Mises Daily Articles
Trade and the Rise of Freedom
[This speech was delivered at the Mises Institute's conference on "The History of Liberty."]
It is not an exaggeration to say that trade is the keystone of modern civilization. For as Murray Rothbard wrote: "The market economy is one vast latticework throughout the world, in which each individual, each region, each country, produces what he or it is best at, most relatively efficient in, and exchanges that product for the goods and services of others. Without the division of labor and the trade based upon that division, the entire world would starve. Coerced restraints on trade -- such as protectionism -- cripple, hobble, and destroy trade, the source of life and prosperity."1
Human beings cannot truly be free unless there is a high degree of economic freedom -- the freedom to collaborate and coordinate plans with other people from literally all around the world. That is the point of Leonard Read's famous article, "I Pencil," which describes how to produce an item as mundane as an ordinary pencil requires the cooperation and collaboration of thousands of people from all around the world, all of whom possess very specific knowledge (of "time and place," as Mises called it) that allows them to assist in the production and marketing of pencils. The same is true, of course, for virtually everything else that is produced.
Without economic freedom -- the freedom to earn a living for oneself and one's family -- people are destined to become mere wards of the state. Thus, every attempt by the state to interfere with trade is an attempt to deny us our freedom, to impoverish us, and to turn us into modern-day serfs.
Mises believed that trade or exchange is "the fundamental social relation" which "weaves the bond which unites men into society."2 Man "serves in order to be served" in any trade relationship in the free market.3 Mises also distinguished between two types of social cooperation: cooperation by virtue of private contract and coordination, and cooperation by virtue of command and subordination or "hegemony."4 The former type of coordination is symmetrical and mutually advantageous, whereas the latter is asymmetrical -- there is a commander and a commandee, and the commandees are mere pawns in the actions of the commanders. When people become the mere pawns of their rulers they cannot be said to be free. This, of course, is the kind of "cooperation" that exists at the hands of the state.
Western civilization -- like other advanced civilizations -- is the result of "achievements of men who have cooperated according to the pattern of contractual coordination."5 The contractual state is guided by such concepts as natural rights to life, liberty, and property and government under the rule of law. In contrast, the "hegemonic society" is a society that does not respect natural rights or the rule of law. All that matters are the rules, directives, and regulations issued by dictators, whether they are called "kings" or "congressmen." These directives may change daily, and the wards of the state must obey. As Mises wrote: "The wards have one freedom only: to obey without asking questions."6
Trade involves the exchange of property titles. Restrictions on free trade are therefore an attack on private property itself and not "merely" a matter of "trade policy." This is why such great classical liberals as Frederic Bastiat spent many years of their lives defending free trade. Bastiat, as much as anyone, understood that once one acquiesced in protectionism, then no one's property will be safe from myriad other governmental acts of theft. To Bastiat, protectionism and communism were essentially the same philosophy.
It has long been recognized by classical liberals that free trade was the most important means of diminishing the likelihood of war. And nothing is more destructive of human freedom than war. War always leads to a permanent enlargement of the state -- and a reduction in human freedom -- regardless of who wins. On the eve of the French Revolution many philosophers believed that democracy would put an end to war, for wars were thought to be fought merely to aggrandize and enrich the rulers of Europe. The substitution of representative government for royal despotism was supposed to end warfare once and for all, for the people are not concerned about territorial acquisition through conquest. The French quickly proved this theory wrong, however, for under the leadership of Napoleon they "adopted the most ruthless methods of boundless expansion and annexation . . . ."(7)
Thus, it is not democracy that is a safeguard against war but, as the British (classical) Liberals were to recognize, it is free trade. To Richard Cobden and John Bright, the leaders of the British Manchester School, free trade -- both domestically and internationally -- was a necessary prerequisite for the preservation of peace. For in a world of trade and social cooperation, there are no incentives for war and conquest. It is government interference with free trade that is the source of international conflict. Indeed, naval blockades that restrict trade are the ultimate act of war, and have been for centuries. Throughout history, restrictions on trade have proven to be impoverishing and have instigated acts of war motivated by territorial acquisition and plunder as alternatives to peaceful exchange as the means of enhancing living standards.
It is no mere coincidence that the 1999 meeting of the World Trade Organization -- a cabal of bureaucrats, politicians, and lobbyists which favors government-controlled trade -- was marked by a week-long riot, protests, and violence. Whenever trade is politicized the result is inevitably conflict that quite often leads, eventually, to military aggression.
