In 1831, Sir Henry Parnell (1776–1842), a long-time chairman of the Financial Committee of the House of Commons, published On Financial Reform, in which he made the case for freedom of trade at a time when trade protectionism was mostly the order of the day in Great Britain, especially in agriculture:
If once men were allowed to take their own way, they would very soon, to the great advantage of society, undeceive the world of the error of restricting trade, and show that the passage of merchandise from one state to another ought to be as free air and water. Every country should be as a general and common fair for the sale of goods, and the individual or nation which makes the best commodity should find the greatest advantage….
Happily, the time, if not yet arrived, is rapidly approaching, when the desire to reduce the principles of trade to a system of legislative superintendence will be placed in the rank of other gone-by illusions. The removal of obstacles is all that is required of the legislature for the success of trade. It asks nothing from Government but equal protection to all subjects, the discouragement of monopoly, and a fixed standard of money. All that is wanted is to let loose from commercial restriction, protection, and monopoly, the means the country has within itself by force of individual exertion of protecting and promoting its interests, to secure its future career in all kinds of public prosperity.
Sixteen years later, in June 1846, Parnell’s hope came to fulfillment with the unilateral abolition of the Corn Laws that had secured the British landed aristocracy a profitable protection from foreign competition in farming, especially in wheat production. The British prime minister at that time, Sir Robert Peel (1788–1850), had been placed in that office by the Tory Party to assure the continuance of agricultural protectionism against the supporters of free trade. But with the worst crop failures in living memory in 1845–1846, and with growing hardship and threatened starvation among the low-income members of British society, Peel came around to the free-trade position of Richard Cobden (1804–1865) and John Bright (1811–1889). With the support of the free-trade advocates and a sufficient number of Tory members in the House of Commons and the House of Lords, the importation of less expensive foreign wheat and other food products unilaterally became the law of the land on June 26, 1846.
Furious with Robert Peel’s defection, the Tory landowners forced his removal as prime minister. In his last speech before stepping down from his position, Peel declared:
If other countries choose to buy in the dearest market, such an option on their part constitutes no reason why we should not be permitted to buy in the cheapest. I trust the Government … will not resume the policy which they and we have felt most inconvenient, namely the haggling with foreign countries about reciprocal concessions, instead of taking the independent course we believe conducive to our own interests. Let us trust to the influence of public opinion in other countries — let us trust that our example, with the proof of practical benefit we derive from it, will at no remote period ensure the adoption of the principles on which we have acted, rather than defer indefinitely by delay equivalent concessions from other countries.
British unilateral free trade and the beginnings of globalization
Great Britain, thus, became the symbol of a policy of freedom of trade, regardless — indeed, in spite of — any restrictive and protectionist policies maintained or introduced by other countries. Of course, not every tariff was actually reduced to zero or as a modest revenue tariff. But certainly after Britain’s commercial treaty with France in 1860, for all intents and purposes Great Britain practiced what it preached. And soon, a growing number of other European countries followed the British and French examples and lowered their trade barriers.
The idea and ideal of unilateral free trade became the basis of British thinking in the face of any and all proposals for restricting imports in the name of retaliation against the protectionist policies of other countries or waiting for reciprocity before any modification on remaining duties on imported goods. Toward the end of the nineteenth century, its logic was emphasized by Henry Dunning Macleod (1821–1902) in his History of Economics (1896). Trade retaliations and reciprocations merely harmed the citizens of one’s own country far more than they imposed any supposed damage on a protectionist trading partner.
If the present hostile tariffs destroy an incalculable amount of commercial intercourse, a resort to reciprocity and retaliation would destroy it infinitely more…. If foreign nations smite us on one cheek by their hostile tariffs, if we followed the advice of the reciprocitarians, and retaliated, we should simply smite ourselves very hard on the other cheek…. The true way to fight hostile tariffs is by free imports.
