13 October 2006
Although every student of international economics is familiar with the theoretical case for free trade first expounded by Adam Smith in the late 18th century, not all will appreciate the ideological battle that Smith and the classicists had to wage to overcome entrenched ideas.
Jealousy of Trade is an excellent book for understanding the politico-economic arguments that raged at that time and against which Smith and others wrote. As economic nationalism seems to be on the ascendancy once again, it is important that scholars and policymakers study how and why such ideas were once contested.
The term "jealousy of trade" was first used by David Hume in a 1758 essay of that title. Earlier, the 17th-century political philosopher Thomas Hobbes wrote of the "Jealousy of the State" in Leviathan to refer to the natural inclination of "kings and persons of sovereign authority" to go to war. Jealousy of trade is the economic counterpart of jealousy of the state. It refers to the "pathological conjunction between politics and the economy" at that time "that turned the globe into a theatre of perpetual commercial war". It is what would be called economic nationalism today.
The goal of Smith and Hume was to show that trade is a reciprocal process in which all countries gain and in which the attempt by one country to make gains at the expense of others is ultimately futile and self-destructive.
The notion of "jealousy of trade" may be viewed as the application of the Hobbesian notion of "reasons of state" - defined as "the primacy of politics in the pursuit of national advantage and princely glory, overriding all moral and legal considerations" - to trade.
The absolutist monarchy in France led the way in applying reasons of state to trade. Under the economic regime of Colbert, Chief Economic Minister under Louis XIV, war and trade were welded into a single policy of political and military aggression. For almost the entire 18th century, Britain and France were "locked in economic and military competition".
Jealousy of Trade is a collection of seven related studies that grew out of Istvan Hont's doctoral thesis at Budapest University and research he directed at Cambridge University. The chapters are tied together by an introduction that explains the historical genealogy of jealousy of trade.
The first chapter explores the relationship between the ideas of Smith and the German natural jurist Samuel Pufendorf, whose notion of "commercial sociability" was borrowed by Smith for his analysis of market behaviour.
This is followed by a chapter that examines how, after the Glorious Revolution of 1688, British neo-Machiavellian political economy was transformed as Britain rose to become the commercial hegemon of Europe.
Britain's success in trade and war led to what Hume regarded as Britain's total capitulation to jealousy of trade.
The third chapter discusses how the issue of whether poor countries gain from trading with rich ones was debated during the Scottish Enlightenment. Hont demonstrates that the theory of comparative advantage, expounded in later decades by David Ricardo, was well understood by the Scottish political economists Hume and Smith.
Hume was a supporter of the parliamentary union established between Scotland and England in 1707 because Scotland as a poor country would gain from free trade with England. No nation, he argued, could develop a monopoly of global trade because poor countries such as Ireland and Scotland would eventually undercut the monopoly and take away its trade. Smith, however, rejected Hume's argument on the grounds that rich countries have a greater abundance of skills so that tasks can be performed in less time and, hence, at lower cost than they could be performed in poor countries.
The next three chapters explore how the regulatory regimes of modern nations were transformed by the rise of hypercompetitive trading states. Much of political economy in the 18th century was taken up with debates about two issues - financial and agricultural reform.
One chapter examines Hume's views on the issue of public debt created as a direct consequence of war and his radical ideas for the state declaring "voluntary bankruptcy" as the solution. In effect, he argued that the war-debt system could be killed off only by applying the politics of necessity and "reasons of state". The next two chapters deal with Smith's advocacy of free trade in agriculture and his programme for reform.
The book's final chapter explores 18th-century thinking about the commercial nation-state. It begins with an outline of Smith's views in The Theory of Moral Sentiments about patriotism and national envy. Smith's alternative was the notion of "national emulation" or "the competitive pursuit of national economic excellence". True patriotism emphasises national economic growth, not conquest and war. The chapter considers how nationalism grew out of the 18th-century concept of national animosity and the 19th-century "principle of nationality", which was expounded by the Italian theorist Giuseppe Mazzini, among others. Hont shows how the principle of nationality, with its emphasis on the nation as a cultural entity based on common ethnicity, became connected with jealousy of trade. This led to the emergence of economic nationalism in the modern sense.
The great value in studying intellectual history is that it can help us to see how earlier generations grappled with issues very similar to those that we face today. This work is essential reading for all who seek to debate the desirability of expanded trade, especially those political leaders who continue to view trade as a zero-sum game.
Nigel Grimwade is head of economics, London South Bank University.