The Rise of Free Trade in Western Europe
Charles P.Kindleberger, a leading economic historian, examines the process by which mercantilist trade restrictions were dismantled and evaluates several of the best-known theses concerning the ascendance of free trade in Western Europe. Presenting a domestic society-centered argument, Kindleberger contends that free trade in many instances arose as individual entrepreneurs pressured their governments to lift restrictions on international trade and finance so that they could pursue overseas business opportunities. Yet Kindleberger points out that political activity by entrepreneurs cannot explain the rapid expansion of free trade in Europe after 1850. He suggests that this “second wave” of free trade may have been motivated by ideology rather than by economic or political interests. This important article offers a persuasive explanation of how and why the market principle gained dominance within the international economy during the nineteenth century.
I
… The beginnings of free trade internationally go back to the eighteenth century. French Physiocratic theory enunciated the slogan laisser faire, laisser passer to reduce export prohibitions on agricultural products. Pride of place in practice, however, goes to Tuscany, which permitted free export of the corn of Sienese Maremma in 1737, after the Grand Duke Francis had read Sallustio Bandini’s Economical Discourse. Beset by famine in 1764, Tuscany gradually opened its market to imported grain well before the Vergennes Treaty of 1786 between France and Britain put French Physiocratic doctrine into practice. Grain exports in Tuscany had been restricted under the “policy of supply,” or “provisioning,” or “abundance,” under which the city-states of Italy limited exports from the surrounding countryside in order to assure food to the urban populace. Bandini and Pompeo Neri pointed out the ill effects this had on investment and productivity in agriculture.
The policy of supply was not limited to food. In the eighteenth and early nineteenth century exports were restricted in, among others, wool and coal (Britain), ashes, rags, sand for glass and firewood (Germany), ship timbers (Austria), rose madder (the Netherlands), and silk cocoons (Italy). The restrictions on exports of ashes and timber from Germany had conservation overtones. The industrial revolution in Britain led further to prohibitions on export of machinery and on emigration of artisans, partly to increase the supply for local use, but also to prevent the diffusion of technology on the Continent. We return to this below.
What was left in the policy of supply after the Napoleonic Wars quickly ran down. Prohibition of export of raw silk was withdrawn in Piedmont, Lombardy, and Venetia in the 1830’s, freedom to export coal from Britain enacted in the 1840’s. Details of the relaxation of restrictions are recorded for Baden as part of the movement to occupational freedom. The guild system gradually collapsed under the weight of increasing complexity of regulations by firms seeking exceptions for themselves and objecting to exceptions for others. A number of Prohibitions and export taxes lasted to the 1850’s—as industrial consumers held out against producers, or in some cases, like rags, the collectors of waste products. Reduction of the export tax on rags in Piedmont in 1851 produced a long drawn-out struggle between Cavour and the industry which had to close up thirteen plants when the tax was reduced. To Cavour salvation of the industry lay in machinery and the substitution of other materials, not in restricting export through Leghorn and Messina to Britain and North America.
Elimination of export taxes and prohibitions in nineteenth-century Europe raises doubt about the universal validity of the theory of the tariff as a collective good, imposed by a concentrated interest at the expense of the diffuse. The interest of groups producing inputs for other industries are normally more deeply affected than those of the consuming industries, but it is hardly possible that the consuming is always less concentrated than the producing industry.
II
The question of export duties sought by domestic manufacturers on their raw materials, and of import duties on outputs demanded by producers for the domestic market, was settled in the Netherlands in the eighteenth century in favor of mercantile interests. These were divided into the First Hand, merchants, shipowners and bankers; the Second Hand, which carried on the work of sorting and packing in staple markets, and wholesaling on the Continent; and the Third Hand, concerned with distribution in the hinterland. Dutch staple trade was based partly on mercantile skills and partly on the pivotal location of Amsterdam, Rotterdam, and other staple towns dedicated to trade in particular commodities, largely perishable, nonstandardized and best suited to short voyages. The First Hand dominated Dutch social and political life and opposed all tariffs on export or import goods, above a minimum for revenue, in order to maximize trade and minimize formalities. From 1815 to 1830 when Holland and Belgium were united as the Low Countries, the clash between the Dutch First Hand and Belgian producers in search of import protection from British manufactures was continuous and heated.
The First Hand objected to taxes for revenue on coffee, tea, tobacco, rice, sugar, and so on, and urged their replacement by excises on flour, meat, horses and servants. Tariffs for revenue must be held down to prevent smuggling and to sustain turnover. The safe maximum was given variously as three percent, five percent, and on transit even as one-half percent. Transit in bond, and transit with duty-cum-drawback were thought too cumbersome. The Dutch made a mistake in failing to emulate London which in 1803 adopted a convenient entrepôt dock with bonding. Loss of colonies and of overseas connections in the Napoleonic Wars made it impossible from early in the period to compete with Britain in trade. Equally threatening was Hamburg which supplied British and colonial goods to Central Europe in transit for one-half percent revenue duty maximum, many products free, and all so after 1839. More serious, however, was the rise of direct selling as transport efficiency increased. Early signs of direct selling can be detected at the end of the seventeenth century when Venice and Genoa lost their role as intermediary in traffic between Italy and the West. By the first half of the nineteenth century, they were abundant. “By the improved intercourse of our time (1840), the seller is brought more immediately into contact with the producer.” Twenty years earlier, the Belgian members of a Dutch Belgian fiscal commission argued that “there was no hope of restoring Holland’s general trade. Owing to the spread of civilization, all European countries could now provide for themselves in directly trading.”1
It is a mistake to think of merchants as all alike. As indicated, First, Second and Third Hands of the Netherlands had different functions, status and power. In Germany, republican merchants of Hamburg differed sharply from those of the Imperial city, Frankfurt, and held out fifty years longer against the Zollverein. Within Frankfurt there were two groups, the English-goods party associated with the bankers, and the majority, which triumphed in 1836, interested in transit, forwarding, retail and domestic trade within the Zollverein. In Britain a brilliant picture had been drawn of a pragmatic free trader, John Gladstone, father of William, opposed to timber preferences for Canada, enemy of the East India Company monopoly on trade with China and India, but supportive of imperial preference in cotton and sugar, and approving of the Corn Laws on the ground of support for the aristocracy he hoped his children could enter via politics. The doctrinaire free traders of Britain were the cotton manufacturers like Gladstone’s friend, Kirman Finlay, who regarded shipowners and corn growers as the two great monopolists.
