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FREE TRADE

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Originally appearing in Volume V11, Page 90 of the 1911 Encyclopedia Britannica.
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FREE TRADE, an expression which has now come to be appropriated to the economic policy of encouraging the greatest possible commercial intercourse, unrestricted by " protective " duties (see PROTECTION), between anyone country and its neighbours. This policy was originally advocated in France, and it has had its adherents in many countries, but Great Britain stands alone among the great commercial nations of the world in having adopted it systematically from 1846 onwards as the fundamental principle of her economic policy. In the economic literature of earlier periods, it may be noted that the term " free trade " is employed in senses which have no relation to modern usage. The term conveyed no suggestion of unrestricted trade or national liberty when it first appeared in controversial pamphlets;' it stood for a freedom conferred and maintained by authority—like that of a free town. The merchants desired to have good regulations for trade so that they might be free from the disabilities imposed upon them by foreign princes or unscrupulous fellow-subjects. After 164o the term seems to have been commonly current in a different sense. When the practice which had been handed down from the middle ages—of organizing the trade with particular countries by means of privileged companies, which professed to regulate the trade according to the state of the market so as to secure its steady development in the interest of producers and traders—was seriously called in question under the Stuarts and at the Revolution, the interlopers and opponents of the companies insisted on the advantages of a " Free Trade "; they meant by this that the various branches of commerce should not be confined to particular persons or limited in amount, but should be thrown open to be pursued by any Englishman in the way he thought most profitable himself.2 Again, in the latter half of the 18th 1E. Misselden, Free Trade or the Meanes to make Trade Flourish (1622), p. 68; G. Malynes, The Maintenance of Free Trade (1622), p. io5. 2 H. Parker, Of a Free Trade (1648), p. 8. century, till Pitt's financial reforms' were brought into operation, the English customs duties on wine and brandy were excessive; and those who carried on a remunerative business by evading these duties were known as Fair Traders or Free Traders? Since 1846 the term free trade has been popularly used, in England, to designate the policy of Cobden (q.v.) and others who advocated the abolition of the tax on imported corn (see CORN LAWS); this is the only one of the specialized senses of the term which is at all likely to be confused with the economic doctrine. The Anti-Corn Law movement was, as a matter of fact, a special application of the economic principle; but serious mistakes have arisen from the blunder of confusing the part with the whole, and treating the remission of one particular duty as if it were the essential element of a policy in which it was only an incident. W. E. Gladstone, in discussing the effect of improvements in locomotion on British trade, showed what a large proportion of the stimulus to commerce during the 19th century was to be credited to what he called the " liberalizing legislation " of the free-trade movement in the wide sense in which he used the term. " I rank the introduction of cheap postage for letters, documents, patterns and printed matter, and the abolition of all taxes on printed matter, in the category of Free Trade Legislation. Not only thought in general, but every communication, and every publication, relating to matters of business, was thus set free. These great measures, then, may well take their place beside the abolition of prohibitions and protective duties, the simplifying of revenue laws, and the repeal of the Navigation Act, as forming together the great code of industrial emancipation. Under this code, our race, restored to freedom in mind and hand, and braced by the powerful stimulus of open competition with the world, has upon the whole surpassed itself and every other, and has won for itself a commercial primacy more evident, more comprehensive, and more solid than it had at any previous time possessed."3 In this large sense free trade may be almost interpreted as the combination of the doctrines of the division of labour and of laissez-faire in regard to the world as a whole. The division of labour between different countries of the world—so that each concentrates its energies in supplying that for the production of which it is best fitted—appears to offer the greatest possibility of production; but this result cannot be secured unless trade and industry are treated as the primary elements in the welfare of each community, and political considerations are not allowed to hamper them. Stated in its simplest form, the principle which underlies the doctrine of free trade is almost a truism; it is directly deducible from the very notion of exchange (q.v.). Adam Smith and his successors have demonstrated that in every case of voluntary exchange each party gains something that is of greater value-inuse to him than that with which he parts, and that consequently in every exchange, either between individuals or between nations, both parties are the gainers. Hence it necessarily follows that, since both parties gain through exchanging, the more facilities there are for exchange the greater will be the advantage to every individual all round.4 There is no difficulty in translating this principle into the terms of actual life, and stating the conditions in which it holds good absolutely. If, at any given moment, the mass of'goods in the world were distributed among the consumers with the minimum of restriction on interchange, each competitor would obtain the largest possible share of the things he procures in the world's market. But the argument it less conclusive when the element of time is taken into account; what is true of each moment separately is not necessarily true of any period in which the conditions of production, or the requirements of communities, may possibly change. Each individual is likely to act with reference to his own future, but ' (1787), 27 Geo. III. c. 13. ' Sir Walter Scott, Guy Mannering, chapter v. ' Gladstone, " Free Trade, Railways and Commerce," in Nineteenth Century (Feb. 188o), vol. vii. p. 370. ' Parker states a similar argument in the form in which it suited the special problem of his day. " If merchandise be good for the commonweal, then the more common it is made, the more open it is laid, the more good it will convey to us." Op. cit. 20.it may often be wise for the statesman to look far ahead, beyond the existing generation.' Owing to the neglect of this element of time, and the allowance which must be made for it, the reasoning as to the advantages of free trade, which is perfectly sound in regard to the distribution of goods already in existence, may become sophistical,' if it is put forward as affording a complete demonstration of the benefits of free trade as a regular policy. After all, human society is very complex, and any attempt to deal with its problems off-hand by appealing to a simple principle raises the suspicion that some important factor may have been left out of account. When there is such mistaken simplification, the reasoning may seem to have complete certainty, and yet it fails to produce