We’re often told that international trade thrives on debt. In an especially risky line of business, financial intermediation, with its loans and guarantees, is the indispensable infrastructure for the progress of commerce. Perhaps entrepreneurs wouldn’t even consider selling goods to foreigners if it weren’t for banks and credit markets to finance them. Naturally, if and when markets fail in this role, Ex-Im Banks and other government intervention must provide ‘extra liquidity’ for trade.
While this string of non-sequiturs sweeps economists of all stripes, international trade—or better yet, trade in general—is better off not ‘banking on’ such helping hands. Without doubt, loans have their economic role, but retained earnings, equity, or simply cash-hoarding can be just as effective in transferring purchasing power to entrepreneurs. In fact, international trade thrived in times when banking and financial systems were not only in their in their infancy, but also when oceanic trade was dangerous and expensive. Nonetheless, it began as a self-financed venture, a venture for which merchants themselves set money aside. The Hanseatic League (c. 13th to 17th century)—a commercial association of traders from German towns—is a good example of this type of financial behavior.