Wage and consumption levels in england and on the continent in the 1830s – paul uselidin
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Jelinger Cookson Symons – Arts an Artisans at Home and Abroad

Hobsbawn v. Hartwell exchange British standard of living – issues of debate were:

1. mortality and health
2. unemployment
3. consumption

Hartwell took issue with micro-evidence and then new indicators national income, population, industrial production.

Which hypothesis?

1. Certain groups were no worse off during the IR than before
2. The economy as a whole was no worse off during the IR than before.

Symons micro data – consumption wage bundles various groups specific locales. Answer T.S Ashton’s spec:

“We require not a single index but many, each derived from retail prices, each confined to short run of years, each relating to a single area, perhaps even to a single social or occupational group within an area”

Habbakuk interested relative prices labour and capital to show technological divergence between the two economies – this book useful for that a well.

Wages

English wage level more than double that of Switzerlan, Austrian-Prussia

One third greater than Belgium

10% over France – or 15% (take into account Paris wage inflation)

Data do not show a significant difference in the cost of skilled relative to unskilled labour when England compared to Belgium and France – Switzerland and Austria-PRUSSIA – RELATIVE CHEAPNESS UNSKILLED LABOUR

Absence of and clear cut pattern of skilled-unskilled wage differentials in terms of the degree of industrialisation in each country – tentatively conclude that Habakuk’s thesis: effects of relative scarcity of skilled to unskilled labour on capital intensity on the production process – not borne out by evidence.

England first to industrialise: presume capital intensity of production in England would be greater than that of France and Belgium in late 1830s + much greater than Switzerland and Austria-Prussia. Relative scarcity of labour does not support the general interpretation that skilled labour was relatively les expensive in England than on the continent – if relative cheapness of skilled labour in inducement to mechanize we would expect on Habbakukkian grounds that Switzerland and France would be more mechanised and therefore capital intensive than Britain in the 1830s.

Habbakkuk: relative cheapness skilled relative to unskilled labour is an inducement to mechanise: relative price skilled labour not lower in England than for the continent as a whole, while England more mechanised, it would appear that the relative differentials between skilled and unskilled labour, as measured by Symonds, do not correspond to the varying pattern of mechanisation on capital intensity between countries.

Rosenborg: striking confirmation that differences in the relative prices and supplies of special categories of labour, such as machine makers and designer, rather than broad categories such as skilled, unskilled labour which deserve attention in enquiries dealing with economic incentives for mechanisation. I.E. Cost of machine builders and designers compared to unskilled labour important – Belgium agric. workers machine designer 12.5 wage difference!

Consumption Standards

“John Bull is living on a vegetable diet; and not above one third of him is nourished by meat” – across Europe vegetables are main diet, meat but relish.

Thought Swiss working classes greater amount physical comfort and mental cultivation

According to Symons: only the families of the most highly-paid skilled workers could standard the level of living attributed to Swiss artisan peasants – don’t know level of labour effort between two countries – cannot be used to interpret that Swiss artisan peasants better off than average English family.

Simple price indices of bundle of goods:

Belgium and France not markedly lower than England in cost of living but Switzerland and Austria notable difference in the price – cautionary word difficult to compare rents.

In aggregate the differences in price level taken into account Symons held working classes England at least one sixth better off than working classes on continent

The detailed wage and commodity price data provided by Symons tend to show that the “real wage” in England was from 27 to 38% bigger than Belgium, 14 to 30% greater than France, 49 larger than Switzerland, 41% greater Austria Prussia – HOWEVER c.f. between England, Belgium and France v. sensitive to price of coal and rent – and highlight Symons comparison based on relative food costs may be misleading guide to comparative real wages.

Late 1830s margin in favour England terms real wages from 14 to 49% - if standard of living declining 1830s then either continental standards declining as well or Britain had a major advantage before the 1830s and not declining on continent. Former case decling economic downturn may be the casure if we see peak of 1836 – latter pasrt of 1830s hear voices of declining living standards from peak – if decline in living standards did occur in England its causes may well be found simply in the cyclical nature of economic activity rather than in any inherent tendencies in the process of industrialisation.

If margin real wage even greater beginning 1830s than the end – unbelievably high level of prosperity I England relative to continental countries must have been obtained -

THE MYTH OF FREE-TRADE BRITAIN AND FORTRESS FRANCE: TARIFFS AND TRADE IN 19^TH CENTIURY – JOHN VINCENT NYE

Conventional wisdom regarding early free-trade efforts Britain and France is wrong: - French average tariffs consistently lower than those of Britain 0 even after abolition of the corn laws and 1860 Treaty of Commerce – moves away from just leading sectors.

Britain takes lead free trade and liberalism which creates achievement unparalleled peace and prosperity – Britain’s adoption free trade culminates gradual adoption liberal polices other European states.

Traditional View: France crippling system tariffs and protection, not until 1860 Treaty of Commerce that French took steps to moderate protection.

Paul Bairoch: “But the rest of Europe developed a system of defensive, protectionist policies directed especially against British manufactured goods”

There is little evidence that Britain’s trade was substantially more open than that of France

France’s trade regime more liberal that that of GB most 19^th century – even 1840 to 1860 – both current and contemporaneous accounts treat period before 1860 as a protectionist one in France and free one in Britain.

