THE ECONOMIC JOURNAL DECEMBER, 1924 A RETROSPECT OF FREE-TRADE DOCTRINE 1 POLITICAL Economy is now old enough to have reached the stage of retrospect. I shall take advantage of this circumstance, and I shall ask you to consider with me a well-rounded body of economic ideas during a well-marked period. The body of ideas shall be the general English doctrine of International Free Trade. And the period shall be the century approximately which followed the publication of the Wealth of Nations. It is well marked in economic literature, for it covers the time which elapsed before the new developments made themselves felt which are associated with the names of Jevons and Cliffe Leslie. And it is well marked externally, for it came to an end before England had lost the commercial supremacy due to its early utilisation of coal and iron, and before English agriculture had begun to be seriously affected by the cheap grain of the new countries. The doctrine was imposing by its simplicity and symmetry. It consisted of a few easily intelligible propositions, following readily one upon the other, and so sweeping in their range, and so optimistic in their implications, that they dwarfed all cautious exceptions and qualifications. No great English economist indeed-neither Adam Smith, nor Malthus, nor Ricardo, nor John Stuart Millwas, in fact, an out-and-out free trader so far as practical application was concerned. Still less were they resolute non-interventionists over the whole range of economic life; for entirely consistent and unlimited laissez-faire we should have to go to their more severely logical French contemporaries. But they based themselves on certain general principles, and they drew from them general conclusions which practical politicians could easily employ to justify an absoluteness of policy from which they shrank themselves; they were reverenced as spiritual 1 Presidential Address, delivered before Section F of the British Association, Toronto, August 1924. No. 136.-VOL. XXXIV. LL masters, whose occasional aberrations must be lamented or disregarded. I shall endeavour first to set forth the doctrine in a number of brief propositions; then to make some observations under each head. The several theses will not be found quite so consecutively stated in any of the authoritative writings, and I pursue this method partly for ease of subsequent reference. But it will be agreed, I expect, that they fairly represent the general structure of thought on which rested the whole edifice. These, then, are the propositions : 1. That Nature is beneficent. By "Nature" is meant, in this connection, the operation of the unpremeditated instincts, desires, passions of individual men and women. Any restriction of this operation by an authority outside the individual is "artificial," and therefore bad. Nature, so understood, is the scheme of things created by God. And since God, with infinite wisdom, has established this mechanism for the fulfilment of His purposes, Nature is, as it were, His Vicegerent, and the "laws" of its action are "providential." But theistic language may be dropped, and the theistic conception even repudiated. And then "Nature" remains as self-directed, and beneficent of itself; and the reverence with which it is regarded amounts in effect to deification. This does not mean that every particular action dictated by a "natural" passion is, considered in itself, morally commendable it may even be "shocking" to the moral sense. But the "natural" impulses work out on the whole for good, with only such a minimum amount of evil as is involved in the execution of the whole design. The wisdom of God is displayed in the folly of men by an Invisible Hand they are led to promote salutary results which are no part of their intention. 2. That individual Freedom or Liberty is in itself a good thing. This is a corollary from, or rather, only another expression for, the preceding proposition. For by "freedom " liberty" is meant the right to pursue unchecked the instincts or passions implanted by Nature. It is true that this liberty must respect the like liberty of others; and reflection on what is involved in this qualification might suggest some doubt as to the validity of the proposition it qualifies. But this line of thought was left for subsequent generations. So long as the purpose of the social union is conceived of as the enabling of the individual to follow his "natural" desires, their pursuit is regarded as a "natural right." Violations of 1 But the natural liberty are therefore inherently "unjust.” conception of inherent individual rights may be repudiated ; and then interference may be condemned simply on the ground that it is impolitic from the point of view of social utility. In any case the presumption is held to be on the side of "liberty." The term, first "natural liberty" and then "liberty or "freedom" without the adjective, could thus be used, without formal argument, as bringing with it a whole atmosphere of commendation; while "interference " or artificial" brought at once, and without attempt at formal proof, a whole atmosphere of disapproval. 3. That society is nothing more than an aggregate collection of individuals. Accordingly the wealth, the advantage, the profit of society as a whole is but the sum of the wealths, the advantages, the profits of the individuals composing it. 4. That every individual left to himself pursues his own interest his own way, and knows it better than anybody else. Accordingly, absence of restriction on the individual is the best means of serving the community. Social interest is identical with individual interest. 5. That every country has certain natural advantages. Left to themselves individuals will exert themselves in the directions to which these advantages point. It is, therefore, for the benefit of a country or nation that they should be left free to do so. 6. That in each country there is at any moment a certain given supply of capital and labour, which cannot be increased by any action of the State. Since, left to themselves, they will spontaneously flow into the employments most advantageous to themselves and consequently to the country, any action of a public authority which directs them towards employments to which they would not of themselves go, or keeps them in industries which they would otherwise leave, involves loss to the country. 