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Published by EH.NET (August 2003)
Leonard Gomes, _The Economics and Ideology of Free Trade: A Historical
Review_. Cheltenham, UK: Edward Elgar, 2003. x + 350 pp. $120 (cloth),
ISBN:1-84376-131-9.
Reviewed for EH.NET by Lawrence Officer, Department of Economics,
University of Illinois at Chicago. <[log in to unmask]>
Leonard Gomes, formerly Reader in International Economics at Middlesex
University (U.K.) has written a book that exposits and evaluates a large
body of economics literature -- both contemporary and modern -- on the
"free trade versus protection" controversy from the mercantilist era to
modern globalization. There are two parts to the volume. Part I ("Free
Trade: The Economics") provides a history of economic theory on free trade
and tariffs. The author here can be interpreted as taking the viewpoint of
a linear improvement in theorizing over time, although, in fairness, he
never makes that perspective explicit. Part II ("Free Trade: Rhetoric,
Events, Policies and Ideology") is concerned largely with applications of
theory in light of some great pertinent events in trade history, beginning
with repeal of the Corn Laws.
The first chapter ("Regulated trade -- our mercantilist heritage") sets the
stage with good references to the economic doctrinal literature, which
continues throughout the book. An important characteristic of mercantilism
-- integration of economics and politics, is well-stated: "What we would
now normally regard as purely economic processes and events (business
activity, consumer choice, investment decisions, the commodity composition
of trade, the use of resources, and so on) were always thought of in
relation to politics and strategy. .... The theme of 'power' and 'plenty'
being mutually reinforcing joint goals of national policy echoes like a
refrain throughout the mercantilist literature" (pp. 7, 15). The famous
Mun-Misselden controversy is discussed. Mun's program for the growth of
wealth, while oriented to generation of a trade surplus, requires "prudent
government regulation" (p. 9) -- a quotation applicable to later trade
policy. Gomes notes that Mun lacked the concept of opportunity cost, which,
of course, was to be an important element in classical trade theory. The
views of Keynes and Heckscher on the employment-policy aspect of
mercantilism are assessed.
Gomes observes that the mercantilists advocated export promotion (except
for domestic raw materials, physical capital, and skilled workers) and
import restriction (except for essential foodstuffs and raw materials not
in domestic supply). Of interest to economic historians is discussion of
the use of bilateral commercial treaties to obtain such advantage. For
example, several seventeenth-century treaties made Portugal "a virtual
commercial vassal of England" (p. 14) solidified by the Methuen Treaty of
1703. Commercial treaties were customarily imposed after wars. "The English
found that war as an instrument of policy could be both effective and
profitable" (p. 15).
This reviewer found the first chapter to be the most interesting of the
book, largely because the author exposits excellently the practical-policy
orientation of the mercantilists. As Gomes (p. 27) concludes:
The mercantilist trade propositions are embedded in a total paradigm which
includes a concern with international inequalities, national ambitions,
growth and development. The trade theory which became associated with the
classical economists -- rightly or wrongly -- abstracted from these
real-world concerns, and this default impoverished the utility and
relevance of classical theory.
Chapter 2 presents classical (free-)trade theory by author, including
diverse modern interpretations. Torrens, Ricardo, and James Mill are all
considered as originators of the theory of comparative advantage, and Gomes
(p. 42) concludes that this was a case of "multiple discovery." Gomes
cleverly observes that Ricardo portraying Portugal as technologically more
advanced (greater labor productivity in both cloth and wine) than England
"only served to highlight the economic logic of the argument." As for Adam
Smith, he is considered an eminently practical or pragmatic free-trader:
tariffs should be removed, but gradually. Other contemporary authors also
receive attention.
The "national economists" are the subject of chapter 3. The author properly
views the most important as Friedrich List, but predecessor American
protectionists (Alexander Hamilton and others) are not neglected. An
important footnote (page 90) discusses the extent of American protectionist
influence on List. Interestingly, in reverse, List is seen as helpful in
bringing about the U.S. "Tariff of Abominations" of 1828. List's program of
orienting tariff policy to a country's stage of development is exposited
well. In particular, as is not realized by many but noted by Gomes, in both
the initial (predominantly agricultural) and final (fully industrial)
stages _free trade_ is the proper policy objective. In the intermediate
stages, the dynamic (long-run) gains of protection exceed the static
(short-run) losses. Gomes observes that both Alfred Marshall and Joseph
Schumpeter praised List.
