Continental Western Europe was permanent. On the other hand, trade disruption also led
to the development of import substituting industries protected from British competition
by wartime blockades, notably the cotton textile industry. To repeat, in a world with
scarce resources which can be transferred from one activity to another, there is a limit to
how great can be the static welfare losses associated with trade disruption, unless one
assumes asymmetries across sectors (for example, associated with externalities:
Engerman 1998).
Daudin (2006) abandons this essentially static perspective in favour of a more
dynamic one, focused on profits and capital accumulation. The question he addresses is
the extent to which colonial profits contributed to capital formation in France before the
Revolution. Net re-invested profits linked to the overseas sector represented up to 6% of
French savings, and were responsible for approximately 7% of French GDP per capita
growth between 1715 and 1790. This implies that by 1790 GDP would have been only
3% smaller in their absence. However, a further conjectural exercise (Daudin 2004),
assuming that high overseas profits encouraged investment throughout the economy,
suggests that they might have been responsible for as much as one-third of French
growth.
A very different mechanism linking trade and growth was proposed by Voltaire
more than two centuries ago. He argued that Britain's success in trade and the freedom of
her constitution mutually reinforced each other in a virtuous circle: "trade, which has
made richer the citizens of England, has helped to make them free, and this freedom has,
in turn, enlarged trade" (cited in Findlay and O'Rourke 2007, p. 347). Similarly,
Acemoglu et al. (2005) claim that Atlantic trade strengthened the political power of
merchants, who obtained a strengthening of property rights in consequence. According
to these authors, these beneficial political consequences of trade did not occur in states
which had initially been more absolutist than, say, Britain, and there is a case to be made
that imperialism strengthened rather than weakened absolutist monarchs in Iberia at this
time. In early modern Europe state power was constrained by the Crown's needs to raise
taxes. The more kings depended on taxes, the less sovereign and autonomous they
became. Colonial revenues allowed the rise of a strong political centre which
concentrated power without being drawn into extensive bargaining with its more
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