XVI. The Theory of Free Trade

The influence of philosophy over nations, like the influence of religion, is fitful, uncertain, incalculable. But as with religion so with philosophy. Ideas are less an influence over affairs than historians suppose, since they are often the mere cloak and color of interest. Man, as Rochefoucauld says, moulds his ideas upon his desires, not his desires upon his ideas. Yet it may be admitted that principles and catchwords give point, direction, and sometimes even victory to a cause, especially when the affairs of a nation are managed through the clumsy and fallacious machinery of popular government. And in absolute rule also there are cases in which rulers, under the influence of a set of ideas usually false, have committed their subjects to ruin and disaster. Those statesmen are wise who remember the words of the Empress Catherine to Diderot, when that vehement philosopher was pressing her to put his ideas into practice:

"Mr. Diderot," she said, "I have listened with the greatest pleasure to all that your brilliant intelligence has inspired; and with all your great principles, which I understand very well, one would make fine books, but very bad business. You forget in all your plans of reform the difference in our positions; you only work on paper, which endures all things; it opposes no obstacle either to your imagination or your pen. But I, poor Empress as I am, work on the human skin, which is irritable and ticklish to a very different degree."

The doctrines of Free Trade, now associated with the principles of Liberalism, began in France, and perhaps also in England, as the revolt of agriculture against the new power of manufactures. Sully, the statesman of Henri IV, to whom the Physiocrats looked back as their patron saint, called tillage and pasturage "les deux mamelles de la France." He opposed the royal policy of encouraging manufactures on the ground that artisans made poor soldiers, and prescribed laws against luxury as the best means of conserving capital. France rejected his advice, and a great line of statesmen of the opposite school encouraged industry, commerce, and colonies. But Agriculture, which provided the men and the means for these adventures, limped doubtfully after Commerce, like Sancho Panza in the train of Don Quixote, and this latent hostility found expression in the writings of Rousseau and Quesnay.

These philosophers imagined a world fallen from a state of innocence, equality, and freedom, and regarded the simplicity of country life as the condition nearest their ideal. Rousseau, who combined with an equal ardor the pursuit of private vice and public virtue; Quesnay, who looked back upon the country from apartments beneath those of Madame de Pompadour, expounded rather a cult than a science. Of the two Quesnay had the more scientific training; but in his day medicine, even in Paris, was still in the empirical stage, and Quesnay, the father of Free Trade, was also the parent of a formula for squaring the circle.

Rousseau, if he had lived now and in this country, would have been called a Little Englander. He postulated a State small enough to be managed by the direct voice of all its citizens and preached a return to a state of society which never existed, where the family should be managed by the State and the State by the individual, and where all should live in promiscuous concubinage by universal consent.

Quesnay translated this social Free Trade into the language of economics. He argued that agriculture was the only productive industry, and lumped the rest of society as a class, sterile. As wealth was derived only from the soil, it followed that only the soil should be taxed a conclusion which must have a little embarrassed the class he singled out for admiration.

These engaging ideas, which afforded matter for mirth to Voltaire, greatly impressed two excellent and respectable Scotch philosophers who visited France at that time. David Hume was so much taken with Rousseau that he invited him to England; an experiment in philanthropy which left poor David a sadder if not a wiser man. Adam Smith, who visited France as the tutor of the Duke of Buccleuch, was no less enchanted with the views of Quesnay. We do not gather that he was convinced of the possibility of squaring the circle, nor could he quite reconcile himself to the doctrine that only agriculture produced wealth. But he went a certain distance on the road: the agriculturist, he agreed, was the most nearly indispensable.

"As a marriage which affords three children is certainly more productive than one which affords only two, so the labor of farmers and country laborers is certainly more productive than that of merchants, artificers, and manufacturers."

Adam Smith's preference of agriculture over commerce and manufactures is not to be explained solely by his natural gratitude to the Duke of Bucceuch or by his detached admiration for the Physiocrats of France. It had long helped to influence the party system of England. In the quarrel between the Stuarts and the Merchant Adventurers by far the greater part of the landed interest was on the side of the Court. Buckingham's hostility to commerce had probably the same source. Agriculture was slow to take up the mercantile quarrel with France, for the English squire regarded France as an occasional market for his corn, a factor in keeping up the price of his wool and the source of claret, partiality to which must be esteemed a sign of grace. The land paid for a series of expensive wars with men and with money, and saw no profit therefrom. Bolingbroke, the leader of the Tory Party in the time of Queen Anne, and Bute, its manager in the time of George III, as well as Walpole, whose interests were those of an English squire, were always ready to make or to keep the peace with France. The Whigs were in those times the Party of War as well as the Party of Protection.

