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FREE TRADE

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Originally appearing in Volume V11, Page 90 of the 1911 Encyclopedia Britannica.
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See also:

FREE See also:TRADE , an expression which has now come to be appropriated to the economic policy of encouraging the greatest possible commercial intercourse, unrestricted by " protective " duties (see See also:PROTECTION), between anyone See also:country and its neighbours. This policy was originally advocated in See also:France, and it has had its adherents in many countries, but See also:Great See also:Britain stands alone among the great commercial nations of the See also:world in having adopted it systematically from 1846 onwards as the fundamental principle of her economic policy. In the economic literature of earlier periods, it may be noted that the See also:term " free trade " is employed in senses which have no relation to See also:modern usage. The term conveyed no See also:suggestion of unrestricted trade or See also:national See also:liberty when it first appeared in controversial See also:pamphlets;' it stood for a freedom conferred and maintained by authority—like that of a free See also:town. The merchants desired to have See also:good regulations for trade so that they might be free from the disabilities imposed upon them by See also:foreign princes or unscrupulous See also:fellow-subjects. After 164o the term seems to have been commonly current in a different sense. When the practice which had been handed down from the See also:middle ages—of organizing the trade with particular countries by means of privileged companies, which professed to regulate the trade according to the See also:state of the See also:market so as to secure its steady development in the See also:interest of producers and traders—was seriously called in question under the Stuarts and at the Revolution, the interlopers and opponents of the companies insisted on the advantages of a " Free Trade "; they meant by this that the various branches of See also:commerce should not be confined to particular persons or limited in amount, but should be thrown open to be pursued by any Englishman in the way he thought most profitable himself.2 Again, in the latter See also:half of the 18th 1E. Misselden, Free Trade or the Meanes to make Trade Flourish (1622), p. 68; G. Malynes, The See also:Maintenance of Free Trade (1622), p. io5. 2 H. See also:Parker, Of a Free Trade (1648), p.

8. See also:

century, till See also:Pitt's See also:financial reforms' were brought into operation, the See also:English customs duties on See also:wine and See also:brandy were excessive; and those who carried on a remunerative business by evading these duties were known as See also:Fair Traders or Free Traders? Since 1846 the term free trade has been popularly used, in See also:England, to designate the policy of See also:Cobden (q.v.) and others who advocated the abolition of the tax on imported See also:corn (see CORN See also:LAWS); this is the only one of the specialized senses of the term which is at all likely to be confused with the economic See also:doctrine. The See also:Anti-Corn See also:Law See also:movement was, as a See also:matter of fact, a See also:special application of the economic principle; but serious mistakes have arisen from the blunder of confusing the See also:part with the whole, and treating the remission of one particular See also:duty as if it were the essential See also:element of a policy in which it was only an incident. W. E. See also:Gladstone, in discussing the effect of improvements in locomotion on See also:British trade, showed what a large proportion of the stimulus to commerce during the 19th century was to be credited to what he called the " liberalizing legislation " of the free-trade movement in the wide sense in which he used the term. " I See also:rank the introduction of cheap See also:postage for letters, documents, patterns and printed matter, and the abolition of all taxes on printed matter, in the See also:category of Free Trade Legislation. Not only thought in See also:general, but every communication, and every publication, See also:relating to matters of business, was thus set free. These great See also:measures, then, may well take their See also:place beside the abolition of prohibitions and protective duties, the simplifying of See also:revenue laws, and the See also:repeal of the See also:Navigation See also:Act, as forming together the great See also:code of See also:industrial emancipation. Under this code, our See also:race, restored to freedom in mind and See also:hand, and braced by the powerful stimulus of open competition with the world, has upon the whole surpassed itself and every other, and has won for itself a commercial primacy more evident, more comprehensive, and more solid than it had at any previous See also:time possessed."3 In this large sense free trade may be almost interpreted as the See also:combination of the doctrines of the See also:division of labour and of laissez-faire in regard to the world as a whole. The division of labour between different countries of the world—so that each concentrates its energies in supplying that for the See also:production of which it is best fitted—appears to offer the greatest possibility of production; but this result cannot be secured unless trade and See also:industry are treated as the See also:primary elements in the welfare of each community, and See also:political considerations are not allowed to hamper them.

