FREE TRADE. This expression has been appropriated, in a somewhat technical manner, to denote an unimpeded intercourse between such manufacturing and commercial communities as, having reciprocal interests, are under separate governments, and thereupon have separate financial systems. Thus the term is not applied to the facilities which town and country, labourer and capitalist, have obtained for reciprocal exchange, though these facilities have been acquired only in comparatively recent times. It is not used to describe the commercial intercourse of the three kingdoms, though restraints on the trade between Scotland and Ireland on the one side and England on the other were remitted, long after a political union between the three kingdoms had been effected, very grudgingly and very cautiously. Again, if we speak of free trade in land or free trade in banking, we use the term in a different sense from that in which it has been employed since the time of Adam Smith. But the phrase is technically used to designate such a commercial intercourse between any particular country, its colonies, and foreign countries, as gives the maximum of facilities for reciprocal exchange, and in the least degree attempts to make a fiscal system the means for stimulating and assisting domestic industry by protective enactments....
Free trade in the sense given to it above is advocated on two principal grounds, the one economical, the other political; and all arguments alleged in favour of it can be brought under one or other of these topics. It is resisted similarly for economical and political reasons,— not, indeed, in contradiction to those which are adduced in its favour, for these are absolutely irrefragable, but on the grounds that the industries of a country ought not to be defined by merely economical reasons, and that there are political interests which will not indeed annul, but must materially modify the universal and undeviating application of the free-trade principle. It will be the object of the present article to give a brief account of the controversy between the advocates of commercial freedom and those of commercial restraint, and to show how events, due to opinions which have long become obsolete, have strengthened the position of those who urge that the restraint of trade is and should be part of the function of Government. It is perhaps necessary, however, to meet an objection at once which might be taken, if it were not anticipated. Every civilized Government rightly and properly undertakes the supervision of contracts,—prohibiting some altogether, regulating others with less or greater strictness, and assuming the right to give an equitable interpretation to all; the application of the principles of equity to contracts being the most important improvement which modern civilization has induced on jurisprudence. Thus the law of civilized nations forbids any contract which would reduce one of the contracting parties to permanent slavery, though it compels the fulfilment of bargains which involve the temporary servitude of one of the parties. Again, it nullifies immoral bargains, though it does not profess to follow the consequences which a bargain that is prima facie innocent may have. Again, it subjects some callings to a police, either by exacting, in the case of certain professions, evidence of the individual’s capacity, or by guarding continuously against any abuse which may arise from the exercise of a calling specially open to abuse, as in the case of houses for public entertainment, and the issue of paper money by banks. Furthermore, it subjects even simple contracts to revision,—as, for example, cases in which exorbitant charges are made for loans. In these instances, and in others like them, a Government is only carrying out its primary duty in protecting its people from force or fraud, by controlling the free action of those who may inflict a serious injury on others. To define the extent indeed, to which such interference is necessary or desirable, is one of the hardest questions in what may be called the casuistry of politics. A country may be so overgoverned by a watchful administration as to lose, to a greater or less extent, the spirit of enterprise or initiation, and thereby to be weakened in the legitimate rivalry of nations. But, on the other hand, it may be still more seriously weakened by the destruction of credit or confidence,—a result which is very likely to ensue when fraud is successful and unpunished.
Similarly a Government may control or prohibit intercourse between nations. If individuals have rights at all, one of the most obvious and important of these rights is that of choosing a market for their labour. But a Govern ment would be admittedly justified in prohibiting the emigration of such artisans as are employed in the manufacture of munitions of war to a country with which itself was at war. It does more when it does not allow its harbours to be a refuge or a market for belligerents’ ships, and prevents private individuals from supplying munitions of war to combatants. A fortiori, it would not allow its subjects to sell such goods to its enemies as might enable those enemies to protract their defence. It is a question whether it is not entitled to prohibit, or at least restrain, the exportation of that over which it is able to exercise a monopoly, though it is very seldom, if indeed it is ever the case, that any country is in so advantageous a position. And, lastly, it is allowed that a Government may make the commercial intercourse of its subjects a matter of bargain with the Government of other countries, though such expedients, from an economical point of view, have been subjected to very adverse criticism. Free trade, then, must be innocuous and not hostile to the general public good.