As a consequence of these movements toward more universal freedom of trade, the age of globalization truly emerged and encompassed a growing part of the planet. By the end of the nineteenth century, in fact, economists could hail the amazing social, cultural, and economic integration that had occurred — and was occurring — through the internationalizing of commerce, trade, and investment. For instance, the Irish economist Charles Bastable (1855–1945) explained in The Commerce of Nations (1899):
One of the most striking features of modern times is the growth of international relations of ever-increasing complexity and influence. Facilities for communication have brought the closer and more constant intercourse between different countries of the world, leading to many unexpected results. This more intimate connection is reflected in all the different sides of social activity. International law, that two hundred years ago was almost wholly confined to the discussion of war and its effects, now contains a goodly series of chapters treating in detail of the conduct of nations during peace. It draws the bulk of materials from the large and rapidly growing body of treaties that regulate such matters, and form so many fresh links between the states that sign them. Literature, Science and Art have all been similarly affected; their followers are engaged in keenly watching the progress of their favorite pursuits in other countries and are becoming daily more and more sensitive to any new tendency or movement in the remotest nation.
But, as might be expected, it is in the sphere of material relations that the increase in international solidarity has been most decisively marked and can best be followed and appreciated. The barriers that in former ages impeded the free passage of men and of goods from country to country have been — it cannot unfortunately be said removed, but very much diminished; and more particularly during the last fifty years the extraordinary development and improvement of transport agencies both by land and sea have gone far towards obliterating the retarding effects of legislative restraints or national prejudices. So little attention is ordinarily paid to the great permanent forces that govern the changes of societies, in comparison with the interest excited by the uncertain action of minor disturbing causes, that it is eminently desirable to emphasize as strongly as possible the continuous increase of international dealings. In spite of temporary checks and drawbacks, the broad fact stands beyond dispute, that the transfer of human beings from country to country which is known as “migration,” as also similar movement of goods described as “commerce” is not merely expanding, but if periods sufficiently lengthy for fair comparison are taken, expanding at an accelerated rate.
The world was, increasingly, a single market, especially due to the global nature of the British Empire, which served as one, vast free-trade zone. All were more or less welcome to trade, invest, and reside regardless of any individual’s nationality or politics. Following the end of the Napoleonic Wars in 1815, Great Britain and many other European counties did away with the formalities of passports and visas, with the right of freedom to move an increasingly accepted principle in the middle decades of the nineteenth century. It is worth recalling that Karl Marx moved to London in 1849 and lived there for the rest of his life, without any visa requirement or residency or work permits.
The three freedoms of the nineteenth-century globalization
It is true that protectionism was making a return in the 1880s, most especially in Imperial Germany, with Bismarck’s reintroduction of an extensive political paternalism in the form of the institutions of
the modern interventionist-welfare state and tariffs meant to more
directly influence German industrial and agricultural development. Nonetheless, it is not an exaggeration to say that in comparison to the world before the nineteenth century and much that occurred in the twentieth century, the middle and late decades of the 1800s stand out as an epoch of what the German economist Gustav Stolper (1888–1947) in This Age of Fables (1942) called the era of the three freedoms: free movement of men, money, and goods:
The economic and social system of Europe was predicated on a few axiomatic principles. These principles were considered as safe and unshakeable by that age as the average American citizen even today considers his civil liberties embodied in the Bill of Rights. They were free movement for men, for goods, and for money.
Everyone could leave his country when he wanted and travel or migrate wherever he pleased without a passport. The only European country that demanded passports (not even visas!) was Russia, looked askance for her backwardness with an almost contemptuous smile. Who wanted to travel to Russia anyway? The trend of migration was westward — within Europe from the thinly populated agricultural east to the rapidly industrializing center and west, and above all from Europe to the wide-open Americas.
There were still customs barriers on the European continent, it is true. But the vast British Empire was free-trade territory open to all in free competition, and several other European countries, such as the Netherlands, Belgium, Scandinavia, came close to free trade. For a time, the Great Powers on the European continent seemed to veer in the same direction. In the sixties of the nineteenth century the conviction was general that international free trade was the future. The subsequent decades did not quite fulfill that promise. In the late seventies reactionary trends set in. But looking back at the methods and the degree of protectionism built up at that time we are seized with a nostalgic envy. Whether a bit higher or a bit lower, tariffs really never checked the free flow of goods. All they effected was some minor price changes, presumably mirroring some vested interest.
