Friday, June 17, 2011

Question Time

A meandering, long essay about the history of corporations from 1600-2100 contains this insight about the East India Company:
At a broader level, the EIC managed to balance an unbalanced trade equation between Europe and Asia whose solution had eluded even the Roman empire. Massive flows of gold and silver from Europe to Asia via the Silk and Spice routes had been a given in world trade for several thousand years. Asia simply had far more to sell than it wanted to buy. Until the EIC came along…

Basically the EIC had to sell Asia drugs in order to balance out trade flows.

Viewed with this information, the current trade deficit with the U.S./E.U. to Asia doesn’t look like a temporary aberration but more a part of a historical pattern whereby the West wants more stuff than the East than the East wants from the West. Is this overgeneralizing? I’m not entirely sure. But why is it the equilibrium seems to feature such an exchange of money for goods?

Also: if it is true the pattern is woven in rather than an ebbs-and-flows deal, what does that say about classical economics? Can you have a one-sided free trade regime (probably not: eventually you need to hit an equilibrium in which the balance of trade is even, and therefore some countries practicing mercantilism while others practice openness will inevitably fail, one imagines.)

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