Between nations, free trade represents the well-known principle of the Division of Employments. The advantages which result from the natural or spontaneous division of employments, and the loss which ensues from a forced division of employments, are the commonplaces of economists. But the fact that exactly the same principle rules the distribution of production over such parts of the world as are occupied by industrial agents is not so frequently insisted on. That there are several commodities which a country cannot produce at all, or can only produce under circumstances so disadvantageous as to involve disproportionate expense or loss, is admitted by every Government, however anxious it may be to develop native industry by protective regulations. No European Government, however imperfectly civilized, would attempt to direct its home industries into the production of tea, coffee, and chocolate, or to domesticate elephants for the sake of their ivory, or to breed ostriches for the sake of their plumes, or to maintain a race of wild hogs in order to obtain a due supply of bristles from native sources. But there are in most countries a number of industries the continuity of which Governments have attempted, and still attempt, to promote, by hindering the free entrance of foreign-made articles of the same kind. It will be found that, historically, this practice has had its origin in what is now understood to be a delusion as to the true functions of the currency.
The restraint of production and trade was a policy which ancient civilization never adopted. The great statesman of Athens congratulates his audience on the fact that, thanks to the extended commerce of their country, they are as familiar with the use of foreign products as they are with those of domestic industry, and use them even as freely as the country of their origin does. The public opinion of Greece was profoundly shocked when, as a measure of political animosity, Athens excluded a Greek city, Megara, from its market. The oldest public document preserved in the Roman archives was a commercial treaty with Carthage (Polybius, xii. 22), in which Roman merchants are indeed restrained from traffic in certain districts, more, we may be certain, from fear of the Carthaginian occupation of Italy thin for other reasons, for the treaty expressly exempts traffic from tolls, and prescribes that Carthage shall build no factories in Latium. Nor is there any record of restraint put upon the distribution of the precious metals, except in one oration of Cicero, where the orator, defending his client from a charge of extorting money from the Asiatic Jews, comments on the public policy of hindering this people from disturbing the money market by sending great remittances of specie to Jerusalem.
Perhaps the explanation of the fact that the civilization of antiquity did not interfere with the process of international exchange is to be found in the prevalence of slavery. Setting aside for a moment the historical origin of modern protection, the influence and apparent truth of the mercantile system of which we shall speak immediately, there is a radical difference between ancient and modern civilization,—that in the former slavery was deemed natural, in the latter it has been seen to be mischievous and felt to be detestable. In modern societies, therefore, the free labourer is a factor in the interpretation of economical forces; in ancient ones,he counted for nothing, or next to nothing. To have prohibited free trade in the products of foreign labour at Athens would have been to give advantage to one class of slave-holders in opposition or in contrast to another class of slave-holders, and was not to be thought of. To prohibit free trade between England and France, or England and the United States, is, in appearance at least, to assist the home labour of the country which adopts protection against the rivalry of free labour in another country which might undersell its rivals. Protection in ancient times would have been seen to be naked selfishness; in modern times, it may seem to be a genuine and disinterested patriotism. And it may be observed that, for this and for other reasons, most slave-holding countries have been indifferent to protective regulations, or even unfriendly to them. This fact is sufficiently illustrated by the contrast of opinion in the northern and southern States of the American Union before the war of secession.