Albert Imlah British figures and Levy-Leboyer – Franncois Bourguignon Frecnh rates – French tariffs substantially lower than British one during period of “high-protection” first four decades of the century – average French tariffs this period comparable to those of Britain;s after she had begun to movre to free trade with abolition Corn Laws.

British tariff levels much greater change – started out higher at 50% lates 20s to 40s decline rapidly – French tariffs decline until mid 1850s – low of 3% around 1870

British average tariffs did not compare favourably with those of France till 1880s – not susbtantialy lower

View Britain as free trader consistent with average tariffs from the end of 19^th century + when Britain committed to keep tariffs low against rising protectionist sentiment home and abroad + magnified by role worlkd economy BUT Britain’s rapid shift to free trade was fully matched in timing and extent by commercial restructuring in France (also anticipated – see French discussion tariff rationalisation before 1830).

Qualifications Methodology

Average tariff rates based on ratio total tariff revenues to total importable – tariff may be set so high certain items may not be imported at all or only fitfully – outright prohibitions consumers paying implicit tariff equal to the difference between home price and foreign price

Classic index number problem – lack of unique and well-accepted index of the degree of openness nation’s trade. Biut we do not precise average tariff rates to see that British tariffs were not uniformly of generally below those of France most of the century.

If items prohibited before 1860s and 70s – permitted to enter at some positive tariff – might well be the case that average tariff levels would increase given the new import composition – mean that prohibition tariff levels too low, so size of drop between 1852 and 1870 underestimated by unadjusted tariff levels – earlier all commodity averages too low – only serve to underline openness of Nap IIIs France – and magnitude of change in tariffs from early 1840s to fall of 2^nd empire.

Proportion of duty free items in imports was stable or even grew when prohibitions replaced by tariffs. – runs counter to intuition that prohibitions masked true extent of protectionism by biasing fraction duty free imports upwards relative to years of freer trade – remarkable stability of shares of dutiable and duty free items in periods of widely varying tariff levels and trade rest.

Only a third of all imports being dutiable even when moderate tariffs replaced all prohibitions – no surprise that even fairly large adjustments in composition earlier imports would not do much to raise average tariff levels by more few % points – not enough to eliminate 8 – 15% gap 1830s and 1840s or larger hap 1820s and early 30s.

Solution: apply tariff rates by commodity class to the import distribution of another period – using import shares in free trade environment adjusts for fact that high tariffs may lead to too small a share in imports – France late 60s Britain late 80s reliable index number comparisons

GO BACK TO STATS AGAIN

If French average tariff levels lower than those of Britain whole, especially first half of century – why pattern ignored>

1. Trade larger proportion British production, larger absolute level of trade bound to make British trade policy seem more important in world at large.
2. Given initially large tariff levels Britain + dramatic drop doubly impressive government action esp. with large volumes of trade.
3. French economy’s commerce was internal more seriously affected by domestic economic conditions that trade policy – tariff reform prominent Nap. III but only one prong sustained reform of economy as a whole.
4. French tariff reforms before 1860did a great deal to improve trading conditions in France – removal prohibitions and tariff rationalisation – may not have received as much attention as those of 1860.

Intensity of debate over the Corn Laws

Corn Laws – large drops agric. tariff affect British trade – obscured less publicized changes in France – dramatic drop French tariffs at time of repeal – French talked of moderate protection whilst British talked of free trade.

Free trades broth countries concerned with free trade in certain sectors and not general free trade favoured by neo-classicists. Lucy Brown: “Radical free traders of this kind expressed no objections to the general principle of deriving a large proportion of the pulic revenue from import duties”

19^th century French trade quite open – main consumption and colonial imports - sugar and coffee – 55 – 60% of tariff revenues from colonial and foreign sugar, and coffee, and olive oil – in one sense French prohibition of textiles be branded as protectionist only if one defines protectionism to mean tariffs on a very narrow range of manufactured items.

French did seem to perceive a move to free trade meant general lowering of tariffs across board for consumption as well as industrial goods – lower tariffs sugar and coffee prominent parts emperor’s stated policy 1860.

British average tarrifs raised by large tariffs on tea and wine which increase level British tariffs.

Troublesome to read protectionism ads limited to tariffs on those items also produced in the home country – no substitutes revenue raising tariffs, but are there substitutes? Beer for wine substitutes for almost anything – splitting of tariffs useful explaining public revenue and political economy aspects of tariffs but a country’s adherence to the principles of free trade – not confuse issues.

British customs officials admit that revenue tariffs wine, tea, sprits, sugar – were sued to protect domestic and colonial industry.

Since 1660s complex structure prohibitions and tariffs against Holland and Germany – 1840s to 70s simplification and reduction of these tariffs – French also doing this – British emphasis removing tariffs on manufactured goods – caused us to ignore the protectionist aspects of those duties augmented “upon purely fiscal consideration”.