The doctrinaire free trade of the Dutch merchants led to economic sclerosis, or economic sickness. Hamburg stayed in trade and finance and did not move into industry. In Britain, merchants were ignorant of industry, but were saved by the coming of the railroad and limited liability which provided an outlet for their surplus as direct trading squeezed profits from stapling. The economic point is simple: free trade may stimulate, but again it may lead to fossilization.
III
The movement toward freer trade in Britain began gross in the eighteenth century, net only after the Napoleonic Wars. In the initial stages, there was little problem for a man like Wedgewood advocating free trade for exports of manufactures under the Treaty of Vergennes with France, but prohibitions on the export of machinery and emigrations of artisans. Even in the 1820’s and 1830’s, a number of the political economists—Torrens, Baring, Peel, Nassau Senior—favored repeal of the Corn Laws but opposed export of machinery. The nineteenth century is seen by Brebner not as a steady march to laisser-faire but as a counterpoint between Smithian laisser-faire in trade matters and, after the Reform Bill, Benthamic intervention of 1832 which produced the Factory, Mines, Ten Hours and similar acts from 1833 to 1847.
First came the revenue aspect, which was critical to the movement to freer trade under Huskisson in the 1820’s, Peel in the 1840’s, and Gladstone in the 1850’s. Huskisson and Gladstone used the argument that the bulk of revenue was produced by taxes on a few items—largely colonial products such as tea, coffee, sugar, tobacco, and wine and spirits—and that others produced too little revenue to be worth the trouble. Many were redundant (for example, import duties on products which Britain exported). Others were so high as to be prohibitory or encouraged smuggling and reduced revenue. When Peel was converted to free trade, it was necessary to reintroduce the income tax before he could proceed with repeal of 605 duties between 1841 and 1846, and reductions in 1,035 others. The title of Sir Henry Parnell’s treatise on freer trade (1830) was Financial Reform.
But Huskisson was a free trader, if a cautious one. He spoke of benefits to be derived from the removal of “vexatious restraints and meddling interference in the concerns of internal industry and foreign commerce.”2 Especially he thought that imports stimulated efficiency in import-competing industry. In 1824 the prohibition on silk imports had been converted to a duty of thirty percent regarded as the upper limit of discouragement to smuggling. In a speech on March 24, 1826, said by Canning to be the finest he had heard in the House of Commons, Huskisson observed that Macclesfield and Spitalfield had reorganized the industry under the spur of enlarged imports, and expanded the scale of output. Both Michel Chevalier and Count Cavour referred to this positive and dynamic response to increased imports in England.
Restrictions on export of machinery and emigration of artisans went back, as indicated, to the industrial revolution. Prohibition of export of stocking frames was enacted as early as 1696. Beginning in 1774 there was a succession of restrictions on tools and utensils for the cotton and linen trades and on the emigration of skilled artisans. The basis was partly the policy of supply, partly naked maintenance of monopoly. Freedom had been granted to the emigration of workmen in 1824. After the depression of the late 1830’s, pressure for removal of the prohibition came from all machinery manufacturers. Following further investigation by a Select Committee of Parliament, the export prohibition was withdrawn.
The main arguments against prohibition of the export of machinery and emigration of artisans were three: they were ineffective, unnecessary, and harmful. Ineffectuality was attested to by much detail in the Select Committee reports on the efficiency of smuggling. Machinery for which licenses could not be obtained could be dispatched illegally in one of a number of ways—by another port; hidden in cotton bales, in baggage or mixed with permitted machinery and in a matter of hours. Guaranteed and insured shipments could be arranged in London or Paris for premia up to thirty percent.
That prohibition was unnecessary was justified first by the inability of foreigners, even with English machinery and English workmen, to rival English manufacturers. Britain had minerals, railways, canals, rivers, better division of labor, “trained workmen habituated to all industrious employments.”3 “Even when the Belgians employed English machines and skilled workers, they failed to import the English spirit of enterprise, and secured only disappointing results.”4 In 1825, the Select Committee concluded it was safe to export machinery, since seven-year-old machinery in Manchester was already obsolete.
In the third place it was dangerous. Restriction on emigration of artisans failed to prevent their departure, but did inhibit their return. Restriction of machinery, moreover, raised the price abroad through the cost of smuggling, and stimulated production on the Continent. Improvement in the terms of trade through restriction of exports (but failure to cut them off altogether) was deleterious for its protective effect abroad.
