A great many economists and politicians contend that the absence of trade inevitably leads to armed conflict. Thus, in the interests of national security, they insist on virtually unlimited trade and castigate those who favor its restriction as proponents of autarky—a term that few understand yet most agree to be negative, isolationist, and perhaps even extremist.
Economist.com, for example, defines autarky as the idea that a nation-state should be “self-sufficient and not take part in international trade.” They warn us that
The experience of countries that have pursued this Utopian ideal by substituting domestic production for imports is an unhappy one. No country has been able to produce the full range of goods demanded by its population at competitive prices. Indeed, those that have tried to do so have condemned themselves to inefficiency and comparative poverty, compared with countries that engage in international trade.
This theme is common in college textbooks, which describe autarky in absolutist terms as the absence of trade or isolation. In his book International Economics, Dominick Salvatore describes autarky in absolute terms as the “absence of trade, or isolation.” And, based on its usage in the American press, you would think that such extreme isolation and utter lack of trade has characterized every autarkic regime. Consider the New York Times’ coverage of the former Soviet Union and the Russian Federation. In 2001, the Times reported on a two-day conference at Princeton on the CIA’s analysis of the Soviet Union from the agency’s inception in 1947 to the Soviet Union’s collapse in 1991. The article, “What They Knew (Not!): 44 Years of C.I.A. Secrets,” was authored by Stephen Kotkin, Princeton’s director of Russian studies. Economist James Millar, a CIA consultant, noted the agency “did get Soviet trends right (i.e., downward),” including the onset of declining growth under Brezhnev. “But C.I.A. did not have the courage of its convictions,’’ Millar concluded, adding, “We underestimated the costs of haste in industrialization, of autarky, empire, excessive standardization and the suppression of economists.’’
In its obituary for Boris Yeltsin, the Russian Federation’s first president, the Times (April 24, 2007) describes economic trends in the world’s largest country by area as follows:
Russia had moved from too strong a state to too weak a state. It had moved from autarky to dependence on goods from abroad. Under enormous pressures of economic disintegration and political disarray, Mr. Yeltsin set about to negotiate the dismantling of the Soviet Union and its republics.
Here, autarky describes a state in which trade is nonexistent. Yet international trade did occur under the Soviet regime, although it was restricted with many Western countries, including the United States. The Council for Mutual Economic Assistance, an economic bloc of Marxist states established in 1949 by the Soviet Union, facilitated trade in response to a policy of externally imposed autarky—a trade boycott—organized by the United States, Great Britain, and other Western states. Contrary to the Times, however, the Soviet Union still engaged in foreign trade throughout its history. A 1962 Radio Free Europe report on Soviet policy noted the “recent tendency for Soviet trade with the free world to grow faster than with the communist countries,” including East Germany, Czechoslovakia, Poland, Bulgaria, Hungary, Rumania, Mongolia, China, and Cuba. The report cites the Western states of Brazil, Finland, Great Britain, France, Italy, and Japan as Soviet trading partners. Radio Free Europe noted that West Germany “was the USSR’s main trade partner among the highly industrialized nations.” The term autarky, then, better describes the policy applied by the United States and other Western powers to pressure Moscow and its allies and to prevent a “hot war” between the world’s two great superpowers. Washington has had a similar policy toward Cuba since 1962.
Post-Soviet Russia also engages in foreign trade, with the CIA identifying exports in the following commodity markets: petroleum and petroleum products, natural gas, wood and wood products, metals, chemicals, and a variety of civilian and military manufactures. The CIA identifies Russian imports of machinery and equipment, consumer goods, medicines, meat, sugar, and semi-finished metal products. Russia is far from autarky, as the following section from her CIA World Factbook profile makes clear:
Oil export earnings have allowed Russia to increase its foreign reserves from $12 billion in 1999 to some $470 billion at yearend 2007, the third largest reserves in the world. During PUTIN’s first administration, a number of important reforms were implemented in the areas of tax, banking, labor, and land codes. These achievements have raised business and investor confidence in Russia’s economic prospects, with foreign direct investment rising from $14.6 billion in 2005 to approximately $45 billion in 2007.
The Marxist state of Albania, in the final decade of Enver Hoxha’s rule, came closer to achieving autarky than the examples cited by the New York Times. Hoxha denounced Khrushchev and China’s post-Maoist leadership as “revisionist,” and Albania pursued her own true path to socialism, in a state of near autarky, from her remote corner in the Balkans. Another example of near-autarky is North Korea under Kim il-Sung and Kim Jong-il. The CIA describes North Korea as “one of the world’s most centrally directed and least open economies,” with only three export and four import partners (South Korea, China, Thailand, and Russia). Trade, while severely restricted, still occurs.
A pure state of autarky, like the anarcho-capitalist order envisioned by libertarian Murray N. Rothbard, is an imaginary construct that serves to deconstruct certain myths of Marxism and modern conservatism. One of Marxism’s myths is the desirability of an economy without a capitalist price system. Yet the most doctrinaire Marxist states, such as Albania, have still been forced to tolerate some trade and the pricing mechanisms trade creates for domestic producers. Likewise, one conservative myth, built upon the edifice erected by economist Adam Smith, holds that trade, in all instances, is always preferable to its alternatives. This overlooks the fact that Smith, in The Wealth of Nations (1776), recognized exceptions to free trade. In Chapter 11, he observes, “There seem, however, to be two cases in which it will generally be advantageous to lay some burden upon foreign, for the encouragement of domestic industry.” The first exception is national defense; the second occurs “when some tax is imposed at home upon the product” of domestic industries. “The defense of Great Britain,” Smith wrote, “depends very much upon the number of its sailors and shipping.” He defended the Act of Navigation (1651), which “very properly endeavours to give the sailors and shipping of Great Britain the monopoly of the trade of their own country, in some cases, by absolute prohibitions, and in others by heavy burdens upon the shipping of foreign countries.”