Pernicious Effects British Tariff System on the French Wine Trade

Preferential treatment Portugal and Spain – before 1860 tariff on voume not strength, penalises lower alcohol volume of French wine – French exports to Britain barely changed since 1660 – restrictions limited post 1860 imports French wine rose 5 fold first decade, and by 1882 surpassed levels from Spain and Portugal

Regardless of fiscal motivation as France major produce both wine and spirits customs activity would have been seen as quite exclusionary – protectionists saw through this hole Le Moniteur Industriel “But free trade that touches her domestic production is another matter”

Sugar duties not done away with until 1876

Conclusions

Paradoxical gap between historical perception and commercial reality – writers did not consider the economy as a whole – thousandth time writers have confused process sof growth and development with industrialisation – narrowly defined few areas of production textiles, machinery, iron and steel. Confused what was politically important with what was economically important. Clapham to Dunham benefits of free trade in crucial leading sectors – France restrictions on textiles so she was backward – fact that France had comparative advantage in agriculture and expensive silk and linens rather than spun cotton ignored.

Importance certain traded commodities to the political debate misled scholars into confusing trade and protection and these few areas with overall trade and protection

Consumption British cottons and French silk dominate political discussion but consumption small in proportion total trade, but agricultural produce important both countries and BCL and wine duties increase gap average tariff duties before mid-century – France and Britain much import revenue from coffee, tea, assorted foreign manufactures, construction materials like wood – significant part of revenue and changes in income rather than fluctuations in tariffs more important to demand. – these came outside circle 6 world trading leaders – left out of discussion of policy increase trade Britain and France

Problems colonial protection important part of trade policy.

Swiftly rising values in areas that form only small parts of the economy do not explain overall changes in the economy deadweight losses to the economy form tariffs on sugar, tea, and wine could outweigh losses from tariffs on cotton textiles, if textiles small part of one’s trade.

Not to suggest free trade unhelpful to growth – correlation between freer trade and laissez faire philosophy –

Traditional stories counterposing a liberal Britain against a proteciutonist France reluctantly dragged into a world of more enlightened commercial policies, must be seen as false. Economic and political analysis motivated by the old stylised facts need to be rexamined accordingly.

FREE TRADE AND PROTECTION IN 19^th CENUTRY BRITAIN AND FRANCE REVISITED: A COMMENT ON NYE – Douglas A. Irwin

Nye uses figures tariff revenue as a % of the value of imports – France less protectionist that Britain.

Summary

Rate of tariff revenue inadequate potentially misleading indicator of weather a country’s commercial policy tends toward free trade or protection – examination British tariff structure 2^nd half of century – tariff carefully constructed to avoid protecting domestic producers – French policy however shows French producers were protected by substantial barriers.

No scholar has disputed the fact that Britain’s commercial policy was quite protectionist prior to 1840s – disputable is using rate of tariff revenue as sole metric by which to ran-order two countries in terms of liberality of commercial policy

That rates tariff revenue higher in Britain than in France a priori does not means that Britain was less open to trade than France – these data alone not revealing about nominal or effective rates of protection across sectors.

Other measures of openness suggest different conclusions – 1830s imports as % of GDP 5.1% France 13.1% Britain

Sharp decline rate of British tariff revenue 1820s to 1840s sign of trade liberalisation – many tariffs were specific duties, burden of duties imposed on trade increased with post-war deflation of prices” – decline in rate of tariff revenue, driven by rapidly growing imports duty free cotton – times when protectionist effects of existing duties even greater – reducing ability to raise revenue.

Nye uses tariff revenue rates to suggest France equally liberal trade policy second half of century – post 1846 RCL, reformed tariff through 50s, Gladsotne’s 1860 budget removed all protectionist tariffs, only kept a tariff to raise fiscal revenue on few imported consumption items not produced at home or already subject to excise tax

After 1875 duty applied only on handful items – until 1897 list constituted entire schedule foreign goods subject to duty – tobacco, tea, sprits, wine accounted for 95% customs revenue.

Carefully imposed for revenues not protection domestic producers – when there was home protection that import duty offset excise duty domestic good – natural extension excise duties to foreign goods – half 26 items 1860 tariff code “solely for the purpose of countervailing duties of excise on the like articles produced in the United Kingdom”.

Without such tariffs, domestic and foreign goods would have competed on unqual terms that favoured imports.

Anglo-French Cobden-Chevalier treaty – fiscal feat of equal tax treatment for domestic and foreign goods part of 1860 budget “to admit into the United kingdom merchandize imported from France, at a rate of duty equal to the excise duty”- Britain automatically extended conditions C-C treaty to other countries.

Equal excise and import duty phenomenon extended to a variety of other goods.

Goods with no domestic substitute import duty simply acts as a an excise duty and does not entail a consumption cost – Nye maintain substitution effect, beer and wine, but as beer subject to excise duty anyway – Nye intended show wine taxed more than beer, no evidence though.

French wine and domestic beer burdens comparable. Reason beer consumed more than wine was price rather than because it was protected by the excise and tariff code (page 149).

There is no contradiction in saying that Britain heavily taxed a very small set of imported consumption items – tobacco, tea, wine and sprits – not protectionist Cobden: “We have many duties – such as that, for examples on tea – which are too heavy, but they are not maintained in the interest of any British producers”.

