Restating the doctrine

Thus, from the end of the seventeenth century, some authors advocated foreign trade as a means to promote the domestic economy, through its effect of stimulating national manufacturing and promoting national employment.

The doctrine of a favourable balance was supported by new political recommenda­tions. As it is positive to import raw materials and inputs in order to rework and export them, it is preferable to tax these imports lightly and, in contrast, to tax imports of finished products heavily. Conversely, it is necessary to impose high taxes on exports of national raw materials to encourage their processing at home. This doctrine was formu­lated very early on by Samuel Fortrey (1663 [1744]: 29).

These policies have acquired the names of “foreign-paid incomes doctrine”, or “balance of labour theory” (see Johnson 1937: ch. 15). Taking into account the two trades, domestic and foreign, and seeing them as interdependent, rather than just as a single trade, is a characteristic of the science of trade in the eighteenth century. The advantage provided by national manufactures is not only the gain derived from the exchange of goods of the great value against goods of lower value; it is also the ability of this manufacture to generate national employment. From this emerges the idea that wages paid in the production of manufactures destined for export are ultimately paid by foreign consumers:

If the value of the matter imported be greater than the value of what is exported, the country gains. If a greater value of labour be imported than exported, the country loses. Why? Because in the first case, strangers must have paid, in matter, the surplus of the labour exported; and in the second case, because the country must have paid to strangers, in matter, the surplus of labour imported. It is therefore a general maxim, to discourage the importation of work, and to encourage the exportation of it.

The “gain from exchange doctrine” or “eighteenth century rule” is a doctrine that is somewhat different from the previous one. According to Viner (1937: 440), it is the rule “that it pays to import commodities from abroad whenever they can be obtained in exchange for exports at a smaller real cost than their production at home would entail”. This doctrine is understood as an explicit call for free trade: indeed, on the assumption of freedom, commodities that circulate between trading nations are those which are produced at the lowest cost. Viner notes this doctrine of the international division of labour in Martyn, and Irwin wisely points out that Martyn is a defender of free trade in the following meanings of this expression: opposition to monopoly (particularly that of trade with the Indies) and opposition to restrictions on imports (particularly goods coming from India):

The Kingdom is not more impoverish’d by the consumption of Indian than of English Manufactures. Indeed whatsoever is consum’d in England is loss, it can be no profit to the Nation; but yet to permit the consumption of the Indian is not the way to lose so much as if we shall restrain our selves to only English Manufactures. Things may be imported from India by fewer hands than as good wou’d be made in England; so that to permit the consumption of Indian Manufactures, is that to permit the loss of few Men’s labour; to restrain us to only English, is to oblige us to lose the labour of many; the loss of few Men’s labour must needs be less than that of many: Wherefore, if we suffer our selves to consume the Indian, we are not so much impoverish’d as if we were restraind to the consumption of only English Manufactures. (Martyn 1701 [1856]: 578, original emphases)

However, Martyn’s plea for free trade cannot be adequately assimilated to the plea for a “system of natural liberty” or of laissez-faire in the nineteenth-century meaning. As for many writers on the science of trade, Martyn’s position in favour of freedom of trade is as much influenced by general principles as by circumstances.

What is true for Martyn is also true for North. The latter was unquestionably an advocate of free trade (North 1691 [1907]: 33) and probably the writer who had the clearest vision of the self-regulating mechanisms of the economy, in any case the vision that was most based on the supply and demand mechanisms, and even more on supply than demand (see Finkelstein 2000: ch. 12). Nevertheless, Douglas Vickers (1959: 103) remarks that North still makes wealth dependent on foreign trade and finally on maintaining a favourable balance of trade, apart, of course, from any policy of restriction.

Vanderlint (1734 [1914]: 33) also placed the arguments in favour of free trade within the doctrine of the favourable balance, stating that free trade means the absence of restrictions and of losses due to them. In particular, he raised the well-known question of retaliations: restrictions in one country lead to restrictions in another, and employment suffers on both sides (ibid.: 81-2).

All the preceding arguments are found in Matthew Decker (1744 [1995]: 56), but again, the impact of the demand for free trade should not be exaggerated. This leads to differentiating several levels of demand for economic freedom. The first level is the association of freedom and protection or regulation; in this case, freedom is minimal, it is a demand for free access to the market and is grounded on the Romanist, scholastic or natural law tradition. The second level is that of free trade, namely, a demand that brings together two aspects, free access and opposition to severe restrictions. The third level is that of laissez-faire or natural liberty, when a more individualistic vision of society is superimposed.