade history and history of the world. Spice trade. How did spices become so important in ancient times? Salt, sugar, rosemary, sage, relatively cheap today; even saffron. Expensive, fine spices: Nutmeg and mace, cloves, cinnamon, from Molucca Islands; less expensive: pepper. Europeans already had access to most other spices. Myth: the spices suppressed the smell of rotting meat--these imported spices were very expensive and meat was cheap, so it didn't make sense to buy spices to preserve meat. They were expensive because they came from so far away. Valued because of the mystery that surrounded them. Perfect marketing storm. Godiva chocolate and Gucci shoe--status symbol. Pepper did come in relatively large volume. Wealth was limited, though, so a small number of the elite of Europe were generating a lot of the trade of the day. Pepper came from the Malabar Coast, relatively straight shot to import it to Venice. Architecture in Venice today was generated by the wealth from the spice trade. Trade in luxury items in early period, through 1600, 1700, only elite could afford long-distance goods. Ballast goods in hull of ship--porcelain, rice. Second period: evolving middle class could afford cotton, coffee, tea. Invention of modern transport, steam engine, mass goods could go around the world relatively cheaply. Copper production.
8:57We think of trade as trade for things you can't make yourself. Spices require specific climate conditions. Today we mostly trade in things we choose to let others make. In ancient world it was strategic trade, primary trade in ancient period was in most strategic materials, copper and tin, none in Mesopotamia and so they had to to southern Arabian peninsula to get it. Bronze was consumed by the Mediterranean Basin, tortuous supply chain--we still don't know where they got it. Today we live in a Ricardian world.
11:23Sugar. Sugar is dirt cheap today. At one time it could be considered a fine spice, very expensive, not because it came from far away but because it's brutally hard to manufacture. Have to cut cane, boil it down, requiring vast amounts of wood; requires vast skill to refine. Gradually became less expensive. Sugar plantation was road to wealth. New World had easy access to fuel in big forests, to slave labor, and three-roller mill was a technology advance that allowed three or four slaves to crush vast amounts on cane. Sugar is the heroin of food stuff. No society ever decreases its consumption of sugar. Vast long distance industry. In the year 1494, King Manuel of Portugal gave an ultimatum to the Jews: leave or convert. After a decade or so, began slaughtering the Jews, who wound up in Amsterdam--including Ricardo family--Portuguese-speaking. Portuguese settled Brazil, became world's largest sugar producer, Dutch West India Company; Jews migrated to Brazil. Holland and Portugal engaged in a war to control the spice trade; in Western hemisphere, the Dutch didn't succeed but tried; Portuguese-speaking Jews. Dutch Jews scattered back home or to North America; 23 Jews in mid-17th century went to NYC. David Ricardo's family sent him to Amsterdam for school from England because they'd started there--before they came to Amsterdam they went first to Italy, free trade state. Amsterdam still has a large Jewish community in the diamond business. Milton Friedman's suggestion: In an anti-Semitic world it's better to have your capital in portable form; and human capital is highly portable. Diamonds are small and portable.
20:08The Portuguese and the Spanish were doing well. What happened to them? Real question is how did they rise so rapidly? Brook podcast: most Portuguese ships had only a thin upper crust of Portuguese crew. Dog that caught the car. 1498, Vasco da Gama rounded the Cape. Trade was run by largely Muslim merchants, sharing largely similar Shariia commercial law, devastated by Black Death, in the 14th century, which was spread by trade. So da Gama's ships cruise into a world which is broken and take over. But never able to control the entrance to the Red Sea, so it allowed spices to leak through that route to Venice. So the Dutch, with greater capital and better capital markets, were able to sweep the Portuguese out once they got their act together.
25:18Boston Tea Party. Revisionist history by the victors is common. Columbus was ridiculed not because he thought the world was round but because he got the size very wrong. Very lucky that he bumped into the New World. Story of Tea Party is that they were patriots; taxation without representation. In 1773, Britain trying to help the East India Company by opening up the colonies. Previously they weren't allowed to sell in the colonies, which meant smuggling and high taxes. When Britain in 1773 allowed them to sell directly to the colonies, the middlemen were up in arms because it drove the price of tea down to half of what it had been. Middlemen and smugglers got together and painted themselves and started throwing the tea into the harbor. First anti-globalization riot. Protectionist in spirit. Opposite of their being against the tax. Story originally broken by Arthur M. Schlesinger, Sr. early 20th century article.
