Before Hegemony. Adam Smith, American Independence, and the Origins of the First Era of Globalization

Before Hegemony Adam Smith, American Independence, and the Origins of the First Era of Globalization James A Morrison 25 March 2013 1

Death of the Earl of Chatham By JS Copley [1778] à I argue that that the origins of the first era of globalization are found here in Parliament s convulsions over the American Revolution 2

Before Hegemony I. The Puzzle: The Origins of the First Era of Globalization II. The Materialists Explanation III. Smith caused Shelburne s Crucial Conversion IV. Conclusion: Free Trade Before Hegemony 3

Two Eras of Globalization???? 1914 and 1945 - Present 5

It s rather clear that the first era came to an end with the start of the First World War (in 1914). But when, precisely, did it begin? 6

The textbook story 7

Grieco & Ikenberry 2003 In the mid-nineteenth century, the world entered the first age of globalization Behind the scenes stood the United Kingdom, preeminent in manufacturing, finance, and naval power. The United Kingdom championed free trade throughout the Victorian era, beginning with the celebrated repeal of its protectionist Corn Laws in 1846. 8

The timing of Britain s shift has a crucial bearing on our understanding of its causes 9

Ideas did not Matter The classical ideas alone were not the cause of the eras global economic openness. After all, arguments against government intervention in crossborder trade and investment are very old Yet it was not until 1846 that the British Parliament repealed the country s major agricultural tariffs, the Corn Laws The heyday of European free trade came a hundred years after [Adam] Smith had demonstrated its desirability. Jeff Frieden 2006 10

Interests & Institutions The defeat of mercantilism required a major reform of British political institutions Powerful people defending their interests drove the opening of country after country to the world economy. Jeff Frieden 2006 11

It might be true that openness was not achieved until well into the 19 th Century. BUT This is not to say that Britain did not begin pursuing openness long before she fully achieved it. 12

Indeed Economic historians generally agree that Britain actually began experimenting with free trade in the 1780s!! 13

So... How do we explain that shift? 14

Virtually every treatment in the last 90 years suggests that Britain's reforms depended on material variables: power, interests, and institutions. 16

While these accounts vary in their emphases, they can be synthesized into a single narrative to explain Britain's abrupt shift in the 1780s... 17

For centuries, England's merchants and manufacturers promoted the "mercantile system" to protect them from foreign competition and generate colonial demand for their goods & services... The Custom House (London) 18

By the late 18th Century, however... maintaining control over the colonies had become quite costly... and British industry & trade were finally competitive abroad. Washington Crossing the Delaware (1776) 19

When military defeat at Yorktown (1781) made American independence "inevitable," British policymakers reconsidered their commercial policy. Cornwallis' Surrender at Yorktown (1781) 20

When policymakers discovered the fit between their policies and those prescribed by Adam Smith, they retroactively anointed him the intellectual Adam Smith force behind their movement. 21

In these accounts, Smith's ideas were not embraced because he was held in high regard. Instead, Adam Smith became famous because his ideas fit with the reforms dictated by material circumstances. 22

à I will challenge that consensus. 23

III. Smith caused Shelburne's Crucial Conversion 1. Shelburne's pivotal importance 2. Shelburne, the mercantilist 3. Shelburne's conversion 4. Shelburne enshrines laissez-faire 25

Backed by the King... Lord North's Tory Government committed to subjugating the rebels. King George III Lord North 26

Edmund Burke Charles James Fox Led by Rockingham, most Whigs preferred to wash their hands of the Americans and focus on their domestic agenda. Rockingham 27

Following Chatham s death (1778), Shelburne inherited a small but loyal faction of Whigs. Shelburne 28

Parliamentary Coalitions Rockingham's Whigs (Pro-Independence) North's Tories (Anti-Independence) Shelburne's Whigs (Loyal to Shelburne) Fair-weather Moderates (Depends on the War) 29

Shelburne, however, was initially the most outspoken advocate of mercantilism Shelburne 30

III. Smith caused Shelburne's Crucial Conversion 1. Shelburne's pivotal importance 2. Shelburne, the mercantilist 3. Shelburne's conversion 4. Shelburne enshrines laissez-faire 31

Shelburne & Smith 1760s: Smith began visiting Shelburne regularly 1767: Smith worked for Shelburne following Stamp Act Crisis 1776: Smith published Wealth of Nations Shelburne read Wealth of Nations "with avidity," received each new edition 32

The Wealth of Nations Smith: my very violent attack upon the whole commercial system of Great Britain. Main thrust: laissez-faire Colonial trade management promotes resentment and rebellion Free trade à interdependence à peace Explicitly applied to American Revolution 33

