[March, 1997]
If classical laissez-faire [1]—understood both as a statement of doctrinal economic orthodoxy and as an expression of actual economic practice—ever enjoyed a period of unchallenged acceptance then it was in relation to the British economy in the third quarter of the nineteenth century. [2] This period—one of maximum florescence of the British economy on a world scale—had such an enormous and formative influence on subsequent British political and cultural evolution that laissez-faire’s basic assumptions—the efficacy of the unfettered operation of market forces, the inherent ‘fairness’ of free trade, the inevitable inefficiency of economic intervention—have since passed into the lexicon of quintessentially British virtues alongside fair play, knowing one’s place and the stiff upper lip. [3] It is therefore necessary to make the following statement (still regarded even today as slightly heretical amongst certain political and economic circles): there is nothing timeless, universal or inherently virtuous about laissez-faire. It was simply the product of one specific—and relatively brief—historical period in the development of one—once great, but now increasingly abject—western European nation. Laissez-faire is in this sense both nationally specific as well as historically relative: not an eternal truth that was waiting to be discovered but a logical and particular product of its own time. The reasons why this should be the case form the substance of this essay.
In order to appreciate the specificities of nineteenth-century British industrialism it will be useful first to make a comparison with what preceded it. While a survey of any detail of the half a millennium of economic practice which today we summarise under the catch-all rubric of ‘mercantilism’ is beyond the scope of this essay, it is possible to delineate some of its common generic attributes. In this particular era of pre-industrial society it was believed that wealth was fundamentally generated through trade. Typically, the primary attitude of ‘governments towards the economy was that they had a duty to do something about it.’ [4] This ‘something’ that they did can generally be divided up into two general spheres of activity: at home, the mitigation of feudal restrictions, regional particularism and social privilege in order to create a unified regional-national trade zone; and, beyond the domestic economy, the development and sustenance of a network of international trading monopolies. It will be clear that in both spheres of activity the obvious fact is the centrality of the role of the state.
Generating an economic surplus from trade was premised on the ability to ‘buy cheap and sell dear’, an activity which regarded competition as anathema:
The trader ... felt much like an industrial patentee today: fearful lest those who emulate his example will too quickly snatch the fruit of his enterprise and enterprise therefore be discouraged. Without regulation to limit margins and protect the price-margin between what the merchant bought and what he sold, merchant capital ... could have no enduring source of income. Competition and surplus-value could not endure long in company. [5]
The establishment of state-enfranchised national monopolies, and the succession of wars over the course of the sixteenth to eighteenth centuries for the control of mercantile trade routes, were a necessary corollary of this pattern of economic development. [6]
It will be noted, therefore, that the mercantilist system—on the strength of the rather crude adumbration offered above—was not illogical or ‘wrong’ in any meaningful sense (although its theoreticians’ explanation of the fundamental sources of wealth and value can certainly be faulted today). Rather, it was a set of practices arising logically from the given level of economic development at the time. In fact, the achievements of mercantilism—establishment of unified national economies, accumulation of merchant and usury capital—were themselves essential prerequisites for the subsequent development of industrialisation: mercantilism played a role that was both ‘functional’ and ‘necessary’ with regard to the emergence of industrial capitalism, although not consciously so.
The industrial revolution, which can be said to be that period in Britain falling between the initial ‘take-off’ of the late eighteenth century (based principally on cotton) and the railway boom of the 1840s, introduced a new set of circumstances and conditions that were to challenge all of the old mercantilist assumptions. From this point on, ‘the shackles were taken off the productive power of human societies, which henceforth became capable of the constant, rapid and [...] limitless multiplication of men, goods and services.’ [7] In pre-industrial societies, growth in productive capacity was stunted by the constricted market for finished goods, by low levels of productivity, and, from time to time, by scarcity of labour. With the advent of the industrial revolution these restrictions on economic development were swept away, and the apparently inexhaustible potential that was now posed dictated a fundamental change in both the practice and the understanding of economic activity with respect to what had gone before.
An illustration of the shifts that occurred can be offered through an examination of that industry that so often operates as the midwife of industrialisation: textiles. The protectionist import prohibition inflicted on Indian calicoes at the behest of the well-established British woollen trade in 1700 allowed the nascent cotton industry to develop a modest home market. The pull of the growing colonial trade in the eighteenth century (including, not least in importance, the trade in human beings as slaves), combined with the technological developments of the latter half of the eighteenth and the beginning of the nineteenth centuries, resulted in a qualitative transformation of the productive capacity of the industry. Between 1750 and 1769 the export of British finished cotton goods increased tenfold; from the 1790s the southern slave plantations in the United States were sustained almost solely by the unquenchable demands of the Lancashire cotton mills. India, previously a principal exporter of cotton goods, increased its imports of British finished cotton from 11 to 145 million yards between 1820 and 1840, and was systematically de-industrialised as a consequence. [8]
These processes established a pattern for Britain’s relationship with the rest of the world that was to persist for three-quarters of the nineteenth century: insatiable demand for raw materials from overseas, and the ever-rising export of finished goods to the rest of the world (to be augmented from the 1840s by the development of heavy industry and the export of capital goods). The paradox of this course of development was that this new pattern of production and trade, which was ushered in under the auspices of mercantilist practice (including military protection of trade routes and state protection of domestic production) itself began to challenge, through its very nature, the old mercantilist assumptions. Both the balance and the terms of trade, previously maintained through limitation of imports and the hoarding of bullion, were now able to be sustained through the mechanism of production: through the ability to produce more, and to produce more cheaply. As the new patterns established themselves over the first half of the nineteenth century, one by one the old state enforced restrictions began to be dismantled, a process which was essentially completed with the final abolition of the Navigation Acts in 1849. By this point the old certainties of the pre-industrial era had been overthrown: during the third quarter of the nineteenth century ‘government policy in Britain came nearer to lassaiz-faire as has ever been practicable in a modern state.’ [9]
There is one further consideration that needs to be noted in this discussion of the roots and foundations of lassaiz-faire. It has already been indicated above that laissez-faire had a particularly British resonance. The explanation for this is that lassaiz-faire was a product of the particular exigencies of industrialisation in a Britain that occupied a unique position in the world. For Britain was not only the first industrial nation, but, for a significant period, the world’s only industrial nation. The era of predominance of lassaiz-faire coincided with—indeed, was a product of—unparalleled British international economic superiority. The inexorable pressure of this state of affairs was towards free trade lassaiz-faire: because of her place in the world Britain was able to ‘undersell’ every other economy, and the less economic discrimination there was, the more she could undersell. As one commentator has pointed out: ‘Free competition is of most value to those who need not fear any competition.’ [10]
It was this confluence of industrialisation and British economic supremacy that led to the particular and peculiar British experience of lassaiz-faire. It was indeed a unique experience: a pattern of industrialisation not matched anywhere else. The countries which industrialised after Britain had to do so in competition with other economies. No other country, as a consequence, ever traversed that path where government economic intervention—whether at home or abroad—was viewed with such malediction as in Britain; no other country has ever found it more difficult to accept the need for protectionism and interventionist policies, even when their efficacy for capital have become patently obvious.
