An Historical Review
Chapter 1: Regulated Trade – Our Mercantilist Heritage
1.1 INTRODUCTION Students of international economics justly claim that their subject is the oldest branch of economics. Theorems, concepts and hypotheses still currently in use were developed during the infancy of the discipline. The concept of the balance of trade, the price–specie ﬂow mechanism, purchasingpower parity and comparative costs are examples of the ancient lineage of the concerns of international economics. In 1938 Paul Samuelson observed: ‘Historically, the development of economic theory owes much to the theory of international trade.’1 More recently, in connection with a reference to Bertil Ohlin’s contribution to the theory of international trade, Samuelson repeated that ‘trade theory has always been the queen realm of economic theory’ (Samuelson 1981, p. 150). The economic historian Deirdre McCloskey noted in 1980: ‘Since the inception of the discipline its best minds (many of them British) have put commercial policy at the centre of their thinking’ (McCloskey 1980). This is so, primarily because problems of international trade and ﬁnance have always been among the most momentous and controversial of issues in economic debate. It all started with the writers we call ‘mercantilist’ airing their views on pressing contemporary problems that happened to be those connected with foreign trade: monetary problems, the foreign exchanges and the balance of payments. Although they often diﬀered in their perceptions of the problems, they shared a common assumption, namely the necessity for regulating foreign trade by the state in the interests of national power, wealth and aggrandisement. The basic elements of mercantilist doctrine...
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