Against the Tide: An Intellectual History of Free Trade

National Interest, The, Fall, 1997 by David S. Bruce

Amid such turbulence, we should welcome an overview of the intellectual history of free trade. Douglas A. Irwin of the Chicago Business School has attempted such an undertaking, appropriately entitled Against the Tide. The book divides into accounts of the origins of free-trade doctrine and the controversies it has aroused - fifteen sections in all, examining in detail the ideas of leading theorists from Adam Smith to Harry Johnson. It depicts the turmoil of intellectual countercurrents and criticism as acutely as the positive arguments on behalf of free trade. Irwin's essentially chronological presentation quotes widely and judiciously to provide a useful and economical synopsis of the literature, especially valuable for bringing to bear the views of such great twentieth-century thinkers as Jacob Viner. The historical and intellectual connections play illuminatingly backward as much as incrementally forward.

After a brief chapter on "Early Foreign Trade Doctrines", Irwin focuses in earnest upon the mercantilists, as they came to power in the principal countries of Europe around 1650; for "mercantilist doctrines not only constitute a major epoch in economic thought, but provide the immediate backdrop for the emergence of free trade thought." He further points out that mercantilist thinking broke with previous economic doctrine in actively promoting the expansion of trade, albeit under state guidance. From mercantilism Irwin progresses to Adam Smith's counterattack, seeking, among other things, to show how Smith's thinking originated in what he terms the "physiocratic and moral philosophy" of the previous century, and emphatically not in the economic literature of his own epoch.

Having clearly and capably articulated Smith's arguments, Irwin closes his first section with a general treatment of free trade's part in classical economic doctrine before moving in his second section to treat the influence and arguments of Robert Torrens, John Stuart Mill, Frank Graham, and Mikhail Manoilescu. He follows these with omnibus intellectual sketches of "The Australian Case for Protection", "The Welfare Economics of Free Trade", "Keynes and the Macroeconomics of Protection", and "Strategic Trade Policy." The book's brief conclusion is clear, to the point, and well expressed, but the chapter on Mill and his classic defense of special-case protection the famous infant industry argument - stands out. This is a well chosen case to emphasize, because Mill's argument is one entirely grounded on economic, not political, considerations. The doctrine that the state should be obligated to nurture significant domestic industries that would otherwise perish under the leveling winds of international competition is one of the earliest and most enduring cases for state intervention in the economy.

Irwin's work, then, is admirable in its choices and basic sympathies - which makes all the more disappointing its substance. Much of Irwin's strictly intellectual history is arguable and he shows real epistemological deficiency in the overall approach to his task. His exposition of the intellectual history of free trade concerns itself with the history of economists rather than of economies or of societies. He has produced a discussion of intellectual, or theoretical, analysts from Adam Smith to the present day with a certain emphasis upon free traders, but he leaves out too much of economic reality in the process. Perhaps most unfortunate of all, he does not discuss internal free trade, crucial though the issue has been over the last two hundred years. Theories rightly deemed to hold true across international borders are never put to the very interesting tests of internal application; binary international trade relations are taken for granted as the staples of trade theory, whereas the taxation and subsidy of such internal facilities as roads, canals, or railways are passed over.

The imbalance in Irwin's treatment of ideas is sometimes striking. The merit of Ricardo's original issue-framing analyses is that they extended Smith's depiction of comparative advantage into the larger postulate that two countries should engage in commerce even if one is more efficient in producing all traded items, because the consequent differentiation of type and price will lead both countries to maximize their output. But such key refinements to the central elements of free-trade doctrine go neglected, while secondary economists are indulged with entire chapters. This is like a study of Elizabethan literature that offers us nothing on Antony and Cleopatra, while devoting whole chapters to Greene's Groatsworth and All's Lost By Lust.

In reviewing marginal speculations, Irwin awards the palm for the most penetrating criticism of the classic argument for free trade to the Englishman Robert Torrens, who elaborated an entire theory of the optimal tariff as he believed it to operate upon a purely bilateral system of trade, which Irwin solemnly intones to be "the most durable and important exception to free trade ever conceived." If this indeed be so, no one wearing an Adam Smith necktie will ever choke. With a formalism characteristic of his age, Torrens posited a precise binary trade relationship between two countries, a remarkably frozen model that allows no substitution - a constriction that the real world very rarely imposes. Torrens' own, almost eccentrically special, instance is the Anglo-Cuban trade of the 1840s, in which Cuba had neither the incentive nor the short-term capacity to substitute any other commodity for its sugar exports. But substitutions are the long-term rule of our experience of trade, and a multiplicity of trade relations clearly works to overwhelm any single binary fiat that may underlie the calculus of an optimal tariff. Such a closed-system economy as Torrens erects into his model for the world as a whole was even then unusual; today it is totally inapplicable.