Greater coherence of the Manchester cotton spinners over the machinery makers spread over Manchester, Birmingham and London may account for the delay from 1825 to 1841 in freeing up machinery, and support Pincus’ theory on the need of concentrated interests. But the argument of consistency was telling. In 1800 the Manchester manufacturers of cloth had demanded a law forbidding export of yarn, but did not obtain it. The 1841 Second Report concluded that machinery making should be put on the same footing as other departments of British industry. It is noted that Nottingham manufacturers approved free trade but claim an exception in regard to machinery used in their own manufacture. Babbage observed that machinery makers are more intelligent than their users, to whose imagined benefits their interests are sacrificed, and referred to the “impolicy of interfering between two classes.”5 In the end, the Manchester Chamber of Commerce became troubled by the inconsistency and divided; the issue of prohibition of machinery was subsumed into the general attack on the Corn Laws. In the 1840’s moreover, the sentiment spread that Britain should become the Workshop of the World, which implied the production of heavy goods as well as cotton cloth and yarn.
Rivers of ink have been spilled on the repeal of the Corn Laws, and the present paper can do little but summarize the issues and indicate a position. The questions relate to the Stolper-Samuelson distribution argument, combined with the Reform Bill of 1832 and the shift of political power from the landed aristocracy to the bourgeois; incidence of the Corn Laws and of their repeal, within both farming and manufacturing sectors; the potential for a dynamic response of farming to lower prices from competition; and the relation of repeal to economic development on the Continent, and especially whether industrialization could be halted by expanded and assured outlets for agricultural produce, a point of view characterized by Gallagher and Robinson as “free-trade imperialism.” A number of lesser issues may be touched upon incidentally: interaction between the Corn Laws and the Zollverein, and its tariff changes in the 1840’s; the question of whether repeal of the Corn Laws and of the Navigation Acts would have been very long delayed had it not been for the potato famine in Ireland and on the Continent; and the question of whether the term “free-trade imperialism” is better reserved for Joseph Chamberlain’s Empire preference of fifty years later.
In the normal view, the Reform Bill of 1832 shifted power from the land and country to the factory and city, from the aristocratic class to the bourgeois, and inexorably led to changes in the trade policies which had favored farming and hurt manufacturing. One can argue that repeal of the Corn Laws represented something less than that and that the Reform Bill was not critical. The movement to free trade had begun earlier in the Huskisson reforms: speeches in Parliament were broadly the same in 1825 when it was dominated by landed aristocrats as in the 1830’s and 1840’s. Numbers had changed with continued manufacturing expansion, but nothing much more. Or one can reject the class explanation, as Polanyi does, and see something much more ideological. “Not until the 1830’s did economic liberalism burst forth as a crusading passion.” The liberal creed involved faith in man’s secular salvation through a self-regulating market, held with fanaticism and evangelical fervor. French Physiocrats were trying to correct only one inequity, to break out of the policy of supply and permit export of grain. British political economists of the 1830’s and 1840’s who won over Tories like Sir Robert Peel and Lord Russell, and ended up in 1846 with many landlords agreeable to repeal of the Corn Laws, represented an ideology. “Mere class interests cannot offer a satisfactory explanation for any long-run social process.”6
Under a two-sector model, free trade comes when the abundant factor acquires political power and moves to eliminate restrictions imposed in the interest of the scarce factor which has lost power. In reality factors of production are not monolithic. Some confusion in the debate attached to the incidence of the tax on imported corn within both farming and manufacturing. The Anti-Corn Law League of Cobden and Bright regarded it as a tax on food, taking as much as twenty percent of the earnings of a hand-loom weaver. Cobden denied the “fallacy” that wages rose and fell with the price of bread. Benefits, moreover, went to the landlord and not to the farmer or farm-laborer, as rents on the short leases in practice rose with the price of corn. There are passages in Cobden which suggest that hurt of the Corn Laws fell upon the manufacturing and commercial classes rather than labor but the speeches run mainly in terms of a higher standard of living for the laborer who would spend his “surplus of earnings on meat, vegetables, butter, milk and cheese,” rather than on wheaten loaves. The Chartists were interested not in repeal, but in other amenities for the workers. Peel’s conversion waited on his conclusion that wages did not vary with the price of provision, and that repeal would benefit the wage earner rather than line the pockets of the manufacturer.
In any event, with Gladstone’s reductions in duties on meat, eggs and dairy products, with High Farming, and an end to the movement off the farm and out of handwork into the factory real wages did rise in the 1850’s, but so did profits on manufacturing. As so often in economic debates between two alternatives, history provides the answer which economists abhor, both. Nor did repeal bring a reduction in incomes to landlords—at least not for thirty years—as the farm response to repeal, and to high prices of food produced by the potato famine, was more High Farming.
Cobden may have only been scoring debating points rather than speaking from conviction when on a number of occasions he argued that the repeal would stimulate landlords “to employ their capital and their intelligence as other classes are forced to do in other pursuits” rather than “in sluggish indolence,” and to double the quantity of grain, or butter, or cheese, which the land is capable of providing, with “longer leases, draining, extending the length of fields, knocking down hedgerows, clearing away trees which now shield the corn” and to provide more agricultural employment by activity to “grub up hedges, grub up thorns, drain, ditch.” Sir James Caird insisted that High Farming was the answer to the repeal of the Corn Laws and many shared his view. The fact is, moreover, that the 1850’s were the Golden Age of British farming, with rapid technical progress through the decade though it slowed thereafter. Repeal of the Corn Laws may not have stimulated increased efficiency in agriculture, but it did not set it back immediately, and only after the 1870’s did increases in productivity run down.
