In short one is forced to agree with the German historians […] who see long-distance trade as an essential factor in the creation of merchant capitalism and in the creation of the merchant bourgeoisie. — Fernand Braudel [French historian].

I recently read A Splendid Exchange by William J. Bernstein and found it a quite interesting history of trade. Before the modern era, trade was difficult and dangerous. "Traders did not venture abroad without letters of introduction to expected business contacts, or without letters of safe conduct from the local rulers along their route. Otherwise, they were certain to be robbed, molested, and murdered." Even then, "merchant ships provided corrupt government officials with easy targets."

"Were the trader lucky enough to complete the journey with his cargo and person intact, ruin could still come at the hands of a fickle marketplace. … Why would anyone risk life, limb, and property on journeys that might carry him from hearth and home for years on end, yielding only meager profits? Simple: the grim trading life was preferable to the even grimmer existence of the more than 90 percent of the population who engaged in subsistence-level farming. An annual profit of one hundred dinars–enough to support an upper-middle-class existence–made a trader a rich man."

An interesting tidbit about currency is that a one-eighth ounce gold coin has typically been the standard medium of exchange through the ages. Silver coins of similar size roughly corresponded to a day's wages before the last few centuries.

In a chapter on ancient Greece, Mr. Bernstein notes that poor soil drove the strategic imperative of Greek city-states to develop empires to secure adequate food supplies. Athens imported much of its grain from the Crimean peninsula. Along this route were numerous narrow passages, particularly the Bosporous and Hellespont in modern Turkey. To assure its food supply, Athens had to establish military outposts or cultivate allies at these "choke points". The need to prevent closure of choke points became an important strategic consideration for later Western powers, and remains so to this day.

The founder of Islam was a trader, and Islam dominated medieval trade. The largest trading system in the medieval era was in the Indian Ocean, where trade moved to the annual rhythm of the monsoon winds. Sailing ships traveled east and north as far as China during the summer monsoon and west and south to return to Baghdad or Arabia during the winter monsoon. Europeans were forcibly kept out of this system until Vasco da Gama rounded the Horn of Africa in 1498.

By the 1600's, the Dutch East India Company had become the dominant force in world trade. The Netherlands had the best foundation for building wealth and prosperity–"advanced political, legal, and financial institutions."

"In England, reputable borrowers (that most certainly did not include the crown) paid 10 percent on their loans, versus 4 percent in Holland, with the Dutch government getting its credit at the lowest rates of all. By contrast, in England, where the crown could, and often did, repudiate its loans, lenders charged it higher rates than those for good comercial borrowers." This difference in interest rates gave the Dutch a huge advantage over the English.

Mr. Bernstein weighs the historical evidence and finds mercantilism wanting. Henry Martyn, an early British advocate of free trade, "saw clearly that mercantilists, by equating gold with wealth, repeated the mistake of King Midas. Precious metals are useful only because they can be exchanged for things we want or need. A nation's true wealth, Martyn realized, was defined by how much it consumed".

For as long as there has been trade, there have been local producers harmed by competition from better or cheaper imports, leading to calls for protectionism. In Britain, the Corn Laws heavily regulated agriculture, generally for the benefit of the landed aristocracy, for centuries before they were repealed in 1846. At one point during the debate to repeal the Corn Laws, a parliamentarian suggested it would cost the nation less to buy off the aristocrats than to continue to block imports of cheaper grain from the Continent.

Research by Jeffrey Sachs and Andrew Warner found a strong positive correlation in developing nations between free-trade policies and increase in GDP between 1960 and 2006. Mr. Bernstein also notes a positive correlation among rich countries between international trade as a percentage of GDP and government spending as a percentage of GDP, suggesting that, as international trade expands, so does the need for assistance to people put out of work by foreign competition.

My brief review cannot do justice to the many topics covered in this book, including slavery and the spread of diseases. On the latter, suffice it to say that the risk of a deadly epidemic is far less today than during 1300-1800, when previously localized diseases spread worldwide, and the populations in the newly affected areas had no immunity.


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