Economic policies and free trade 1812-32 Flashcards
What did government policies help to do in this period?
Increase trade and industry
What principles did Liverpool’s government follow?
Laissez faire
Define laissez faire
The doctrine that the state should not interfere in the workings of the market economy
Which two political economists developed laissez faire principles in Britain?
Adam Smith and David Ricardo
Why do laissez faire principles suggest that the government should not intervene in the economy?
Because it believes that the law of supply and demand would allow things to settle at a place that is most efficient for the market
Why was the governments laissez faire approach inconsistent?
Because they were willing to intervene with the corn laws when it protected their own interests
How did these laissez faire principles manifest themselves in terms of government policy?
It translated into an active economic policy of free trade and a rejection of mercantilism in the 1820s
Why were the budgets of 1824 and 1825 important?
Because they were the first to apply the principles of free trade
What did these budgets do?
Freed trade from tariffs and restrictions and therefore encouraged an expansion of trade
Who were these budgets principally the work of?
William Huskisson, the president of the board of trade, and J.F Robinson, the chancellor
List some of the freeing reforms these budgets brought about
- Prohibitions on manufactured goods entering Britain were abolished and protective duties were reduced
- The prohibition on the import of silk goods was replaced with a 30% duty
- Raw wool could be exported for the first time
Why were the changes to the rules around importing silk so controversial?
Because it threatened the existence of the fragile British silk industry
What did the 1823 Reciprocity Act do?
Encouraged trade treaties with other countries on the basis of mutual tariff reduction
Who were preferential duties set up for?
Raw materials from Britain’s colonies
Give an example of preferential duties being set up for the colonies
Silk from India and wool from Australia
How did Huskisson modify the Navigation Code?
He got rid of outdated restrictions on trading in foreign ships, but retaining the condition that trade within the British Empire was to be carried out in British ships
What did these measures do?
Stimulated industry and trade bringing lower prices for manufactured goods and an increase in British exports and shipping
What did these measures reduce?
Smuggling
What happened to mercantilism towards the end of the 18th century?
It weakened as an economic policy
Why was it necessary that mercantilism be replaced with free trade at this time?
- Because mercantile regulations were being ignored, with smuggling becoming a profitable business. Free trade removed these regulations and made smuggling unprofitable
- Free trade proved successful in and appropriate for the new age of economic expansion - as Britain’s trade grew and became more varied, it became difficult to control through tariffs
What happened when the commercial upturn ended in 1825?
There was heavy criticisms of Huskisson’s free trade theories and of the Liverpool government’s economic policies
What happened after this economic optimism vanished?
Banks failed, business went bankrupt and there followed the usual distress from the labouring classes at low wages and a lack of employment security
What did Liverpool blame for this downturn?
The spirit of speculation
What did the government do once the worst of the crisis was over?
Responded with the 1826 Bank Act
What did the Bank Act do?
Made it legal for banks other than the BoE to operate as joint stock banks
What is a joint stock bank?
A limited liability company that engages in banking as its trade, founded by shareholders whose liability is limited to the amount of money they subscribe - if the bank fails, they lose this and nothing more
What was the thinking behind the Bank Act?
Because the previous small private banks had failed as soon as they were faced with a crisis
What does Hilton say the commercial upturn of 1822-5 allowed GB to do?
It allowed us to accrue healthy enough revenues that indirect taxes could be reduced, starting with duties on foreign timber
How does Hilton say free trade measures were received?
For as long as prosperity lasted, they were welcomed by the commons
Why does Hilton think it is wrong to attribute far sightedness to Robinson and Huskisson for their free trade policies?
Because it was mostly a tidying up operation
