A Splendid Exchange

William Bernstein’s wise decision to appear on EconTalk to appeal to the all-important ‘Joe’ demographic has paid off. I just last week finished his book, A Splendid Exchange: How Trade Shaped the World. The book is a discussion of the history of trade since the beginning of human history. Many of us free traders base our support on our understanding of the increasing benefits to exchange of expanding the market. Bigger markets and increased trade are almost always good. In this book Bernstein shows how markets actually expanded, connected, and have been controlled, and tells us about the great innovators and innovations in trade throughout history that contributed to these processes.

International trade is quite ancient. Indian trading partners has embassies in Augustus’s Rome. Much of the history of trade is a history of the different groups who were able to control the chokepoints. There’s quite an advantage to monopolizing trade routes, but fortunately this has become increasingly difficult to do. When Muslim Arabs conquered the Middle East, they cut off Europe from the East, and controlled that trade. The group to finally break that dominance was the Portuguese, who attempted to establish their own monopoly of the East-West trade. I find the Portugese quite intresting as they were quite unlikey for this role; Bernstein calls them ‘the dog who caught the car’. Coming out of the Middle Ages, Portugal had a population of one million, primitive capital markets, and a limited understanding of the outside world (Portugal wanted to conquer the Sahara as a route to India, and explore to find a mysterious Eastern Christian kingdom that could help in further Crusades). Despite their limitations, in the years after Vasco de Gama rounded Africa, Portugal was the main power on the seas especially in the Indian Ocean. They did this with the help of the plague (which devastated the other fleets of the India Ocean), brutality, and by militarily taking control of the major check points.

Unfortunately for them, Portugal’s larger and more advanced Europeans rivals soon became jealous and there was a competition to control these routes which the Portuguese could not win. Portugal was surpassed by the Dutch, who in turn were eclipsed by the British after the Glorious Revolution. Fortunately now, international trade is largely free trade, and it is more important to keep open routes than to dominate them. Bernstein discusses this transition and the politics of trade. Smith, Ricardo, and Cobden all make appearances in the book as do some lesser know theorists that Bernstein revives. Perhaps more interesting, and unknown to me, were the internal politics of China. The kingdom's insular rulers kept the biggest power largely away from an active role in international trade for most of its history.

Bernstein, a neurologist by day, is more of a popularizer than a leading edge researcher. Although people thought I was crazy carrying it by the pool, I considered this book a sort of light read. Nonetheless, I thoroughly enjoyed it. Enough in fact, to put it on my Amazon recommendations list! (On the right side of this blog)

9/10