The Fortunes of Free Trade in Britain
[A paper presented at the Twelfth International
Conference on Land Value Taxation and Free Trade. Caswell Bay, Wales,
IT IS convenient to commence a study of free trade in Great Britain
with the publication of Adam Smith's Inquiry into the Nature and
Causes of the Wealth of Nations in 1776. As with almost all great
works in the field of ideas, there is much discussion as to what
extent this was original, and to what extent Adam Smith drew on
earlier sources. But for our present .purposes this scarcely matters;
the important thing is that Smith "hit the headlines." By
1780 he had greatly influenced the mind of William Pitt the Younger,
and three years later Pitt was combining the offices of Prime Minister
and Chancellor of the Exchequer. In 1786 he concluded a commercial
treaty with France which greatly reduced trade barriers between the
France was soon plunged into revolution, and in 1793 there began the
war between Britain and France which continued intermittently until
the fall of Napoleon in 1815. This war destroyed Pitt's work towards
the liberalisation of trade; indeed, for a time Britain was largely
cut off from European trade.
In the immediate aftermath of the French wars, tariffs were
introduced with the primary object of maintaining the price of
home-produced articles. Among these tariffs were the notorious Corn
Laws. The idea of an import duty on corn was no new thing. In 1791,
Pitt, turning what we might call his other face towards trade, had
passed an Act which stipulated that duties should be paid on imported
corn when the home price was below 54s. a quarter, arid in 1804 he had
raised this to 66s. In 1815 it was increased to 80s. - although some
protectionists had asked for an even higher figure.
In the 1820s there were signs of weakening in the protectionist
system. When William Huskisson became President of the Board of Trade
in 1823 there were no fewer than fifteen hundred statutes that
operated against trade. Inevitably they did not form a coherent whole
or a logically consistent system of protection, for they had simply
grown up over the years. Huskisson consolidated and simplified these
statutes, and generally reduced the burdens on trade.
The Reform Act of 1832 began the break-up of the old political
parties, and the extraordinary thing about the free trade agitation of
the ensuing years is that it took place very largely outside the
political parties, and outside Parliament. Parliamentary elections
were still most often uncontested right down to the middle of the
In 1836 an Anti-Corn Law Association was formed m London, and in 1838
a more famous Anti-Corn Law Association - or League as it later became
known - was established in Manchester. This was the body associated
with the names of Cobden and Bright. The free trade propagandists
recognised that the Corn Laws formed the pivot of the whole system
that they were attacking; if the Corn Laws could be repealed, the
whole apparatus of protection would crumble. The agitation - like the
contemporary agitation of the Chartists - was conducted mainly through
public meetings and other propaganda not related to any electoral
contest. As time went on larger and larger sums were contributed for
the work of the League; at one meeting in 1845 there is a record of
the fantastic sum of £60,000 being subscribed - more like half a
million pounds in today's money.
Prominent members of the League sat in Parliament, but they sat, very
loose of Party ties: in 1844, Cobden noted that in four divisions out
of five he had supported Peel, the Prime Minister of the Tory
Government, rather than his own nominal leader, Lord John Russell -
holding the view that Peel was at least as liberal as Russell.
C.P. Villiers was the original leader of the Anti-Corn Law movement,
and he had the added distinction of serving as an M.P. from 1835 right
down to his death in 1898 at the age of 95, long surviving both Cobden
and Bright. Each year Villiers moved his Anti-Corn Law resolution in
the House of Commons and it is indicative of the great freedom that
existed in politics at the time that on one occasion, at least, two
members of the Cabinet voted with him.
It was not argument, however, but starvation that finally tipped the
scales. The failure of the Irish potato crop in 1845 produced a famine
of appalling dimensions, and the fact that this coincided with a poor
wheat harvest in England exacerbated the distress on both sides of the
Irish sea. This led to a situation not unfamiliar in politics. In a
time of great crisis a relatively small group of determined men were
able to secure acceptance for policies that they had long advocated,
not because the intellectual arguments in favour of these policies had
become any stronger, but because desperate people were willing to
experiment. The case for free trade in the 1840s was in truth neither
stronger nor weaker than it had been for nearly seventy years.
In June 1846 Peel gave his support to the men who had been hammering
at the Corn Laws for a decade. Corn duties were reduced immediately,
and were abolished, with effect from 1849. By this action, the old
Tory Party was split from top to bottom, and an extremely able group,
including both Peel and the young Gladstone, broke off from the main
body of their Party.