French had import duties on consumption items but in addition to excise duties. French policy discriminate against wide variety of foreign goods with tariff barriers not in existence in Britain – Terms of Anglo-French commercial treaty of 1860 – France abolished all prohibitions, not impose specific duties exceeding 30% ad valorem, or 25% after 1865 – most duties set to from 10 to 15% - no where near reforms enacted by Britain – eliminated all remaining tariffs on manufactured goods in 1860 after having repealed the Corn Laws in 1846.

France maintains tariff code covers hundreds of items – rivalled Russia illiberal treatment of major manufactured foods in 1877

Ashley: French tariffs cotton, linen, woollens manufactures 15% after 1860, over 20% by 1877

1902 34% average tariff against British manufactured export – France and Britain facing increased competition from foreign producers of those goods – response to this in France speak of general tendency of their commercial policy.

Protection to French agriculture ratcheted up several times in 188s to culminate in the Meline tariff of 1892 (response to requests from Societe des agriculteurs).

Taxes on tea, tobacco and alcohol accounted for virtually all of Britain’s average tariff – raised enough revenue to match France’s broader systems of import tariffs

Enormous difference in commercial policy are consistent with comparable average rates of tariff revenue – need to look at principles underlying tariff rate – French tariff designed to keep out foreign goods, British tariff extension British excise system – select number of commodities raising fiscal revenue without discriminating against foreign goods in favour of domestic goods

EQUATING B AND F COMMERCIAL POLICS 2^ND HALF 19^TH CENTURY BECAUSE TARIFFS RAISED SIMILAR REVNEUES MISSES ESENTIAL DISTINCTION BETWEEN FREE TRADE AND PROTECTIONSM – WHETHER PRODUCERS SHELTERED FROM FOREIGN COMPETIION – FRANCE FLUNKS, BRITISH PASSES FREE TRADE TEST.

MAGNANIMOUS ALBION: FREE TRADE AND BRITISH NATIONAL INCOME, 1841-81 – D.N. MCCLOSKEY

Free Trade and Historians

40 years Peel to Gladstone’s 2^nd ministry UK from fettered to free trade – national income rose decisively as well – free traders saw removal pernicious tax on enterprise, esp. industrialists, brought greater wealth for all – even they admit only proportion gains attributable to free trade – Cobden saw greater effects “in the Free Trade principle that which shall act on the moral world as the principle of gravitation in the universe-drawing men together, thrusting aside the antagonism of race and creed, and language, and uniting us in bonds of eternal peace”

Cunningham: sees more selfish reason: fixing Britain’s monopoly manufactures rest of the world – pragmatic free traders agreed, Hume 1840 allowing agric. competition discouraged them from manuf.

Free trader and fair trader alike agreed that in the middle of the 19^th century it could be justified if need be on selfish grounds alone: it had produced, they believed substantial material benefits for the nation.

Historians have agreed: correlation between rising national income and free trade, significance of redistribution of income on removing high food duties, intense involvement Britain intl. Economy demonstration effect commercial policy size and dit. National income. Evidence not deep – other factors increasing national income not disentangled and only qualitative evidence for redistribution

Political effects – constitution may not have survived 1848 without RCL

The direct economic effects have been exaggerated.

Historians naturally think big economic consequences for resolution of economic policy – more so and left largely to political rather than economic historians. History of economics itself lent credence: inception of discipline commercial policy centre of thinking Smith, Mill, Marhsall – examination of effect intl. Trade + gov. policy – practical motive encouragement of free trade sheer weight of the intellectual achievement would incline an economist toward attributing great significance to free trade 19^th century.

Theory intl. Trade considerably refined since then – does root event deserve attention new theory?

The Move to free Trade

Began in earnest 1840s – RCL June 26 1846 dramatic event – Wealth of Nations and admin prep in 1780s – Napoleonic Wars haltd stirrings rational tariff policy – everything taxed – income tax introd. But replace after the war, other war taxes to pay off debt and civil service

1824 and 1825 Huskisson obsolete duties on cotton, iron manufactures, crushing comp. Ad anyway. Rationalisation as opposed to reduction

By 1840 hard political decision to lower rather than simpler duties - involving reintroduction income taxes,removal duties discriminating in favour colonies, abandonment protection to agric. yet to be made

Protective effect of tariff felt primarily land-intensive products – most goods of this sort even in late 19^th century for importables, exportables and nontraded goods – in Victorian Britain agricultural, manufacturing, residual sector. Silk received large protection but for most manufacturing sectors protection superfluous

The British tariff in the early 1840s raised price land-intensive raw materials and food relative to manufactures and services – tariff designed by landlords in parliament imposed on imports of a nation needed only raw materials and food not expected to achieve any other results.

Tariff high in political and economic life – imports substantial in relation to national income and revenues from taxing it significant fraction of revenues of central government. Height tariff measures in ratio tariff revenues to value of imports – change in ratio reflect change in tariffs but also composition of goods – Imlah 1825 to 1840 little change tariff but ratio fell from 47 to 31% - composition changed to more low duty bearing goods – solution tariff weighted by shares of imports before and after the move to free trade.

The move to free trade consisted in a narrowing of the wedge between world and British prices of imports by about 21% of the world price.

Explaining Free Trade

All well and good but tariffs an important part of government revenue – need for falling tariffs held back for demand for govt. revenues and stop reimposition other taxes like income tax. Two accidents stopped need of pure free trade for higher taxes – higher % imports of national income (lower tariff same revenue) and required government revenue fell in relation to national income.