The political economists in the Board of Trade—Bowring, Jacob, MacGregor—sought free trade as a means of slowing down the development of manufacturing on the Continent. They regarded the Zollverein as a reply to the imposition of the Corn Laws, and thought that with its repeal Europe, but especially the Zollverein under the leadership of Prussia, could be diverted to invest more heavily in agriculture and to retard the march to manufacturing. There were inconsistencies between this position and other facts they adduced: Bowring recognized that Germany had advantages over Great Britain for the development of manufacturing, and that Swiss spinning had made progress without protection. The 1818 Prussian tariff which formed the basis for that of the Zollverein was the lowest in Europe when it was enacted—though the levying of tariffs on cloth and yarn by weight gave high effective rates of protection despite low nominal duties to the cheaper constructions and counts. Jacob noted that the export supply elasticity of Prussian grain must be low, given poor transport. “To export machinery, we must import corn,”7 but imports of corn were intended to prevent the development of manufacturers abroad, whereas the export of machinery assisted it. The rise and progress of German manufacturing was attributed to restrictions on the admission of German agricultural products and wood, imposed by France and England, but also to “the natural advantages of the several states for manufacturing industry, the genius and laborious character and the necessities of the German people, and…especially the unexampled duration of peace, and internal tranquility which all Germany enjoyed.”8
The clearest statements are those of John Bowring. In a letter of August 28, 1839, to Lord Palmerston he asserted that the manufacturing interest in the Zollverein “is greatly strengthened and will become stronger from year to year unless counteracted by a system of concessions, conditional upon the gradual lowering of tariffs. The present state of things will not be tenable. The tariffs will be elevated under the growing demands and increasing power of the manufacturing states, or they will be lowered by calling into action, and bringing over to an alliance, the agricultural and commercial interests.”9 In his testimony before the Select Committee on Import Duties in 1840 he went further: “I believe we have created an unnecessary rivalry by our vicious legislation; that many of these countries never would have dreamed of being manufacturers.”
On this showing, the repeal of the Corn Laws was motivated by “free-trade imperialism,” the desire to gain a monopoly of trade with the world in manufactured goods. Zollverein in the 1830’s merely indicated the need for haste. Torrens and James Deacon Hume, among others, had been pushing for importing corn to expand exports in the 1820’s, before Zollverein was a threat.
Reciprocity had been a part of British commercial policy in the Treaty of Vergennes in 1786, in treaties reducing the impact of the Navigation Laws in the 1820’s and 1830’s. The French were suspicious, fearing that they had been out-traded in 1786. They evaded Huskisson’s negotiations in 1828. But reciprocity was unnecessary, given David Hume’s law. Unilateral reduction of import duties increased exports. Restored into the British diplomatic armory in 1860, reciprocity later became heresy in the eyes of political economists, and of the manufacturing interest as well.
The view that ascribes repeal of the Corn Laws to free-trade imperialism, however, fails adequately to take account of the ideology of the political economists, who believed in buying in the cheapest market and selling in the dearest, or of the short-run nature of the interests of the Manchester merchants themselves. It was evident after the 1840’s that industrialization on the Continent could not be stopped, and likely that it could not be slowed down. The Navigation Acts were too complex; they had best be eliminated. The Corn Laws were doomed, even before the Irish potato famine, though that hastened the end of both Corn Laws and Navigation Acts, along with its demonstration of the limitation of market solutions under some circumstances.
“A good cause seldom triumphs unless someone’s interest is bound up with it.”10 Free trade is the hypocrisy of the export interest, the clever device of the climber who kicks the ladder away when he has attained the summit of greatness. But in the English case it was more a view of the world at peace, with cosmopolitan interests served as well as national.
It is difficult in this to find clear-cut support for any of the theories of tariff formation set forth earlier. Free trade as an export-interest collective good, sought in a representative democracy by concentrated interests to escape the free rider, would seem to require a simple and direct connection between the removal of the tariff and the increase in rents. In the repeal of the Corn Laws, and the earlier tariff reductions of Huskisson and Peel, the connection was roundabout—through Hume’s law, which meant that increased imports would lead to increased prices or quantities (or both) exported on the one hand, and/or through reduced wages, or higher real incomes from lower food prices on the other. Each chain of reasoning had several links.
Johnson’s view that free trade is adopted by countries with improving competitiveness is contradictory to the free-trade-imperialism explanation, that free trade is adopted in an effort to undermine foreign gains in manufacturing when competitiveness has begun to decline. The former might better account in timing for Adam Smith’s advocacy of free trade seventy years earlier—though that had large elements of French Physiocratic thought—or apply to the 1820’s when British productivity was still improving, before the Continent had started to catch up. In turn, free-trade imperialism is a better explanation for the 1830’s than for the end of the 1840’s, since by 1846 it was already too late to slow, much less to halt, the advance of manufacturing on the Continent.
Vested interests competing for rents in a representative democracy, thrusting manufacturers seeking to expand markets, or faltering innovators, trying as a last resort to force exports on shrinking markets—rather like the stage of foreign direct investment in Vernon’s product cycle when diffusion of technology has been accomplished—none of these explanations seems free of difficulties as compared with an ideological explanation based on the intellectual triumph of the political economists, their doctrines modified to incorporate consistency. The argument took many forms: static, dynamic, with implicit reliance on one incidence or another, direct or indirect in its use of Hume’s law. But the Manchester School, based on the political economists, represented a rapidly rising ideology of freedom for industry to buy in the cheapest and sell in the dearest market. It overwhelmed the Tories when it did not convert them. Britain in the nineteenth century, and only to a slightly lesser extent the Continent, were characterized by a “strong, widely-shared conviction that the teachings of contemporary orthodox economists, including Free Traders, were scientifically exact, universally applicable, and demanded assent.”11 In the implicit debate between Thurman Arnold who regarded economic theorists (and lawyers) as high priests who rationalize and sprinkle holy water on contemporary practice, and Keynes who thought of practical men as responding unconsciously to the preaching of dead theorists, the British movement to free trade is a vote, aided by the potato famine, for the view of Keynes.