The repeal of the Corn Laws not only produced free importation of
grain; it also shattered the morale of the protectionists. The
Navigation Acts, which had imposed duties on goods brought in foreign
ships, were abolished in 1849. Gladstone's great budgets of 1853 and
1860 reduced tariffs further: with the abolition of the timber duties
in 1874, the only remaining import duties were designed purely to
raise revenue, and were paralleled, where this was possible, by
similar excise duties on home-produced articles. The dependent parts
of the British Empire were free trade as well, although some of the
self-governing territories gradually went protectionist.
The effect of mid-century free trade was not, as most critics had
imagined, the ruin of British agriculture. The rapidly-increasing
prosperity of the towns led to a great demand for food, and for thirty
years after 1846 agriculture prospered exceedingly. As industry
prospered, however, British agriculture was unable by itself to feed
the rising population. In the early 1840s British wheat production had
been almost 90 per cent, of home consumption, but thirty years later
it was below 50 per cent.
By the middle 1870s free trade was tacitly accepted by pretty well
everyone in Britain. But the end of the decade saw a series of
disastrous harvests. They did not result in urban famine, as they
would have done in the old protectionist days, for the new American
wheat fields were able to meet the British shortfall, but from that
date English grain production declined rapidly in importance.
English agriculture had a three-tier structure: landlord,
tenant-farmer and labourer. The wages of the labourers were largely
kept up, partly because of massive emigration of surplus labourers and
partly because there were jobs available in the towns for men who
could not get satisfactory pay on the land. The farmers suffered an
initial decline in numbers, but in the last decade or so of the
century were holding their own. The real impact, however, was felt by
the landlords, for reasons that require little explanation. Farm rents
fell tremendously, often almost to zero, and this greatly reduced the
prestige and power of the rural land owners. Many years later Lloyd
George talked of the "great slump in Dukes," but in truth
this slump had been in existence for a very long time and may be
traced to the economic changes of the 1870s.
In Europe, the Third French Republic moved towards protection and the
new German Empire, which had been established in 1871, was receptive
to the nationalist and protectionist doctrines that G. F. List had
propounded thirty years earlier in his Das Nationale System der
Although Britain continued to adhere to free trade, protectionist
propaganda began to be advanced with increasing force. For a large
part of the 1880s there was a great trade depression. In 1886 a Royal
Commission was established to inquire into the causes and cure of that
depression. A minority reported in favour of fairly heavy duties on
imported manufactured goods, and even a light tariff on food. In the
following year the National Union of Conservative Associations
accepted a resolution in favour of a tariff policy. But although the
Conservatives were in office, they were deeply split on the
protectionist issue, and as usually happens in such circumstances, the
status quo was continued. The Liberals were in power from 1892
to 1895, and when the Conservatives returned the depression had
largely disappeared. The fiscal system was therefore left untouched.
The first nibbling at the free trade position occurred during the
Boer War, and it is interesting that the Conservative Chancellor of
the Exchequer who applied these measures, Sir Michael Hicks-Beach, was
a keen free trader. However, he had to provide money for what Lord
Salisbury, the Prime Minister, called "Joe's War." The 1901
budget therefore imposed an export duty on coal and restored the
import duty on sugar. The 1902 budget went further and imposed a small
import duty on corn and flour -redolent of the hated Corn Laws. In
fairness to Hicks-Beach, however, it appears that these duties were
designed to raise revenue rather than to impose protection.
The Boer War ended in 1902, and Hicks-Beach was replaced by a
stronger free trader, C. L. Ritchie, whose 1903 budget removed the
corn duty. This seems to have been the spark which began the
conflagration of Joseph Chamberlain's "Tariff Reform"
campaign. Chamberlain, this apostate Liberal on whom so many Radical
hopes had once been fixed, was Colonial Secretary, and by common
consent the ''strong man" in the Government. His original
intention seems to have been the establishment of an Imperial Zollverein
- a sort of British Empire Common Market - with free trade between the
member-countries but tariffs against outsiders. A rather complicated
political manoeuvre occurred in September 1903, as a result of which
both- Chamberlain on one side and the leading free traders on the
other resigned from the Cabinet, and Chamberlain took his tariff
reform to the hustings.
It soon became clear that the self-governing parts of the Empire,
while naturally desiring preferential treatment for their products in
British markets, were not prepared to give British goods free entry to
their own, or to impose Chamberlain's common tariff. Increasingly,
therefore, "tariff reform" turned from a campaign for an
Imperial Zollverein to a campaign for a protectionist Britain.
This tariff reform debate shook the Conservative administration to
its foundations. Arthur Balfour, the Prime Minister, tried to damp
down the temperature, but both tariff reformers and free traders in
the Conservative ranks were obviously anxious for a showdown.
