Economania

With one ear cocked towards the television news last night, I heard a commentator describe the current economic hiatus as "the worst in a hundred years." That may well be the case in terms of the sheer sums of money involved but we have yet to see whether the social consequences will be worse than those of the Depression. The numbers now freely thrown around defy the imagination; whereas once politicians spoke of hundreds of millions and occasionally billions, we are now in the realm of hundreds of billions and even trillions. America is said to have committed $2 trillion (2 x 1012) to underwriting its financial institutions and the motor industry. Britain has similarly assured sums amounting to 1.3 trillion, equal to annual GDP, with a further 750 billion in reserve.

Reading the runes, one feels that we are almost at the end of the financial stage of this crisis; there cannot be many more banks left to go bankrupt - but don't hold your breath. As recriminations fly, comment in certain sections of the press has been directed against what is identified as 'the failure of free market financial capitalism'.

I contest this view. This is not due to the failures of the free market, but to the lack of free markets, at least, free markets as propounded by Adam Smith. Though Britain, like America, likes to present itself as an inveterate champion of free e markets, a closer look at the facts tells a very different story.

The year is 1349; the Black Death has devastated the population of Europe, Britain having lost between thirty and fifty percent of its people. Labour was now in short supply and thus, fully in keeping with the workings of free markets, wages were rising as landowners bid for the limited number of hands available to gather their harvests and tend their flocks and herds. One might have thought that their lordships, being bluff, buccaneering types, would have realised that this was just an aspect of the ebb and flow of economic circumstances and paid up, albeit perhaps not willingly.

But no, their response was that against which Adam Smith would rail some 400-odd years later. They conspired to fix the market, through a petition to the king. The result was the Ordinance of Labourers, enacted in 1351. The Ordinance, written by King Edward III to the sheriffs of the counties of England, says this:

"Because a great part of the people, and especially of workmen and servants, late died of the pestilence, many seeing the necessity of masters, and great scarcity of servants, will not serve unless they may receive excessive wages"

For 'excessive wages', read 'they wish to be paid the market rate'. Note that there is little grief expressed for the catastrophic loss of life, merely the inconvenience this is causing to the aristocracy. In this act, Edward III attempted to fix wages at the level that prevailed during the 20th year of his reign, 1347.

The Ordinance was underwritten by the threat of imprisonment against any labourer who might try to leave the estate to which he was bonded, stating that:

"Item, if any reaper, mower, or other workman or servant, of what estate or condition that he be, retained in any man's service, do depart from the said service without reasonable cause or license, before the term agreed, he shall have pain of imprisonment."

To be fair, penalties were also threatened against any landowner who sought to gain advantage over his neighbouring barons by offering over the odds. The Ordinance goes on to say:

"Item, that no man pay, or promise to pay, any servant any more wages, liveries, meed, or salary than was wont, as afore is said."

Woe betide any who broke the rules of the gentleman's club which was the English aristocracy.

Again, to be fair, the Ordinance was not directed only against bonded serfs, it also addressed itself to artisans and craftsmen, saying:

"that saddlers, skinners, white-tawers, cordwainers, tailors, smiths, carpenters, masons, tilers, [shipwrights], carters, and all other artificers and workmen, shall not take for their labour and workmanship above the same that was wont to be paid to such persons the said twentieth year, and other common years next before, as afore is said, in the place where they shall happen to work; and if any man take more, he shall be committed to the next gaol, in manner as afore is said."

Other trades were threatened:

"butchers, fishmongers, hostelers, breweres, bakers, puters, and all other sellers of all manner of victual" were informed that if they attempted to profiteer, then, "they shall be grievously punished."

The king further bemoaned the state of his country, noting that:

"Item, because that many valiant beggars, as long as they may live of begging, do refuse to labour, giving themselves to idleness and vice, and sometime to theft and other abominations; none upon the said pain of imprisonment shall, under the colour of pity or alms, give any thing to such, which may labour, or presume to favour them toward their desires, so that thereby they may be compelled to labour for their necessary living."

One can imagine such a lament appearing in the fourteenth century's equivalent of the Daily Mail.

The king might well have saved his time, ink and vellum. Wages continued to rise. Two years later, in 1351, a second ordinance was enacted, the Statue of Labourers. By this time the king is clearly getting in a strop, as he complains about:

"the malice of servants, which were idle, and not willing to serve after the pestilence, without taking excessive wages, it was ordained by our lord the king, and by the assent of the prelates, nobles, and other of his council, that such manner of servants, as well men as women, should be bound to serve, receiving salary and wages, accustomed in places where they ought to serve in the twentieth year of the reign of the king that now is, or five or six years before."

No, the peasants were now 'malicious' and 'idle', in that they refused to work for wages below the market rate. No matter, like the preceding Ordinance, it failed. Harvests needed to be gathered, animals tended. If the aristocracy were not prepared to get their hands dirty, then labourers would have to be paid, though one imagines that wages were not dispensed with good grace by their lordships.