IV
France after 1815 was a high-tariff country which conformed to the Pincus model for a representative democracy with tariffs, for various interests, except that (a) there were tariffs for all, and (b) it was not a democracy. The Physiocratic doctrine of laisser-faire agricultural exports had been discredited in its reciprocal form by the disaster wreaked by imports up to 1789 under the Treaty of Vergennes. The Continental system, moreover, provided strong protection to hothouse industries, which was continued in the tariff of 1816, and elaborated in 1820 and 1822. To the principles of Turgot, that there should be freedom of grain trade inside France but no imports except in periods of drought, were added two more: protection of the consumer by regulating the right of export of wheat—a step back from Physiocratic doctrine—and protecting the rights of producers by import tariffs. In introducing the tariff of 1822 for manufactures, Saint-Cricq defended prohibitions, attacked the view that an industry could not survive with a duty of twenty percent should perish, saying that the government intended to protect all branches together: “agriculture, industry, internal commerce, colonial production, navigation, foreign commerce finally, both of land and of sea.”12
It was not long, however, before pressures for lower duties manifested themselves. Industries complained of the burden of the tariff on their purchases of inputs, and especially of the excess protection accorded to iron. It was calculated that protection against English iron cost industrial consumers fifty million francs a year and had increased the price of wood—used for charcoal, and owned by the many noble maîtres de forges—by thirty percent on the average and in some places fifty percent. Commissions of inquiry in 1828 and 1834 recommended modifications in duties, especially to enlarge supplies which local industry was not in a position to provide, and to convert prohibitions into tariffs. A tumult of conflict broke out in the Chamber among the export interests of the ports, the textile interests of Alsace and Normandy, the maîtres de forges, and the consumers of iron, with no regard, says the protectionist Gouraud, for the national interest. The Chambers were then dissolved by the cabinet, and tariffs adjusted downward, in coal, iron, copper, nitrates, machinery, horses. Reductions of the 1830’s were followed in the peaks of business by similar pressure for reductions in prosperous phases of the cycle of the 1840’s and 1850’s.
A troubling question that involved conflicting interests in this period was presented by sugar, for which it was impossible to find a solution agreeable at the same time to colonial planters, shipowners, port refiners, consumers and the treasury. Colonial supply was high cost and a 55 francs per 100 kilograms duty on foreign supplies was needed to keep the sugar ports content. This, however, made it economical to expand beet-sugar production, begun during the Continental blockade, and the sugar ports turned to taxing this domestic production, less heavily at first, but with full equality in 1843. By this time it was too late, and with the freeing of the slaves in 1848, French colonial sugar production no longer counted.
The free-trade movement in France had its support in Bordeaux, the wine-exporting region; Lyon, interested in silk; and Paris, producer of so-called Paris articles for sale abroad (cabinet ware, perfumes, imitation jewelry, toys, and so on). Later Norman agricultural interests in the export of butter and eggs to London teamed up with Bordeaux in wine to resist the attempts by textile interests to enlist agriculture in favor of higher tariffs.
Intellectual support to free trade led by Bastiat from Bordeaux, and with Michel Chevalier as its most prestigious member, is dismissed by Lévy-Leboyer as unimportant. Nonetheless, Chevalier had an important part in the negotiation of the treaty, and in persuading Napoleon III to impose it on France in the face of the united opposition of the Chamber of Deputies. Some attention to his thought is required.
The prime interest of the Société d’Economie Politique and of Chevalier was growth. His two-year visit to the United States in 1833–1835 impressed him with the contribution of transport to economic growth and contributed to his 1838 major work on The Material Interests of France in Roads, Canals and Railroads. American protectionist doctrine of Henry Carey seems not to have affected him. Polytechnician, graduate of the Ecole des Mines, Chevalier’s first interest in freer trade came from a project to establish woolen production in the Midi, and to obtain cheaper wool. Much of his later reasoning was in terms of the penalty to industry from expensive materials: Charging 35 francs for a quintal of iron worth 20 imposes on industry “the labor of Sisyphus and the work of Penelope.”13 His major argument, at the College de France, and in his Examen du Système Commercial, cited the success of Spitalfield and Macclesfield when Huskisson permitted competition of imports; and the experience of the manufacturers of cotton and woolen textiles in Saxony, who were worried by the enactment of Zollverein but sufficiently stimulated by import competition so that in two or three years their industry was flourishing. The letter of Napoleon III to Fould talks in specifics of the need to abolish all duties on raw materials essential to industry to encourage production, and to reduce by stages the duties on goods which are consumed on a large scale. In the more general introduction it states that “lack of competition causes industry to stagnate,” echoing the Chevalier view. Chevalier himself was one of the judges of the Universal Exposition of 1855 in Paris and noted that France received so many prizes that no one dared confess to being a protectionist.
There were economic purposes behind the Anglo-French treaty, as evidenced by the proposal in France in 1851 for tariffs of twenty percent, ten percent and a duty-free on wholly manufactured goods, semi-finished manufactures and raw materials; by actual reductions in duties on coal, iron and steel in 1852 as the railroad boom picked up; and by the legislative proposal designed by Napoleon III in 1855, but not put forward until after the Crimean War, to admit 241 items duty free, reduce tariffs on 19 others, remove all prohibitions and set a top limit of thirty percent. This last was turned down by the Chamber and Napoleon promised not to submit a new tariff proposal before 1861.
