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Studies in the Theory of International Trade; Viner, Jacob
8 paragraphs found.
Chapter 2

Laissez-Faire and Free Trade.

The antecedents of Smith's laissez-faire and free-trade views are probably rightly to be sought mainly in the philosophic literature, and perhaps also in the writings of the physiocrats, rather than in the earlier English economic literature. Hume, no doubt, was an important influence on Adam Smith. But Hume was primarily a philosopher, rather than an economist, and although he must have helped Smith to develop his free-trade views, he remained a moderate protectionist himself. But if Adam Smith had carefully surveyed the earlier English economic literature, including, however, tracts apparently always obscure and already scarce by his time, he would have been able to find very nearly all the materials which he actually used in his attack on the protectionist aspects of the mercantilist doctrine. He would, however, have found them scattered, often imbedded in crudely mercantilist analysis, and often consisting only of stray and vague anticipations of later doctrine of whose full significance their authors showed little or no awareness. Caution is necessary lest more be read into such passages than was really intended by their authors, and there has been great exaggeration of the extent to which free-trade views already prevailed in the English literature before Adam Smith. North, Paterson, the author of Considerations on the East-India trade (1701), Isaac Gervaise, and Whatley are the only writers prior to Adam Smith whom I have found who seem really to have been free traders. *118 But certain elements of doctrine tending to lead to free-trade views were fairly widely prevalent before the publication of the Wealth of Nations. Some of these have already been discussed, for the mercantilist doctrines with respect to the importance of money and of a favorable balance of trade were inconsistent with the principles upon which a free-trade argument could be based, and their refutation was a necessary preliminary to successful formulation of a free-trade doctrine. The formulation of the quantity theory of money and the criticisms and qualifications of the balance-of-trade doctrine prepared the way, therefore, for the emergence of a comprehensive free-trade doctrine. There were other ideas, more immediately related to Adam Smith's argument for free trade, which had attained some degree of currency before he wrote.


More important, in preparing the way for Adam Smith, was Mandeville's more elaborate reasoning in support of individualism and laissez faire, resting on his famous argument that "private vices" such as "avarice" and luxury were "public benefits." *149 In Hume's economic writings the laissez-faire doctrine is to be found only by implication if at all. Tucker, although in the field of foreign trade policy he continued to be a protectionist of a somewhat extreme type, at one point vigorously asserted the identity of private and public interests and drew laissez-faire conclusions therefrom:

For let the legislature but take care not to make bad laws, and then as to good ones, they will make themselves: that is, the self-love and self-interest of each individual will prompt him to seek such ways of gain, trades, and occupations of life, as by serving himself, will promote the public welfare at the same time. The only thing necessary to be done by positive institutions is, to enforce the observance of voluntary contracts by legal penalties speedily levied....
Indeed, it must be acknowledged with gratitude and pleasure that the legislature of late years hath enacted many excellent laws which have promoted commerce, increased industry, and extended manufactures... but then the laws in question are such, whose true excellence consists rather in the repeal of absurd and bad laws formerly made, than in any particular positions or maxims of commerce. *150

But shortly before the publication of the Wealth of Nations, Whatley, obviously under physiocratic influence, made a specific plea for laissez faire on the basis, in part, of the existence of an identity of interest between the individual traders and the state:

Now, though it is hardly to be expected, as above hinted, that princes should allow of a general free trade or intercourse, because they seldom know their own true interest.... *151
Perhaps, in general, it would be better if government meddled no farther with trade, than to protect it, and let it take its course.... It were therefore to be wished, that commerce were as free between all the nations of the world, as it is between the several counties of England: so would all, by mutual communication, obtain more enjoyments. *152
Few traces are to be found in the literature of the period of the intermediate doctrine, which concedes that self-interest is a powerful force for good, and should not be reviled or crushed, but maintains that it is also capable of doing harm to the commonwealth, and therefore needs to be watched and regulated. It is perhaps implied in the arguments of some of the moderate mercantilists, and may be what Petty had in mind in the following passage: "We must consider in general, that as wiser physicians tamper not excessively with their patients, rather observing and complying with the motions of nature than contradicting it with vehement administrations of their own, so in politics and economics the same must be used, for Naturam expellas furcd licet usque recurrit." ( Treatise of taxes [1662], Economic writings, I, 60.) Tucker gives expression to it at one point, although elsewhere he expounds contradictory doctrine. In his Elements of commerce, 1755, he asserts that self-love is an important stimulus. "Consequently, the main point to be aimed at, is neither to extinguish nor enfeeble self-love, but to give it such a direction, that it may promote the public interest by pursuing its own" (p. 7). But the only clear and elaborate exposition of this intermediate position I have found is in [Nathaniel Forster] An enquiry into the causes of the present high price of provisions, 1767, pp. 17-22. The relevant passages are too long for quotation, but they deserve the attention of those interested in the history of the laissez-faire idea.
Ibid., note, pp. 33-34. This note may have been a contribution by Benjamin Franklin. It mentions with approval the demand reputed to have been made of Colbert by the French merchants, " Laissez nons faire (Let us alone)"—perhaps the first appearance of the term in the English literature.
Chapter 5

But if the currency school were prepared to admit that proper functioning of the banking system required proper management by the Bank of England of its credit operations as a whole as well as of its note issues, why did they content themselves with proposals for the regulation of the note issue only? The answer lay partly in the fact that their primary objective was guarantee of convertibility of the note issue, and this the Act of 1844 substantially accomplished. As Overstone claimed: the Act of 1844 "has preserved the convertibility of the bank note; the purpose for which it was passed, and that which alone its authors promised that it should do." *31 The currency school tended also to minimize or to deny the importance of bank credit in other forms than notes as a factor influencing prices, or, as in the case of Torrens, to claim that the fluctuations in the deposits were governed closely by the fluctuations in the note issues. *32 They had a hankering also for a simple, automatic rule, and could find none suitable for governing the general credit operations of the Bank. *33 They also had laissez-faire objections to extending legislative control of the banking system any further than seemed absolutely necessary.


The banking school objected to the Bank Act of 1844, both that it was no remedy against overexpansion of bank credit and that overexpansion of convertible bank notes was impossible. But they never supported any proposals for legislative control of the volume of bank credit, partly because they thought it impracticable, partly because, like the currency school, they objected to such control on general laissez-faire grounds. In spite of the past record of the English banking system, which they interpreted as unfavorably as did the currency school, they apparently saw no alternative but reliance on the hope that the English bankers would in time learn to do better:

If the country banks have erred at all, it has not been in their conduct as banks of issue, but in their conduct as banks for discounts and loans; a matter altogether different and distinct, with which the legislature has no more to do than with rash speculations in corn or cotton, or improvident shipments to China or Australia. *36
Were it possible, by any legislative proceeding, to restrain effectually the errors and extravagances of credit, that would be the true course to a really beneficial reform of our banking system. But these errors and extravagances are unfortunately rather beyond the pale of legislation, and can only be touched by it incidentally, or by a sort of interference which would be more vexatious and intolerable than even the evil which it sought to correct. *37