I f t h e A m e r i c a n c o l o n i e s w e r e g ra n t e d independence... "Great Britain would not only be immediately freed from the whole annual expence of the[ir] peace establishment...but might settle with them...a treaty of commerce as would effectually secure to her a free trade, more advantageous to the great body of the people, though less so to the merchants, than the monopoly which she at present enjoys..." Wealth of Nations 1776 34

"By thus parting good friends, the natural affection of the c o l o n i e s t o t h e m o t h e r country would quickly revive. It might dispose them not only to respect that treaty of commerce...but to favour us in war as well as in trade, and, i n s t e a d o f t u r b u l e n t a n d factious subjects, to become our most faithful, affectionate, and generous allies." Wealth of Nations 1776 35

Shelburne built upon Smith's insights. But he directly contradicted Smith's conclusions! 36

Speech to the Lords Mar 1778 Under laissez-faire, "Trade and commerce between independent States of different interests, would not be restrained; they would...fall into their natural channels, in spite of every attempt to give them artificial direction. Trade laws were of quite a different nature; they were solemn compacts, in which the interests of the contracting parties were reciprocal...such were the connections between all states and their colonies." 37

Speech to the Lords Mar 1778 "[M]uch might be hoped from the inclinations of people, having the same religion, the same language, the same relations, and interwoven i n t e r e s t s w i t h u s... [ I ] t was extremely probable, that, independent of their attachment to the parent state they would plainly perceive, that a connection with this country would be the best means of advancing the interest of their own." 38

This bloody war is pointless! We can get everything we need--without the hassle--by just trading freely with the Americans and everyone else! Adam Smith Are you insane!?! Trade management binds the colonies to us. Besides, as you say, our cultural ties ensure that keeping them in the empire is not as bloody as you suggest. Earl of Shelburne 39

III. Smith caused Shelburne's Crucial Conversion 1. Shelburne's pivotal importance 2. Shelburne, the mercantilist 3. Shelburne's conversion 4. Shelburne enshrines laissez-faire 40

In the spring of 1779, the Irish rejected British mercantilism. The Dublin Volunteers on College Green, 4th November, 1779 (Francis Wheatley) 41

Shelburne realized that the burgeoning Irish rebellion was just what Smith had predicted about mercantilism. In the autumn of 1779 even as Britain's military fortunes improved the Earl of Shelburne surrendered to the logic of laissezfaire liberalism. 42

Speech to the Lords December 1779 For the first time, Shelburne celebrated "the general advantages arising from an open and unrestrained trade." Rather than cultivating dependence through commercial regulation, "real unanimity, grounded upon mutual confidence and affection, is confessedly essential to the preservation of what is left of the British empire." 43

Shelburne united the Whigs. To swing the moderates, however, the Shelburne- Rockingham coalition needed to capitalize on a military setback. This political ammunition came with the loss at Yorktown in the fall of 1781. 44

III. Smith caused Shelburne's Crucial Conversion 1. Shelburne's pivotal importance 2. Shelburne, the mercantilist 3. Shelburne's conversion 4. Shelburne enshrines laissez-faire 45

Shelburne wholly dedicated his government to remaking the international order in the image of Adam Smith's laissez-faire liberalism. 46

Correspondence 1783 In the Paris peace negotiations, Shelburne explicitly sought "the destruction of commercial monopoly." "[I]n the treaties of peace, the great principle of free trade...inspires them from beginning to end." 47

Speech to the Lords December 1782 In London, Shelburne extolled the "liberal" reforms of Irish trade and commerce. He proposed to Parliament "a revision of the whole trading system, upon the same comprehensive principles." 48

Shelburne's Legacy Colonial Reform American independence! Americans granted most of their old colonial privileges Irish liberalization New approach to adversaries Commercial negotiations with ten countries Revolutionary agreement with France (1786). Tariffs lowered: 75% à 10-15% 19th C reformers followed Shelburne's example James Montgomery Flagg 49

Correspondence 1795 "I owe to a journey I made [in 1761] with Mr. Smith the difference between light and darkness The novelty of his principles made me unable to comprehend them at the time, but he urged them with so much eloquence, that they took a certain hold which, though it did not arrive at full conviction for some few years after, I can truly say has constituted ever since the happiness of my life." 50

I have argued that Britain's radical reforms in the 1780s including the grant of independence to the Americans depended on a factor that has been completely overlooked by previous scholars... The influence of Adam Smith's ideas on a pivotal policymaker, the Earl of Shelburne. 52

Neptune Resigning to Britannia the Empire of the Sea William Dyce (1847) Thank you! 53