Essay, Research Paper
Historians of the 19th century
have traditionally linked economic growth with a move to free trade.? The mid-Victorian boom in Britain for
example has been attributed to the significant moves to free trade in the
period 1840 ? 1860.? Typically this
British characteristic has been compared to the free trading stance of
France.? The supposedly higher levels of
protection in France have been linked, often in a post hoc ergo propter
fashion, to its? economic retardation.?
The debate on the relative economic merits of free trade is by no means
original.? The political environment in
Britain during the 19th century was dominated by free trade
arguments.? The free traders of the
Anti-Corn Law League saw free trade in a much broader context.? It was Cobden who rather dramatically said
that: ?In the Free Trade principle which shall act on the moral? world as the principle of gravitation in the
universe? -drawing men together,
thrusting aside the antagonism of race and creed, and language, and uniting us
in bonds of eternal peace?.? Clearly
it is not in the remit of this essay to analyse and discuss these potential effects of
free trade, but Cobden?s quotes highlights the importance and passion that contemporaries,
and historians, have placed on the question of free trade.? Initially I shall attempt to compare the
level of free trade in Britain and France in the 19th century.? I will then begin to assess the effects of
tariffs and free trade during this period.Historians have often seen Britain as
leading the world in implementation of free trading policies.? It is argued that Britain?s move to free
trade accentuated its? already pronounced economic lead over her continental
competitors.? France and the other hand
is viewed as highly protectionist and adopting free trade polices only in the
later stages of the 19th century. Nye, however, has empirically
criticized the assumption that Britain had more open economy than France.? In his study Nye calculates tariff revenue
as a percentage of total imports.? His
figures show us that France?s average rate of tariff was 50% lower than
Britain?s during the 1820s, and that Britain?s tariffs were only comparable to
those of France after the great free trade reforms of the 1840s.? Nye admits that British tariffs were based
primarily on consumption goods such as tea, wine and tobacco, but he argues
against discounting these products as indicators of protection.? He suggests that, whilst not protecting
domestic industries, these tariffs still distorted the efficient allocation of
resources.? In short Nye?s empirical
study finds a paradoxical gap between the historical perception and commercial
reality.? Nye bemoans the seemingly
obligatory over-emphasis on leading sectors, such as textiles where Britain was
clearly less protectionist, and points out that economic development should not
be confused with industrialization.? Irwin reasserts the
view that the French economy was more protectionist than Britain.? Irwin states that Nye?s rate of tariff
revenue indicator is a poor indicator of levels of protectionism.? Crucially Irwin is quick to differentiate
between protectionist tariffs and consumption tariffs.? Yes, tariffs on the consumption of a few
luxury items were high, but, unlike Nye, Irwin finds little evidence for the
availability of substitutes.?
Contemporary opinion is used to reinforce Irwin?s argument.? It was Cobden himself who stated that: ?We
have many duties ? such as that, for example on tea ? which are too heavy, but
they are not maintained in the interest of any British producer?.? The structure of the British tariff is
examined in detail and we see that Gladstone?s budget of 1860 removed all
protectionist tariffs, whilst half of the remaining items were ?solely for the
purpose of countervailing duties of excise on the like articles produced in the
UK?.? In this way we see the British
government normalising domestic excise duties on imported goods.? This can hardly be seen as a protectionist
policy.? Indeed by 1897 95% of tariff
revenue is generated by tobacco, tea, spirits and wine.? If one takes Irwin?s position it is safe to
say that there was virtually no protection in Britain after 1860.? This contrasts markedly with that of
France.? Even after the Cobden-Chevalier
treaty of 1860 there was a 10-15% tariff on most goods.? Tariffs in the latter half of the 19th
century were successively ratcheted up and culminated in the highly
protectionist Meline tariff of 1892.? To
Irwin the real test of the relative protectionism of a tariff system lies in
the principles that underlie that system.?