1841 – 1881 fall in the tariff rate was 0.286 – this change mostly due to changes in ratio of imports to national income an ratio of all income to taxes. Fall in tariff helps ratio as means lower price imports ad higher demand

Deliberate policy of freer trade was responsible for only part – a small part of the reduction in tariff rates – accident of higher ratio of imports to national income – only partly a consequence of British financial reform – accounts for much of the reduction – triumph ideology of free trade very little of it.

Related ideology of retrenchment, lower ratio government expenditure to national income accounts for still more than the rise in imports = success of a policy of balanced budgets – absence in involvement of major wars - an accident from point of view financial policy – not a reduction in expenditure of collectively consumers goods that permitted government to reduce taxes.

RETRENCHMENT AND REFORM RESULTS THAT ARE PROPERLY ATTRIBUTED TO MOEMNTUM OF EVENTS – IF FREE TRADE HAD SUBATANTIAL EFFECTS BRIUTISHE CNOMY, NOT BYPOLICY BUT BY INADVERTENCE.

(Gov. revenue raised by no wars, higher imports as proportion income – means no need for higher tariff rates, ideology free trade does little to help here)

The Effects on Income

How move to free trade aided total national income and how it aided distribution – tariff changes affects terms of trade.

View sector of an economy as an industry gaining importable goods through sacrificing resources embodied in exportable goods – steel industry gains goods through sacrifice of resources could be employed to produce other goods. Terms of trade are the productivity of this industry – if external event like increase demand British goods or change tariff increases terms of trade – more importables can be gained for any given sacrifice of exportable – like tech. Improvements steel allow more to be gained from any given sacrifice of alternative uses of the resources to make steel.

More important the industry to the economy the more significant for the sizre of national income is a given increase in productivity – increase saves resources measured in output – importance of an industry is the ratio of the value of its oyutpyut to national income

With imports at a quarter of British national income – 10% change terms of trade through change in tariff would increase British national income by 2.5%.

Alternative view focus on larger British exports – lower tariffs permitted more imports which raise purchasing power abroad and raise demand for exports – Mathias: “The main immediate gain from free trade thus became the increase in exports markets as imports to Britain expanded, not a fall in food prices”

NOT move foreign demand curve, abandoning tariffs Britain choose to operate on another point – also equates increased income with increased exports – legitimate only if British and other economies were operating at always less than full employment to full extent of increased exports BUT exports grew considerably faster than national income – proposition difficult to maintain – neomercantilist argument is misleading.

Appeal to logic of comparative advantage

Free foreign trade better than no trade at all – but ignores whether Britain better off from moving from some to trade to more trade. – the elimination of duties increased British demand for importable in terms of other commodities – if British demand for importables nonnegligible part of world’s demand – increase would raise world prices to a nonnegligible extent – terms of trade would go against Britain. The deterioration in terms otf rade from lowering of duties could be large enough to offset advantage of more trade.

It is not self-evident that it was a wise policy to permit British consumers to buy or self in foreign markets free of all encumbrances – free trade by adverse effect on the terms on which imports were purchased with exports may have reduced British national income.

There is therefore an argument for an optimal tariff – a nation whose purchases have discernible effect on price well-advised to restrict purchases to some extent – optimum price monopolist divergence marginal cost and price using elasticities – elasticities of export demand and import supply to find optimal tariff for Britain – divergence work out loss.

Presume tariffs 1881 less than the optimal – welfare reduced by move to free trade. – need elasticity of foreign offer curve – infer it was low from sheer bulk of British trade.

The higher the British share in world production exportables and consumption of importables – the lower the elasticities of excess demand and supply – Britain in the 19^th century noit a small county 1860 Britain supplied a ninth of the rest of the world’s demand for manufactures – elasticity of demand facing British exporters likely to be low.

Implication is that the optimal tariff is high – raise price high elasticity good for max revenue – tariff of 0.058 in 1881 only optimal if elasticities impossibly high – elasticities of 35! Britain was magnanimous in her mid-century conquest of the world’s markets, gave back some portion of her booty by moving this far towards free trade.

British free trade caused terms of trade to deteriorate reducing national income – but more and more countries convinced free trade then help out Britain – France and Prussian flirtation free trade brief and America never under the spell – 1930s Britain abandons free trade – dominant position in the worlds in preceding century gone.

Worst that .21 fall in tariff could do would be to reduce terms of trade by 21% - world price og Britain’;s imports 21% lower than it would be without the tariff – price of her exports relative to her imports would be 21% higher - % deterioration terms of trade 21% multiplied by share of foreign trade one fifth would be 4% - not trivial not a disaster

One cannot attribute great significance to free trade as a cause of economic growth, accompanied a political and intellectual upheaval in mid-Victorian Britain – but did not itself determine wealth of Victoria’s subjects.

Conclusion

Secondary effects of free trade:

Induced effects on composition of output – free trade reinforced specialisation manufacturing expense of agric. – this had potential effects on income as a whole. Economies of scale – gains of efficiency unattainable without changes composition of output. – raise efficiency move labour badly employed agric. to manufacturing – rias efficiency – asymmetry essential between exports and imports industries

One could argue free trade altered distribution of income raised savings rate – and therefore rate of growth of income – but savings rate did not rise, uncertain that distribution of income between savers and non savers changed in four decades after 1841.

