So far we have dealt with internal demand. Every economic system has, however, a network of exchanges with other economic systems. These exchanges include exchanges of goods and services, transfers of wealth, and movements of capital and precious metals.
The foreign trade of a given country consists of its imports and exports. Exports are the response to foreign demand, while imports are determined by internal demand.
As indicated above, the demand of the mass of the populace was largely centered on food, and the consumption expenditure of the wealthy was largely—and conspicuously—directed toward food, clothing, and housing. In view of this fact, it is not surprising that the great bulk of foreign trade consisted of foodstuffs and textiles. As late as the end of the sixteenth century, cloth accounted for about 80 percent of the total exports of England while textile materials, groceries, timber, and wine were the four main categories on the imports side. Owing to high transportation costs, especially during the Middle Ages, foreign trade was largely—though by no means exclusively—concerned with high-quality products; hence the large share of spices and expensive wines in the international exchange of primary products and the
large share of luxury cloths in the international exchange of textiles. It also followed that the mass of the people generally had to content itself with local products and that only the well-to-do could afford exotic produce. The ability of the average man in the street to walk into a shop in Milan or in London to buy something produced in Hong Kong or Tangier is a recent development made possible by the Industrial Revolution.
To measure foreign trade, one can add together the values of imports and exports and compare the total to the Gross National Product. The result is influenced by the volume and the value of imports and exports, but also by other factors, such as the physical size of the country and the size of its population which are relevant in determining the size of the Gross National Product. A country like the United States might have considerable foreign trade, but given the vastness of the country, the greater part of economic activity exhausts itself within its boundaries, where a wide variety of resources is found. For a little country like Luxembourg, on the other hand, nearly every exchange is an international exchange, and, therefore, in relation to the Gross National Product, the value of foreign trade represents a much higher percentage. In recent years, the ratio was about 10 percent for the United States and about 160 percent for Luxembourg.
The number of studies devoted to international trade in medieval and Renaissance Europe defies imagination, but the focus has been almost exclusively on commercial techniques and the behavior and fortunes of individual firms. The lack of statistical material worthy of the name has perpetuated the lack of interest in certain macroeconomic relationships. England is perhaps the country for which the best statistics on foreign trade exist for the preindustrial era (see Table 1.14).
One can estimate that at the beginning of the reign of Henry VII English imports and exports were balanced at the level of about £300,000 a year; by the end of the seventeenth century, exports (of locally produced goods) had increased to about £4.5 million a year and imports to about £4.7 million a
Table 1.14 Approximate value of English imports and exports, 1500–1700 (million of current pounds)
Sources: Davis, Commercial Revolution; Minchinton, English Overseas Trade, pp. 9–15; Schumpeter, English Overseas Statistics; Gould, Economic Growth, p. 221n; Coleman, The Economy of England, p. 133. Between 1500 and 1700 the general level of prices rose about 400 percent.
year. This increase reflected in part a rise in prices but was mostly due to a remarkable increase in the volume of foreign trade.
At the end of the seventeenth century, exports of domestic goods alone must have come to 10 percent of the national product.
For states territorially much smaller than England, such as the Communes of Florence and Genoa or the Republic of Venice, in the thirteenth and fourteenth centuries the ratio of foreign trade to the national product must have been nearer to the level of Luxembourg today than to that of England at the end of the seventeenth century. As for other countries, it is difficult to say. Moreover, while it makes some sense to consider England as a whole, since the country was fairly well integrated economically, it would be
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stretching history too much to consider, for example, fourteenth-century France or sixteenth-century Germany as economic units.
From a general point of view, there is no doubt that the development of international trade brought positive overall net effects. But from the point of view of single regions, or even of single states or nations, the problem is not so simple.113 The idea of trade as an “engine of growth” is a gross over-simplification.
For any given society, the long-run consequences of foreign trade depend largely on the qualitative structure of that trade and the effects of foreign demand on both patterns of employment and capital formation in the society in question.
The economic development of the Italian communes was largely related to the development of foreign trade. But examples to the contrary are not difficult to find, even without turning to the cases of colonies or of certain countries in Latin America today. The strong Dutch demand for grain on the Polish market in the sixteenth and seventeenth centuries; the Dutch, English, and French demand for oil and silk on the Italian market in the seventeenth century, favored the involution of the economies of Poland and Italy along feudal-agricultural lines and created the preconditions for long-term stagnation in these countries. In Portugal, about half a century after the Methuen Treaty of 1703; the Marquis of Pombal could justifiably complain that “two-thirds of our necessities are now supplied by England. The English produce, sell, and resell everything which is needed in our country. The ancient manufactures of Portugal have been destroyed.”
Port wine and the gold of Brazil paid for the imports, and the pressure of foreign demand kept Portugal’s human and physical resources strictly tied to the agricultural and mining sectors.