Internal Free Trade and the Commercial Revolution

14 02 2014

Brad DeLong has written an interesting blog post on the relationship between the commercial revolution and the rise of representative government. The post, which is on the blog of a progressive think-tank called the Washington Center for Equitable Growth, begins:

I have been thinking about Mauricio Drelichman and Hans-Joachim Voth’s Lending to the Borrower from Hell: Debt, Taxes, and Default in the Age of Philip II. And I just finished ranting about all this over breakfast at Rick and Ann’s to the patient, good-humored, and extremely intelligent Joachim Voth. So it is only fair that I inflict on the rest of the world what I inflicted on him…

DeLong’s post is mainly about the problems he sees in a paper by Daron Acemoglu, Simon Johnson, and James Robinson that argues that the wave of wealth from post-Columbian trans-oceanic commerce influenced the political institutions of the seafaring Western European states in different ways.

Acemoglu, Daron, Simon Johnson, and James Robinson. 2005. “The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth”. American Economic Review.95, no. 3: 546-579.

According to this influential article, both England and Spain acquired some wealth due to their overseas expansion. However, the political impact of these infusions of wealth, was according to Acemoglu, Johnson, and  Robinson rather different  because the pre-existing balance of power between monarchs and parliaments varied in these two countries. These authors suggest that on the eve of the age of exploration, English parliaments already had more power within their political systems than the equivalent bodies in Spain. As as result, “Iberia ended up poor and absolutist while Britain ended up rich and constitutional–even though as of 1500 the differences had been small, and constitutional government had been on the ropes in both.”

DeLong disputes this interpretation. He says that it s factually incorrect to say that British parliamentary institutions in 1500 were stronger than those of Iberia. He says that “if there was a difference at all, it went the other way: Iberia had weaker crowns and stronger representative and intermediary institutions than Britain. The traditions of representative government and limited royal power in Aragon were very, very strong.”

DeLong’s post is very interesting and deals with an important issue, but I think that he is missing an important institutional difference between these two economies: there was free trade within England and, after 1707, between Scotland and Ireland. There wasn’t a customs frontier at the border between say, Gloucestershire and Warwickshire. That wasn’t the case in Spain, where interprovincial trade barriers remained high.

I was actually talking about the importance of eliminating internal trade barriers to my students today. My lecture drew a bit on the research of Robert C. Allen,  who is one of the great economic historians of our generation.

Allen has developed a model of how the second wave of industrial nations (Germany, USA, France, Japan) developed in the 19th century. They did more than copy the technologies of the first industrial nation, the UK. They also adopted a Standard Development model that was, in essence, very similar to the economic development program outlined by Alexander Hamilton in the 1790s. The four main components of the standard model were:

1)internal free trade within the nation

2)an external protective tariff to nurture infant industries

3) English-style banking and monetary institutions

4) state support for infrastructure development

All of the second wave of industrial countries scrapped internal tariff barriers as they began the process of catching up with England. The US did so when it ratified its federal constitution.  France did so in 1789, when it got rid of the internal divisions shown on the map below. Germany did so with its Zollverein. Japan did so after the Meiji Restoration. But England had had free trade between counties since the Middle Ages.  That’s missing from DeLong’s picture.  





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14 02 2014
Economic Development, Political Institutions and Geo-Politics | David Zylberberg

[…] the last few days, Brad Delong and Andrew Smith have both written informative posts on an interesting question. Namely, the relationship between […]

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