Stated in its simplest See also:

form, the principle which underlies the doctrine of free trade is almost a truism; it is directly deducible from the very notion of See also:exchange (q.v.). See also:Adam See also:Smith and his successors have demonstrated that in every See also:case of voluntary exchange each party gains something that is of greater value-inuse to him than that with which he parts, and that consequently in every exchange, either between individuals or between nations, both parties are the gainers. Hence it necessarily follows that, since both parties gain through exchanging, the more facilities there are for exchange the greater will be the See also:advantage to every individual all See also:round.4 There is no difficulty in translating this principle into the terms of actual See also:life, and stating the conditions in which it holds good absolutely. If, at any given moment, the See also:mass of'goods in the world were distributed among the consumers with the minimum of restriction on interchange, each competitor would obtain the largest possible See also:share of the things he procures in the world's market. But the See also:argument it less conclusive when the element of time is taken into See also:account; what is true of each moment separately is not necessarily true of any See also:period in which the conditions of production, or the requirements of communities, may possibly See also:change. Each individual is likely to act with reference to his own future, but ' (1787), 27 Geo. III. c. 13. ' See also:Sir See also:Walter See also:Scott, See also:Guy Mannering, See also:chapter v. ' Gladstone, " Free Trade, See also:Railways and Commerce," in Nineteenth Century (Feb. 188o), vol. vii. p. 370.

' Parker states a similar argument in the form in which it suited the special problem of his See also:

day. " If merchandise be good for the commonweal, then the more See also:common it is made, the more open it is laid, the more good it will convey to us." Op. cit. 20.it may often be See also:wise for the statesman to look far ahead, beyond the existing See also:generation.' Owing to the neglect of this element of time, and the See also:allowance which must be made for it, the reasoning as to the advantages of free trade, which is perfectly See also:sound in regard to the See also:distribution of goods already in existence, may become sophistical,' if it is put forward as affording a See also:complete demonstration of the benefits of free trade as a See also:regular policy. After all, human society is very complex, and any See also:attempt to See also:deal with its problems off-hand by appealing to a See also:simple principle raises the suspicion that some important See also:factor may have been See also:left out of account. When there is such mistaken simplification, the reasoning may seem to have complete certainty, and yet it fails to produce conviction, because it does not profess to deal with the problem in all its aspects. When we concentrate See also:attention on the phenomena of exchange, we are viewing society as a mechanism in which each acts under known laws and is impelled by one particular force—that of self-interest; now, society is, no doubt, in this sense a mechanism, but it is also an organism,? and it is only for very See also:short periods, and in a very limited way, that we can venture to neglect its organic See also:character without See also:running the See also:risk of falling into serious mistakes. The doctrine of free trade maintains that in See also:order to secure the greatest possible mass of goods in the world as a whole, and the greatest possibility of immediate comfort for the consumer, it is expedient that there should be no restriction on the exchange of goods and services either between individuals or communities. The controversies in regard to this doctrine have not turned on its certainty as a hypothetical principle, but on the See also:legitimacy of the arguments based upon it. It certainly supplies a principle in the See also:light of which all proposed trade regulations should be criticized. It gives us a basis for examining and estimating the expense at which any particular piece of trade restriction is carried out; but thus used, the principle does not necessarily condemn the See also:expenditure; the See also:game may be See also:worth the See also:candle or it may not, but at least it is well that we should know how fast the candle is being burnt. It was in this See also:critical spirit that Adam Smith examined the various restrictions and encouragements to trade which were in See also:vogue in his day; he proved of each in turn that it was expensive, but he showed that he was conscious that the final decision could not be taken from this standpoint, since he recognized in regard to the Navigation Acts that " See also:defence is more than opulence." 3 In more See also:recent times, the same sort of attitude was taken by See also:Henry See also:Sidgwick,9 who criticizes various protective expedients in turn, in the light of free trade, but does not treat it as conveying an authoritative decision on their merits. But other exponents of the doctrine have not been content to employ it in this See also:fashion.