The "age of Marshall" is the subject of chapter 4 and "trade and general
equilibrium" of chapter 5. These sections of the book complete, and bring
up to the present, the doctrinal history that is the theme of Part I.
Attention is devoted here to both European and British economists. The
protectionist views of the great analytical economist Augustin Cournot
might be surprising to some. Gomes (p. 153) makes an enchanting observation
on the Stolper-Samuelson theorem:
At the time it was published, the Stolper-Samuelson result must have
appeared pretty obvious to politicians and the public at large. Intuition
suggests that protection of labour-intensive industries in a
labour-scarce country such as the United States is very likely to tilt the
distribution of income in favour of workers since it makes American labour
compete [competitive?] with foreign labour that may be paid a fraction of
the American wage. Economists at the time, however, would have been
doubtful. Their reasoning would have been: yes, protection may in the short
run benefit labour, but it is certain to lower overall income and, hence,
will hurt workers too. What the Stolper-Samuelson result did was to show in
an impeccably rigorous manner that the doubting economists' reasoning was
flatly wrong and that the obvious was really true after all.
Part II of the book might be of greater interest to most economic
historians, as the author weaves the views of contemporary economists with
events. Chapter 6 deals with the famous debate on the repeal of the Corn
Laws, this repeal finally effected in 1846. The controversy is summarized
well: "The great issue at stake then was: should the country try to
maintain its agrarian economy [via continued protection] or turn itself
into a giant manufactory [via free trade]?" Gomes assesses the debate among
economists as distinct from popular pamphleteering. The famous economists
of the day were fully involved in the debate. Gomes (p. 187) sees Ricardo
"like Adam Smith ... a pragmatic free-trader conscious of the power of
vested interests." Ricardo advocated a gradually reduction of tariffs, over
a period of ten years, and combined with an export subsidy. Some
economists, such as Torrens, gave free trade "a mercantilist twist" (p.
191), as British manufacturing would thereby gain an export monopoly.
In one of several (but perhaps, for historians, not enough) references to
the historical literature, McCloskey's counterfactual finding that British
income might have been higher during 1841-1881 under protection is
discussed. Gomes makes the interesting point that some (not all, of course)
economists in the contemporary debate would not have been surprised by
McCloskey's findings. Another good observation of Gomes is that the debate
on the removal of restrictions on the export of skilled artisans (done in
1824) and machinery (effected in 1843) found a later parallel in the
controversy on export of technology in the United States in the l970s.
The British tariff-reform debate of 1903 is the subject of chapter 7. Here
Gomes refers approvingly to the finding of Crafts and Thomas that Britain
had a comparative disadvantage in human-capital-intensive commodities. The
implication is that the decline of Britain's industrial position relative
to the United States and (later) Germany reflected a scarcity of human
capital. Gomes exposits well the "fair-trade" agitation of the time, and
discusses the free-trade manifesto of fourteen economists (including a
reluctant Alfred Marshall), which manifesto "occasioned more ridicule than
respect" (p. 230).
Chapter 8 deals with globalization then (late 1870s to World War I) and now
(end of World War II to the present), with attention also to the interwar
period. The topics here are perhaps discussed in greater depth in other
works, but the author nevertheless keeps the reader's interest with
interesting tidbits. For example, President Herbert Hoover refused to
exercise his veto over the Smoot-Hawley Tariff Act of 1930, in spite of a
petition advocating this action signed by over a thousand economists! There
appears to be an inconsistency (rare in the book) in Gomes's view of the
responsibility of protection for the Great Depression. At first (p. 270),
he sees protection having an "immediate and devastating" effect on the
world economy, ushering in the world depression. Later (p. 275), he assets
that "protectionism was not one of the initial or initiating factors in the
collapse of the economic system."
In a chapter largely out of synch with the rest of the volume, Gomes
concludes with reflections on globalization. His concern with increasing
"global inequality" is manifested. The bind of labor-abundant poor
countries is (1) the mass migration of the nineteenth century is not
permitted, and (2) the flow of capital from rich to poor countries is
falling. Refreshingly, Gomes correctly observes that "developing countries,
for their part, need to look at the anti-trade effects of their own trade
barriers against one another" (p. 324).
All in all, Gomes deserves praise for an excellent presentation and
assessment of a large body of economic literature, and for incisive
observations regarding history of thought and events.
Lawrence H. Officer is Professor of Economics at University of Illinois at
Chicago. As Editor, Special Projects, EH.Net, he has recently completed
"What Was the UK GDP Then?" which is available on the EH.Net website.
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