Difficulties placing free trade centre of mid-Victorian growth

Reductions in tariffs were in good part due to a shrinking government budget and to an expanding volume of trade – not just to powerful arguments of Cobden, Bright etc. Moorings to mid-Victorian boom weaker still – free trade did not cause British growth, may have retarded it.

TARIFFS AND GROWTH IN THE LATE 19^TH CENTURY

Kevin O’Rourke

Correlation between tariffs and economic growth – tariffs were positively related with growth in these countries during this period.

Theoretical ambiguity – protection can increase or decrease growth.

Protection slowed growth during the 20^th century – Vamvakidis argues that benefits protection differ depending on context

Proponents of protection – Germany and USA late 19^th century – infant industry behind barriers of protection

Late 19^th Century Tariff Policies

1860 Anglo French trade treaty – free trade boomed – 1870s and 1880s turning point cheap New World and Russian grain flood market – undermined support agricultural free trade – agric. protection often triggered industrial protection – Bismark 1879 “marriage iron and rye” protection both agric and industry, Meiline tariff 1892 French protection breakthrough, Italy 1878, Sweden 1888

Only Britain adhered to free trade principles – reflect diminished role and political clot of agric. lobby?

Europe: protection first agricultural and then industrial – New World choose to protect infant industries with high tariffs

Late 19^th Century Tariffs and Growth: Sources and Methods

Uses Maddison’s data – possible to estimate conventional growth equations using PPP adjusted GDP data.

Bairoch: compare aggregate growth rates in free trade and protectionist periods – Marczewski, Toutain, Levy-Leboyer, Crouzet free trade period 1860-91 and protectionist of 1824 – 59 and 1892-13. Sectoral and aggregate rates lower during the free trade period – esp. growth agric. output – innovation slower during free trade period Bairoch’s conclusion was that free trade was bad for French growth.

Bairoch similar conclusions other countries but Germany grew more rapidly during the liberal period 1862-79 – Britain did relatively well during 1860s and 70s.

Criticism Bairoch – post hoc ergo propter hoc logic – difference in tariff rates when other factors may have been important. What constitutes eras of protectionism and free trade – Meline tariff of 1892 marking end of liberal interlude – but wheat duties raised 1885 and 1887 – differing starting and ending points for the liberal interlude would produce different growth rates.

Cape argues no evidence that tariffs boosted late 19^th century growth – argues low tariff rates all countries and little divergence between countries “protection does not appear to have been sufficiently high to make any significant impact on performance” – country by country regression of growth rates on tariffs no relationships between tariffs and growth.

Vamvakidis no relationship tariffs and growth between 1870 and 1910 – Spearman rank correlation 9takes out extremes_ positive relationship

Foreman-Peck – average tariffs negatively related to output per capita – because output per capita negatively related to agriculture’s share of employment – latter variables positively related to tariffs. FP tariffs bias towards low productivity agriculture – or that grain invasion provoked high tariffs in more agricultural economies.

O’Rourke Improves Methods 3 Ways

1.      Maddison PPP adjusted data

2.      Control other forces that theory says should affect growth when estimating impact of protection

3.      Growth equations more directly comparable with late 20^th century literature cities in intro.

Tariffs and Growth: Some Cross-country evidence

Usual problems of using 19^th century data.

Tariffs highest US and lowest Britain – general increase tariffs from 1880s also apparent.

Problems: index number tariff so high that prohibitive weight drops to zero as nothing imported”

Many tariffs were revenue raisers and not protectionist – British and Danish tariffs much lower if these excluded – but even revenue tariffs have general equilibrium impact in open economy.

Unconditional convergence – shows large effect of 10% increase in tariff 0.075% per annum grwothj or 5.25% OVER 5 YEARS.

When country specific fixed effects introduced – coefficient on tariff variables increases to 1.538 – one standard deviation increase in tariffs is now associated with an increase of .74% PA in average annual growth rate – coefficient declines to .511 when time and country dummies introduced

Augmented Solow Model – assoc. Mankiw et al.

Model performs poorly late 19^th century – savings rate and population rate coefficient wrong signs – the tariff coefficient is large, positive and statistically significant unless both time and country dummies included.

Factor Accumulation Models

Taylor (1996) – growth output per worker related to growth land-labour and capital labour ratios – reflects role of expanding frontiers 19^th century Atlantic economy – greater role of agric, in this period. – regressions include country fixed effects – model performs better than augmented Solow model and positive relationship between tariffs and growth survives – tariff coefficient ranges from .57 to 1.853 – adding country fixed effects alone adds to size of tariff coefficient – time dummies as well as country dummies lowers the size of the coefficient level.

Controlling for import shares strengthens correlations between tariffs and growth. – import share is positively and significantly related to growth.

Data comfortable with hypothesis that tariffs boosted late 19^th century growth.

Why?

Driven by one or two countries – US high tariff high growth country – BUT results robust enough for inclusion of country dummies something more than country fixed effects is going on – in all cases the tariff coefficient increase in size when country dummies are introduced.