The control of production and trade in modern Europe is historically due to the development of what Adam Smith called the mercantile system, i.e., the effort of Government to secure as far as possible the largest possible amount of specie within the country whose affairs it administered. It is easy to discover the origin of this policy. To a Government which spends, but does not produce, the possession of treasure is of the greatest utility and service. To an individual who produces and trades, still more to one who trades only, treasure is, as a rule, the least valuable instrument of traffic, as it is an article from which, as it is affected by the least possible variation in value, the least amount of profit can be anticipated by those who deal in it as an article of trade. A trader in the Middle Ages would have readily accepted the doctrine that money was wealth as far as regarded every one but himself; as far as he was concerned, he wished to get rid of his money as soon as he could, in exchange for goods, on which he might secure his profits. The doctrine that the machinery of international trade supplied the process by which the precious metals were distributed, and that therefore, if trade were to exist, the attempts of Government to restrain the exportation of money were mischievous or nugatory, was argued as early as the middle of the 14 th century by Sanuto the Venetian, and by Oresme the bishop of Lisieux, in language as precise as any used by Turgot or Adam Smith. The reasonings, however, by which protective theories were upheld, the mean and malignant arguments of restraint, as Adam Smith calls them, were always strengthened in England up to thirty years ago, by suggesting the hideous consequences which would come on the nation from a drain of gold. Protection had its origin in the reputed duty of Government towards the currency. Once established, it created artificial interests whose existence was a loss to the whole community, but whose maintenance seemed to be the satisfaction of a contract entered into between the Government and the industry which the Government had called into being or had stimulated.
It will be clear that if any particular industry is of such a character as to be very conveniently carried out by the inhabitants of a particular community or district, if the producer fears no rival in the home market, and still more if he dreads no competition in a foreign market, any protection accorded to his industry most be wholly superfluous.
He might even contemplate an export duty with equanimity, though of course an export duty would be destructive of his foreign market if he had real rivals, and he would generally And that such a duty would not only limit the consumption of his produce, but would call a rivalry into existence. It is equally clear that if a protective duty were imposed on the importation of foreign commodities into a country which has already a marked superiority over other countries in these commodities, the regulation would have no effect in increasiug either the profits of the producer or the cost of the article to the consumer,—that, in short, the enactment would be absolutely nugatory. It will be also plain that, in every country, there are certain commodities which are effectually shielded from foreign rivalry by the cost of carriage, and that such commodities possess the superiority which other products enjoy from the peculiar facilities which a particular country has in manufacturing them. A protective system then is inevitably concerned with such products as are liable to foreign rivalry, and a foreign rivalry can only be defeated at the cost of the consumer. But as the protective regulation can affect prices in that country only which imposes the regulation, it is obvious that the only person who can be made to bear the increased cost which the protective restraint imposes will be the home consumer. If the produce could find a market at home, there would be no need of the assistance; if it cannot subsist at home without a machinery which guarantees the profit of the producer, the domestic consumer is the only person who can be made to contribute the fund from which the profit is made.
The positions stated above receive a significant but complete illustration from the economical history of England. A century ago the English landowners were free traders, the English merchants protectionists. Adam Smith rested all his hopes of a better system on the former class, but despaired of any co-operation from the latter. Twenty years after the Wealth of Nations was published, the mercantile and manufacturing classes, with few exceptions, were free traders; the landowners, with few exceptions, were protectionists. The explanation of the change in sentiment is to be found in the change of interests. Up to the middle of the 18th century England exported considerable quantities of agricultural produce,—sometimes naturally, at other times under the wholly indefensible stimulus of a bounty on exportation. Now it needs very little intelligence to discover that the profits of an exporter, or at any rate the extension of his trade, depend largely on the variety of imports which he can obtain in exchange for his goods. A country which puts no hindrance on imports always deals to the greatest advantage, and the advantage decreases with restraint. If a country refused to admit any import but one, i.e., money, it would sell its exports in the worst possible market, and for the least possible value, receiving in return an article which the machinery of its trade takes the most effectual possible means to depreciate. Hence the landowners of the 18th century, like the agriculturists of the western and southern States of America now, were free-traders, because free trade was their best hope of profit. The manufacturers, on the other hand, were profoundly afraid of foreign rivalry, even the rivalry of the British colonies, even the rivalry of Ireland. Perhaps the most grotesque illustration of this fear was the law which directed under strict penalties that the dead should be buried in woollen, in order to encourage the woollen manufactures.