29:37Corn Laws in England, Cobden. Import and export of corn, which meant grain, not American corn, which is called maize in Europe. Primarily wheat. After 1689, England was for a while a big exporter of grain. Later part of 18th century they began to import grain. Price stable till Napoleonic wars, which caused spike in price. Government guaranteed domestic producers, landed aristocracy, a price, via a subsidy. In 1804 and 1815, Draconian Corn Laws were passed causing distress amongst the poor. Cobden was a cotton manufacturer but was also in favor of free trade, morally cogent issue. Got Corn Laws repealed. Mostly only landed aristocracy could vote. Postage evolved, penny post. George Orwell's view was that technology advantaged the state, but it actually empowers those who are powerless. Originally postage was very expensive; paper expensive and reused. Man by the name of Taylor gets together with Cobden and pass the penny post, allowing you to send letters for a penny; come up with idea of a stamp. "There go the Corn Laws," Cobden supposedly shouted--poor people could now communicate cheaply. Peel, Tory leader, realized he had to go against the landed interests of his party. Romantic economists' idea that it was Cobden's eloquence but it was probably the actions of the affected poor. Joe Stiglitz: Even if Cobden had a stammer and spoke only in Yiddish the Corn Laws would have been repealed. John Nye: next week's podcast, France was more free-trade than we think.
38:35Henry Martyn, credit to Doug Irwin. Late 17th-early 18th century. "Considerations on the East India Trade," obscure tract; destroys mercantilist ideology of the era. Mercantilism, idea that nation was wealthy in proportion to the amount of gold and silver it had, beggar thy neighbor. Martyn realized it made no sense, countries rich by virtue of what they can consumer. Looked at Holland, rich because they consumed; Spain dirt poor though they have all the silver. Quote. "We only plough the deep." Principle of specialization of labor, spinner and cloth worker. Did he influence Smith? Quote: why it's good to buy things from abroad. When you can buy things more cheaply from others it's a good idea.
43:36Bernstein's book, good illustration of comparative advantage. Quote: famous attorney, skilled at woodworking as well; better off hiring the less efficient carpenter and working five hours in his own profession. Ricardo's insight has won the day among economists, but a lot of people today are very skeptical of the virtues of trade. Maybe they don't understand it. Maybe they understand it better than economists because, some groups struggle from particular kinds of trade. Economists do ignore that people are hurt, directly related to education and income. High school graduates tend to not favor free trade, minimum wage jobs likely to be lost with trade swings. Free trade always harms certain minorities. Wool weavers of England thrown out of work in late 17th century and rioted after the import of cotton. Have to have a better safety net. Current political candidates and free trade. 1999 analogy to wool weavers--people rioting in Seattle were political activists, upper middle class, not the same people who were likely to be thrown out of work. In America we have a dynamic labor market, so even high school graduates can find some work. Maybe earn less; but that can happen for other reasons than trade, e.g., technology advances. Cause of increase in income inequality in the U.S.: trade, skill premium, or tax policy. No data allow you to separate them out cleanly. Paul Krugman, Conscience of a Liberal, claimed tax policy; but now working paper saying maybe it is trade. Political issue, hard to find truth.
53:30Bernstein: neurologist, financial expert, and now an historian. What next? Neurology for 25 years, some teaching; became interested in finance to save for retirement, small advisory service; writing about finance became interested in Angus Maddison. The Birth of Plenty, institutional origins of modern prosperity. Wife quipped: "If you wanted to write a cookbook you'd write it." Violation of Ricardian principle of specialization.
57:33Pat Buchanan: 19th century in America was protectionist and we need to return to that. Before 20th century trade really wasn't that important. Wagner, Sachs: intra-national trade was more important than international trade. Can't afford to be protectionist now. Empirical work in this area is hard to tease out. Episodes of protectionism are surprisingly ineffective at reducing trade. Other forces going on; but maybe tariffs are not enforced very well. Smoot-Hawley and the Great Depression--did it cause the Great Depression? Now it would devastate the world economy. Modern situation is different because there is more trade and also because the nature of the trade is different. Smithian insight into trade, technology. Would a rise in protectionism affect the flow of technology to the U.S.? Certain groups will get more power. China. Paul Romer: if we limit the extent of the market the incentive to use technology gets smaller. Peace dividend cut into when people are told repeatedly that trade with China is like an invasion. Brad DeLong. Look at Europe, at war with itself since the beginning of time; but now with the trade intertwining there, war within Europe is unlikely. The Choice, financial/money argument for trade, is only a small part. More important part is the dynamism it produces in our economy that lets each generation pursue its dreams. "When goods cannot cross borders, soldiers will."