conviction, because it does not profess to deal with the problem in all its aspects. When we concentrate attention on the phenomena of exchange, we are viewing society as a mechanism in which each acts under known laws and is impelled by one particular force—that of self-interest; now, society is, no doubt, in this sense a mechanism, but it is also an organism,? and it is only for very short periods, and in a very limited way, that we can venture to neglect its organic character without running the risk of falling into serious mistakes. The doctrine of free trade maintains that in order to secure the greatest possible mass of goods in the world as a whole, and the greatest possibility of immediate comfort for the consumer, it is expedient that there should be no restriction on the exchange of goods and services either between individuals or communities. The controversies in regard to this doctrine have not turned on its certainty as a hypothetical principle, but on the legitimacy of the arguments based upon it. It certainly supplies a principle in the light of which all proposed trade regulations should be criticized. It gives us a basis for examining and estimating the expense at which any particular piece of trade restriction is carried out; but thus used, the principle does not necessarily condemn the expenditure; the game may be worth the candle or it may not, but at least it is well that we should know how fast the candle is being burnt. It was in this critical spirit that Adam Smith examined the various restrictions and encouragements to trade which were in vogue in his day; he proved of each in turn that it was expensive, but he showed that he was conscious that the final decision could not be taken from this standpoint, since he recognized in regard to the Navigation Acts that " defence is more than opulence." 3 In more recent times, the same sort of attitude was taken by Henry Sidgwick,9 who criticizes various protective expedients in turn, in the light of free trade, but does not treat it as conveying an authoritative decision on their merits. But other exponents of the doctrine have not been content to employ it in this fashion. They urge it in a more positive manner, and insist that free trade pure and simple is the foundation on which the economic life of the community ought to be based. By men who advocate it in this way, free trade is set forward as an ideal which it is a duty to realize, and those who hold aloof from it or oppose it have been held up to scorn as if they were almost guilty of a crime.10 The development of the material resources of the world is undoubtedly an important element in the welfare of mankind; it is an aim which is common to the whole race, and may be looked upon as contributing to the greatest happiness of the greatest number. Competition in the open market seems to secure that each consumer shall obtain the best possible terms; and again, since all men are consumers whether they produce or not, or whatever they produce, the greatest measure of comforts for each seems likely to be attainable on these lines. For those who are frankly cosmopolitan, and who regard material prosperity as at all events the prime object at which public policy should aim, the free-trade doctrine is readily Schmoller, Grundriss der allgemeinen Volkswirtschaftslehre (1904), ii. 6o7. ' Byles, Sophisms of Free Trade; L. S. Amery, Fundamental Fallacies of Free Trade, 13. 7 W. Cunningham, Rise and Decline of the Free Trade Movement, PP. 5-11. 5 Wealth of Nations, book iv. chap. ii. 9 Principles of Political Economy, 485. 10 J. Morley, Life of Cobden, i. 230. transformed, from a mere principle of criticism, till it comes to be regarded as the harbinger of a possible Utopia: It was in this fashion that it was put forward by French economists and proved attractive to some leading American statesmen in the 18th century. Turgot regarded the colonial systems of the European countries as at once unfair to their dependencies and dangerous to the peace of the world. " It will be a wise arid happy thing for the nation which shall be the first to modify its policy according to the new conditions, and be content to regard its colonies as if they were allied provinces and not subjects of the mother country." It will be a wise and happy thing for the nation which is the first to be convinced that the secret of " success, so far as commercial policy is concerned, consists in employing all its land in the manner most profitable for the proprietary, all the hands in the manner most advantageous to the workman personally, that is to say, in the manner in which each would employ them, if we could let him be simply directed by his own interest, and that all the rest of the mercantile policy is vanity and vexation of spirit. When the entire separation of America shall have forced the whole world to recognize this truth and purged the European nations of commercial jealousy there will be one great cause of war less in the world."' Pitt, under the influence of Adam Smith, was prepared to admit the United States to the benefit of trade with the West Indian Colonies; and Jefferson, accepting the principles of his French teachers, would (in contradistinction to Alexander Hamilton) have been willing to see his country renounce the attempt to develop manufactures of her own .2 It seemed as if a long step might be taken towards realizing the free-trade ideal for the Anglo-Saxon race; but British shipowners insisted on the retention of their privileges, and the propitious moment passed away with the failure of the negotiations of 1783.' Free trade ceased to be regarded as a gospel, even in France, till the ideal was revived in the writings of Bastiat, and helped to mould the enthusiasm of Richard Cobden.' Through his zealous advocacy, the doctrine secured converts in almost every part of the world; though it was only in Great Britain that a great majority of the citizens became so far satisfied with it that they adopted it as the foundation of the economic policy of the country. It is not difficult to account for the conversion of Great Britain to this doctrine; in the special circumstances of the first half of the 19th century it was to the interest of the most vigorous factors in the economic life of the country to secure the greatest possible freedom for commercial intercourse. Great Britain had, through her shipping, access to all the markets of the world; she had obtained such a lead in the application of machinery to manufactures that she had a practical monopoly in textile manufactures and in the hardware trades; by removing every restriction, she could push her advantage to its farthest extent, and not only undersell native manufactures in other lands, but secure food, and the raw materials for her manufactures, on the cheapest possible terms. Free trade thus seemed to offer the means of placing an increasing distance between Britain and her rivals, and of rendering the industrial monopoly which she had attained impregnable. The capitalist employer had superseded the landowner as the mainstay of the resources and revenue of the realm, and insisted that the prosperity of manufactures was the primary interest of the community as a whole. The expectation, that a thoroughgoing policy of free trade would not only favour an increase of employment, but also the cheapening of food, could only have been roused in a country which was Memoire," 6 April 1776, in CEuvres, viii. 46o. 2 Jefferson, Notes on Virginia, 275. See also the articles on
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