Mises summarized the relationship between free trade and peace most eloquently when he noted:
What distinguishes man from animals is the insight into the advantages that can be derived from cooperation under the division of labor. Man curbs his innate instinct of aggression in order to cooperate with other human beings. The more he wants to improve his material well-being, the more he must expand the system of the division of labor. Concomitantly he must more and more restrict the sphere in which he resorts to military action. ...Such is the laissez-faire philosophy of Manchester.8
As Frederic Bastiat often said, if goods can't cross borders, armies will. This is a quintessentially American philosophy in that it was the position assumed by George Washington, Thomas Jefferson, and Thomas Paine, among others. A foreign policy based on commerce," wrote Paine in Common Sense, would secure for America "the peace and friendship" of the Continent and allow her to "shake hands with the world -- and trade in any market."9 Paine -- the philosopher of the American Revolution -- believed that free trade would "temper the human mind," help people to "know and understand each other," and have a "civilizing effect" on everyone involved in it.10 Trade was seen as "a pacific system, operating to unite mankind be rendering nations, as well as individuals, useful to each other. . . . War can never be in the interest of a trading nation."11
George Washington obviously agreed. "Harmony, liberal intercourse with all Nations, are recommended by policy, humanity and interest," he stated in his September 19, 1796 Farewell Address.12 Our commercial policy "should hold an equal and impartial and; neither seeking nor granting exclusive favours or preferences; consulting the natural course of things; deversifying by gentle means the streams of Commerce, but forcing nothing . . ."13
The Eternal Struggle Between Freedom and Mercantilism
The period of world history from the middle of the fifteenth to the middle of the eighteenth centuries was an era of growth in world trade and invention and of institutions suited to trade. Technological innovations in shipping, such as the three-masted sail, brought the merchants of Europe to the far reaches of America and Asia. This vast expansion of trade greatly facilitated the worldwide division of labor, greater specialization, and the benefits of comparative advantage.14
But whenever human freedom advances, as it did with the growth of trade, state power is threatened. So states did all they could then, as now, to restrict trade. It is the system of trade restrictions and other governmental interferences with the free market, known as mercantilism, that Adam Smith railed against in The Wealth of Nations. As Rothbard has written:
Mercantilism, which reached its height in the Europe of the seventeenth and eighteenth centuries, was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state. Thus, mercantilism held that exports should be encouraged by the government and imports discouraged.15
Classical liberals waged an ideological war against mercantilism during the eighteenth and nineteenth centuries, and scored some major victories for freedom. The French "physiocrats," led by Dr. Francois Quesnay, a physician who got interested in economic topics (at a time when "physicians" bled their patients with leeches and "surgery" meant the amputation of limbs). The physiocrats were quite influential from the 1750s to the 1770s and were among the first laissez faire thinkers who contemptuously denigrated mercantilist propaganda and called for complete freedom of domestic and international trade. Their position was based on sound economics as well as Lockean notions of natural rights. Quesnay wrote that "Every man has a natural right to the free exercize of his faculties provided he does not employ them to the injury of himself or others."16
When he became Finance Minister of France in 1774, Anne Robert Jacques Turgot, a precursor of the Austrian School, decreed freedom of import and export of grain as his first official act.
At around the same time, Adam Smith was defending trade on moral as well as economic grounds by enunciating his doctrine of how free trade was part of the system of "natural justice." One of the ways he did this was to defend smugglers and the act of smuggling as a means of evading mercantilist restrictions on trade. The smuggler, explained Smith, was engaged in "productive labor" that served his fellow man (i.e., consumers), whereas if he is caught by the government and prosecuted, his capital is "absorbed either in the revenue of the state or in that of the revenue-officer," which is an "unproductive" use "to the diminution of the general capital of the society. . . "17
The Manchester School
Despite powerful arguments in favor of free trade offered by Quesnay, Smith, David Ricardo, and others, England (and other countries of Europe) suffered from protectionist trade policies for the first half of the nineteenth century. But this situation was turned around due to the heroic and brilliant efforts of what came to be known as the "Manchester School," led by two British businessmen, John Bright and Richard Cobden. Thanks to Bright and Cobden Great Britain achieved complete free trade by 1850.