No positive correlation emerges for Denmark and Britain – countries whose histories no suggestion that tariffs boosted growth – suggests overall correlation is more than a spurious by-product of the data generated.

One could argue the following: in depressions, tariff rates increase – because duty rates are raised (endogenous tariff literature) – or because specific duties translate into higher rates of protection in periods of low prices – tariffs are high when output is low and thus about to grow more rapidly than average.

Dependence of tariffs on the business cycle – check this use two five year period, first period is recession second period would reflect better economic conditions that follow – growth regressed on second period tariff using factor accumulation model – lowers the tariff coefficient.

SPECTAR

Specific tariff variable – log of average tariff times GDP price deflator – SPECTAR not strongly correlated with business cycle as the average tariff – regression of SPECTAR on CYC and country dummies reveals no statistically significant relationship between specific tariffs and business cycle. BUT when SPECTAR used in simple factor accumulation model – coefficient on tariffs still large and positive.

Counter cyclically of tariffs cannot on its own explain the results – if positive correlation between tariffs and growth were due to interaction of changing price levels of changing price levels over business cycle and specific tariffs – why does positive correlation not emerge for Britain and Denmark – two free traders this sample?

Vamvakidis – finds some support for theoretical suggestion that tariffs might be beneficial during recessions (due to employment creating effects) – when he controls for unemployment the tariff coefficient becomes negative and significant – SO positive and significant coefficient on the interaction between tariffs and unemployment and a negative and significant coefficient n tariffs.

Might overall positive effect tariff regressions have been uncovered due to solely positive effects of tariffs during recessions? No evidence using CYC (derivation trend output) – are solely due to their impact during recessions – suggestion tariff were more effective during expansions NOT less.

If tariffs helped boost growth not solely due to some recession effect THE POSTIVE CORRELATION BETWEEN TARIFFS AND GROWTH Which THIS SECTION HAS UNCOVERED SEEMS SURPRISNGLY ROBUST GIVEN THE VCONTRARY EVIDENCE EMERGING FROM LATE 20^TH CENTURY DATA.

Discussion

Bairoch’s hypothesis holds up relatively well – what are economics behind this and why different from 20^th century.

Bairoch argues free trade bad for French growth – exposed agricultural sector to cheap New World and Ukrainian grain – reduced agric. incomes ad thus demand for industrial products – theoretical objections easy to envisage – if protection boosted growth – more straightforward explanation appealing to either impact protection relative price capital goods to learning effects or to structural impact of protection.

Williamson: United States Civil War tariffs increased US savings and investment rates by lowering price of capital goods relative to heavily tariffed final goods – construction nontraded and did not benefit from protection finished capital goods rarely traded in this phase of development. – if capital goods have become increasingly traded over time – could explain contrast between late 19^th and late 20^th century evidence – 20^th century evidence that relative price of capital is inversely related to economic growth and that protection an slow growth by reducing capital goods imports.

Collins and Williamson: - 10% increase tariff rate associated woth 7.6% decline in relative price of capital goods – investment rate was negatively and significantly related to the price of capital

Factor Accumulation Model – controls for increases in both capital-labour and land-labour ratios – suggests tariffs had positive impact on total factor productivity – good for growth on infant industry arguments – infant industry effect may change over time, infant industry requires under developed capital markets – David argues infant industry argument but result of time learning not output learning, and as protection increases output and not learning protection not the cause – Head disagrees.

Do not provide strong enough evidence for notion that protection boosted growth on infant industry grounds nor hypothesis that tariffs had bigger impact on growth in larger countries.

Broadberry: shift of resources out of agriculture can account for a significant proportion of productivity growth in countries such as Germany, UK and US late 19^th century – big wage gaps 52% Britain 1830w – protection boosts welfare shifting labour into high productivity sectors produces static effect – takes time for labour to move so could have affect on growth rates short to medium term. Industrial tariffs speed up this process whilst agricultural tariffs slow it if on balance tariffs favoured manufacturing in sample countries according to this logic tariffs would have been growth promoting. Also explains difference between 19^th and 20^th century experience – growth from this factor will dry up as 20^th century continues.

His evidence: decline agriculutre’s share of GDP faster when tariffs were higher – suggests tariffs biased in favour of industry – effect stronger in food exporting countries New World tariffs used to stimulate industry than in food importing Europe which protected agric and manufacturing.

Research Agenda

Problems measuring protection, need a better index – Germany probably more protectionist than tariff data shows, slow growing Britain less protectionist than data suggests assuming revenue tariffs not as distortionary as more conventional tariffs – strengthen positive correlation between tariffs and growth

Lessons from the 19^th century core cannot necessarily be extended to late 19^th century periphery – Reynolds see developing world benefited greatly from participation open economy years 1850-1914.

Tariffs could be proxying for range of other factors, such as government intervention, that show positive link between tariffs and growth, similarly post-45 ink growth and free trade.

WELFARE EFFECTS OF BRITISH FREE TRADE: DEBATE AND EVIDENCE FROM THE 1840S

Abstract

Britain worse off from a unilateral tariff reduction, but foreign tariff reductions mitigated the terms of trade deterioration and could easily have made Britain better off.