Adam Smith, as a humble adherent of the Tories, wrote a book now regarded as one of the classics of Liberalism. It had as its political purpose to break down that armory of protection with which the commerce and industry of England fought the commerce and industry of France. In this work he engaged with all the zeal of a Scot and all the dangerous logic of a moral philosopher.

The training of the philosopher gives both strength and weakness to the book. Its strength is its logic and perspicuity: the premises being granted; everything follows inevitably to the conclusion. But the weakness lies in the premises themselves, the unregarded foundations of the work. These are not the rock of history and experience, but the sand of theory. The whole system is based upon a conception of society which had no existence in fact.

Although our good Adam speaks of the Wealth of Nations, he had never faced the problem of what nationality meant. The conflicts of nations had no meaning for him: they were merely

"A Tale, Told by an idiot, full of sound and fury Signifying nothing."

He conceived of society not as organized nations but as free individuals. Trade to him was an exchange to the mutual benefit of two individuals: industry the division of labor to the general welfare of society. The general lines of his system would have remained the same if nations had not existed. If he remembered the nation at all it was to admit it as an exception to one of his rules, as in his famous admission on the navigation laws.

But for the rest the division of labor should be regulated only by the extent of the market; cheapness and the natural course of trade are the best and indeed the only guides; and commerce being a process by which both parties gain, any restraint upon its freedom must of necessity be harmful.

History, unfortunately, does not teach these comfortable doctrines: trade, like the rest of nature, is red in tooth and claw, and in all ages nations have used their political, naval, and military power for the economic enslavement and exploitation of their neighbors.

If trade were of mutual advantage, England was as rich and happy under the domination of the Hanseatic League as under the national policy of Queen Elizabeth. If trade were a peaceful exchange, the Dutch would not have tried to close the Baltic and the Indian Ocean to the English merchant; and France and England would not have fought for a monopoly of the Newfoundland Banks and the West Indian islands. There would have been no advantage in possessing supplies of raw material under political control; France and England would have been content for ever to send their wool to Flanders to be draped, and to get their spices and sugar from the Spaniards or the Dutch. As national conflicts took place over these and many other such questions, we are forced to the conclusion that trade is not as Adam Smith shows it, merely the natural division of labor and the beneficial exchange of products, but a conflict and an exploitation.

But if this be true, it follows that national and commercial organizations may be necessary to preserve a country from exploitation, if not to exploit other countries. England could hardly have been redeemed from the domination of the Hanseatic League if her trade had not been organized upon a national basis by the Merchant Adventurers, protected by the royal favor of a national government. Holland could not have wrested the spice trade from Portugal without organizing her commercial and naval resources in the East India Company. The individual English trader could hardly have lived in that conflict of organized commerce which raged for the possession of the Indian market.

The Bank of England, the Merchant Adventurers, or, as they were then usually called, the Hamburg Company, the Levant Company, and all the other trade organizations of eighteenth-century England joined in the fight to maintain a vent for English manufactures against the prohibitions of the Bourbons and of Napoleon.

Adam Smith cannot find any virtue either in regulated or in joint-stock companies. Of the former he says that they are either oppressive or useless; of the latter that they are inefficient and wasteful. He is forced to make an exception as for banks, canals, and other "purposes of remarkable utility," but in principle he maintains that in the interests of the public the merchant should not be encouraged to combine, but prevented from combination. The principal object of combination, in the eyes of Adam Smith, is restraint of trade and the raising of prices. As these are evils to the community, merchants should be restrained from combining.

Yet we have seen over and over again in the course of our story that English merchants have combined to protect the national trade from the attacks of foreign competitors. Without such combinations they would have been helpless either to secure the markets they sought or to protect themselves on the road to these markets. From the time of Henry VII, when the Merchant Adventurers assisted the King to open the Netherlands to English cloth, through the time of Elizabeth when they helped to defeat the Spanish Armada and secured the open market of the Empire, to the time of Chatham when the East India Company defeated the French in India and created the Indian Empire, great associations of merchants had supported the national trade in all its major enterprises.

Companies of merchants had maintained fortresses, fleets, and standing armies, as Adam Smith admits. His contention that these are better maintained by the nation may be granted the more readily, as if his principles were valid they would not have to be maintained at all.

And as with the organization of trade on a national basis, so with tariffs and bounties. The one is the army, the other the trenches by which the army is protected. Let us see by two concrete examples how the levelling of these trenches may bring disaster and ruin to a nation, and how the opposite policy may raise up an empire from the dust.