The Deliberately Forgotten History of Trade
In the previous article, we looked at some of the questionable libertarian ideas about trade. Although globalism holds sway in the minds of academics and intellectuals today, the nation-state refuses to go quietly into the night. As we saw above, Murray Rothbard, Hans-Hermann Hoppe, and Gary North all dismiss the idea that a nation could or should ever act in its own economic self-interest because they believe that national borders are essentially arbitrary. According to libertarianism, the only factor that matters is the individual as uprooted from any traditional source of identity. Libertarianism is philosophically flawed, for in human society the individual derives his identity from his place in his family and the broader nation at large. The philosophical flaws in libertarianism manifest themselves in the false assumptions that libertarians make about social and economic policies. The libertarian argument for free trade is based upon the false idea of the primacy of the individual and the unimportance of national identity. Ironically, many libertarians end up advocating for globalist trade policies as a means of deconstructing national identity and the importance of the nation-state. As Ian Fletcher points out, free trade theorists are good at telling us what free trade policies are supposed to produce, but miss the mark when we look at what actually happens when free trade policies are endorsed.
The idea of globalism’s inevitability is false and fails to take into account just how dependent businesses are on the nations that support them. While globalism is indeed popular in the West, the pursuit of free trade policies has largely been a one-sided endeavor. Western nations have practiced free trade without imposing significant barriers to trade with other nations, but they have certainly not responded in kind. The question is: Who is helped and who is harmed by this arrangement? Have Western nations benefited from our pursuit of free trade policies? Have Asian countries been harmed by their mercantilist or protectionist policies? Would everyone really be better off if we all dropped our trade barriers and everyone traded more openly? To understand the answers to these questions, we need to know something of the history of trade.
The Changing Policies of Great Britain
In the history of Western commerce, nations have pursued both mercantilist and free trade policies. As we shall see, nations have historically ascended to prominence by adopting mercantilist policies, and, having emerged triumphant after a period of economic success, they have kicked away the ladder that led them to the top of key industries, embracing free trade instead. After endorsing free trade policies, these same nations have undergone a period of decline after their industries have been undermined by foreign competition. Fletcher calls this the deliberately forgotten history of trade. We’ll first look at the case of Britain, its economic history, and the lessons that can be learned.
Great Britain is often heralded as a shining example of how free trade benefits a nation by providing it with goods and services the country could otherwise not produce. Britain indeed was the land of the eminent free market proponents Adam Smith and David Ricardo, and their writings were instrumental in shaping the contemporary British attitudes on markets and commerce. But this is a superficial understanding of history. The reality is that Britain emerged as a global trading power and economic powerhouse due to the mercantilist policies she pursued from the sixteenth through the early nineteenth centuries.
British economist William Cunningham observes,
For a period of two hundred years [c. 1600-1800], the English nation knew very clearly what it wanted. Under all changes of dynasty and circumstances the object of building up national power was kept in view; and economics, though not yet admitted to the circle of sciences, proved an excellent servant, and gave admirable suggestions as to the manner in which this aim might be accomplished.1
John Culbertson of the University of Wisconsin and the Federal Reserve Board of Governors similarly comments,
Step after step in the cumulative economic rise of England was directly caused by government action or depended upon supportive government action: the prohibition of importation of Spanish wool by Henry I, the revision of land-tenure arrangements to permit the development of large-scale sheep raising, Edward III’s attracting of Flemish weavers to England and then prohibiting of the wearing of foreign cloth, the termination of the privileges in London of the Hanseatic League under Edward VI, the near-war between England under Elizabeth I and the Hanseatic League, which supported the rise of English shipping. And then there was the prohibition of export of English wool (which damaged the Flemish textile industry and stimulated that of England), the encouragement of production of dyed and finished cloth in England, the use of England’s dominance in textile manufacture to push the Hanseatic League out of foreign markets for other products, the encouragement of fishing . . .2
Fletcher notes that “mercantilism, in fact, created the modern European economy and thus made possible the colonial power that economically shaped much of the rest of the world.”3 Fletcher also observes that Great Britain maintained a 50 percent tariff on imported goods at the beginning of the nineteenth century. It was only after establishing her place on top of global trade when the free trade arguments of Adam Smith and David Ricardo began to be accepted. This was because the British began to see their position in the global economy as unassailable. However, their position atop the world’s industrial ladder was predicated upon other nations’ accepting their invitation to practice free trade as well. The German protectionist Friedrich List called this “kicking away the ladder,” where industries that emerged through government protections sought to remove those protections once they had established themselves, preventing these same competitors from challenging their place in the economic food chain. British free trade economists envisioned British goods being freely imported into foreign countries and outcompeting domestic producers and manufacturers. Of course, this did not happen. Germany, the United States, and other Western nations declined this generous offer to accept inferior allotments in global trade. The British endorsement of free trade came after its success was spurred on by mercantilist policies, but it was undermined when other nations saw through the sudden British conversion to free trade policies.
After the repeal of the Corn Laws, which were a body of tariffs protecting British agriculture,4 and the transition from mercantilist to free trade policies, Britain experienced a steady economic decline. This period also corresponds with the emergence of the German and American economies at a time when they embraced mercantilist policies in order to grow their own economies. Historian John Creegan comments on British commerce in the late nineteenth century:
The industries that formed the core of the British economy in the 19th century, textiles and steel, were developed during the period 1750-1840—before England abandoned mercantilism. Britain’s lead in these fields held for roughly two decades after adopting free trade but eroded as other nations caught up. Britain then fell behind as new industries, using more advanced technology, emerged after 1870. These new industries were fostered by states that still practiced mercantilism, including protectionism.5
Britain began its economic decline in the 1870s as its industrial advantages eroded with the repeal of protective tariffs. By 1880, free-trade Britain had been surpassed by protectionist America and Germany as Britain’s unilateral practice of free trade gave competitors a wider market in which to sell their manufactured goods. In 1906, Parliamentarian F.E. Smith noted, “We call ourselves free traders, but we have never secured free trade for ourselves; we have merely succeeded in enlarging the area within which our protectionist competitors enjoy free trade.”6 The history of American trade policy mirrors that of our British cousins. As we shall see, Americans haven’t learned the lesson that they should have from the failure of British trade policies.
Conclusion on the History of British Commerce
The history of the rise of British dominance in engineering and manufacturing under mercantilist policies to its fall under free trade policies is striking considering the intellectual currency that free trade theory currently enjoys. Perhaps Great Britain is just an exception to an otherwise straightforward history of the success and wealth that free trade has created among prosperous nations. Alas, this is not the case at all. Next, we will consider an example much closer to home: the history of trade policy in America. We shall see that the history of American trade policy closely mirrors that of Great Britain, and that, unfortunately, we have remained as obstinately loyal to free trade policy as Britain has – to our mutual destruction.
Read Part 3
- William Cunningham, The Rise and Decline of the Free Trade Movement (London: Cambridge University Press, 1914), p. 133 ↩
- John M. Culbertson, The Trade Threat and U.S. Trade Policy (Madison, WI: 21st Century Press, 1989) p. 52 ↩
- Ian Fletcher, Free Trade Doesn’t Work. p. 126 ↩
- “Corn” here refers to all grain produce, not simply to corn as we understand it. See http://en.wikipedia.org/wiki/Corn_Laws. ↩
- John P. Creegan, America Asleep: The Free Trade Syndrome and the Global Economic Challenge (Washington: U.S. Industrial Council Educational Foundation, 1992), p. 59 ↩
- John Campbell, F.E. Smith, First Earl of Birkenhead (London: J. Cape, 1983), p. 192 ↩