William J. Bernstein shows us how trade shaped humanity in “A Splendid Exchange.”

Bernstein, W. J. (2009).  A Splendid Exchange: How Trade Shaped the World [Kindle Android version].  Retrieved from Amazon.com.  508 pages.

Page references may be slightly off since I’m using a Kindle version.

Overview

In A Splendid Exchange: How Trade Shaped The World (2009), American financial theorist and neurologist William J. Bernstein explores the history of world trade “through carefully selected stories and ideas…[which] will inform participants and challenge assumptions on both sides of the great ideological divide over free trade” (p. 16).  Bernstein more than delivered on his goal.

The book explores trade from the dawn of civilization in Mesopotamia to our current high-tech, globalized age.  He argues that globalization is nearly 5000 years old (p. 14) and that “the incentives and equal opportunity afforded by free trade simultaneously improve the overall welfare of mankind and increase socially corrosive disparities of wealth” (p. 15). 

So why should you read “A Splendid Exchange”?  It has been over a decade since the book was initially published, but the lessons throughout history on trade and economic development remain relevant.  And, for those looking for pure knowledge and entertainment, you will learn all about the origins of popular items that we often take for granted, such as tea (p. 83), coriander (p. 113), coffee (p. 244), and refrigeration (p. 333-336), to name just a few.  Bernstein has created for us a thorough, impartial case of trade throughout the ages between and within all types of societies spanning all continents (except Antarctica).  His thoroughness and impartiality deserve respect and recognition.

How did trade shape the world?

Below, I have included just ten ways how free trade dramatically impacted our lives throughout history to today.  Every chapter provides numerous case studies demonstrating how free trade shaped the world.  Of course, there are other examples, but these are just the ones that most resonated with me.

Trade made us more secure by fostering cooperation.  Nearly fifteen thousand years ago, as hunter-gatherers, early humans used trade to gain an advantage over others through warfare.  Obsidian, a black volcanic rock (a type of glass), was one of the hottest trade commodities because of its malleability into sharp points and edges for weapons and tools (p. 22).  Based on the archeological evidence, hunter-gatherers would trade mainly animal skins for grain and manufactured wares, such as cloth, with more advanced agricultural societies.  The evidence shows different communities trading near unforested islands where boats had easy access to ensure the buyers and sellers could avoid ambushes, explains Bernstein (p. 23). 

These details are significant because they allow modern readers to understand the parallel trading dynamics between our ancestral and contemporary times.  In most countries today, officials rely upon a complex system of laws, courts, procedures and the use of law enforcement to ensure the fair and secure exchange of commodities and services between buyers and sellers.  Yet, despite these seemingly more refined advances, our ancient ancestors understood that security was paramount whenever trading.  Without physical security, trade is impossible.  By providing such rich case studies of the earliest forms of exchange, Bernstein forces us to reconsider the lives of those thousands of years before us, making their feelings, intentions and lives more palpable and human.

Trade allowed some to distinguish themselves from others.  Bernstein shows how as early as 2500 BC, luxury items were essential to human psychology.  We can see the appearance of status items like copper tools, jars and jewelry replacing lamps and cups (p. 29) and later the use of frankincense and myrrh by elites for medicinal and profane reasons (p. 59) in 3500 BC Egypt and Babylon.  In mid-seventeenth-century England, lower-class individuals aped their superiors’ fashion sense, making once luxurious items more commonplace and insignificant.  The East India Company spurred these behaviours when they marketed clothing styles to the royal class, eventually descending and influencing their working society (p. 254). 

Despite our technological, philosophical and cultural advancements over millennia, we as humans seem innately wired to attach meaning and significance to new commodities.  We always want the latest cell phone or fashionable piece of clothing.  Many today may decry the industrialized world’s tendency and voracious appetite to overconsume and exalt material things, yet these proclivities have always been with us, it seems. 

Trade made people of different backgrounds cooperate on a large scale.  Trade would have been impossible to adopt on a global scale if societies maintained the barter system, which is why the adoption of silver as a means of exchange to ensure mutual benefit around 2000 BC was so revolutionary (p. 29).  One standardized way of facilitating commerce allowed everyone to easily participate, especially if those buying or selling had to exchange perishable items.  Even more fascinating is how trade along the Silk Roads grew more sophisticated to ensure fair trade between all parties.  Bernstein describes how wet clay was placed “over the closure of a container, then rolled or pressed” (p. 31) with a merchant’s seal and then left to dry.  The dried imprint of the seal over the container ensured the integrity of the container’s contents when finally delivered to the appropriate individual. 

It is a telling example of our ingenuity as a species.  When faced with complex issues, we innovate.  Despite our differences and the fact that history is often replete with egregious examples of barbarity amongst ‘civilized’ peoples, we can and likely should continue to meet eye-to-eye for our mutual benefit.