The British public was plundered by the mercantilist "corn laws" which placed strict import quotas on the importation of food. The laws benefited political supporters of the government who were engaged in farming at the expense of much higher food prices, which was especially harmful to the poor. Bright and Cobden formed the Anti-Corn Law League in 1839 and turned it into a well-oiled political machine with mass support, distributing literally millions of leaflets, holding conferences and gatherings all around the country, delivering hundreds of speeches, and publishing their own newspaper, The League.18
The Irish potato famine of 1845 created great pressures for repeal of the Corn Laws, which was finally achieved on June 25, 1846. The elimination of all other import duties followed, and a 70-year period of British free trade began. Richard Cobden was also influential in pushing through the Anglo-French treaty of 1860, which lowered French tariffs and helped put that country on the road to freer trade.
The Great Bastiat
From his home in Mugron, France, Frederic Bastiat single handedly created a free-trade movement in his own country that eventually spread throughout Europe. Bastiat was a gentleman farmer who had inherited the family estate. He was a voracious reader, and spent many years educating himself in classical liberalism and in just about any other field that he could attain information about. After some twenty years of intense intellectual preparation, articles and books began to pour out of Bastiat (in the 1840s). His book, Economic Sophisms, is to this day arguably the best defense of free trade ever published. His second book, Economic Harmonies, quickly followed, while Bastiat published magazine and newspapers all over France. His work was so popular and influential that it was immediately translated into English, Spanish, Italian, and German.
Due to Bastiat's enormous influence free-trade associations, modeled after one he had created in France and similar to the one created by his friend, Richard Cobden, in England, began to sprout in Belgium, Italy, Sweden, Prussia, and Germany.
To Bastiat, collectivism in all its forms was immoral as well as economically destructive.
Collectivism constituted "legal plunder," and to argue against the (natural) right to private property would be similar to arguing that theft and slavery were "moral." The protection of private property is the only legitimate function of government, Bastiat wrote, which is why trade restrictions -- and all other mercantilist schemes -- should be condemned. Free trade "is a question of right, of justice, of pubic order, of property. Because privilege, under whatever form it is manifested, implies the denial or the scorn of property rights." And "the right to property, once weakened in one form, would soon be attacked in a thousand different forms."19
The Struggle Against Mercantilism in America
There is no clearer example of how trade restrictions are the enemy of freedom than the American Revolution. In the seventeenth century all European states practiced the policy of mercantilism. England imposed a series of Trade and Navigation Acts on its colonies in America and elsewhere, which embodied three principles: 1) All trade between England and her colonies must be conducted by English (or English-built) vessels owned and manned by English subjects; 2) All European imports into the colonies must "first be laid on the shores of England" before being sent to the colonies so that extra tariffs could be placed on them; and 3) Certain products from the colonies must be exported to England and England only.
In addition, the colonists were prohibited from trading with Asia because of the East India Company's state-chartered monopoly. There were import duties placed on all colonial imports into England.
After the Seven Years War (known in America as the French-Indian War), England's massive land holdings (Canada, India, North America to the Mississippi, most of the West Indies) became very expensive to administer and police. Consequently, the Trade and Navigation Acts were made even more oppressive, which imposed severe hardships on the American colonists and helped lead to revolution.20
After the American Revolution trade restrictions nearly caused the New England states -- which suffered disproportionately from the restrictions -- to secede from the Union. In 1807 Thomas Jefferson was president and England was once again at war with France. England declared that it would "secure her seamen wherever found," which included U.S. ships. After a British warship captured the USS Chesapeake off Hampton Roads, Virginia, Jefferson imposed a trade embargo that made all international commerce illegal. After Jefferson left office his successor, James Madison, imposed an "Enforcement Act" which allowed war-on-drugs style seizure of goods suspected to be destined for export.
This radicalized the New England secessionists, who had been plotting to secede ever since Jefferson was elected, issued a public declaration reminding the nation that "the U.S. Constitution was a Treaty of Alliance and Confederation" and that the central government was no more than an association of the states. Consequently, "whenever its [i.e., the Constitution's] provisions were violated, or its original principles departed from by a majority of the states or their people, it is no longer and effective instrument, but that any state is at liberty by the spirit of that contract to withdraw itself from the union."21
The Massachusetts legislature formally condemned the embargo, demanded its repeal by Congress, and declared that it was "not legally binding." In other words, the Massachusetts legislature "nullified" the law. Madison was forced to end the embargo in March of 1809.