Economic interests were involved, and the theories of great men like Cobden and Chevalier. However, there was more: Napoleon III was starting to engage in foreign adventure. He wanted to rid Italy of Austrian rule by use of arms. The British opposed his military measures, despite their recent use of force in Crimea. The treaty was used to hold British neutrality, as much as or more than to stimulate growth in France. Moreover, it did not need to be submitted to the Chamber. Under the Constitution of 1851, the Emperor had the sole power to make treaties, and such treaties encompassed those dealing with trade.
The move was successful both politically and economically. With the help of the French armies, Italy was unified under the leadership of Piedmont, and French growth never faltered under the impetus of increased imports. French industries met competition successfully and checked the growth of imports after two years. While its effects are intermingled with those of the spread of the French railroad network, it “helped to bring about the full development of the industrial revolution in France.”
Further, it added impetus to the free-trade movement in Europe. This was under way in the early 1850’s, following repeal of the Corn Laws. The Swiss constitution of 1848 had called for a tariff for revenue only and protective duties were reduced progressively from 1851 to 1855. The Netherlands removed a tariff on ship imports and a prohibition against nationalization of foreign ships. Belgium plugged gap after gap in its protective system in the early 1850’s, only to turn around at the end of the decade and adopt free trade down the line. Piedmont, as we shall see, and Spain, Portugal, Norway and Sweden (after 1857) undertook to dismantle their protective and prohibitive restrictions. With the Anglo-French treaty the trickle became a flood. France, Germany, Italy and Britain engaged in negotiating reciprocal trade treaties with the most-favored nation clause.
Following French defeat at Sedan in 1870 and the abdication of Louis Napoleon, the Third Republic brought in the protectionist Thiers. The Cobden treaty was denounced in 1872. Reversal of policy waited upon the repeal of the Le Chapelier law of 1791, taken in the heat of the French revolution against associations, which forbade economic interests from organizing. Dunham claims that a country with leadership would have accepted a moderate tariff in 1875, but that the free traders had neither organization nor conviction, that is, too many free riders.
The French movement to free trade was taken against the weight of the separate interests, in the absence of strong export interests, with an admixture of economic theory of a dynamic kind, and imposed from above. The motivation of that imposition was partly economic, partly, perhaps even mainly, political. Moreover, it had a bandwagon effect in spreading freer trade.
In the French case, the leadership overwhelmed the concentrated economic interests. That leadership earned its surplus, to use Frohlich, Oppenheimer and Young’s expression, in a coin different than economic, that is, in freedom to maneuver in foreign policy. It may be possible to subsume increases in leadership surplus in this form into an “economic theory of national decision-making” with costs to vested interests accepted in exchange for political benefits to a national leader, ruling by an imposed constitution, the legitimacy of which is not questioned. The effort seems tortured.
V
As mentioned earlier, the Prussian tariff of 1818 was regarded when it was enacted as the lowest in Europe. But the duties on coarse yarns and textiles were effectively high, since the tariff was levied by weight. Jacob in 1819 noted that the “system of the Prussian government has always been of manufacturing at home everything consumed within the Kingdom; of buying from others, nothing that can be dispensed with,” adding “As scarcely any competition exists, but with their own countrymen, there is little inducement to adopt the inventions of other countries, or to exercise their facilities in perfecting their fabrics; none of these have kept pace…,”14 Baden, on joining the Zollverein which adopted the Prussian tariff for the totality, believed itself to be raising its tariff level when it joined. What Baden did, however, was to acquire enforcement: its long border had previously been effectively open.
The Prussian tariff dominated that of the Zollverein, organized in the years from 1828 to 1833, primarily because Prussia took a very liberal view of tariff revenues. Most goods by sea entered the German states via Prussia, directly or by way of the Netherlands, but the text of the Zollverein treaty of 1833 provided that the revenues from the duties after deduction of expenses would be divided among the contracting states according to population. Prussia thus received 55 percent, Bavaria 17 percent, Saxony 6.36 percent, Wurtemberg 5.5 percent, and so on, and [Prussia] was said in 1848 to have sacrificed about two million talers a year, exclusive of the fiscal loss sustained by smuggling along the Rhine and Lake Constance. This can be regarded as a side-payment made by the beneficiary of income-distribution under Pareto-optimal conditions to gain its policy, or as the disproportionate share of overhead costs of the collective good saddled on the party that most wanted it.
Despite adjustments made in Prussian customs duties between 1819 and 1833, the tariff remained low by British standards. Junker grain growers were hopeful of importing British manufactures in order to sell Britain more grain. Junker bureaucrats, brought up on Adam Smith and free trade by instinct, were fearful that highly protective rates would reduce the revenue yield.
Outside of Prussia plus Hamburg and Frankfurt and the other grain-growing states of Mecklenburg, Pomerania, and so on, there was interest in higher tariffs, but apart from the Rhineland, little in the way of organized interests. Von Delbrück comments that Prussia and Pomerania had free trade interests and shipping interests, but that outside the Rhineland, which had organized Chambers of Commerce under the French occupation, there were few bureaucrats, or organs with views on questions of trade and industry. Nor did the Prussian government see a need to develop them.
Saxony was sufficiently protected by its interior location so as not to feel threatened by low tariffs, which, as mentioned, were not really low on coarse cloths. On joining the Zollverein, Baden was concerned over raising its tariff, and worried lest it be cut off from its traditional trading areas of Switzerland and Alsace. It fought with the Zollverein authorities over exemptions for imported capital equipment, but gradually evolved into a source of pressure, with Bavaria and Wurtemberg, for higher tariffs on cotton yarns and iron. Fischer points out the request for lifting the duty on cotton yarns from two talers per centner to five was resisted by the weavers of Prussia (the Rhineland) and Silesia.