Free traders, both Liberal and Conservative, joined the new Free
Trade Union (which now exists as the Free Trade League). Eleven
Government supporters - including Winston Churchill - crossed the
floor. Churchill challenged the Conservatives of his own constituency,
Oldham, to demand his resignation, confident that he could defend his
seat in the new interest if challenged. But they did not dare accept
the challenge. J. E. B. Seely, who also crossed the floor, did resign
his seat in the Isle of Wight to fight a by-election in the Liberal
and free trade interests, but so strong was his position that no-one
was nominated against him, and he was returned unopposed. Where
by-elections occurred they were disastrous for the Government; in a
couple of years they lost fourteen seats that way. The following
general election, in January 1906, gave the Liberals and their allies
a majority of 356 seats. It would be false to regard free trade as the
only issue on which the 1906 election was fought, but it was certainly
the most critical.
In the immediate aftermath of the election, Balfour came down from
the fence on which he had been sitting so long and concluded an
agreement with Chamberlain in favour of tariff reform. At last, it
seemed, the fiscal issue was a simple one, between the free trade
Liberals and the protectionist Conservatives.
In July 1906, Birmingham went wild in celebration of the 70th
birthday of its hero, Joseph Chamberlain. A couple of days later he
was shattered by a stroke which rendered him incapable of playing any
further active part in politics, although he continued to write
protectionist propaganda until his death in 1914.
But the incapacity of Chamberlain meant that the main protectionist
influence was removed from British politics. In any case, the
Conservatives soon found other issues with which to belabour the
Liberals - the celebrated 1909 budget; the constitutional proposals of
the Government, the Irish question, the new social policy, and the
Liberal advocacy of land-value taxation. By the outbreak of war in
1914 the free trade v. protection issue had rather passed into the
background, largely because the Liberals had been able to provide old
age pensions and other social benefits without recourse to tariffs.
The outbreak of war in 1914 found free trade Britain in possession of
a merchant fleet which was able, in spite of German submarines, to
keep this country supplied with food. But the loss of merchant
shipping was heavy, and in 1915 the McKenna Duties were introduced.
The background is interesting and important. In May 1915, Asquith,
the Liberal Prime Minister, had been driven to accept a coalition that
included a number of Conservative members. It appears, however, that
the Liberals insisted that the post of Chancellor of the Exchequer
must remain in Liberal hands - no doubt fearing an attack on free
trade if it were held by a Conservative. Reginald McKenna, whose
radical enthusiasm in other directions was in doubt, but whose
adherence to free trade was not questioned, was appointed to the post.
For the very reason that McKenna was a Liberal and a free trader, he
was able to persuade the Liberal supporters of the Government to
accept wartime tariffs, which no doubt a Conservative would have found
far more difficult to apply. The McKenna Duties were passed. They
imposed a 33.1/3 per cent, ad valorem duty on what were
usually described as "luxury" imports (although these
included such items as tea and cocoa), but thirty or forty free
traders, headed by the veteran Liberal Tommy Lough, still fought the
Government on the issue.
At the end of 1916 Asquith was replaced as Prime Minister by Lloyd
George, and in the 1918 general election, which followed almost
immediately on the end of the war, Lloyd George's coalition secured a
crushing majority. But a simple count of noses showed that the
overwhelming majority of the Government's supporters were not Liberals
but Conservatives; indeed, the Conservatives had far more seats than
everybody else put together.
Lloyd George's Chancellor of the Exchequer was Sir Austen
Chamberlain, son of the formidable Joseph, half-brother of the
unimpressive Neville. Chamberlain handled the situation with
considerable subtlety. In his 1919 budget he did not impose new
tariffs but repealed the McKenna Duties on Empire goods - thus
establishing a system of Imperial Preference without applying new
taxation. Two years later, the Safeguarding of Industries Act applied
a 33.1/3 per cent, tax on goods produced by a large number of what
were, called "key industries."
The Lloyd George coalition broke up through a revolt of the
Conservative backbenchers, signalled at the famous Carlton Club
meeting of October 1922. Most of the leading Conservative members of
the Government dissented from this decision, and therefore were in
practice unavailable for inclusion in the new administration. After
some hesitation, Bonar Law became Prime Minister, and formed a purely
Conservative government - but composed of what Churchill called "the
second eleven." In the ensuing election Law indicated that there
would be no change in fiscal policy, and he was confirmed in office.
Bonar Law's health broke down in the spring of the following year,
and he was succeeded as Prime Minister by Stanley Baldwin.
In October 1923 Baldwin made a most important speech in which he
indicated the view that protection was essential to cure unemployment;
however, Bonar Law's pledge bound him, and he would fight a general
election on the issue if challenged. What lay at the bottom of
Baldwin's offer of a general election is still a matter of conjecture.