There has always been a collection of men in America who wanted to bring the British mercantilist system here precisely because it was so destructive of freedom. That is, they figured to be the "commanders" of the system and its chief beneficiaries. As John Taylor of Caroline observed, these men "included Hamilton and the Federalists and later, the politicians of the Era of Good Feelings in the 1820s who eventually became Whigs."22 These men "sought to bring the British system to America, along with its national debt, political corruption, and Court party . . ."23
Taylor, a noted Anti-Federalist, was a lifelong critic of mercantilism and laid out his criticisms in his 1822 book, Tyranny Unmasked. Like Bastiat, Taylor saw protectionism as an assault on private property that was diametrically opposed to the freedom the American revolutionaries had fought and died for. The tyranny that Taylor sought to "unmask" was the collection of fables and lies that had been devised by mercantilists to promote their system of plunder. If one looks at England's mercantilist policies, Taylor wrote, "No equal mode of enriching the party of government, and impoverishing the party of people, has ever been discovered."24 He wrote of the "indissoluble conexions" between both "the freedom of industry and national prosperity" and also "between national distress and protecting duties, bounties, exclusive privileges, and heavy taxation."25 The former produces national happiness, whereas the latter produces national misery, according to Taylor. In pointing out the folly of economic autarky Taylor asked:
Will Alabama want nothing but cotton, should that State select this species of labour for its staple? Can she eat, drink, and ride her cotton? Can she manufacture it into tools, cheese, fish, rum, wine, sugar, and tea? ...Is not Georgia a market for manufacturers, and Rhode-Island a market for cotton, in consequence of the division of labor?26
Many of Taylor's arguments were adopted and expanded upon by the great South Carolinian statesman John C. Calhoun during the struggle over the 1828 "Tariff of Abominations," which a South Carolina political convention voted to nullify. The confrontation between South Carolina, which was very heavily import dependent, as was most of the South, and the federal government over the Tariff of Abominations almost led to the state's secession some thirty years prior to the War for Southern Independence. The federal government backed down and reduced the tariff rate in 1833.
The Northern manufacturers who wanted to impose British-style mercantilism on the U.S. did not give up, however; they formed the American Whig party, which advocated three mercantilist schemes: protectionism, corporate welfare for themselves, and a central bank to pay for it all. From 1832 until 1861 the Whigs, led by Henry Clay and, later, by Abraham Lincoln, fought mightily in the political arena to bring seventeenth-century mercantilism to America.27
The Whig party died in 1852, but the Whigs simply began calling themselves Republicans. The tariff was the centerpiece of the Republican party platform of 1860, as it had been when the same collection of Northern economic interests called itself "Whigs" for the previous thirty years.
By 1857 the level of tariffs had been reduced to the lowest level since 1815, according to Frank Taussig in his classic Tariff History of the United States.28 But when the Republicans controlled the White House and the Southern Democrats left the Congress the Republicans did what, as former Whigs, they had been itching to do for decades: go on a protectionist frenzy. In his First Inaugural Address Lincoln stated that he had no intention to disturb slavery in the Southern states and, even if he did, there would be no constitutional basis for doing so. But when it came to the tariff, he promised a military invasion if tariff revenues were not collected. Unlike Andrew Jackson, he would not back down to the South Carolinian tariff nullifiers.
By 1862 the average tariff rate had crept up to 47.06 percent, the highest level ever, even higher than the 1828 Tariff of Abominations. These high rates lasted for decades after the war.
In the nineteenth century newspapers were formally associated with one political party or another, and many of the Republican party newspapers in 1860 were openly calling for a military invasion of Southern ports to keep the South from adopting free trade, which was written into the Confederate Constitution of 1861. On March 12, 1861, for example, the New York Post advocated that the U.S. Navy "abolish all ports of entry" in the South.29 On April 2, 1861 the Newark (NJ) Daily Advertiser warned ominously that Southerners had "apparently taken to their bosoms the liberal and popular doctrine of free trade" and that free trade "must operate to the serious disadvantage of the North" as "commerce will be largely diverted to Southern cities." The "chief instigator" of "the present troubles," South Carolina, has all along been "preparing the way for the adoption of free trade" and must be stopped by "the closing of the ports" by military force.30
As mentioned above, by 1860 England itself had moved to complete free trade; France sharply reduced her tariff rates in that very year; and Bastiat's free-trade movement was spreading throughout Europe. Only the Northern United States was clinging steadfastly to seventeenth-century mercantilism.
