Origins of Comparative Advantage

• The French revolution of 1789 produced a series of changing governments, few of which were sufficiently stable to produce a measured degree of social order. This changed with the assumption of power by Napoleon Bonaparte (1769-1821), who through a string of military victories against the Italians, the Austrians, and the Prussians, soon found himself in a near perpetual state of war with England and Russia. To contain England, he imposed an economic blockade as a prelude to a plan for invasion in the early years of the 19th century. While invasion was forestalled by Nelson’s defeat of the French in the Battle of Trafalgar in October 1805, the blockade continued in a limited fashion until the fall of Napoleon in the Battle of Waterloo in 1814.

Napoleon Bonaparte (1769-1821)

The Collapse of Trade and the Rise of Autarky

• The French revolution of 1789 produced a series of changing governments, few of which were sufficiently stable to produce a measured degree of social order. This changed with the assumption of power by Napoleon Bonaparte (1769-1821), who through a string of military victories against the Italians, the Austrians, and the Prussians, soon found himself in a near perpetual state of war with England and Russia. To contain England, he imposed an economic blockade as a prelude to a plan for invasion in the early years of the 19th century. While invasion was forestalled by Nelson’s defeat of the French in the Battle of Trafalgar in October 1805, the blockade continued in a limited fashion until the fall of Napoleon in the Battle of Waterloo in 1814.

Horatio Nelson (1758-1805)

The Fall of Napoleon and the Great Trade Debate

• Napoleon’s decisive defeat by Wellington and Blucher at the Battle of Waterloo in 1815 produced a restoration of traditional European power. Much of this was done through the Congress of Vienna, which established borders that remained largely unchanged until the First World War. At the same time, countries such as England that had suffered from the Napoleonic continental system of closed trade then took up a great debate on whether to once again open their borders to trade along the lines they had been following prior to the Napoleonic wars.

Napoleon Bonaparte (1769-1821) Lord Wellington (1769-1852)

Malthus and Ricardo on International Trade

• The two principal voices on the debate over England’s foreign trade were Thomas R. Malthus and David Ricardo. Malthus was well known for his famous Essay on Population 1798, that predicted dire consequences on food production from an ever expanding population. In his Principles of Political Economy (1814), he advocated a perpetuation of the tariffs and other trade barriers that England had erected during the Napoleonic Wars.

• David Ricardo, a successful stock broker of Portuguese descent who also became a member of Parliament, wrote a rejoinder to Malthus in his Principles of Political Economy and Taxation (1817). In Ricardo’s view, countries stood to gain mutual benefits from trade, based on the principle of comparative advantage in which each country’s specialization would be determined by the lowest opportunity cost. Ricardo died before his arguments bore fruit through the abolition of the corn laws in 1834, the same year that Malthus died, and for a few decades until surpassed by the United States and Germany, England went on to become the wealthiest country in Europe. Its wealth combined an openness to international trade, coupled with an expansion of industrial production fostered by such trade. Comparative advantage is at the heart of all contemporary negotiations on international trade, and is the centerpiece of World Trade Organization (WTO) agreements.

T.R.Malthus(1766-1834) David Ricardo (1772-1823)

The Globalization Debate Rejoined

• Although free trade based on comparative advantage has become the centerpiece of international economic negotiations, protectionists have continued to find their mark. Alexander Hamilton, architect of the U.S. Constitution, wrote a report on Manufactures in which he put forth what has become the infant industry argument, that countries need time to develop their comparative advantage before opening their borders to trade. His position was embraced by the U.S. during the 19th century and was only reversed following the Great Deparession of the 1930s.

• In Europe, other voices also spoke on behalf of protectionism. The German economist Friedrich List put forth the idea of a customs union in which limited free trade could evolve within the context of a common external set of trade barriers. This idea was embodied in the creation of the European Common Market in 1957, and today is reflected in the stalemate over continuing agricultural subsidies by the European Union and the United States in the recently collapsed WTO negotiations.

• One well known sysmbols of resistance to globalization is the French farmer-activist, José Bové. He became known when he and his supporters vandalized a McDonal’s restaurant in Millau, France several years ago on the grounds that the food was unhealthy. Though he served time in jail, he has continued to argue in favor of subsidies on the grounds that free trade does not necessarily produce better quality products for consumers.

Alexander Hamilton(1755-1804) Friedrich List (1789-1846) José Bové (1953- )