He implied that he was taking the only honourable course he could.
Privately, he indicated that he "had to get in quick" to "dish
the Goat" (an offensive nickname for Lloyd George, applied to him
not exclusively by reason of his hirsute appearance). It is also
arguable that he sought a period of opposition in order to
reconstitute the Conservative front bench and reconcile the men
excluded in 1922.
Whatever the reason for the election, Baldwin received a very clear
answer from the electorate. The Conservatives, who had 345 seats in
the old House, now had only 258; Labour advanced from 142 to 191 and
the Liberals from 116 to 158. The Liberal and Labour Parties were both
more or less entirely free traders. After a period of political
excitement in the course of which practically every possible
permutation was discussed, a Labour Government took office in January
1924, with the hesitant, but essential, support of the Liberals.
Ramsay MacDonald was Prime Minister. Economics - indeed, clear thought
in any direction - was never his strong point, but his Chancellor of
the Exchequer was that free trade stalwart, Philip Snowden. Snowden's
one budget swept away the McKenna duties and largely restored Britain
to her free trade position.
In most other respects the Labour Government was inept. A series of
complicated anglings for political position resulted in the Government
inviting, and obtaining, defeat on the "Campbell case" in
October 1924 and going to the country. The election cost Labour an
aggregate of 39 seats while the Liberals suffered eclipsing disaster:
their parliamentary representation was quartered.
Baldwin was back in office, and remained there for a further five
years. Winston Churchill, now a Conservative, was the new Chancellor
of the Exchequer, and his first budget, in 1925, restored the McKenna
duties. There were a few minor attacks on free trade, but the Prime
Minister no longer pushed hard for that protection which he had
averred to be essential as a cure for unemployment a year earlier.
The Conservatives were out again in 1929 and the second Labour
Government took office, again with Snowden at the Exchequer. Like its
Labour predecessor it had no overall majority, and the Liberals could,
at least theoretically, have brought it down at any time by voting
with the Conservative opposition.
Within a year or so, the unemployment for which MacDonald had
promised a "complete cure" had doubled itself. Enormous
pressures were set upon the Government from several very different
directions. The Conservatives, and Labour's maverick Chancellor of the
Duchy of Lancaster, Sir Oswald Mosley, urged protection. The Liberals
tried desperately to spur the Government to apply the "Yellow
Books" policies on which they had fought the 1929 election, and
which Labour had seemed to endorse at the time. Jimmy Maxton and
others advocated what was in effect a policy of revolutionary
Between all of these fires the Government did more or less nothing,
and a growing body of opinion was ready for almost any policy as an
escape from the dithering ineptitude of a government that had neither
administrative competence nor a sense of purpose.
At the end of July 1931 the celebrated May Committee, which the
Government had set up earlier in the year, published a report
indicating that the country was seriously in the red, and urging
economies. For more than three weeks the Government talked round and
round these economies, failing to reach any agreement on measures
adequate to meet the situation, while, as they talked, the situation
continued to deteriorate. At last, on 24th August, Mac-Donald formed
the "National Government," with a Cabinet composed of four
Labour, four Conservatives and two Liberals.
A series of most extraordinary events occurred which would require a
long time to describe. The upshot was that the Labour members of the
National Government were repudiated by their own Party, and the
Liberals split in three, one group supporting the Government all the
way, one giving it tentative support, and the other opposing it. The
Government fought a general election and was returned with the
greatest majority in our Parliamentary history, but the followers of
the Government in the House of Commons were now overwhelmingly Tory
protectionists. The Conservatives had 473 seats, and everybody else
together, including the Conservatives' closest allies, totalled only
Enormous changes now took place in the Government itself in
recognition of the new parliamentary situation. Snowden, who had
followed MacDonald into the National Government and continued as
Chancellor of the Exchequer, had not retained his seat at the general
election, and therefore could not continue in his old office. He
remained in the Cabinet as Lord Privy Seal, but no longer had the locus
standi to defend free trade. Those erstwhile Liberals who had been
willing to compromise on free trade and support the Government at all
costs - the so-called Liberal Nationals, or Simonites - received their
thirty pieces of silver, and entered the Government. There were still
a few free traders in the Cabinet, but their position was desperate.
Anticipating tariffs, foreigners naturally stepped up their exports
to Britain to get them in before the door slammed. An Abnormal
Importations Act was passed just before Christmas, empowering the
Government to impose large duties on goods entering the country in
exceptional quantities. The Minister in charge of the legislation was
the new President of the Board of Trade, Walter Runciman, who, as
Viscount Runciman, went as Chamberlain's emissary to Munich in 1938.
