David Ricardo (1772-1823), in his musings on the benefits of free trade, used the relationship between Portugal and Britain to demonstrate the principle of comparative advantage. In the early modern era, Portugal could potentially produce enough fabric to clothe its own people, but since it could produce wine comparatively cheaply, the Portuguese would benefit more by specializing in and exporting wine, and using the proceeds to buy English cloth. More people could obtain more cloth in this way, Ricardo argued, than by relying on home production; the British, in turn, would gain access to a lake of cheap Iberian wine.
David Ricardo (I think)
The economist Cahal Moran recently demonstrated that Ricardo's observation was grossly incomplete and ahistorical. Cloth, a necessity, was much more valuable in the aggregate than wine (a luxury), and a nation that exclusively traded the latter for the former would eventually run a trade deficit and lose hard currency. This was, in fact, the purpose of the 1703 Treaty of Methuen, which lowered Portuguese import tariffs in return for British naval protection. Portugal had an abundance of specie to cover the deficit: in 1693 prospectors had discovered gold in the southern interior of Brazil. The ensuing gold rush eventually drew several hundred thousand peninsulares from Portugal to Brazil, and accelerated the forced transport of enslaved Africans to South America. It also offered an irresistible temptation to stronger nations - either to steal Brazilian gold through smuggling and piracy, or to extract precious metals from the Portuguese through uneven trade agreements, backed by military force.
Britain didn’t need to push Portugal that hard. The two nations were already bound by dynastic ties: the reigning British monarch’s step-aunt was Catherine of Braganza, regent of Portugal. And, in return for its colonial wealth, Portugal obtained from Old Albion much that the ruling classes wanted and that ordinary people needed. In October 1710, T. LeFevre informed the Earl of Dartmouth that the Brazilian fleet had just arrived in Lisbon, bearing gold bullion, tobacco, and sugar to the value of 1.8 million pounds sterling - about 270 million GBP (US$345 million) in today’s currency. All of this, wrote LeFevre, already belonged to British merchants who had sold on credit “all the dyed cloth” and 75 percent of the wheat consumed in the port city and its dependencies. Portugal’s elite thus obtained, admittedly at a high price, the luxuries they wanted (fine textiles and American beaver hats), and the necessities their depopulating country found harder to produce, and not least important, the British naval protection their overloaded merchant fleets required.
Some of the gold, at least, went for architecture.
British merchants, meanwhile, grew wealthier. There was usually a good market for tobacco and sugar in Britain, and there was always a market for gold. The latter often never even touched Portugal’s shores, instead sailing east with a British convoy and transshipping in Lisbon harbor to English merchantmen. There is a name for commerce built on stolen labor, channeled by armed ships, and structured to build up a surplus of gold in the dominant trading partner’s homeland, and that name is not “free trade.” What British traders and diplomats in Lisbon had instead created was a very successful example of mercantilism. What David Ricardo created a century later was a very influential example of economic propaganda. A lot of that going around, actually.
Sources: Manuscripts of the Earl of Dartmouth, 1: 298 (Eyre & Spottiswood, 1887); (CR Boxer, “Brazilian Gold and British Traders in the First Half of the Eighteenth Century,” Hispanic American Historical Review 49 (Aug. 1969): 454-72, esp. 459-60; Timothy Walker, “Lisbon as a Strategic Haven in the Atlantic World,” in Wim Klooster and Alfred Padula, eds., The Atlantic World: Essays on Slavery, Migration, and Imagination (Prentice-Hall, 2005), 60-75.