7. That if another country can supply certain commodities more cheaply, it follows that that country must possess advantages which the importing country does not enjoy. Since these imports must be paid for by exports, they must be paid for by commodities in the production of which the importing country has an advantage. Each country thus obtains what it wants with the least expenditure of labour or capital, i.e. most cheaply, and benefits by international division of labour. Since the advantages in question are of divine appointment, to refuse to take the fullest advantage of international division of labour is to fly in the face of Providence. If the theistic conception is dropped, and the argument is based on utility, the offence is the equally serious one of disregarding common sense. 8. That the national capital and labour can be transferred from one occupation to another. If an existing industry cannot be profitably carried on owing to foreign competition, the capital and labour involved can be transferred to some other manufacture within the country, and must inevitably be so transferred in order to provide the additional commodities necessary to pay for the imports. That the foreign country will-indeed, musttake commodities in return for what it sends, proves that in some exportable commodities the home country has an advantage. The destruction of a native industry is in itself a proof that it has no economic right to exist. 9. That, left to themselves, people will buy whatever they want at the cheapest price. This, therefore, must be their interest. And since the State is a collection of consumers, and individual interest is social interest, the ultimate criterion of the interest of the State is the interest of consumers. In these nine propositions and their corollaries consists the whole of the generally accepted economic doctrine of the century which followed upon the great work of Smith. That they were held to be sufficient and decisive as late as 1878 is very authoritatively stated in the most widely circulated of treatises on the subject the lectures of Professor Fawcett, which appeared in that year and quickly passed through several editions. "All the most effective arguments," he remarks, "that can now be urged in favour of free trade had . . . been stated with the most admirable clearness and force by Adam Smith, Ricardo, and other economists. In the pages of these writers are to be found many passages which furnish the best reply that can be made to the modern opponents of free trade." 1 1, 2. The first two of the propositions-that Nature is beneficent, and that Nature consists in the unrestricted freedom of every individual to pursue his personal desires and interest in his own way-were inextricably associated in the minds of the first generation of English economists. It will be sufficient for our purpose to consider them together, under the term Adam Smith himself employs in a famous passage. When all preference or restraint, he says, is completely taken away, it gives place to "the simple system of Natural Liberty." 2 The 1 Free Trade and Protection, 6th ed. (1885), p. 3. context shows that by "system" Smith means both the doctrine and the condition of things which results when the doctrine is put into effect. We need not spend much time over the genesis of this doctrine. If we knew nothing of Adam Smith but the Wealth of Nations, and took care only to read certain parts of it, some sort of case might be made out for the view that the doctrine was for Adam Smith an induction from experience: this and this and this case of interference with natural liberty, we might suppose him to have found, were demonstrably harmful, and therefore, he concluded, all interference with natural liberty was harmful. No one need deny that some of the instances he cites did lend support to this contention; nor need anyone deny also that the contemporary system of governmental or corporate regulation was ill adapted to the needs of the capitalistic era then opening. But it would be to disregard all Adam Smith's antecedents as a philosopher; all that we know of the history and transformation of the conception of "Nature" from the Greek thinkers downward; all the evident affiliation of Smith with his predecessor Hutcheson, and of both with Shaftesbury; and in particular it would be to ignore the essential unity of the Wealth of Nations with Smith's other work, the Theory of Moral Sentiments, to refuse to recognise that Smith took over the doctrine of Natural Liberty from current theology and moral philosophy. The movement of his mind was fundamentally deductive: natural liberty, he started with believing, is beneficent; he expected therefore to find all interferences with it harmful, and he had no difficulty in discovering instances. Buckle has asserted that Adam Smith's greatness is shown by his basing everything in his Moral Philosophy upon Sympathy, and everything in his Economics upon Self-interest, and by his leaving his readers to make the necessary adjustment between them. It would be a doubtful compliment, if true; but no one can suppose it to be true who has read his two works attentively. I am not concerned to maintain Smith's philosophical consistency; my own impression, for what it is worth, is that his system of moral philosophy is by no means watertight. But Smith himself, down to the end of his life, thought of his Moral Philosophy and his Economics as forming one whole.1 And the recurrence of certain characteristic phrases in the second 1 Compare the last paragraph of the first edition (1759) of the Moral Sentiments with the Advertisement to the 6th edition (1790). |
