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NUMER 1 / CZERWIEC 2019

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Free Trade in the 19th Century: The Shortcomings of Britain's New Economic Policy

The nineteenth century was a time of significant change in Britain's economic policy. In 1846, the repeal of the Corn Laws marked Britain's abandonment of mercantilism, an economic theory promoting protectionism, in favour of free trade. Since then, Britain's shift towards a liberalized trade policy has often been named one of the reasons behind the Empire's position as economic hegemon between the 1840s and 1880s. The contemporary proponents of economic liberalism argued that free trade was the means of guaranteeing prosperity, peace, and civilization. However, it is doubtful whether its adoption by Britain in 1846 played a significant role in increasing the Empire's economic power. Instead, free trade largely fell short of achieving success on a scale predicted by its contemporary proponents. The economic impact on Britain itself following the repeal of the Corn Laws was lighter than anticipated, with other factors proving more critical in determining the level of imports and exports. Also, in contrast to expectations, Britain remained alone in its pursuit of trade liberalization, as Europe remained overwhelmingly protectionist regardless of the British example. Finally, rather than promote peace, free trade often became a pretext for spreading British influence forcibly. Both domestically and globally, the effects of free trade differed from its proponents' initial assumptions.
 
.... Britain's turn towards free trade resulted from a decades-long debate among the country's economists and politicians, originated by Adam Smith and his famous The Wealth of Nations. Richard Cobden personified the pro-free trade faction as economic liberalism's staunchest supporter. Cobden and his fellow free traders believed trade liberalization to have wide-ranging benefits for Britain economically, through lower food prices and the diffusion of the sterling abroad. It was also predicted to promote prosperity and peace on a global scale, as other powers were hoped to follow the British example, eventually rendering war obsolete by their network of commercial ties. Lastly, free trade, believed to be a progressive and enlightened concept, was intended to be a means of bringing civilization to the world's more backward regions. The British combined commercial interests with a moral mission, thus setting ambitious goals for the new trade policy.

The breakthrough in Britain's shift towards free trade, as well as the first test of the policy's success, came with the abolition of the Corn Laws in 1846. The protectionist laws had been established in 1815 to shield British farmers from the competition of other European countries recovering from the Napoleonic Wars. By 1846, the Anti-Corn Law League led by Cobden claimed protection to be no longer viable, as it drove domestic prices of food up. Their abolition of the Laws was hoped to lower food prices and stimulate domestic demand for manufactured products. However, while grain imports did increase following the repeal, wheat prices did not significantly drop, while prices of other grains rose. The disappointing result can be attributed to other factors, which proved to have more influence over trade than the absence of tariffs. For example, the population size or transportation costs all affected grain prices in Britain's leading supplier countries – Prussia, Russia, and the Baltic States –  causing them to remain high. In addition, the years following the abolition of the Corn Laws saw a deterioration of the continent's agriculture, leading to a general decrease in the grain supply and thus higher prices. Naturally, without the arrival of inexpensive food products, it was impossible for the expected rise in domestic demand to occur and stimulate the manufacturing sector. Overall, the slight effect of free trade treaties on British imports indicates that trade liberalization alone was not a sufficient factor to significantly alter domestic prices. 

A similarly insignificant result of the Corn Laws' repeal can be observed in the export sector. The repeal and shift to free trade were hoped to boost British exports by providing exporter countries with the currency needed to buy British manufactured goods. Yet, until the 1870s, British exports to Prussia and Russia, its main sources of imports, did not change. Once more, factors other than trade barriers proved more influential. In the case of Russia, free trade was an insufficient spur to increase demand for British manufactured goods, as the country's poverty was too great to be overcome by the absence of tariffs alone. Similarly, the famous Cobden-Chevalier Treaty of 1860 declaring free trade between Britain and France did not lead to a permanent rise in British sales. While the agreement did provide a temporary upsurge of exports, the boost in the flow of British goods to France eased out within three years from the signing of the treaty and remained at around 4% of total British exports until the 1870s. As in the case of imports, free trade alone was not enough to initiate a change in the established trading patterns. Transportation, manufacturing technology, and Britain's already well-established position as a distributor of goods across Europe played a far more significant role in boosting British exports.

