Monday, 14 July 2014

Liberal Economics, the Beginnings

Liberal Economics, the Beginnings

It has been said to me that there is no such thing as Liberal economics, or Conservative economics, only economics. Next thing I'll be told there is no such thing as Marxist economics!

But maybe the problem is that there are different kinds of economics. And every political theory has attached to it an economic theory. These are quite distinct from actual economics, either the real economics of the real world or theories on how economies operate or even economic "laws" such as the law of supply and demand. In fact when it comes to political theories I would suggest that they didn't come first but that the economic rational came first and that the political theory came next....or at least simultaneously and separately. Lets have a look at Liberalism.

Liberalism has a long political past, but economic Liberalism came out of the French Revolutionary and Napoleonic wars. It arose in France, Britain and the United States and it came about because of the economic intervention of Governments that were required to fight these wars. Not because of the ideals of either the American or French Revolutions. But because of the efforts of 20 years of naval blockades and the effects that had on national economies.

Naval blockades are nothing new they are as old as naval warfare, but our story begins in the 1700's as Britain became the dominate naval power. One of the strategies it used against it's enemies was to blockade them. If done right it could ruin a nations trade and drive it towards bankruptcy. In 1759 Britains Royal Navy worked out a system that could provide a constant blockade of a port. What the United States Navy calls a Fleet Train, whereby warships remain at sea and ready for action, but it's crew and all supplies are brought to it by supply ships. Before that a warship had to return to port regularly to get more supplies or risk sickness onboard ship. Now, even the crew could be replaced and rested, while the warship remained in place with the new crew blockading the port. What this meant was that all trade could be controlled by that nations ships who were free to trade, instead of their enemies ships who were trapped in port.

During the period of 1792-1815, Britain was blockading European ports, sometimes only French ports, at others nearly the whole of Europe. Which meant that Europe was divided into two trading systems, a world wide maritime trade controlled by Britain and a European land based system controlled by France. These different systems had some economic advantages, the Governments provided support to industries they considered important to the war effort and merchants could and did reap huge profits from these two systems because competition was less. But they also had some big disadvantages and the merchants saw this only too clearly. The risks were massive, there was a war going on after all, often it was hard to get goods while with other goods you couldn't get rid of them there was so much of it. And on top of this were the large insurance rates and taxes that ate into profits. When the wars finally ended in 1815 merchants were eager to find a new way of doing things and much of the talk of the times was about liberty.

In many ways the policies employed during the wars were simply an extension of the Mercantilism system that existed before the wars, that sort to create trading zones that were exclusive to one European power. Merchants now wanted a much freer hand, they didn't always get it but they wanted much less control. Because they had had a taste of forbidden fruit. Before the wars Spanish colonies were off limits to any other countries trade, but as Spain had been so beaten about during the wars it couldn't enforce it's own laws and Britain got a taste for South American trade. They even financed their wars of independence against Spain, all so that they could get the trade that had once been exclusively Spanish. All so the American Revolution had encouraged the idea of free trade, indirectly. Before the war North America was dominated by British trade. After Britain lost the war it didn't want to lose the trade as well. Fortunately the newly independent Americans were in no way capable of replacing the British, so Britain remained the dominate economic power in North America. In the 1820's nearly all of the Americas, north, south and in between were open to "Free Trade". A cornerstone of Liberal economics.

It came about bit by bit, there was no grand design or plan but it fit the philosophy within Liberal thought very easily. Free people should have free trade, they should have the ability, no the right to trade with whomever they wanted.

Free Trade
No Tariffs
Low Tax
Free Association, no membership of Guilds or Trade Unions
Free Movement of Labour
Growth is good
Progress is good

All of these are cornerstones of Liberal economics, they are not simply economics but they are part of a school of economic thought and they have been part of the world economy for two centuries now. But they have not gone unchallenged, either in the real world or in theory. Not everyone who has challenged Liberal economics has been up to the task or come up with the right answer. But Liberal economics has also provided many wrong turns and false leads. It certainly isn't 100% wrong, but it certainly isn't 100% right either.

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