Free trade is often associated with late-20th century globalization. The creation of large continental trade associations like NAFTA, Mercosur, and the EU lead many to consider trade liberalization to be a recent phenomenon. The truth is that free trade, and the economic rationale behind it, had its birth in the 19th century with the decline of mercantilism as a mode of economic thinking and the proliferation of a more purely capitalist one. In Britain, where these ideas evolved most rapidly, free trade was associated with classical liberalism, and at the time, it was a radical and indeed rather populist idea. In the history of Britain, the reason for this has its roots in a set of protectionist rules called the Corn Laws.
The Corn Laws
For an overwhelmingly agrarian economy, the price of grain is perhaps the most important number in the world. It carries extraordinary political and economic importance and as a result, the price of grain was regulated in Britain for centuries. Even today, less agrarian economies still subject their agricultural sectors to an unusual amount of intervention. In Britain, the term “Corn Laws” referred to these interventions and controls, principally affecting the price of wheat. These rules included protectionist measures, such as limits on grain imports from abroad.
Of course, by limiting the import of cheaper foreign grains, such rules were a boon to landowners and farmers at the expense of people relying on cheap grain for survival. In fact, there were even subsidies in Britain for grain exporters; the state rewarded those who took grain out of the country, lowering prices elsewhere, and put tariffs on those who imported it, raising prices domestically. It is easy to see why these laws were hardly popular among the masses, especially the growing urban working class.
There was some amount of compromise though. A reform of the Corn Laws in 1773 for example, allowed imports if prices in England rose above 48 shillings per quarter (1 quarter = 28 pounds) and exports were banned if prices rose above 44 shillings. Thus, as prices rose due to domestic shortages, exports were banned; if they rose still further, imports would be allowed. Nonetheless, the Corn Laws became increasingly unpopular with time. Much of this reflects the changes in Britain’s economy at the beginning of the 19th century. In the mid-1700s, Britain was largely a net exporter of grain, but as time went on, the country became a net importer.
Part of this change reflected the population growth of the country, from 5.8 million in England alone in 1751 to 8.9 million in 1801 and even faster growth from there. Britain was also urbanizing and industrializing as well and thus the movement of people away from agrarian work further increased the demand for foreign grain. Regardless, that didn’t stop even tougher protectionist measures from being enacted in 1791 and then again in 1815, which further increased popular anger with the Corn Laws. The 1815 laws, for example, allowed foreign grain to be imported and warehoused but banned its sale unless the domestic price rose above 80 shillings per quarter. The argument was that while producers in Continental Europe could profit with prices as low at 40 shillings, anything below 80 would lead to ruin for British landowners. Providing further impetus for the passage of the 1815 law was the fear many landowners had of falling grain prices with the end of the Napoleonic Wars. This was a time when property requirements for voting meant that the interests of landowners trumped those of just about everyone else.
Road to Repeal
However, that year marked the high-water mark of the Corn Laws and arguably of British protectionism more generally. Even Lord Liverpool, the leader whose government passed the protective 1815 law, believed it should be only a temporary measure, to ease the transition to a peacetime economy. Up until 1815, even the future Prime Minister Robert Peel, who would later go on to repeal the Corn Laws, supported protectionism for the agricultural industry. Yet the 1815 law provoked unusually strong intellectual opposition and even street riots. Political and popular support for protectionism in grain was diminishing, driven by the economic transition to an industrialized economy, rather than an agrarian one.
A sizable modification to the law came in 1828, when the import ban was replaced with a new system of tariffs. Under the scheme, tariffs on imported grain varied inversely with its price. As prices rose, grain could be imported with lighter taxation; as they fell, tariffs would rise. This compromise was meant to provide some relief for consumers while still protecting domestic producers, though the tariffs could still be substantial. For example, at a price of 52 shillings a quarter and below, the tariff would be 34 shillings, 8 pence. However, the tariff would fall according to a very steep “sliding scale” to just 1 shilling if prices rose above 72 shillings a quarter. Although somewhat formulaic, the scale nonetheless made use of unwieldy brackets that allowed certain small price changes to result in very large jumps in the tariff rate.