Introduction

Debate over Corn Laws – affects on labour and on industry, Williamson finds British labour diff suffer, but that the impact on manufacturing was less certain.

Debate effect tariff reduction:

Recognized that trade restrictions and not free trade increase national income for a country that could influence terms of trade – unilateral tariff reduction would have two effects: 1. gain more efficient domestic resource allocation, loss from trading on inferior terms. Torrens and Mill express caution or opp. To unilateral reduction, whilst Nassau Senior and McCulloch thought ignore t of t considerations or minor cf. benefits.

Taken for granted Free Trade helped Britain – McCloskey and Harley and McCloskey – sub optimal trade “magnanimous Albion” Harley and McCloskey – “if anything, the move towards free trade in the 1840s and 1850s hurt Britain”

Who was right? Torrens adverse terms of trade effects from tariff reduction make Britain worse off, or Senior make Britain better off by domestic resource allocation.

The Tariff and Terms of Trade Debate

Commercial policy tactics differed over affects of terms of trade – should domestic tariff reduction be made contingent on similar actions abroad, even at risk of postponing or foregoing domestic reforms?

Torrens leading exponent of view that unilateral tariff reductions detrimental to British welfare.

1. Inl. Demand not costs of production alone play role terms of trade
2. commercial policies affect flow of precious metals through specie-flow mechanism.

1841 cut tariffs: “would have been the greatest calamity would could have befallen the country, and might possibly have led to national bankruptcy and revolution”

Torrens thought Britain lose out if had no tariffs and other countries had tariffs.

Torrens Policy recommendations

1. Adopt principle reciprocity
2. Lower duties on countries who are equally favorable to British countries
3. High duties on countries with high duties British goods
4. Duty free raw materials

“reciprocity should be the universal rule” – total free trade “would increase the wealth of the world”

“the sound principle of commercial policy is, to oppose foreign tariffs by retaliatory duties, and to lower our import duties in favour of those countries which may consent to trade with us on terms of reciprocity.”

Mill: advantage of trade taxes of foreign demand is inelastic, but also said difficult to know whether country has gained or lost from the situation-and foreigners buy elsewhere “even on the most selfish principles, therefore, the benefit of such a tax is always extremely precarious”.

Mill: protective duties “can never be a cause of gain, but always and necessarily of loss, to the country imposing it”

Revenue tariffs – protectionism USA, France, Netherlands: “these duties, though chiefly injurious to the countries imposing them , have also been highly injurious to England” – by lowering price of exports Mill dubbed foreign tariffs “the real source of alarm”

Mill originated idea tariff can improve a country’s terms of trade but thought Torrens overdoing it.

Nassua – scathing Torrens – tariffs not only raise price to consumer but “general diminution of the efficiency of its own industry”

Merivale argued Torrens over exaggerates negative effect of tariff with Cuban example – adding Brazil – allowing competition among Britain’s import suppliers.

Did tariff reductions, all other things being equal, so adversely affect Britain’s terms of trade as to make the country worse off?

A Model of British Foreign Trade 1820-46

1780s to mid 1800s period tremendous growth British exports – technological progress export sector – growth reduced export prices and net barter terms of trade deteriorated, imports concentrated as well 70% imports raw materials – cotton from USA but also sugar, tea, wine.

Need elasticities of export and import supply and demand to work out welfare drop from terms of trade deterioration. Goldstein and Khan employed to account for endogenous determination of import and export prices and quantities.

Foreign demand for British exports shown to be just over unit elastic, cannot reject hypothesis that it is inelastic, esp. as Britain only major exporter manufactured goods. – McCloskey and Crafts thought inelastic, or Mill thought it was elastic – lack of foreign data bias downwards so say it is elastic.

Export supply thought to be elastic

Import demand barely inelastic – cannot reject hypothesis that it was elastic, but inelastic finding in accordance with Wright British import cotton demand was inelastic. – income or industrial production effect on British imports found to be strong.

Import Supply – choose 1.5 data access problems, suggest Britain had some monpsonist power as such large buyer world’s raw materials.

Did Britain lose from Free Trade?

A Model of British Foreign Trade 1820-46

As 1^st IR virtually sole exporter of manufactures – 1831 over 90% Britain’s exports were manufactures – 1780s to mid 1800s period tremendous growth in British exports – in part technical progress in the export sector. – growth reduced export prices and Britain net barter terms of trade declined during the period.

Need import and export supply and demand elasticities for the relevant time period – Goldstein and Khan simultaneous equation model used to account for endogenous determination of import an export prices and quantities.

British Exports

British time series data from Imlah, price index from Mitchell – only data for USA and France – omissions other countries bias our estimates for export demand elasticities downwards.

British Imports

Other Notes in this Category

1. A History of Oppida
2. A Tudor revolution in government?
3. British Banking System in the years 1700-90
4. Explanations of Nuptiality during the first industrial revolution in England
5. Has the “retardation” thesis been overthrown by recent mainly cliometric historians?
6. Wage and consumption levels in england and on the continent in the 1830s – paul uselidin
7. Was standard of living higher in britain or in france?
8. Welfare effects of british free trade: debate and evidence from the 1840s
9. What were the effects of tariffs and free trade in the 19^th century?

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