The change of sentiment was due to the great mechanical industries of the 18th century. The discoveries of Ark wright, of Watt, of Hargreaves, Of Crompton, gave England a practical monopoly of textile fabrics, and subsequently of other products nearly as important. No doubt the Berlin and Milan decrees interfered with the Continental trade of England, though it is well known that Napoleon’s soldiers were clothed, in spite of these decrees, in the produce of north-eastern and west country looms. But in other parts of the world England had no rivals, while her supremacy on sea, after the great victory of Trafalgar, guaranteed her traffic. Hence, when the merchant and manufacturer, especially the latter, discovered that protection had ceased to be an advantage to them, and discovered also, for the reasons given above, that the restraint of imports was a disadvantage to production and exportation, the principles of free trade made rapid progress in the manufacturing districts of England. But on the other hand, the very reverse opinion influenced the minds of the landowners. Owing partly to the succession of late harvests, partly to the rapid growth of population consequent upon manufacturing enterprise, partly to the restriction of Continental supply, the result of war, of the great drain which war made on the agricultural population of Europe, and of hindrances put on the import of food,—rents and farmers’ profits rose with amazing rapidity, and the Corn Law of 1815 was enacted in order to secure, if possible, the permanence of such rents and profits. The partisans of free trade and protection weιe only by accident allied to the great historical parties of English public life. The struggle for free trade was really one between town and country, as hereafter efforts in the same direction will get their advocates from the same classes.
It may be believed that, in England at least, the question of protection to manufactures is finally settled, though there are not wanting persons who advocate reciprocity, co-ordinate taxation on foreign products, retaliatory duties on reputed bounties, and the like. But the traditions of legislation are too firmly fixed, and the benefits of free trade experienced during the past thirty years are so generally admitted, that the advocacy of the exploded theory of protection is looked on as a harmless wshim wshich has no chance of popularity. It is not perhaps equally clear that the English people are quite safe against the revival of protection to agriculture under the pretence of sanitary restraint, for that which is the inevitable result of protection to manufacture, the limitation of voluntary consumption, is not so markedly developed from the protection which may be accorded to articles of necessary consumption.
When trade is restrained in those articles of foreign origin which may be produced, though under less advantageous circumstances, at home, and the product is an article in which the use may, to a limited extent only, be economized, the following results ensue :—Prices rise, and profits rise,—of course, at the expense of the consumer; wages, however, do not rise, for in so far as wages are determined by the competition of employers for services, the tendency is towards a reduction of wages, seeing that the use of the product is not increased but rather stinted. Now, the extra profits which protection accords might be secured to those who are already employed in the particular industry thus favoured only if the producers have a natural monopoly in the produce of their calling, as was practically the case with the English landowners during the existence of the corn laws, or if the law restrains other persons from competing against them, as was the case in England with Eastern produce during the continuance of the East India Company’s chartered trade. If such an advantage be not accorded, capital makes its way to the favoured industry'; or, to be more accurate, an increasing’number of employers compete for the exceptional profit. Such an operation may in some degree raise the rate of wages, though here again, unless the labour be protected by some arrangement, such as apprenticeship, or by the machinery of a strict trade union, the same cause which attracted the energies of the employer will rapidly, even more rapidly, supply what may be needed in the way of labour. Generally, indeed, the check to such a decline in wages is supplied by trades unions, which are, as the industrial experience of the United States has proved, the inevitable outcome of a protective system in a country where combinations of labour are not prohibited by law. In England up to 1824 they were prohibited.
In course of time then, and generally at an early period, the...