Cotton yarns and iron were the critical items. Shortly after the formation of the Zollverein, a trend toward protection was seen to be under way. The Leipsig consul reported a new duty on iron to the Board of Trade in February 1837 and observed that the switch from imports of cotton cloth to imports of yarn pointed in the direction of ultimate exclusion of both. Bowring’s letter of August 1839 noted that the manufacturing interest was growing stronger, that the existing position was untenable, and that tariffs would be raised under the growing demands and increasing power of the manufacturing states, or would be lowered by an alliance between the agricultural and commercial interests.
Open agitation for protection began two and one-half years after the formation of the Zollverein when the South pushed for duties on cotton yarns. Linen yarns and cloth went on the agenda in 1839 and iron, protection for which was sought by Silesian and west German ironwork owners, beginning in 1842. But these groups lacked decisive power. The Prussian landed nobility covered their position by citing the interests of the consumers, and Prince Smith, the expatriate leader of the doctrinaire free traders, in turn tried to identify free trade and low tariffs with the international free-trade movement rather than with the export interests of the Junkers. The tariff on iron was raised in 1844, those on cotton yarns and linen yarns in 1846. Von Delbrück presents in detail the background of the latter increases, starting with the bureaucratic investigations into linen, cotton, wool, and soda, with their negative recommendations; continuing through the negotiations, in which Prussia was ranged against any increase and all the others in favor; and concluding that the Prussian plenipotentiary to the Zollverein conference was right in not vetoing the increases, as he could have done, operating on the theory that a compromise was more important than the rationally correct measure of this or that tariff. The head of the Prussian Handelsamt was not satisfied with the outcome of the conference but had to accept it.
From 1846 on, the direction of Zollverein tariffs was downward, aided first by the repeal of the Corn Laws and secondly by the Cobden-Chevalier treaty. With the increases of the 1840’s and English reductions, the Zollverein tariff from one of the lowest in Europe had become relatively high. Von Delbrück was one of the doctrinaire free traders in the Prussian civil service and notes that in 1863 he had been trying for a reduction on the tariff in pig iron for seven years, since the tariff reform of 1856, which reordered but did not lower duty schedules. He also wanted a reduction in the tariff on cotton cloth; duties on woolens were no longer needed. The opportunity came with the announcement of the Anglo-French treaty. He noted that Austria had gone from prohibitions to tariffs, that the Netherlands had reformed its tariffs with a five percent maximum on industrial production, and that the levels of Italian duties were lower than those in Germany. “Could we stay away from this movement? We could not.”15
Bismarck was no barrier to the Junker bureaucracy. His view about tariff negotiations was expressed in 1879 in the question: “Who got the better of the bargain?” Trade treaties, he believed, were nothing in themselves but an expression of friendship. His economic conscience at this time, he said later, was in the hands of others. Moreover, he had two political ends which a trade treaty with France might serve: to gain her friendship in the Danish question, and to isolate Austria, which was bidding for a role in the German Confederation. Austrian tariffs were high. The lower the levels of the Zollverein the more difficulty she would have in joining it and bidding against Prussia for influence. The Zollverein followed the 1863 treaty with France with a series of others.
Exports of grain from Prussia, Pomerania, and Mecklenberg to London as a percentage of total English imports hit a peak in 1862 at the time of the Civil War and proceeded down thereafter as American supplies took over. The free-trade movement nonetheless continued. Only hesitation prevented a move to complete free trade at the peak of the boom in 1873. There is debate whether the crash later in the year triggered off the return to protection in 1879 or not. Victory in 1871 had enlarged competition in iron and cotton textiles by including Alsace and Lorraine in the new German Empire. Radical free traders and large farmers achieved the reduction in duties on raw iron in 1873 and passed legislative provision for their complete removal in 1877. But Lambi notes that Gewerbefreiheit (freedom of occupation) had caused dissatisfaction and in some versions subsumed free trade. By 1875 the iron interests are organizing to resist the scheduled elimination of iron duties in 1877.
The difference between the 1873 depression which led to tariffs, and the 1857 crisis which did not lay in (a) the fact that the interests were not cohesive in the earlier period and (b) that Britain did not keep on lowering duties in the later period as it had in the first. On the first score the Verein Deutscher Eisen und Stahl-Industrielle was formed in 1873 after vertical integration of steel back to iron mining had removed the opposition between the producers and consumers of iron. This much supports the view of the effectiveness of concentrated interests achieving their tariff goals when scattered interests will not—though again it has nothing to do with representative democracy. On the other hand, the free traders also organized; in 1868 the Kongress Nord-Deutscher Landwirte was organized, and in 1871 it was broadened to cover all Germany. In 1872, a Deutsche Landwirtschaftsrat was formed. Many of these organizations and the once free-trade Congress of German Economists were subverted and converted to protection after 1875, but a new Union for the Promotion of Free Trade was formed in September 1876. German economic interests as a whole became organized, and the struggle was among interests concentrated on both sides.
Abandonment of the opposition of the landed interests is perhaps critical. Consumers of iron in machinery, they opposed tariffs on iron up to 1875, but with the decline in the price of grain and the threat of imports, their opposition collapsed. It might have been possible to support tariffs for grain and free trade for iron, but inconsistency is open to attack. After von Delbrück’s resignation or discharge in April 1876, Bismarck forged the alliance of bread and iron. As widely recounted, he had strong domestic political motives for higher tariffs on this occasion, as contrasted with his international political gains from lower tariffs up to 1875.