Runciman is in many ways one of the great paradoxes of politics. A
lifelong Liberal, he had been regarded in the 1920s as the very high
priest of free trade, and had opposed tariffs even as late as
September 1931. Yet now he was actually introducing the first major
protectionist legislation. Stranger still, he continued to make
excellent free trade speeches for years afterwards.
At the general election an impartial inquiry into tariffs had been
more or less promised. There was no impartial inquiry, but there was a
highly partial Cabinet committee which sat through Christmas and
recommended a general tariff. The free trade ministers - that is, the
real Liberals, headed by Sir Herbert (later Viscount) Samuel, and
poor', isolated Snowden - could not stand this at any price. Everybody
expected the Government to break up and the free traders to resign,
but an extraordinary arrangement was reached, with no twentieth
By ordinary constitutional practice, a minister who disagrees with a
Government decision on a matter of fundamental policy must either
swallow his disagreement or resign. On this one occasion there was an
"agreement to differ" by which the free trade ministers were
allowed to speak and vote against the Government on the issue of the
tariff proposals, yet to retain their seats in the Government.
But the Overwhelming Conservative majority put the issue beyond
doubt. The tariffs were applied. Free trade had been murdered, without
any straight issue being set before the electorate. The free trade
ministers did not long remain. After the Ottawa agreements, later in
1932, they resigned, arid a year later they crossed the floor to the
Opposition side of the House. Samuel had predicted that "if goods
cannot cross international frontiers, armies will." He was soon
proved right. The policies of economic autarchy led inevitably to war.
In the course of the War itself, and in the aftermath, there were
indications of a growing recognition that the free traders had been
right after all. The General Agreement on Tariffs and Trade - GATT -
was established in 1947 in order to bring about reciprocal tariff
reductions. The European Free Trade Area - EFTA - was set up thirteen
years later, aiming at the establishment of free trade between certain
European nations, with freedom to pursue what tariff policy they
wished towards the outside world.
Other economic units, of which the European Economic Community-the
Common Market-is the most familiar example, have been established on
the completely different principle of a Zallverein with
internal free trade and a common tariff towards outsiders. These
people are doing the wrong thing, but some of them at least are doing
it for the right reason.
What morals may we draw from this story? First, I would say that we
should not imagine that the possession of the right ideas is a
guarantee of early victory. The free traders of the nineteenth century
had to wait seventy years after the publication of Adam Smith's great
work, and when victory came it did not come because they were right,
but because the free traders knew where they were going when nobody
else did. In the free trade victory of 1846, and in the protectionist
victory of 1931-32, we see men playing almost exactly the reverse
roles from what friends and enemies alike had anticipated a few years
Secondly, therefore, I would say we learn that it is most inadvisable
to pin any strong faith on any particular politician, or, conversely,
to assume that those with whom at present we disagree will necessarily
be enemies when the last trump sounds.
I would add something more. Great changes do not happen when people
are free to contemplate arguments coolly. They come in tunes of
famine, or war, or slump. Nothing very much is happening to the fiscal
policies of Britain today; the great things never do happen when times
are relatively easy. The genesis of civilizations - the source of the
great salvations in the history of the human race - indeed, in the
history of life itself - is challenge, and response to challenge.
But while we cannot expect an early victory, we can now be playing an
indispensable part in eventually bringing that victory about. What is
urgently needed now is a serious corpus of academic work by
free traders that will provide the intellectual leadership for the
future - for that sudden, unexpected moment of decision when men are
bewildered and cast around wildly for a lead. Nor should we despise or
ignore the acquisition of experience in political organisation and
practice. But we must not allow ourselves to forget that our primary
aim is to establish a just society, not to help one ephemeral
political party against another, or to get Joe Soap into parliament.
At all levels, in all ways, we must prepare ourselves to capture the
future. Thus far, the diverse bodies of thinkers who claim to derive
their teachings from Marx have been making the twentieth century their
own, because they have been prepared, as nobody else has been
prepared, to fight for the things in which they believe by every means
and in every situation.
Until libertarians are prepared to do the same, we shall not begin to
see the glimmer of the dawn.
E. Halevy: History of the English
People in the Nineteenth Century - especially vols. 1 (England in
1815); 2 (The Liberal Awakening. 1815-1830) and 5 (Imperialism and the
Rise of Labour, 1895-1905).
Sir Robert Ensor: England 1870-1914.
Archibald Prentice: History of the Anti-Corn Law League.
R. Bassett: 1931 Political Crisis.
C. Loch Mowat: Britain Between the Wars.