28 Jan 2017

The Triumph of Free Trade

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An elaborate allegorical illustration used as the frontispiece in Jane Cobden’s book The Hungry Forties (1904) which was part of the free trade campaign against Joseph Chamberlain’s pro-tariff movement in 1903. There is a very large sheaf of wheat (the “Fairy Wheatsheaf”) in the centre with the heads of Cobden and Bright near the base (other heads are visible in the grass beneath and around the sheaf but these are hard to identify); to the left is a destitute family which has been impoverished by tariffs; to the right is a prosperous family which has been enriched by free trade. The writing at the bottom of the page is hard to read but it is called “The fairy Wheatsheaf. Free Trade & Protection Contrasted”

Richard Ebling, at the Foundation for Economic Education, explains how free trade triumphed in the mid-19th century making Europe into a great and prosperous modern civilization.

Great Britain became the first country in the world to institute a unilateral policy of free trade. For the rest of the nineteenth century — indeed, until the dark forces of collectivism enveloped Europe during World War I — the British Empire was open to the entire world for the free movement of men, money, and goods.

Its economic success served as a bright, principled example to the rest of the globe, many of whose member countries followed the British lead in establishing, if not complete free trade, at least regimes of much greater freedom of trade and commerce.

British free trade policy helped to usher in the age of nineteenth-century free trade, and fostered what has been called the classical liberal era of “the three freedoms” which only came to an end with the First World War in 1914. The German free market economist Gustav Stolper explained these three freedoms in his book, This Age of Fable (1942), written while in exile in America during the Second World War:

    They were: freedom of movement for men, for goods and for money. Everyone could leave his country when he wanted and travel or migrate wherever he pleased without a passport. The only European country that demanded passports (not even visas!) was Russia, looked at askance for her backwardness with an almost contemptuous smile. Who wanted to travel to Russia anyway? …

    There were still customs barriers on the European continent, it is true. But the vast British Empire was free-trade territory open to all in free competition, and several other European countries, such as the Netherlands, Belgium, Scandinavia, came close to free trade.

    For a time the Great Powers on the European continent seemed to veer in the same direction. In the sixties of the nineteenth century the conviction was general that international free trade was the future. The subsequent decades did not quite fulfill that promise. In the late seventies reactionary trends set in. But looking back at the methods and the degree of protectionism built up at that time we are seized with nostalgic envy. Whether a bit higher or a bit lower, tariffs never checked the free flow of goods. All they affected was some minor price changes, presumably mirroring some vested interest.

    And the most natural of all was the free movement of money. Year in, year out, billions were invested by the great industrial European Powers in foreign countries, European and non-European … These billions were regarded as safe investments with attractive yields, desirable for creditors as well as debtors, with no doubts about the eventual return of both interest and principal.

The nineteenth-century victory of free trade over Mercantilism and Protectionism represented one of the great triumphs in the history of classical liberalism. It was the achievement of the Scottish Moral Philosophers and those that are now referred to as the “Classical Economists” in demonstrating the spontaneous order and coordination arising from a free, competitive market system – Adam Smith’s “system of natural liberty” and the cooperative gains for all through a system of division of labor.

The momentous importance in human history of this triumph is not always appreciated for what it was: a crucial institutional transformation that heralded the beginning of the material and cultural improvement of mankind through the private and peaceful associations of humanity for the mutual betterment of the mass of mankind. This transformation continues today, even in the face of the reactionary return to paternalistic government and political interference with human life over the last century.

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4 Feedbacks on "The Triumph of Free Trade"

DirtyJobsGuy

We once did a project in Monaco on satellite data links from oil platforms. The user was in Paris but the cost of licensing earth stations was so high they did it in Monaco and sent the signal by land line. Protecting France Telecom was thwarted by the ingenuity of the always grasping Grimaldi dynasty in Monte Carlo. I was surprised to find that there were auto parts factories in Monaco as well. they looked like Apartment buildings. Evidently the tax savings were so high it was worth it. The workers drove in from Italy every day. Protectionism always is a loser.



Seattle Sam

First of all, countries do not trade; people and businesses do. In the absence of government interference the only trades that will happen are the ones where both parties benefit. If government imposes a tax on the trade, it is reducing the value to both parties (i.e. adding cost). More precisely what it is doing is shifting costs from one set of people to another — in this case to the consumers of the product taxed. Government itself may derive more utility from this cost shifting, but the economy as a whole cannot.



GoneWithTheWind

Trade can be good and it can be harmful. The U.S. has lost millions of jobs due to foolish trade agreements. Most countries do indeed have tariffs and restrictions on U.S. goods into their country but become angry at the thought of tariffs on their goods. And our negotiators allow this in fact they create this. Someone benefits but not middle class Americans.

A better system is to put America first and end all federal corporate income taxes on profits within the country. Then put a 25% tariff on all goods and services from outside the country. This will level the playing field and make it easier to reach full employment.



Patrick Wilson

Seems free trade as made possible by Empire, security of investment guarenteed by the British military. Fair exchange in trade being an agreement between traders not interfered with by govt.



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