And the most natural of all this was the freedom of movement of money. Year in, year out, billions were invested by the great industrial European Powers in foreign countries, European and non-European…. These billions were regarded as safe investments with attractive yields, desirable for creditors as well as to debtors, with no doubts about the eventual return of both interest and principal. Most of the money flowed into the United States and Canada, a great deal into South America, billions into Russia, hundreds of millions into the Balkan countries, and minor amounts into India and the Far East. The interest paid on these foreign investments became an integral part of the national income of the industrial Powers, protected not only by their political and military might but — more strongly — by the general unquestioned acceptance of the fundamental capitalist principles: sanctity of treaties, abidance by internal law, and restraint on governments from interference in business.
Globalization before 1914 versus after the world wars
This period before the First World War stands out for two reasons relating to the issue of globalization. First, it was in stark contrast to the world that followed in the 1920s and 1930s. The interwar years saw the rise of political and economic nationalism, along with the emergence of totalitarian regimes that overturned what remained of the prewar era of those three freedoms after the four years of World War I. In their place was a strongly antiglobalization movement, as many governments imposed high tariff walls as part of their systems of domestic control, command, and planning, none of which was in anyway compatible with open and free international trade.
The second reason the globalizing trends before the First World War stand out is that it differed in essential ways from the attempt to restore an international environment conducive to a return to a global economic order of human cooperation after the Second World War. The distinguishing characteristic of nineteenth-century Europe and North America and the globalization that was fostered is that, however inconsistently and imperfectly it might have been practiced, the hundred-year period between 1815 and 1914 can rightly be said to have been the product of the classical-liberal spirit.
The guiding principle that directed much of public policy in most of the countries of the “civilized world” was the depoliticizing of social life. With the triumph of free trade over mercantilism and protectionism in the early and middle decades of the nineteenth century and the elimination of many of the domestic regulations, monopoly privileges, and restraints on private enterprise, the state was dramatically removed from the affairs of everyday life. In its place arose civil society, the blossoming of the “private sector,” an extension of the network of ‘intermediary institutions” of voluntary association and market relationships. As the British classical economist Nassau Senior (1790–1865) expressed it:
The advocate of freedom dwells on the benefit of making full use of our own peculiar advantages of situation, wealth, and skill, and availing ourselves to the utmost of those possessed by our neighbors…. The principle of free trade is non-interference; it is to suffer every man to employ his industry in the manner which he thinks most advantageous, without pretense on the part of the legislature to control or direct his operation.
The liberal ideal of globalization through private enterprise
In especially the second half of the nineteenth century, governments did form international associations and reached various agreements with each other. But for the most part (and separate from various changing political and military alliances), their associations and agreements were designed to facilitate the smooth functioning of private intercourse between citizens and subjects. They included international river commissions, railway and transportation agreements, telegraph and postal unions, health rules and guidelines, procedures for uniform weights and measures, and respect for patents and copyrights. The thinking behind these arrangements was to establish general “rules of the game” to assist in the further globalization of private commercial and cultural exchange.
Within these rules of the game, individuals were to be left free and at liberty to direct their own lives and determine how best they thought the use of their own labor and private property; individuals freely and voluntarily associated and exchanged goods and services, along with investment capital and resource uses. The forms, directions, and effects of globalized trade and investment were matters of individual and private-enterprise decision-making, guided by market prices in determining the coordination of internationally connected and interdependent supplies and demands. It would be an exaggeration to say that governmental “affairs of state” never intruded itself into the private sector, but they were far more the exception than the rule. This was especially the case in Great Britain, as Herbert Feis explained in Europe, the World’s Banker, 1870–1914 (1930):
Like those who carried on industry and trade for their own profit, those who had capital to invest, and those whose business it was to deal in investments claimed the right to carry on their activities without government hinderance and control. Their affairs, they argued, were best run, judged by their own interest and national interest, without government interference. To this laissez-faire argument official opinion subscribed…. Thus, the government attempted no formal regulation of capital investment, except to prevent fraud and to prevent activities judged socially unwholesome…. Save in exceptional instances where some British interest, usually political, seemed to be threatened, there was little wish for formal official interference.
