Protectionnism and Free Trade in Economical Doctrines

The theoretical basis of a study of international  economic  relations
in its modern form was formed as a result of a long and  difficult  process,
full of successes but, nevertheless, with important mistakes.
      The early roots are to be found, perhaps, in Antic Greece in the works
of Aristotel, Platon  and  Xenophon.  In  general,  the  antic  philosophers
opposed to the big commerce,  supporting  the  idea  of  a  closed  domestic
economy. The closed character of  the  production  of  a  self-supply  type,
dominating from the antiquity up to 15th  century  gave  no  incentives  for
developing any profound and constant  studies  on  international  trade.  In
these conditions is in no way occasional that  the  theorists  of  antiquity
and  Middle  Ages  (scholastics)  exaggerated   the   role   of   production
(especially agricultural) and pleaded against the  "art  of  making  money",
the chrematistics (after Aristotel).
      At the dawn of the Modern Age (16th century) there appeared the  first
trials of more systematic analyses of the international economic relations.
      Developed during the period of  the  downfall  of  feudalism  and  the
transition to capitalism, the mercantile  theory  was  the  first  trial  to
explain integrally the principles of international trade in  a  paradigm  of
the analysis of economic reality.

      Perhaps, the field of international trade was first closely studied by
men of affaires, in private or governmental employment, as no other  topical
area, as a part of an effort to increase the wealth and  the  power  of  the
nation, with which these men tended to  identify  their  own  welfare.  This
body of doctrines, later named by Adam  Smith  the  "mercantile  system"  or
"mercantilism",  insisted  that  the  acquisition  of  wealth,  particularly
wealth in the form  of  gold,  was  of  paramount  importance  for  national
policy. Mercantilists took the virtues of  gold  almost  as  an  article  of
faith; consequently, they never undertook  to  explain  adequately  why  the
pursuit of gold deserved such a high priority in their economic plans.
      The mercantilists held that economic policy  should  be  nationalistic
and aim to secure the wealth and power of the state. This concept was  based
on the conviction that national interests are inevitably in conflict -  that
one nation can increase its trade only at the expense of other nations.
      Thus  the  most  pervasive  and  most  emphasized  doctrine  was   the
importance of bringing about and  maintaining  an  excess  of  exports  over
imports, for that was the only way for a country  without  gold  and  silver
mines to increase its stock of the precious metals. In this way the  foreign
trade, after mercantilists, was reduced to the maximum exports of goods  for
gold and silver and some exports of raw materials and precious metals.
      The desire for a "favorable" balance  of  trade  was  never  based  by
mercantilist writers on a to see their countries engaged in capital  export,
to make investments abroad, as the majority of them were at  least  confused
as to the difference between money and wealth,  and  very  often  identified
these two terms.
      The idea was also that the state should provide its  citizens  with  a
monopoly of the resources and trade  outlets  of  its  colonies.  A  typical
illustration of the mercantilist spirit is  the  famous  English  Navigation
Act of 1651, which reserved for the home country the  right  to  trade  with
the colonies and prohibited the  import  of  goods  of  non-European  origin
unless transported in ships flying the English flag. This  law  lingered  on
until 1849. A similar policy was followed in France.

Thomas Mun

      Thomas Mun, as a representative of mercantilist school, was one of the
firsts to deal extensively with the balance of international trade  and  the
balance of international payments. He first  introduced  into  this  balance
such components as the sale of numerous services - freight earnings,  marine
insurance  payments,  travelers'  expenses,  and  many  more  -  to  foreign
      Among other adepts of mercantilist theory  we  can  name  also  Edward
Misselden, William Petty, and others.
      With the emergence  of  mercantilism  in  the  16th-17th  century,  an
extensive body of literature dealing with the international trade  appeared,
although we must add immediately that  it  yielded  relatively  few  lasting
contributions to international trade theory.
      Mercantilists' ideas often were  intellectually  shallow,  and  indeed
their trade policy may have been little more  than  rationalization  of  the
interests of rising merchant class that wanted wider  markets  coupled  with
protection against competition in the form of imported goods.


      A strong reaction against mercantilist attitudes began to  take  shape
toward the middle of the 18th century. In France, the  economists  known  as
Physiocrats demanded liberty of  production  and  trade.  In  England,  Adam
Smith demonstrated in his The Wealth of Nations  (1776)  the  advantages  of
removing  trade  restrictions.  Economists  and  businessmen  voiced   their
opposition to excessively high and  often  prohibitive  customs  duties  and
urged the negotiation of trade agreements with foreign powers.
      This movement was later named liberalism and the very first economists
fighting against the mercantile ideas are regarded to as  the  pre-classical