Aside from domestic considerations behind the decision to pursue free trade, the new policy was also intended to affect Europe as a whole. The British free-traders believed that Europe ought to follow the British example of economic liberalism, and create a web of commercial relations. However, European powers failed to follow in Britain's footsteps closely enough to realize the expectations. Throughout the period of Britain's free trade policy, Europe remained mostly locked behind a barrier of tariffs. Between 1846 and 1860, Britain's policy of unilateral free trade elicited little response from other European countries. Only after the signing of the Cobden-Chevalier Treaty between Britain and France did a flurry of bilateral free trade agreements erupt throughout Western Europe. Nonetheless, the trend was incomplete as Austria and the German states involved in their own customs union, the Zollverein, remained unconvinced. Similarly, Russia was unwilling to abolish its tariffs and instead formed its own “Zollverein” with Poland. While the British pursuit of free trade did result in European trade liberalization to a certain extent in the 1860s, it by no means resulted in a mass movement to free trade. Tariffs were reduced, but not removed. Also, the effects of the British example were only temporary, as the majority of the bilateral treaties signed in the 1860s expired in the 1870s and were not pursued further. In consequence, the predictions of a domino effect movement towards free trade were not fulfilled, and all that was accomplished was a series of temporary reductions in tariffs among only some European countries.

Britain's aim to expand the free trade doctrine was not limited to Europe. An important aspect of the benefits promised by the new policy was the perspective of expanding Britain's economic influence while civilizing other nations through the spread of liberal ideas. In reality, free trade quickly became an empty slogan used as a justification for British expansion carried out through coercion. Throughout the nineteenth century, Britain successfully opened up regions in Latin America, Africa, and Asia to international commerce through free trade treaties. However, frequently permanent British presence was required for the treaty to be fully observed. The annexation of Lagos in 1861 was carried out precisely for that purpose. Equally often, nations refused to enter into commercial relations with the British, causing the Empire to revert to force. China, a prime example of British coercion, was opened to free trade in the 1840s  under the threat of British gunboats. Lord Palmerston, the British prime minister during the height of free trade policy, considered the use of force as necessary when dealing with less developed countries. He was also well aware of the moral justification of free trade being perfect for garnering the British public's support for international interventions. Thus, in the hands of politicians, Cobden's idealistic free trade policy gradually became a tool of imperial expansion. 

Once a free trade treaty was signed and entrance into a region granted, free trade itself became a secondary matter. Investment was truly the factor that increased British influence over a territory, as the British invested in foreign ventures which promised to aid their trade in the region. Technology and infrastructure were the primary destinations for British funds, with about 40 per cent of total investment landing in foreign railways alone. In addition, similar proportions of the world's shipping and telegraph belonged to representatives of the British Empire. In Latin America, one of the most thoroughly infiltrated spheres of British influence, the British controlled not only railways, but also oil industries, and Peru's guano deposits. Control over the world's assets allowed Britain to stay technologically ahead of its rivals, provided a safe location for the deposit of British surplus wealth, and became crucial in the facilitation of international trade. Evidently, free trade was but a small contribution to the spread of the Empire's economic power and influence.

Regardless of its actual success, the doctrine of free trade became nineteenth century Britain's trademark. Since the repeal of the Corn Laws in 1846, British economists and politicians propagated the virtues of free trade across Europe and the world. Yet, despite Britain's commitment to trade liberalization for the rest of the century and beyond, free trade failed to satisfy the full scope of the its proponents' hopes. The impact of free trade treaties on imports and exports as demonstrated by the repeal of the Corn Laws and the signing of the Cobden-Chevalier Treaty was not staggering. In fact, it suggested that free trade on its own was insufficient to sustain and increase the country's economic supremacy. Likewise, the dream of drawing other European powers into a web of free trade treaties did not materialize. The majority of Europe maintained its tariffs, and the only period of relative trade liberalization in the 1860s was short-lived. In terms of expanding the Empire's influence abroad, free trade proved less instrumental than foreign investment, as its role was often constrained to providing a pretext for the forceful opening up of foreign territories to international commerce. On all fronts, the results of free trade were different from what Richard Cobden and his colleagues prophesied. Thus, free trade can be more accurately considered as a symbol of the British Empire's might, than as its cause.
 

Laura Polcyn


Laura Polcyn - studentka trzeciego roku historii i ekonomii na Lakehead University w Thunder Bay (Ontario).


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