International Trade Theory and Trade Policy
In his first publication, The Economists Refuted (1808 [2000], Torrens made a plea for free trade along Smithian lines, and argued that gains from trade can be reaped from exploiting productivity gains which emanate from the “territorial division of labour” (a phrase coined by Torrens).
But Torrens’s use of this phrase is certainly insufficient to justify his later claim to priority with regard to the formulation of the theory of comparative advantage, which gave rise to a famous debate between Edwin R. Seligman and Jacob H. Hollander (for a review, see Viner 1937: 441-4), and which has continued to attract the attention of historians of economic thought (see, for instance, Aldrich 2004). There is more substance to it with regard to his Essay on the External Corn Trade (1815), where Torrens had stated that if the costs of producing cloth relative to corn were lower in England than in Poland it would be advantageous for her “to neglect tracts of her territory... even though they should be superior to the lands in Poland,... and [to import] a part of her supply of corn... from that country” (1815 [2000]: 264; emphasis added). However, this statement is still somewhat vague and ambiguous, as compared to Ricardo’s lucid exposition in chapter 7 of the Principles. The comparative costs principle was clearly stated by Torrens, and neatly illustrated in terms of a comparison of cost ratios, only in the fourth edition of the Essay on the External Corn Trade (1827). However, in his one general work on political economy, the Essay on the Production of Wealth of 1821, Torrens did make the unusual and interesting point that international trade could be harmful for a country that specializes in necessaries rather than luxuries (1821 [2000]: 272-80).The Letters on Commercial Policy (1833 [2000]) mark the beginning of a partial volteface with regard to Torrens’s stance on trade policy.
He was among the first to make clear that a tariff might turn the terms of trade in favour of the country imposing it, and to base thereon a theory of reciprocity in commercial policy. However, it must be stressed that Torrens was not against free trade in general, and did not advocate a policy of import tariffs in order to turn the terms of trade in favour of his own country. He rather argued that unilateral tariff reduction would be disadvantageous for England, and therefore supported a policy of reciprocity and a colonial Zollverein. Finally, in his Letters on Commercial Policy (1833) and in The Budget (1844, but partly published in instalments previously in 1841-43) Torrens began to elaborate, but did not quite arrive at, the theory of “reciprocal demands” (a term first used by Torrens) for determining the terms of trade. While Torrens can perhaps be credited with independent discovery in this regard, it must be admitted that John Stuart Mill’s constructions, in his famous essay “Of the Laws of Interchange between Nations”, were clearly superior to Torrens’s rather vague formulations. At any rate, Torrens’s statements in the Budget induced Mill to publish his essay, which he had written already in 1829-30, in his Essays on some Unsettled Questions of Political Economy of 1844.
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