Such an unusually steep sliding scale had substantial market distorting effects. The extremely high tariffs when grain prices were low essentially amounted to an import ban. While the low tariffs at high prices provided some relief, speculators had every incentive to hold off on selling imported grain until prices rose very high so as to avoid taxation. Popular frustration with the tariffs led to the creation of Anti-Corn Law League which sought to abolish the protective tariff. The League was led by the politician Richard Cobden, pictured below, perhaps the most significant figure in the history of free trade.
Robert Peel and Free Trade
Cobden and the League succeeded in persuading Robert Peel to repeal the Corn Laws. Peel, the Conservative politician, became Prime Minister in 1841 and had in the years since 1815 become convinced of the need to remove the protective tariffs on grain. He was in some ways an unlikely champion for free trade. As recently as 1839, Peel had spoken in support of the Corn Laws but began to believe the laws an undue burden for the nation’s laboring classes.
So, in 1842, Peel unveiled a major tariff reduction that capped the tariff on imported grain at 20 shilling per quarter and also smoothed out the existing sliding scale to reduce its distorting effect. In just a few years, the Irish Potato Famine would accelerate reform efforts by raising food prices. Thus, a tariff reform bill in 1846, Peel’s last year in office, finally buried the Corn Laws. It reduced the tariff sliding scale to a range of 4 to 10 shillings per quarter before nearly phasing out the tariff altogether over three years. By 1849, the tariff on imported grain stood at a flat 1 shilling per quarter, regardless of price. The lowering and flattening of the tariff sliding scale through the years was a remarkable transformation.
The repeal of the Corn Laws was a watershed moment in the history of British trade, with repercussions for the entire world. By 1846, support for extending free trade even further had a solid majority in Parliament, an almost unthinkable prospect a couple of decades earlier. Indeed, Richard Cobden, leader of the Anti-Corn Law League now had a seat in Parliament and would help bring about what was perhaps the first modern free trade agreement, between Britain and France, in 1860. It cannot be overstated how linked the issue of the Corn Laws was with the wider cause for trade liberalization. In fact, in his chapter on the Corn Laws, Adam Smith envisioned the benefits that would come from free trade decades earlier, in The Wealth of Nations; his vision was prophetic of Europe today.
“Were all nations to follow the liberal system of free exportation and free importation, the different states into which a great continent was divided would so far resemble the different provinces of a great empire. As among the different provinces of a great empire the freedom of the inland trade appears, both from reason and experience, not only the best palliative of a dearth, but the most effectual preventative of a famine; so would the freedom of the exportation and importation trade be among the different states into which a great continent was divided.” – Adam Smith, The Wealth of Nations
Lesson
The repeal of the Corn Laws marked a victory for the cause of free trade in Britain and inaugurated a transition away from the mercantilist theory that espoused protectionism for centuries prior. Britain was one of the first countries to make this transition which only began with the repeal. In time, countries like France and the United States would also go from being essentially closed economies with punitively high tariffs and other trade barriers to open economies. Given the perplexing association between protectionism and populism today, it is worth pointing how very differently the battle for repeal of the Corn Laws divided public opinion in 19th century Britain.
Further Reading
1. McCulloch, John Ramsay. “McCulloch on the Corn Laws.” Online Library of Liberty.
2. Schonhardt-Bailey, Cheryl. From the Corn Laws to Free Trade: Interests, Ideas, and Institutions in Historical Perspective. MIT Press, 2006.
3. Sharp, Paul. “‘1846 And All That’: The Rise and Fall of British Wheat Protection in the Nineteenth Century.” Agricultural History Review, June 2010, pp. 76–94.
4. Smith, Adam. The Wealth of Nations. Seven Treasures Publications, 2009.
Ana Paiva