As University of Chicago economist Jacob Viner, in a 1927 lecture, explained, “Smith conceded that it was the duty of the government to provide protection against external foes, and on the ground of their necessity for defense, he approved of commercial regulations which on purely economic grounds he would condemn.”
Viner quoted Smith:
The act of navigation is not favourable to foreign commerce, or to the growth of that opulence which can arise from it. . . . As defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England.
Viner added, “In the same spirit, Smith mildly supported bounties on manufactures necessary for defense, which would not otherwise be produced at home.”
A nation-state that is self-sufficient in providing defense services, it could be argued, is an autarky within that sector, even if it permits trade in other industry supersectors, such as manufacturing or services. That state, not being a party to any military alliance or collective defense agreement, comes nearer to the vision of a Jeffersonian republic than to isolated socialist states led by paranoid Marxists.
The United States during Thomas Jefferson’s second term as President provides a unique example of a near-autarky. Jefferson is oftentimes portrayed as an advocate of laissez-faire, committed to trade with all, and entangling alliances with none. The historical record is more complex. He supported the Embargo Act of 1807, passed by Congress on December 21, as a matter of national defense. In this instance, Jefferson and Congress preferred near-autarky to war. At the President’s request, Congress imposed “a nearly complete embargo on international commerce,” Dartmouth economist Douglas A. Irwin explains, which lasted from December 1807 to March 1809. “Unlike many trade embargoes,” he writes in “The Welfare Cost of Autarky” (Review of International Economics, September 2005), “this one almost completely eliminated trade and was not compromised by widespread smuggling.” The state of near-autarky began when Jefferson, in response to British conscription of American citizens on the high seas, told Congress on December 18, 1807:
The communications now made, showing the great and increasing dangers with which our vessels, our seamen, and merchandise are threatened on the high seas and elsewhere, from the belligerent powers of Europe, and it being of great importance to keep in safety these essential resources, I deem it my duty to recommend the subject to the consideration of Congress, who will doubtless perceive all the advantages which may be expected from an inhibition of the departure of our vessels from the ports of the United States.
The Embargo Act prohibited American ships from sailing to foreign ports. It permitted foreign ships to enter American ports but forbade them from taking on any cargo. “Almost all accounts of the embargo,” Irwin writes, “considered it to have been effective, at least initially.”
Jefferson’s understanding of autarky stemmed from its Greek meaning, “self-sufficiency.” Jefferson learned Greek as a youth as part of his study of the classics. In his public and private life, he returned to the idea of self-sufficiency. One does not find in Jefferson a blind obedience to laissez-faire, especially in the area of national defense. This can be seen in the Virginia Nonimportation Resolutions of 1770. Another example is the Non-Importation Act of 1806, a response to British conscription of Americans at sea. The latter act prohibited importation of British manufactured goods to the United States.
Even in his private life at Monticello, Jefferson attempted to achieve some measure of self-sufficiency in his affairs. In June 1815, he wrote to James Maury: “I make in my family 2000. yds. of cloth a year, which I formerly bought from England, and it only employs a few women, children and invalids who could do little in the farm.” Manufacturing enterprises such as textile production, coopering (barrel-making), and nail-making were all undertaken at Monticello. His papers also discuss ideas for encouraging and protecting domestic American industries, a personal interest.
Professor Irwin reckons that the 1807-09 policy
had a dramatic impact on prices in the United States, driving down the domestic prices of exported goods and driving up the domestic prices of imported goods. . . . Although it did not reach the point of complete autarky as a result of the embargo, the United States was by mid- to late-1808 about as close to being fully shut off from international commerce as it has ever been during peacetime.
Irwin concludes that the policy inflicted “substantial costs on the economy while it was in effect,” which he estimates at about five percent of the U.S. Gross National Product.
In the short run, Jefferson’s policy averted war. The policy caused some prices to increase in Britain, which led her to shift some of her imports from the United States to other countries. Domestic opposition to Jefferson’s policy was based among New England merchants, and later, the mid-Atlantic region. After 14 months, the measure was repealed, in March 1809. Irwin writes, “The partisan division on the issue is readily apparent: Federalists completely opposed the measure, while the Jeffersonian Republicans initially supported it but later opposed it.” Representatives from the South, he writes, were evenly divided on the issue. There was scant support for maintaining a policy of complete autarky, but Jefferson did sign the Non-Intercourse Act on March 1, 1809, shortly before leaving office. Under this substitute measure, all countries except Britain and France were removed from the trade embargo. The policy forestalled armed conflict until three years after Jefferson left office. Congress declared war on Britain in 1812 in response to British conscription of Americans and its trade policy vis-à-vis France. The war ended in 1815 when the Senate ratified the Treaty of Ghent.
There are many benefits to trade. Those who contend, however, that the absence of trade inevitably leads to armed conflict are turning a blind eye toward our own history. By focusing only on the fantasy of “pure autarky,” they are free to ignore the success of autarkic U.S. trade policy during the presidency of Thomas Jefferson and, more recently, toward various Marxist states in the postwar era. War, an even greater threat to economic prosperity, was delayed in the first instance and prevented in the latter.