A SPLENDID EXCHANGE

How trade has evolved to impact nations and cultures in ways that are always dynamic but not always predictable.

Financial theorist and historian Bernstein (The Four Pillars of Investing, 2002, etc.) is equally at home plumbing the romantic dawn of trade or untwisting the mind-wracking complexity of modern international commerce. Evidence of trade’s inevitable origin shows Stone Age nomads settling by an obsidian quarry, where no food could be found; they bartered the raw material for tools and weapons to a tribe with agricultural abundance. Confusion and controversy over trade began early. Romans, the author notes, believed that silk obtained from overland caravans came from one place, silk arriving by sea from another. (It all came from China.) While trade has always been based on the notion of fair exchange, temptations to stack the deck have been unceasing. For example, when 18th-century Britain found its craving for tea was exhausting the exchequer of silver, and China had little appetite for British goods, the infamous East India Company began to trade in opium. The narcotic, harvested in colonial India, created a social problem that still haunts East-West trade negotiations, Bernstein claims. At about the same time, British thinkers like Adam Smith and David Ricardo advanced the basic free-trade argument that persists unchanged. Politics always muddied the water, the author reminds us: The Boston Tea Party, celebrated as a patriotic act, was committed by tea merchants and their allies against a British open-market move that would have lowered the price for all colonial consumers. Bernstein doesn’t believe that high tariffs (Smoot-Hawley Tariff Act) precipitated the Great Depression, as often claimed. The challenge for free traders, as he neatly outlines it, is convincing the inevitable damaged minority to take a smaller piece of a bigger pie. Or else—and he doesn’t shrink from the word—“bribing” them with subsidies as the most efficient remedy.

An excellent exposition of key factors in a perennial economic conundrum.