In Britain we see an extension of the excise system and in France we see
a system designed to keep goods out.? It
is difficult to accommodate both Irwin?s and Nye?s arguments.? However Irwin?s more detailed examination of
tariff content is compelling and it would seem harsh to penalise Britain for
taxing mainly consumption items.? Nye?s
evidence does suggest that France, especially in the early half of the 19th
century, was less protectionist, in relative terms, than once thought.? By analysing both views we can safely say
that Britain still held the lead in free trade during the 19th
century.? However the free trading gap
was not as significant as once thought.More recent historians
have begun to suggest that the economic effects of free trade have been
exaggerated.? McCloskey was one of the
first historians to propose that free trade may have retarded Britain?s
economic growth.?? He sees the reduction
of tariffs in the 1840s as the equivalent of a 21% narrowing of the
differential between domestic and world prices.? McCloskey appeals to the logic of free trade, and like the more
contemporary Robert Torrens, emphasises negative terms of trade effects.? If British demand for imports was a
nonnegligble fraction of the world demand then the elimination of duties, by
means of a rise in import demand, will have caused a nonnegligble rise in
import prices.? If the price of imports
has increased then Britain?s terms of trade have worsened.? McCloskey resorts to theory and proposes an
optimal tariff for Britain given its monopsonistic position in the world
market.? McCloskey, using anti-Ricardian
assumptions, believes Britain to have been an influential player in the world
market.? Thus he estimates low
elasticties of export demand and import supply necessitating the need for a
high tariff.? The 1881 average tariff of
just under 6% is viewed to be optimal only if consistent with elasticities of 35!? McCloskey calculates that a 21% fall in the
tariff, combined with a 20% share of foreign trade in national income, could
account for a 4% loss in national income.?
McCloskey?s application of pure trade theory to mid-Victorian Britain
highlights a crucial point.? A move to
free trade is not, even theoretically, a move to higher income.? Gains from increased efficiency and resource
allocation can be more than offset by deteriorating terms of trade.? In this was we see McCloskey agreeing with
Torrens who cited the terms of trade deterioration as reason for the cautious
adoption of free trading policies.The terms of trade
deterioration is likely to be lessened if moves to free trade are
reciprocal.? Irwin argues that a
unilateral tariff reduction in Britain may well have had detrimental effects.? Irwin agrees with Basevi and Walker that the
effect of the change in relative prices from a tariff removal (terms of trade)
depends on the underlying elasticities.?
Like McCloskey Irwin finds a range of plausible elasticties that show a
unilateral trade reduction as making Britain worse off in GDP terms.? However Irwin?s data diverges from that of
McCloskey and he estimates a fall smaller reduction in total income from a 21%
cut in tariffs.? The emphasis on the
terms of trade deterioration is balanced by the suggestion that bi-lateral or
multi-lateral trace reductions can improve terms of trade.? Many countries followed Britain?s lead and
cut tariffs in the 19th century and these tariff cuts will have
improved Britain?s terms of trade.?
Irwin agrees with Torrens: ?reciprocity should be the rule?.? Again we see the importance of underlying
elasticties as affecting the effects of a move to free trade, a point which is
reinforced by McCloskey, but Irwin develops the argument by placing extra
emphasis on the effects of other countries? tariff behaviour. The emphasis on the
variability of the effects of free trade is furthered using the case study of
the Corn Laws.? The welfare effects of
repeal are thought to be significant when Ricardian small country assumptions
are used.? The living cost for labourers
is reduced by a massive 25% and output rises by 23.6%.? However if Ricardian assumption are
discarded and pro-Torrens (Britain influencing world market prices) views are
taken into consideration we see much smaller welfare effects.? The export boom is tempered by rising import
costs resulting from an inelastic import supply.? In this case the detrimental effects of the terms of trade
deterioration offset efficiency gains, although labourers still benefit from repeal.? Macro effects are lessened, but we must be
careful not overlook intra-industry changes and the effect on the average
Briton.? Williamson reiterates the
importance of elasticties in determining the true effects of repeal.? The lower the elasticties in foreign markets
the more the Corn Laws served to improve the terms of trade.? Williamson suggests, like Irwin, that
plausible estimates of elasticties can be used to state that the Corn Laws were
no burden on manufacturing at all.The effects of tariffs
and free trade in the 19th century are ambiguous.? Some argue free trade aided the
mid-Victorian boom, whilst others argue it retarded growth.? Key factors in this debate seem to be
elasticties of demand and supply, tariff structure and the level of multi-lateral
tariff participation.? Were tariffs
protective or purely fiscal in nature??
Were lurches to free trade mirrored in other countries?? Were tariffs at their optimal level?? Whilst in Britain elasticties are thought to
have been low, there is insufficient data, especially from abroad, to come to a
definitive conclusion on the relative effects of free trade.? Even if one could come to a satisfactory
estimate of elasticities it must be remembered that these factors are far from
static.? Most of the factors mentioned
above are dynamic and thus change over time.?
The arguments for the positive and negative effects of free trade have
been argued explicitly in recent historical studies.? The polarity of the arguments reflects economic theory.? Free trade can have positive and negative
effects.? It is therefore impossible to
come to a simple conclusion to this question.?
The effects of tariffs and free trade in the 19th century
were variable.? The effect of free trade
and tariffs depends on a variety of economic and political factors.? These factors are too varied and too
changeable to allow for a more authoritative answer to this question.