They urge it in a more See also:

positive manner, and insist that free trade pure and simple is the See also:foundation on which the economic life of the community ought to be based. By men who See also:advocate it in this way, free trade is set forward as an ideal which it is a duty to realize, and those who hold aloof from it or oppose it have been held up to scorn as if they were almost guilty of a See also:crime.10 The development of the material resources of the world is undoubtedly an important element in the welfare of mankind; it is an aim which is common to the whole race, and may be looked upon as contributing to the greatest happiness of the greatest number. Competition in the open market seems to secure that each consumer shall obtain the best possible terms; and again, since all men are consumers whether they produce or not, or whatever they produce, the greatest measure of comforts for each seems likely to be attainable on these lines. For those who are frankly See also:cosmopolitan, and who regard material prosperity as at all events the See also:prime See also:object at which public policy should aim, the free-trade doctrine is readily See also:Schmoller, Grundriss der allgemeinen Volkswirtschaftslehre (1904), ii. 6o7. ' See also:Byles, Sophisms of Free Trade; L. S. Amery, Fundamental Fallacies of Free Trade, 13. 7 W. See also:Cunningham, Rise and Decline of the Free Trade Movement, PP. 5-11. 5 See also:Wealth of Nations, See also:book iv. See also:chap. ii.

9 Principles of Political See also:

Economy, 485. 10 J. See also:Morley, Life of Cobden, i. 230. transformed, from a See also:mere principle of See also:criticism, till it comes to be regarded as the See also:harbinger of a possible See also:Utopia: It was in this fashion that it was put forward by See also:French economists and proved attractive to some leading See also:American statesmen in the 18th century. See also:Turgot regarded the colonial systems of the See also:European countries as at once unfair to their dependencies and dangerous to the See also:peace of the world. " It will be a wise arid happy thing for the nation which shall be the first to modify its policy according to the new conditions, and be content to regard its colonies as if they were allied provinces and not subjects of the See also:mother country." It will be a wise and happy thing for the nation which is the first to be convinced that the See also:secret of " success, so far as commercial policy is concerned, consists in employing all its See also:land in the manner most profitable for the proprietary, all the hands in the manner most advantageous to the workman personally, that is to say, in the manner in which each would employ them, if we could let him be simply directed by his own interest, and that all the See also:rest of the See also:mercantile policy is vanity and vexation of spirit. When the entire separation of See also:America shall have forced the whole world to recognize this truth and purged the European nations of commercial See also:jealousy there will be one great cause of See also:war less in the world."' Pitt, under the See also:influence of Adam Smith, was prepared to admit the See also:United States to the benefit of trade with the See also:West See also:Indian Colonies; and See also:Jefferson, accepting the principles of his French teachers, would (in contradistinction to See also:Alexander See also:Hamilton) have been willing to see his country renounce the attempt to develop manufactures of her own .2 It seemed as if a See also:long step might be taken towards realizing the free-trade ideal for the Anglo-Saxon race; but British shipowners insisted on the retention of their privileges, and the propitious moment passed away with the failure of the negotiations of 1783.' Free trade ceased to be regarded as a See also:gospel, even in France, till the ideal was revived in the writings of See also:Bastiat, and helped to See also:mould the See also:enthusiasm of See also:Richard Cobden.' Through his zealous advocacy, the doctrine secured converts in almost every part of the world; though it was only in Great Britain that a great See also:majority of the citizens became so far satisfied with it that they adopted it as the foundation of the economic policy of the country. It is not difficult to account for the See also:conversion of Great Britain to this doctrine; in the special circumstances of the first half of the 19th century it was to the interest of the most vigorous factors in the economic life of the country to secure the greatest possible freedom for commercial intercourse. Great Britain had, through her See also:shipping, See also:access to all the markets of the world; she had obtained such a See also:lead in the application of machinery to manufactures that she had a See also:practical See also:monopoly in textile manufactures and in the hardware trades; by removing every restriction, she could push her advantage to its farthest extent, and not only undersell native manufactures in other lands, but secure See also:food, and the raw materials for her manufactures, on the cheapest possible terms. Free trade thus seemed to offer the means of placing an increasing distance between Britain and her rivals, and of rendering the industrial monopoly which she had attained impregnable. The capitalist employer had superseded the landowner as the mainstay of the resources and revenue of the See also:realm, and insisted that the prosperity of manufactures was the primary interest of the community as a whole.

The expectation, that a thoroughgoing policy of free trade would not only favour an increase of employment, but also the cheapening of food, could only have been roused in a country which was Memoire," 6 See also:

April 1776, in CEuvres, viii. 46o. 2 Jefferson, Notes on See also:Virginia, 275.

End of Article: FREE TRADE

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