In general, however, the German case conforms to the Stolper-Samuelson explanation: the abundant factor wants free trade; when it becomes relatively scarce, through a gain in manufacturing at home and an expansion of agriculture abroad, it shifts to wanting tariffs. Doctrine was largely on the side of free trade. List’s advocacy of national economy had little or no political force. His ultimate goal was always free trade, and his early proposal of ten percent duties on colonial goods, fifteen percent on Continental and fifty percent on British was more anti-British than national. In the 1840’s he was regarded in Germany, or at least by the Prussians, as a polemicist whose views were offered for sale. Bismarck is often regarded as the arch-villain of the 1879 reversal of Zollverein low tariffs, but it is hard to see that his role was a major one….
VI
My first conclusion reached from this survey was that free trade in Europe in the period from 1820 to 1875 had many different causes. Whereas after 1879, various countries reacted quite differently to the single stimulus of the fall in the price of wheat—England liquidating its agriculture; France and Germany imposing tariffs, though for different political and sociological reasons; Italy emigrating (in violation of the assumptions of classical economics); and Denmark transforming from producing grain for export to importing it as an input in the production of dairy products, bacon, and eggs—before that the countries of Europe all responded to different stimuli in the same way. Free trade was part of a general response to the breakdown of the manor and guild system. This was especially true of the removal of restrictions on exports and export taxes, which limited freedom of producers. As more and conflicting interests came into contention, the task of sorting them out became too complex for government (as shown in Gewerbeförderung in Baden, and the refinement of the Navigation Laws in England), and it became desirable to sweep them all away.
Part of the stimulus came from the direct self-interest of particular dominant groups, illustrated particularly by the First Hand in the Netherlands. In Britain, free trade emerged as a doctrine from the political economists, with a variety of rationalizations to sustain it in particular applications: anti-monopoly, increases to real wages, higher profits, increased allocative efficiency, increased productivity through innovation required by import competition. In France, the lead in the direction of free trade came less from the export interests than from industrial interests using imported materials and equipment as inputs, though the drive to free trade after 1846 required the overcoming of the weight of the vested interests by strong governmental leadership, motivated by political gain in international politics. The German case was more straightforward: free trade was in the interest of the exporting grain- and timber-producing classes, who were politically dominant in Prussia and who partly bought off and partly overwhelmed the rest of the country. The Italian case seems to be one in which doctrines developed abroad which were dominant in England and in a minority position in France, were imported by strong political leadership and imposed on a relatively disorganized political body.
Second thoughts raise questions. The movement to free trade in the 1850’s in the Netherlands, Belgium, Spain, Portugal, Denmark, Norway, and Sweden, along with the countries discussed in detail, suggests the possibility that Europe as a whole was motivated by ideological considerations rather than economic interests. That Louis Napoleon and Bismarck would use trade treaties to gain ends in foreign policy suggests that free trade was valued for itself, and that moves toward it would earn approval. Viewed in one perspective, the countries of Europe in this period should not be considered as independent economies whose reactions to various phenomena can properly be compared, but rather as a single entity which moved to free trade for ideological or perhaps better doctrinal reasons. Manchester and the English political economists persuaded Britain which persuaded Europe, by precept and example. Economic theories of representative democracy, of constitutional monarchy, or even absolute monarchy may explain some cases of tariff changes. They are little help in Western Europe between the Napoleonic Wars and the Great Depression.
NOTES
1. H.R.C.Wright, Free Trade and Protection in the Netherlands, 1816–1830: A Study of the First Benelux (Cambridge: Cambridge University Press, 1955) p. 124.
2. William Huskisson, (The Speeches of the Right Honorable) (London: John Murray, 1832), 11, p. 328.
3. Report of the Select Committee on the Laws Relating to the Export of Tools and Machinery, 30 June 1825, in Parliamentary Papers, Reports of Committee, (1825), 5, p. 12.
4. Wright, Free Trade and Protection, p. 130.
5. Charles Babbage, The Economy of Machinery and Manufactures (London: Charles Knight, 4th ed., 1835), p. 364.
6. Karl Polanyi, The Great Transformation (New York: Farrar & Rinehart, 1944), pp. 152–153.
7. Testimony of Thomas Ashton, in First Report of the Select Committee, para. 235.
8. John McGregor, Germany, Her Resources, Government, Union of Customs and Power under Frederick William IV (London: Whittaker and Co., 1948), p. 68.
9. John Bowring, “Report on the Prussian Commercial Union 1840,” Parliamentary Papers, 1840, 21, p. 287.
10. Mill, cited by Bernard Semmel, The Rise of Free Trade Imperialism: Classical Political Economy, The Empire of Free Trade and Imperialism, 1750–1850 (Cambridge: Cambridge University Press, 1970), p. 207.
11. Kenneth Fielden, “The Rise and Fall of Free Trade,” in C.J.Bartlett, ed., Britain Preeminent: Studies in British World Influence in the Nineteenth Century (London: Macmillan, 1969), p. 78.
12. Charles Gouraud, Histoire de la politique commerciale de la France et son influence sur le progrès de la richesse publique depuis le moyen age jusqu’à nos jours, 1, 11 (Paris: Auguste Durand, 1854), p. 208.
13. Michel Chevalier, Cours d’economie politique, Fait au Collège de France, 1, 11, 111 (2nd ed., Paris: n.p., 1855), p. 538.
14. William Jacob, A View of the Agriculture, Manufactures, Statistics and Society in the State of Germany and Parts of Holland and France (London: John Murray, 1820), pp. 201–212.
15. Rudolph von Delbrück, Lebenserinnerungen, I (Leipsig: Duncker u. Humblot, 1905), p. 200.