The fundamental premise was that the purpose of production was consumption, that the role of supplies was to meet and satisfy consumer demands in the least costly and most efficient ways, so as to maximize the economic well-being of as many people in society as possible. It was best to leave it to the knowledge and judgments of the individuals in the various corners of the division of labor, who would see to it that the scarce means of production were employed in such ways that a system of absolute and comparative advantage assured the most effective achievement of people’s ends through the employment of means. Not only did this not require the guiding or influencing hand of governments, but as Adam Smith also said, the assigning of any such authority to those in political power, “could be safely trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had the folly and presumption enough to fancy himself fit to exercise it.”
Trade liberalization through managed trade
The policies of the 1920s and 1930s had turned such arguments and reasoning on their head. The state, in both totalitarian and democratic countries, returned to the pre-free-trade notion of the mercantilists that government knew better than all the individuals about how the economic and social affairs of society should be organized and directed. The post–World War II era seemed to be a restoration of a free global international economic order only because in the context of the economic nationalism, protectionism, and autarkic policies advocated and implemented in the interwar and war years, the liberalizing tendencies introduced in the years after 1945 seemed so “liberating” in comparison.
During the Second World War, the Allied countries, led by the United States, decided that a continuation of policies of autarky and economic nationalism would be a disaster. International trade and commerce, global access to raw materials, and the opportunity for foreign investments were essential elements if a new world order was to be constructed. But the new world order that arose out of the ashes of World War II was not like the world order before 1914. Instead, the new globalization was based upon and managed in the context of a set of international governmental organizations. The new system would revolve around three intergovernmental institutions: the World Bank for long-term loans for economic reconstruction; the International Monetary Fund (IMF) for long-term monetary stability through shorter-term loans; and the General Agreement on Tariffs and Trade, out of which has grown the World Trade Organization (WTO), to coordinate trading rules and procedures among the member countries.
Why and how did this new globalization structure come into existence? While proclaiming the belief in free trade and globalized commerce, the world in the postwar period increasingly became enveloped in a spider’s web of welfare-statist programs that required governments to secure redistributive shares of income and market shares for selected and privileged sectors of their respective economies. Given the institutional responsibilities that modern governments took upon themselves in the name of the “social good,” the “national interest,” and the “general welfare,” the state’s use of domestic policy tools to serve special interests feeding at the trough of the government became inevitable.
Those institutions established after 1945 have reflected this ideological, political, and economic trend. Whether it be the IMF, or the World Bank, or the WTO, the purpose has been for governments to oversee, manage and direct the patterns of international trade and investment. The IMF and the World Bank have expanded and extended their activities to more greatly influence the distribution of loanable funds to both governments and private investors, especially in what used to be called Third World, that is, less-developed countries. They have also taken upon themselves the responsibility of tying such loans and credits to guidelines for economic policy reform in the recipient nations.
During their existence, the IMF and World Bank have followed the various interventionist and collectivist fads and fashions that have dominated public policy, whether in developed countries or in the less-developed nations: financial support for nationalized industries or government-privileged “private” enterprises; below-market interest rate loans for loss-making sectors of the economy; billion-dollar credit lines for governments in lesser developed countries; planning schemes to foster politically determined “balanced growth”; and fiscal policies pushing tax increases rather than absolute and consistent cuts in government spending and regulations.
The swings between liberal and illiberal managed trade
As we saw, in the first several decades of international trade relations after the Second World War, global trade and commerce was noticeably liberalized, with tariff barriers and import restrictions being significantly lowered. Yet this was not the result of an ideology and policy of free trade per se but rather of the particular pattern of politically managed trade agreed upon by the international trading partners. It remained in effect only for as long as the member governments desired to regulate global markets in the direction of freer trade.