After the war the Northern manufacturing interests who financed and controlled the Republican party (i.e., the old Whigs) were firmly in control and they "ushered in a long period of high tariffs. With the tariff of 1897, protection reached an average level of 57 percent."31 This political plunder continued for about fifty years after the war, at which time international competition forced tariff rates down moderately. By 1913 the average tariff rate in the U.S. had declined to 29 percent.
But the same clique of Northern manufacturers was begging for "protection" and persisted until they got it when Herbert Hoover signed the Smoot-Hawley tariff of 1929, which increased the average tariff rate on over 800 items back up to 59.1 percent.32 The Smoot-Hawley tariff spawned an international trade war that resulted in about a 50 percent reduction in total exports from the United States between 1929 and 1932.33 Poverty and misery was the inevitable result. Even worse, the government responded to these problems of its own creation with a massive increase in government intervention, which only produced even more poverty and misery and deprived Americans of more and more of their freedoms.
Since the seventeenth century all the great classical liberals have defended free trade and opposed trade restrictions. Trade restrictions are an attack on the institution of private property, interfere with the international division of labor that is the source of our prosperity, and are nothing less than an act of theft. As Murray Rothbard remarked:
"The impetus for protectionism comes not from preposterous theories, but from the quest for coerced special privilege and restraint of trade at the expense of efficient competitors and consumers. In the host of special interests using the political process to repress and loot the rest of us, the protectionists are among the most venerable. It is high time that we get them, once and for all, off our backs, and treat them with the righteous indignation they so richly deserve."34
- 1. Murray Rothbard, "Protectionism and the Destruction of Prosperity,"
- 2. Ludwig von Mises, Human Action: A Treatise on Economics, Scholar's Edition, (Auburn, Ala: Mises Institute, 1998), p. 195.
- 3. Ibid.
- 4. Ibid., p. 196.
- 5. Ibid., p. 198.
- 6. Ibid., p. 199
- 8. Ibid., p. 827.
- 9. Thomas Paine, Common Sense, p. 20, in Philip S. Foner, Complete Writings of Thomas Paine (New York: 1954).
- 10. Ibid.
- 11. Ibid.
- 12. W.B. Allen, editor, George Washington: A Collection (Indianapolis: LibertyClassics, 1988), p. 525.
- 13. Ibid.
- 14. Nathan Rosenberg and L.E. Birdzell, Jr., How the West Grew Rich (New York: BasicBooks, 1986), pp. 71-112.
- 15. Murray Rothbard, "Mercantilism: A Lesson for Our Times?" in his book, The Logic of Action II (Cheltanham, UK: Edward Elgar, 1997), p. 43,
- 16. Cited in Henry Higgs, The Physiocrats (New York: Langland Press, 1952), p. 45.
- 17. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Oxford University Press, 1976), p. 898.
- 18. Nick Elliott, "John Bright: Voice of Victorian Liberalism," in Burton W. Folsom, Jr., editor, The Industrial Revolution and Free Trade (Irvington, NY: Foundation for Economic Education, 1996), p. 28.
- 19. Frederic Bastiat, Selected Essays on Political Economy, George B. de Huszar, ed. (Irvington, NY: Foundation for Economic Education, 1995), p. 111.
- 20. Samuel Eliot Morison, Henry Steele Commager, and William Leuchtenburg, The Growth of the American Republic (New York: Oxford University Press, 1980), pp. 112-125.
- 21. James Banner, To the Hartford Convention: The Federalists and the Origins of Party Politics in Massachusetts, 1789-1815 (New York: Alfred A. Knopf, 1970), p. 301.
- 22. John Taylor, Tyranny Unmasked (Indianapolis: Liberty Fund, 1992), p. xvi.
- 23. Ibid.
- 24. Ibid., p. 11.
- 25. Ibid., p. 19.
- 26. Ibid., p. 24.
- 27. Michael F. Holt, The Rise and Fall of the American Whig Party (New York: Oxford University Press, 19990
- 28. Frank Taussig, A Tariff History of the United States (New York: Putnam, 1931), p. 157.
- 29. Howard Perkins, Northern Editorials on Secession (Gloucester, MA: Peter Smith, 1964)p. 600.
- 30. Ibid., p. 602.
- 31. Wilson Brown and Jan Hogendorn, International Economics (New York: Addison-Wesley, 1994), p. 188.
- 32. Ibid. p. 192.
- 33. Ibid., p. 193.
- 34. Rothbard, "Protectionism."