Trade forced us to get creative with financial risk.  Comparing military and technological advantages between societies throughout history is common, but we cannot ignore the role and influence of finance in shaping power dynamics.  The competition between the British East India Company (EIC) and the Dutch East India Company (VOC) over the spice islands, in what is now modern-day Indonesia and Malaysia, is an excellent example.  Bernstein explains that the most potent weapons of the joint-stock VOC, created on 20 March 1602, were finance, not their guns.  The financial, political and legal institutions allowed investors to fund the VOC so effectively that it could hire men, acquire silver and purchase ships to compete more effectively (p. 221-222).  Ultimately, this led to the control and manipulation of the agricultural commodities of the spice islands.  It was significantly cheaper for the Dutch to borrow at low-interest rates thanks to large agricultural bounties after centuries of building dikes and windmills before 1600.  These infrastructure projects were locally financed and ultimately allowed many peasants to accumulate wealth without a crown or feudal lord (p. 223).  Other examples of Dutch financial ingenuity include the futures market, which allowed people to purchase fish before being caught to ensure fairness and prevent price gouging (though this was already a practice in southern Europe and the Muslim world for centuries) (p. 224).  Or even the ‘stilstand,’ a method of “selling the entire stock of a given commodity at a fixed price, with the promise that the company would refrain from releasing any future stocks for a predetermined period” (p. 237) to protect the buyer. 

These insights are important because they show the modern reader that allocating risk can pay dividends in the long run.  They are valuable lessons in moments of uncertainty and will likely remain relevant for the future.

Trade creates extravagant winners and despondent losers.  Bernstein writes of the fascinating example of one Karimi merchant, Yasir al-Balisi, whose estimated fortunes were about “ten million dinars, or nearly a half-billion dollars in today’s [2009] money” (p. 129).  The Karimi merchants were the winners of trade in the medieval Muslim world; they were rich like the Rockefellers of the early twentieth century, but for their time in a preindustrial age.  The Karimi financed public infrastructures like schools, mosques, hospitals throughout the Middle East and Africa, and military operations. 

The Karimi merchant example illustrates how the ultra-wealthy and well-connected in the Middle Ages were not all that different from today’s nouveau riches.  They spent their money on public works to garner notoriety and respect amongst the public and possibly ensure their survival.  If they did not engage in such philanthropy, they might have suffered rapine at the hands of a government or an angry mob.  It is a telling example for today’s readers. 

As for trade’s despondent losers, the British EIC was “accused of exporting advanced English technology to India,” including “throwsters, weavers and dyers to the detriment of the English working class” (p. 256).  England’s mercantilists viewed trade as a zero-sum game, believing too much gold and silver was being shipped to India for unimportant luxury cotton, despite the society-wide productivity benefits from freer trade (p. 258).  Indians, too, benefited greatly because cheaper and higher quality English thread was widely adopted (p. 300).  British fabrics were far superior, ultimately putting many Indian cotton spinners out of business.  Though Britain levied discriminatory import duties on India, Indians prospered under the British Diwani – the right to tax – compared to when they were ruled by the Mughals.  For instance, the British spent the tax revenue on public works such as the subcontinent’s railway system.  These examples clearly show us how the arguments for protectionism never seem to change even today, despite more open exchange resulting in cheaper, higher-quality products. 

Trade inevitably makes most people relatively wealthier, despite protectionism.  Several countries erected tariffs between 1800 and 1914, but trade increased thanks to the advent of the steam engine and the growing wealth of many societies.  Specifically, the steam engine dramatically reduced shipping and storage costs.  Additionally, wealthier nations generally trade more since they have excess goods and money to exchange (p. 349). 

Highlighting these critical nuances, Bernstein plainly outlines why real-world trade and economic development are often multifaced and complex, unlike the cause-and-effect economic theories presented in a first-year economics textbook.  It is virtually impossible to think of a policy like tariffs as either inherently bad or good, as many external factors influence a society’s economic success (or demise), as evidenced by the rise of more reliable, productive technology that can smoothen anti-trade bumps.  A valuable insight indeed, readers should remain confident that there is always more than one to overcome such protectionist hurdles that threaten our prosperity.

Trade facilitated the spread of disease.  Trade and disease are concomitant, which is all too familiar for modern readers experiencing (or have already experienced) the COVID-19 pandemic.  The most prominent historical example of disease is the Black Death, which received its first convincing descriptions around AD 541 (p. 136).  It may be tiresome for history enthusiasts to read about the Black Death, but it was a pivotal moment for humanity since it dramatically altered Eurasian politics.  The plague decimated European populations, but the rats could not survive in the sparsely populated Arabian deserts, so the disease did not adversely affect Islam’s rise over several hundred years as power vacuums opened (p. 137-138).

