From Subsistence to Exchange and Other Essays

Chapter 1
FROM SUBSISTENCE TO EXCHANGE
When economists discuss contemporary growth in advanced Western countries, they do not think of internal trade (i.e., wholesale and retail trade) as one of the engines of growth. And they are right. It would be misplaced to associate current economic growth in the West specifically with the distributive sector. Instead, when economists discuss wholesaling and retailing in advanced Western economies, they focus on such subjects as the organization of these activities, the nature and extent of competition, concentration, economies of scale, vertical integration, and restrictive practices. The emphasis is on efficiency in the provision of distributive services: in broad terms, efficiency in the link between production and consumption.
It is unusual to examine the possibility of any relationship between the activities of traders and the growth of the economy, except to the extent that efficiency in the provision of their services releases resources for other purposes. In short, the emphasis is on the allocation of given resources. In this respect, trading activity is treated very much like any other branch of economic activity.
This orientation is justified. It focuses on the main issues of interest to both economists and policymakers. But this orientation, though appropriate now, would be misleading if it were applied to the Western economies as they were two or more centuries ago. Yet in that earlier period those economies were in many ways far more advanced than those of most less developed countries (LDCs) today. In particular, they were already very largely exchange economies in which subsistence or near-subsistence production was relatively unimportant.

INTERNAL TRADE AS AN ENGINE OF GROWTH

Historians have recognized that the economic repercussions of trading activities in, say, seventeenth- and eighteenth-century England went well beyond efficiency in the use of resources in the trading activities themselves. For example, in their book on shopkeeping in eighteenth-century England, Hoh-cheung Mui and Lorna Mui (1989, 291-92) conclude:

If the major purpose of all these activities by shopkeepers was to drum up business, by so doing they eased the flow of goods and at the same time helped to stimulate as well as satisfy an increasingly widespread demand, a demand that encouraged expansion in industry and overseas trade. It was not an unimportant contributor to the overall economic development of the country--industry, overseas trading and inland distribution moved in tandem, each fructifying the other.

Jacob Price (1989, 283) has observed that in seventeenth- and eighteenth-century Britain the activities of merchants "left behind" much more than "specific markets for specific products." Their activities helped to create commercial institutions and practices and to raise the level of human capital, which proved to be "of great utility to the entire economy in the ensuing era of rapid industrialization and attendant export growth" (p. 283). Richard Grassby (1970, 106) wrote that it was "merchant capital which created markets, financed manufactures, floated the American colonial economies and launched banking and insurance."
In emerging economies the activities of traders promote not only the more efficient deployment of available resources, but also the growth of resources. Trading activities are productive in both static and dynamic senses.

NEGLECT OF TRADING ACTIVITY

One would therefore expect to find that trading activities feature prominently in modern development economics. Instead, in spite of the economic history of the now-developed world, which should have been familiar to development economists, trading activities are barely mentioned in the mainstream literature. It is as if postwar development economics had to begin from scratch, its exponents faced with a tabula rasa.
A charitable interpretation is that exponents of the new development economics thought that early Western experience could not apply to the so-called Third World. This attitude would have been mistaken since it is evident that all developed countries at one time had the characteristics and levels of income and capital of the postwar Third World.
However, even if it were correct to disregard the economic history of the West, the neglect in development economics of the role of trading activity in the Third World is both unwarranted and surprising. First-hand observation of economic activity in many less developed regions would have shown that trading activity was ubiquitous and that large numbers of people were engaged in it on a full-time, part-time, or casual basis.