Pre-classical Liberalism

      18th  century  is  often  remarked  through  the  development  of  the
scientific trend  in  studying  human  society.  In  this  way  through  the
association with such sciences as physics, medicine, astronomy, and  others,
it was proved that the society is ridden by the "natural  law".  Instead  of
being finalistic and normative, as in the Middle Ages,  the  human  sciences
became descriptive and explanatory. One of the first scientists which  tried
to follow these concepts are the pre-classical liberalists  and  among  them
such economists as Dudley (Douglas) North, Cantillon, Hume,  Condillac,  and

Dudley North

      North undertook a vigurous attack aimed at ridding the  discussion  of
foreign trade matters from mercantilist "superstitions".  He  has  fittingly
been called the first "free trader"  in  the  Smithian  sense.  Viewing  the
whole  world  rather  than  a  single  nation  as  an  economic   unit,   he
demonstrated that there's no  fundamental  difference  between  foreign  and
domestic trade. North also presented a concise formulation of the  automatic
and self-regulating mechanism that provides a nation with that sum of  money
required for carrying its trade.


      Cantillon deflated mercantilist tenets by showing that  if  a  country
continues to sell more than it buys from  abroad,  money  will  successively
will flow into it and, as a first consequence, land and labor in the export-
surplus country will become more expensive.


      Hume greatly helped to piece together the  theory  of  self-regulating
international trade, and he went beyond Cantillon  in  pointing  out  why  a
country could not permanently have  a  "favorable"  or  "unfavorable"  trade
balance. Specifically, he stated the  theory  of  self-regulating  mechanism
with a much greater degree of clarity and incorporated it more  consistently
with the remainder of his work than was the case with any of the earlier  or
contemporary  writers.  He   included   the   influence   of   exchange-rate
fluctuations  on  commodity  trade  in  the  mechanism  as   an   additional
equilibrating factor. Hume considered that the  exchange  rate  equilibrates
the trade balance of the country; this meaning that it grows, if  the  trade
balance tends to the unfavorable one and in this way  presses  the  imports,
and vice-versa.


      Condillac applied  his  utility  theory  to  international  trade  and
demonstrated that what holds  true  for  exchange  between  two  persons  is
largely applicable also to  commerce  between  nations.  The  inequality  of
subjunctive valuations he saw reflected, on a larger  scale,  in  the  total
exchange  transactions  between  nations.  He  decried  the  foolishness  of
establishing trade barriers because it is in the  very  nature  of  exchange
that both parties will benefit - what  is  offered  for  sale  always  being
valued less highly than what is acquired in return. If each nation  insisted
on selling only, they would all eventually wind  up  without  foreign  trade
and  deprive  themselves  of  its  benefits.  Condillac  went   beyond   his
predecessors Hume and Cantillon  in  showing  that  even  if  other  nations
continue  putting  up  obstacles  to  international  exchange,  it  will  be
advantageous for a particular country to adhere  to  free-trade  principles.
He concludes, somewhat optimistically, that  when  trading  enjoys  complete
and permanent liberty, wealth is bound to spread everywhere.

Classical Liberalism

      Classical liberalistic school gave us three  models  of  international
 > the physiocratic model
 > the absolute advantage theory
 > the theory of comparative advantage

Physiocratic model

      The mercantile policies imposed in the  16th  -  17th  century,  which
proclaimed the accumulation of wealth through trade, in the  form  of  money
capital, had ridden the most of European  countries  (maybe  except  Germany
and, in some measure, Britain) into a state of  a  downfall  of  production,
especially of agricultural one.
      Gradually there appeares the idea that the wealth consists  of  goods.
In this sense, physiocrats can be considered the pioneers.  Supporting  that
the wealth is the totality of agricultural goods,  physiocrats  leave  money
the role of a means of exchange only.
      In these conditions, the new conception about the international  trade
appears. Once the wealth derives from agriculture,  it  is  not  created  by
trade,  therefore  the  trade  must  be  based  only  on  the  exchange   of
equivalents, while money are no more than a means of exchange.
      The physiocrats oppose to the active  ("favourable")  balance,  as  it
results from the export of wealth (in the form of goods), and the import  of
money (which are not wealth). They fight to realise an equilibrated  balance
in international trade.


      The founder of the Physiocratic School, Quesnay,  in  all  probability
heavily indebted to Cantillon, brought out the fact that the  state  of  the
balance of trade between nations is neither an indicator of  the  advantages
of foreign commerce nor that of the  wealth  of  nations.  But  he  was  the
author of theory which contained  the  idea  that  when  a  country  imports
luxury goods, selling the most necessary  or  most  useful  commodities,  it
prospers, because it means that the people are able to  produce  beyond  its
basic requirements.

The Absolute Advantage Theory

      The British school of "classical economics" began in no small  measure
as a reaction against the  inconsistencies  of  mercantilist  thought.  Adam
Smith was the 18th-century founder of this school;  his  famous  work,  "The
Wealth of Nations", is in part an anti-mercantilist tract.  In  "The  Wealth
of Nations", Smith emphasized the importance of specialization: in  a  world
where the  productive  resources  are  scarce  and  human  wants  cannot  be