However, beginning in the 1970s and 1980s, a different set of ideas about when international trade can be considered “fair” or “just” became dominant. The central problem with an idea like “fair trade” is that it is as empty and ambiguous a term as “social justice” because it can mean almost anything that the user wishes it to. As economist Jaghish Bhagwati pointed out, “If everything becomes a question of fair trade, then ‘managed trade’ will be the outcome, with bureaucrats allocating trade according to what domestic lobbying pressures and foreign political muscle dictate.”
The 1990s saw a partial return to the idea of trade liberalization with the demise of the Soviet Union and the collapse of the socialist central-planning ideal. Socialism-in-practice had brought too much of a social and economic disaster in all the countries burdened with the Marxian ideal, so in China after the death of Chairman Mao in 1976 and then in the Eastern European nations and many of the Third World countries with the end of Soviet socialism, market-oriented institutional reforms introduced more of an economically liberal agenda around the globe.
From illiberal managed trade to a new global central planning
But with the global financial crisis of 2008–2009 and the breaks in the global supply chains due to the national lockdown during the Coronavirus crisis of 2020–2021, new calls were heard for national economic security against similar disruptions of essential resource availability and production capability. This has been exacerbated by the growing political tensions and war fears resulting from Russia’s military aggression in Ukraine and China’s drive for political, economic, and military ascendancy in East Asia and beyond.
Concerns over economic and political conflicts always serve as reasons and rationales for national or regional protectionism against imports and justifications for artificial subsidies and supports for domestic suppliers to provide import substitutions, leading to economic results that are worse than what would be the case if freedom of trade were followed by some or all nations. Humanity is less well off than it could have been.
The most recent danger to global trade and exchange is the reemergence of the central-planning mindset under the name of “stakeholder capitalism,” which is meant to fight climate change and impose a new social order of supposed equity and inclusion. A model for this has been formulated by the World Economic Forum. The intention is to impose a series of controls and commands on every corporation and business enterprise in the world, first through seemingly “voluntary” association but ultimately, as proposed, on the basis of political dictates via national and international governmental authorities. Prices, wages, work conditions, methods of production, and types of output, along with employment quota systems based on racial, ethnic, and gender group classifications and identifications would steer and direct the global economy.
Such a political-economic agenda and the governmental policies to bring it about, if sufficiently or fully pursued could result in a global central planning — regardless of any name officially given to it. It might easily be called Global Fascism — government command and control over private enterprises having little or no real autonomy over their own decision-making.
However, respective national and domestic regulatory, planning, and income-share goals necessarily come into conflict with each other in the arena of international trade, commerce, and investment. Any attempt to coordinate national politics at the international level through a global agenda such as the one proposed by the World Economic Forum would only exacerbate the conflicts due to arguments and dogmas over who gets what share based on a world-wide system of “diversity, equity and inclusion,” plus who will bear the economic costs of “saving the planet,” and by how much in terms of reduced standards of living.
Liberal globalism versus a planned world economy
This is not what was meant by a global economy in the minds of its earlier proponents in the nineteenth century. To the classical liberals of that time, a central purpose for freeing trade from the heavy hand of governments was precisely to take politics out of the marketplace, by making all such interactions private matters of peaceful mutual agreement and association; competition was not to be affairs of political power and military aggrandizement. Global competition in all its forms and facets was meant to be the means and methods for peaceful rivalries in discovering, implementing, and offering more, better, and less expensive goods and services and life opportunities to as many humans as possible. The world was to benefit from everyone’s knowledge, abilities, and talents by precisely leaving individuals at liberty to apply themselves as they thought best through the globalized division of labor and peaceful and productive human association.
These are the two opposing visions and possibilities for globalization in the remainder of the twenty-first century: free trade or managed trade. Only the classical-liberal idea and ideal of free trade is consistent with liberty, peace, and prosperity. Managed trade only offers constant conflicts as governments attempt to bend market outcomes, domestically and internationally, to satisfy power-grabbing visions of planning and regulating promoted by ideologues and special-interest groups desirous of using political power for themselves at the expense of the rest of humankind.
This article was originally published in the June 2024 issue of Future of Freedom.
