A Splendid Exchange: How Trade Shaped the World from Prehistory to Today by William J. Bernstein

My rating: 4 of 5 stars


Five or six years ago, a Christmas mix-up resulted in my brother receiving two copies of this book. Not knowing what to do with one, he simply gave it to me. In so doing, however, he disobeyed Adam Smith’s doctrine that humanity has a natural instinct to truck and barter. Clearly, a rational animal would have used it to exchange for something he himself lacked, like cinnamon or frankincense or some textiles. What a wasted opportunity.

This book is part history of, and part homage to, trade. Four hundred pages is not nearly enough space to give such an expansive topic exhaustive coverage. But Bernstein does manage to pack quite a lot of interesting tidbits into his narrative. What most struck me was how central trade has been to human history. It has caused wars of invasion, spurred on colonialism, motivated the great journeys of “discovery,” helped to spread epidemic diseases, and stimulated newer forms of economic organization. In short, the urge to turn a profit has helped to join together every corner of the world—leading to many wonderful things and quite a few atrocities, too.

After reviewing this thrilling history, Bernstein ends by examining the old conflict between free trade and protectionism—or, more concretely, low tariffs or high tariffs. It is an interesting question. Low tariffs provide a small but tangible benefit to the general populace in the form of cheaper goods; but they do so at the expense of workers displaced by competition from abroad (and vice versa with high tariffs). So what is more important, knocking off a few cents from something bought by millions or allowing a few thousand people to keep their job? The traditional answer is that the government should keep tariffs low, and “bribe” those displaced with additional support in the form of welfare and job retraining. But in practice most workers are left to fend for themselves, which can eventually create political instability if resentment grows too widespread.

Another question has to do with the development of an economy. High tariffs can be used to shield domestic industries from foreign competition, allowing them to grow to the point that they can effectively compete. But high tariffs can also preserve inefficient companies and obsolete technologies, putting a country at a long-term disadvantage. Orthodox economic logic always favors free trade, but the evidence is mixed. According to Bernstein, several studies actually found a positive correlation between high tariffs and economic growth in the 19th century. Still, Bernstein comes down in favor of free trade, not because it offers an economic miracle (he says its benefits are overstated), but because it helps to foster bonds between potential enemies. But, if you ask me, when a nation is dependent on another (and potentially weaker) country for its resources, this can easily become a powerful source of conflict.

Now, if you don’t mind, I am going to disobey Adam Smith myself and donate this book to a library.



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