We are now in a position summarise the main lines of development of the processes adumbrated above. The first phase of industrialisation in Britain, from around 1780 to around 1840, broke out in conditions in which state and government intervention in economic processes was taken for granted. The new conditions ushered in with industrialisation, however, began to undermine these old assumptions. In particular, what was decisive was the realisation that the most effective way to compete with other national or proto-national economies was not fundamentally through trade but through the ability to produce. The first half of the nineteenth century saw the piecemeal dismantling of state restrictions on the operation of the market both at home and abroad. From the mid-point of the century to the 1870s Britain enjoyed an unmatched and unprecedented position of dominance on a world scale. It was the combination of these two factors—new conditions of production and international economic supremacy—that resulted in the emergence of laissez-faire in this peculiarly British form. The experience was a unique one. In this period, for example, Britain was the only country consistently to decline to apply significant measures of financial protection to its industries. It was the only country in which the government played no role whatsoever in the building, financing or even planning of its railway system. Where the state did intervene, it did so ‘like the traffic policeman, to regulate but not to encourage or discourage.’ [11] This state of affairs did not—indeed, could not—last. When, at the close of the nineteenth century, Britain moved from her position of only industrial nation to one industrial nation amongst others (and not the most efficient or vibrant one at that) one of the fundamental bases of laissez-faire was removed. That it was not until the 1930s that formal laissez-faire proper began to crumble (with the death of free trade) is an indication of how deeply formative the experience of 1848 to 1873 was on the British economic psyche.
How then are we to evaluate the impact of laissez-faire on the industrial revolution itself? It should be clear by now that to pose the question in this manner is to imagine the tail to be wagging the dog. The industrial revolution broke out in Britain at a time when the idea that the state should not have something to do with the economy was generally regarded not so much as anathematical as asinine: and it was almost a full further three quarters of a century again before the last judicial barrier to the untrammelled operation of the market was removed. [12] The fundamental dynamic concerning the evolution of economic orthodoxy over the course of the nineteenth century is one diametrically opposed to the assumptions underlying the original question: what has been described above is not the influence of laissez-faire on the industrial revolution, but rather the impact of industrialisation in Britain on laissez-faire itself. Laissez-faire, which began life as economic ‘best practice’, developed into a doctrine, and finished up as a sterile dogma, was a progeny of this unique experience of industrial revolution; an experience which turned Britain into the first—and, for a relatively brief period of history, the only—industrial nation in the world. At the time, the process was an unprecedented one. It was one, moreover, that was not to be repeated.
[1] From the French: literally ‘let do’.
[2] For the sake of convenience the terms ‘Britain’ and ‘British’ will be used throughout this essay, despite the fact that the patterns of industrial development in Scotland and Wales (not to mention Ireland!) exhibit notable regional and national specificities, especially at the start of our period. Bar this note, however, this consideration lies outside the scope of this essay.
[3] For a discussion of the peculiarly formative impact of this period of British history, see: Tom Nairn, ‘The Fateful Meridian’, New Left Review 60 (March-April, 1970).
[4] E. J. Hobsbawm, Industry and Empire (London, 1990), 225.
[5] Maurice Dobb, Studies in the Development of Capitalism (London, 1975), 202.
[6] See the description in: Ken Cole, John Cameron and Chris Edwards, Why Economists Disagree (London, 1983), 25-7.
[7] E. J. Hobsbawm, The Age of Revolution (London, 1987), 43.
[8] For an account of these developments, see: Christopher Hill, Reformation to Industrial Revolution (London, 1969), 174, 252-3; Hobsbawm, Industry and Empire, 48-9, 56-60.
[9] Hobsbawm, Industry and Empire, 233.
[10] David Thomson, England in the Nineteenth Century (London, 1991), 27.
[11] Hobsbawm, Industry and Empire, 233.
[12] Which is not to deny that the emergence of the ‘classical’ school of economic theory if anything slightly antedates the industrial revolution itself: The Wealth of Nations, for example, was published in 1776. The delay, however, between the emergence of these ideas (and even their popularity) and their acceptance as orthodoxy is a significant one. The genius in Smith’s ideas lay not in their formative impact, but in their prescience.