Modern economic thought considers protectionism to be inefficient, but pre-modern states tended towards protectionism. Did early economists understand the negative effects of such measures? If so, how did they manage them?

by Chinkie_Winkie
AlviseFalier

I don't think there's any real merit to discussing protectionism in pre-industrial economies. Sure, government actions and policies could stifle or favor trade and free enterprise, but when the vast, vast, vast majority of goods consumed by ordinary people were produced, bought, and consumed locally there's limited use in examining the impact of international trade.

But that's not to say long-distance and international trade did not exist prior to industrialization. As an example, the presence of North African pottery in Southern Europe is a useful proxy for post-Roman stability and prosperity; while most prosperous merchants and investors in the medieval Italian cities, my own flair area, were precisely those partaking in international trade. However, international trade was lucrative because it was risky, and with few exceptions foreign goods were generally raw materials destined to be turned into goods for the consumption of the wealthy. Foreign products competing in local markets only really began having a measurable presence after the invention of the steam engine allowed for their delivery in-bulk (although it does start growing over the course of the 18th century, as atlantic trade drove technological and institutional innovation). In pre-industrial Europe, you more commonly see enterprising merchants importing foreign substitutes to sell at a premium when there is a shortage of domestic production, outside of the more common instance when a foreign good is so differentiated from local goods that it can command a premium even without a shortage. Trade theory, such as it can be said to have existed, was limited to "Selling is Good and Buying is Bad" (this is, at its core, what Mercantilism defines) largely because of the disproportionate power of state-sponsored entities in early modern trade and the consciousness that trade could be a source of wealth as well as a form of power projection for the state. While the various colonial Trading Companies immediately come to mind as examples of state-sponsored agents of international trade, the Italian Cities had been organizing state-sponsored trading expeditions for much longer. But the point is that the economic size of free enterprise was small and made notions of free trade difficult to conceive, even for those in the Italian economy who became prosperous acting as mercantile middlemen for the European aristocracy.

But some in medieval and early modern Europe did think to regulate trade. In the medieval economy, guilds regulating merchants and artisans could be very stringent. In many cities, especially those in Italy, the guilds were extremely influential: trade law and mercantile disputes were often self-regulated in the guild's own courts. Oftentimes, guild representatives were given the right to sit on the city's ruling council (in some cities, like Florence, the ruling council was entirely composed of representatives from the guilds). But not only were guilds widely divergent in their interest in protectionism (the moneychangers guild would naturally lobby for more openness, while the wool-comber's guild might not) guilds were interested in setting prices and distributing licenses in order to guarantee a minimum number of customers to all members in their city. In an economy where most people were buying and selling local goods anyway, this seldom drew much attention. And most of the time, if a practitioner felt stifled by a guild or felt their services could fetch a better price elsewhere, rather than sell goods for export they would merely set up shop somewhere else (typically in a smaller town where there was no guild, or in a town where their services were in demand). In Italy you see a pattern of city-trained artisans setting up shop in suburban towns and villages, but in the early modern era you also start seeing concentrated migrations of particular skill-sets, like Venetian glassblowers moving to Paris, or Dutch woolspinners moving to England.

But there would be no concise theory of trade until the process of industrialization was already underway. Much of modern neoliberal trade theory is built on the intuitions of a single early 19th century economist: David Ricardo. Ricardo, together with Adam Smith, is the founding father of what is called "Classical Economics." The Ricardian Theory of International Trade is a major influence on schools of thought which purport that "Trade is Good." But the wonders of globalization didn't come to Ricardo out of a dream, he had concrete and deeply personal experience to draw upon. Ricardo's father, a sephardic jewish stockbroker, had arrived to the United Kingdom from the Netherlands early in the second half of the 18th century. While David Ricardo initially started working with his father, their relationship became strained and the younger Ricardo set off to join a larger brokerage firm. The First Modern Economy by Jan De Vries and the middle chapters (10-11) in Broadberry's British Economic Growth give a good overview of what was happening in Britain and the Low Countries at this time: a prosperous and increasingly globalized economy was allowing secondary and tertiary sector to grow. Ricardo, who became very rich as an aggressive stock trader, was an up-and-coming member the growing and globalizing middle class. Riccardo and his peers were very interested in seeing that the economy continued to globalize and diversity.

Ricardo's notions of Comparative Advantage presupposes that a comparative advantage exists net of transport costs given a country's factor endowments, and that the basket of goods being assessed in the trade-off have perfect substitutes in the partner economy. These requirements presuppose some degree of industrialization, however embryonic. So in conclusion, I'd re-iterate that pre-industrial economies were mostly local. The conditions for regional specialization were simply not present. Superior regional goods were certainly sold internationally, however the costs and risks associated with their transport meant that once they arrived they were only in the price range for people of means (think of Samuel Pepy's coveted "Parmazan Cheese"). There could be a tighter regulation of specific skill-sets pertaining to the production of finished goods, but again, it had little impact in these economies. In fact, it is telling that the guild systems broke down once economies began to globalize in the early modern period.