Sunday, March 9, 2008

Quote of the Day

When economics students are first exposed to the study of international trade, they are asked to contemplate two countries, A and B, who have each been endowed with a certain amount of the various factors of production—land, labor, capital, and so on—as well as with a given technology which translates those endowments into consumption goods, together with a set of preferences over these goods. The two countries then trade with each other, or not as the case may be, and the consequences of trade are derived for consumers and producers alike. If time is brought into the theory at all, and usually it isn’t, this typically takes the form of allowing countries to gradually accumulate capital, breed new workers, or become better educated as a result of the voluntary decisions of rational, free individuals. The summit of unpleasantness attainable in such models is the use of tariffs, quotas, and other trade policy instruments that will benefit some individuals or groups (and possibly nations) but lower the utility of other domestic or foreign residents.

If only life were like this. As we point out below, the greatest expansions of world trade have tended to come not from the bloodless tâtonnement of some fictional Walrasian auctioneer but from the barrel of a Maxim gun, the edge of a scimitar, or the ferocity of nomadic horsemen. When trade required more workers, parental choices regarding quality/quantity trade-offs could often safely be ignored, since workers could always be enslaved. When trade required more profits, these could be earned via plunder or violently imposed monopolies. For much of our period the pattern of trade can only be understood as being the outcome of some military or political equilibrium between contending powers. The dependence of trade on war and peace eventually became so obvious to us that it is reflected in the title of this volume.

Source; Power and Plenty: Trade, War, and the World Economy in the Second Millennium
Ronald Findlay & Kevin H. O'Rourke

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