Bernstein explains how some Muslim doctors and medical scholars noticed that the disease was likely due to a form of contagion rather than “divine wrath, miasma, the evil eye, or poisoning by unbelievers” (p. 147).  After observing the Bedouin’s low illness rates, they came to this conclusion, a revolutionary observation for its time and place.  Nevertheless, the geography did not stop the spread south to Mecca via the Hajj pilgrimage, which put the Muslim world into a frenzy as many had previously believed Allah’s divinity protected them. 

It’s a critical case study because we are all susceptible to pandemics due to higher interconnectivity despite trade’s benefits.  The risk will likely grow with more shipping, moving and exchanging, but that is no reason to stop.  Appropriate medical and sanitary interventions must accompany trade to ensure everyone’s safety and mutual benefit.

Trade physically changed geographies.  In the Wealth of Nations (1776), Adam Smith argued for limited government intervention in trade but argued that governments should build public infrastructure to facilitate commerce.  Such projects could include roads, bridges, ports and harbours where workers and merchants can seamlessly gather to exchange goods and conduct business.  This isn’t anything new since humans have shaped the physical world they inhabit since the dawn of the agricultural revolution in Mesopotamia millennia ago.  The Dutch, however, took it to a new level.  Faced with bitter competition from British, French and German companies over the coffee trade in today’s Yemen – the sultan was more than happy to sell to multiple buyers – the Dutch cleverly transplanted coffee from Yemen to the Javanese highlands, Sri Lanka, the Malabar Coast and Surinam (p. 250).  In today’s business lingo, the Dutch learned to pivot, which ultimately meant increasing their coffee supply and ownership of production.  On a more salient note, Bernstein’s example illustrates the wonders of how previous unusable capital (land, resources, people etc.) can become usable since trade allows new and previously unexplored opportunities to flourish for canny merchants and their pecuniary interests.

Trade maligned and maimed certain cultures and people.  “Between roughly 1200 and 1500,” writes Bernstein, “Italian merchants became the world’s most prosperous slave traders, buying humans on the eastern shores of the Black Sea and selling them in Egypt and the Levant” (p. 111) to satisfy the Muslim world’s need for soldiers.  Sadly, it continued for centuries, but elsewhere and with different people. 

On a larger and more horrific scale: “as early as 1580, [African] slaves constituted well over half of voyagers to the New World; by 1700, three-quarters; and by 1820, 90 percent” (p. 275).  These unique individuals performed strenuous activities in various plantations, often suffering barbaric and inhumane treatment at the hands of their masters. 

It is painful to acknowledge and learn of these events and the arbitrary and unnecessary pain inflicted on some communities and people.  But these examples demonstrate that free trade, or at least extremely lax trade, does not always benefit all parties mutually, specifically for those exploited and trafficked.  It is a disgusting mark on humanity’s past since many cultures practiced and justified slavery for various reasons.  Instead of burying our heads in the sand, it is worth reminding ourselves how far we have come and why we must still work to make free trade fair and beneficial to all.  Today, exploited labour throughout the developing world remains a severe impediment to growth.  Most heart-wrenching and stomach-churning of all is the exploitation of children and girls for sex work; the most vulnerable have no recourse.  If you have the means to read this, you are probably not one of these unlucky few.  Let us be grateful for what we have.

What the author could have addressed

Despite the thought-provoking insights, case studies and personal narratives shared throughout the book, William J. Bernstein could have explored the sticky issue of protectionism a little further.  He argues:

nations grow wealthy mainly by improving their industrial and agricultural productivity.  The consumption of foreign luxuries causes little concern, and few Americans care how many bars of gold sit in vaults in Fort Knox or in the New York Federal Reserve Bank.  (The ghost of mercantilism still haunts the modern world in the form of import duties and restrictions, and, most perniciously, agricultural subsidies.) (p. 258)

Though freer trade is usually mutually beneficial to all parties and all nations must strive to increase their productivity, some of Bernstein’s examples are not necessarily appropriate.  Agricultural subsidies in developed countries are indeed pernicious for developing countries attempting to gain market share.  However, advanced societies justify these policies for health and safety reasons in many cases.  Considering the abysmal state of health and safety regulations (not to mention political stability) throughout much of the Third World, it would be a recipe for disaster to import agricultural products from countries struggling to maintain adequate water safety and cleanliness standards.  Of course, professionals usually help Third World farmers meet western standards.  Or, as is likely the case, western companies set up farms, plantations and factories in developing societies to ensure everything is up to First World codes.  But even if companies meet the standards, there remains the ‘issue’ of changing consumer demands.

If consumers demand local products, it may be perfectly logical for a Western government to subsidize local agricultural industries.  Consumers may wish to support their local farmers rather than support an international company with dubious intentions operating in a country with limited oversight or where workers do not receive adequate pay or dignified treatment.  Politicians can also easily score votes and retain employment in key constituencies rather than deal with a potential unemployment crisis. 

Furthermore, overreliance on a foreign government or company operating outside one’s jurisdiction may not be wise in the event of food shortages or intentional price gouging through supply-chain management; food security will always remain paramount.  Finally, shipping agricultural products from abroad is also significantly worse for the environment due to the increased time and distance compared to receiving food from a local farm.  Hopefully, this issue is resolvable through the widespread adoption of green technology.  But, of course, not everything can be local.  North Americans enjoy starting their mornings with a cup of coffee or tea.  It may be long before scientists develop the technology and methods to grow such foreign luxuries close to home.

But the most justified reason to restrict or ban specific products, services or companies remains, and will likely continue to remain, national security.  China’s economy and military power grew significantly over the past few decades, and the threat the Chinese Communist Party (CCP) poses to Western governance is unignorable.  It is dangerous and negligent for any Western liberal democracy to allow a company like Huawei, under the aegis of the CCP, to design and build critical information communications technology infrastructure, for instance.  It would render Western governments vulnerable to cyber attacks, compromise the intellectual property of private companies, and could be used to manipulate and blackmail private citizens.  To be clear, I am not critiquing the author – the publishing date is 2009 – but it is crucial to unapologetically recognize the recent developments and changes in geopolitics since its time.  To summarize, banning or at least restricting certain adversaries is perfectly justified. 

What are some of the author’s lessons for the readers?

The author shares five lessons surrounding today’s debates on globalization:

1. the policing and maintenance of geographic choke-points will continue their importance (p. 367);

2. tariffs and economic development may be positively correlated, especially for developing nations trying to catch up (p. 372);

3. tariffs have relatively few adverse consequences against countries with open internal markets (p. 375);

4. geography remains essential because “the larger and more economically diverse a nation, the more self-sufficient it is, and the less important trade becomes” (p. 375);

5. free trade always creates winners and losers.  The losers are usually those who are low-skilled (p. 377).

Readers will appreciate how Bernstein is not a heartless, free-market fundamentalist.  Readers of all political leanings can respect that he stresses the importance of social welfare policies to reduce the market-generated inequalities of free trade.  Bernstein argues that public spending may “stimulate investment via two channels — increasing productivity through improvements in human and physical capital and increasing stability through maintaining support for market openness” (p. 380).  Trade, he specifies, is not necessarily the leading cause of extreme inequality.  Instead, tax cuts for the rich and the increasingly higher premiums on education and skills development are to blame (p. 381), though we should also add technology as another reason.

We must learn some lessons when engaging with the rest of the world.  A case study in what not to do is exemplified by the Portuguese attempting to capture the Indian Ocean trade routes in the sixteenth century.  The Portuguese’s barbaric trade practices, motivated by religious zeal, often involved enslaving, stealing and murdering people throughout the Indian Ocean trade areas (p. 174).  The Portuguese damaged their reputation so severely amongst all peoples of the region that the inhabitants united against them and traded more frequently and openly with encroaching European powers like the Dutch and British (p. 197).  A parallel contemporary example is China’s bullying of its neighbours and trade partners, forcing many to drift into the western sphere and conduct business with others.  Western nations must remain committed to their values of liberalism and democracy, no matter how difficult, when engaging and attempting to cajole others.  Let us not repeat the mistake of previous (would-be) colonial empires.

Finally, luck remains paramount for a nation’s success, no matter how painful it is to admit it.  Bernstein writes that “with any great enterprise, mere vision, courage, intelligence, attention to detail, and dogged hard work...do not suffice.  Luck, too, is required.”  He explains how “had João II accepted his [Columbus’s] proposal, then Columbus would have staged his expedition from the Portuguese Azores, which he knew well, and he probably would have foundered and perished in the unfavorable winds at that latitude” (p. 165) instead of the more favourable Spanish Canaries.  This passage shows us that exceptional success and disastrous failure can come within a hairline of each other, a wise insight for any diligent, intelligent and talented individual. 

Who should read this book?

Bernstein clearly articulates how trade has shaped the world and how globalization has been with us since time immemorial.  The lessons on political economics and trade one can glean from this book are valuable to anyone interested in learning more about societal issues relating to inequality, protectionism, technological breakthroughs, the manipulation of nature and power dynamics among the elite business and working class.  The information is not presented in a stale, chronological order seriatim.  Bernstein does not merely cut-and-paste economic studies but instead blends interesting historical anecdotes with broader phenomena, making the book accessible for a general audience.  Please read this book and then reread it.  It is a valuable reference and should sit on your bookshelf or in your digital library.