The standard of living in England rose as never before. Many lords had given the peasants on their estates their freedom and paid them to work on their land. This new-found prosperity contained the seeds of its own undoing and as the population slowly recovered, labour became more readily available. By the 1380s, many peasants feared that the lords would take back these privileges and they were prepared to fight for them.

It was the custom in those times that peasants had to work for free on church land, sometimes up to two days in the week. This meant a reduction in the time that they could work on their own land which made it difficult to grow enough food for their families. Peasants wanted to be free of this burden which was making the church rich but impoverished them. They were supported in what they wanted by one John Ball, a priest from Kent.

The straw that really broke the camel's back was a direct consequence of the long and expensive war against France. To finance this, Richard II imposed a Poll Tax - and deep unrest began to grow with murmurings in the shires. The people of Kent refused to pay - can't pay, won't pay. (Margaret Thatcher obviously didn't study the particular period of history.) A tax collector was despatched in May of 1381 to the village of Fobbing in Essex, and was promptly kicked out. Soldiers were sent - and they were kicked out. The peasants of Kent, their blood up, marched on London under the leadership of Wat Tyler. From Fobbing, resistance spread to neighbouring villages, while across counties such as Suffolk, Hertfordshire and Norfolk, armed bands of villagers and townsmen also rose up, burning manors and religious houses. Mayhem ensued, the people of London opening the gates of the city to Tyler and his 3,000 followers from Kent and Essex. England came close, as never before, to a complete insurrection. Richard II went into hiding and the heads of the archbishop and Richard's chancellor were cut off and stuck on spikes.

The revolt ultimately failed as discipline was lost to drinking and merry-making. Tyler was called to a meeting on June 15th outside the city on the pretext of negotiations. It was a trap; Tyler was murdered; John Ball was arrested and later hanged. Nonetheless, the full extent of the disaffection of the people of England had been shown and subsequent kings realised the limits of their powers. Over the course of the next hundred years, the standard of living continued to rise. In 1485, the death of Richard III on Bosworth Field brought an end to feudal England.

A new era of fiscal probity was ushered in as Henry VII ascended to the throne. Henry understood that the prosperity of England as a whole stood on the foundations of free trade and progressive taxation. His astute management of England's finances bequeathed to his son, Henry VIII, a treasury that financed the beginnings of England's rise to prominence in Europe and later, the world.

But it was not all to be plain sailing. As Britain succeeded the Netherlands as the principal world trader, British mercantile interests sought preference. Cotton supplanted wool as the textile of choice - and it came from India. To seek their advantage, British textile merchants pressed for, and achieved, controls on the import of cotton. These were the Calico Acts. Since its inception in 1600, the East India Company had imported textiles from India, and also from China, creating competition for British wool and textile manufacturers. For 30 years from 1690 to 1720, the 'calico question' dominated British politics as would the Corn Laws some hundred-odd years later. The original Calico Act of 1690 banned textile importation; the later 1721 Act prohibited the sale of most cottons, imported and domestic, and promoted the sale of British wool.

Once again we see the manoeuvering by merchants seeking to rig the market. Later in that century Smith would inveigh against merchants, asserting that, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." Smith railed against, "The clamour and sophistry of merchants", "the mean rapacity and monopolizing spirit of merchants" and their "impertinent jealousy". He condemned commercial interests who advocated their case "with all the passionate confidence of interested falsehood."

By the late eighteenth century, thanks to the advances in spinning and weaving brought about by the work of Kay (the flying shuttle, 1733), Crompton (the spinning mule, 1775), Hargreaves (the spinning jenny, 1764), Arkwright (the spinning frame, 1769) and Cartwright (the power loom, 1785), Britain rapidly achieved a virtual monopoly in cotton manufactures. By 1811, the cotton industry was working 5 million spindles; by 1900, spindleage had reached 43 million, and by 1913, 58 million. Imports of raw cotton rose from 50 million lb. in 1800 to 700 million lb. in 1850 and finally 2,000 million lb. in 1914. At its peak the cotton industry accounted for 25 % of all exports. It was not until the 1870s that Britain's virtual monopoly was broken by the American cotton industry.

However, not satisfied with its position of dominance, Britain still chose to impose restrictions on the import of finished cotton goods from India's hand-looms, preferring to import raw cotton, work it in Lancashire and then export it back to India. It was this that practically destroyed the Indian hand-loom industry, which was later to become M K Gandhi's cause celebre and the emblem around which he built his coalition of resistance to the British Raj.

Cotton was not alone is being protected against the rigours of the free-market. From medieval times there had been a series of Corn Laws restricting or banning the export and import of grain. The Corn Laws were finally repealed but a scale of tariffs remained until 1869 when the free trade in grain was finally achieved by the efforts of Cobden et al. Once again the British gentry did not wish to expose themselves to the calculations of the free market.

Following the deleterious effects on Britain of the First World War, later compounded by the global effects of the Wall Street Crash, Britain's role as the world's major power was under threat. In response to this, the coalition government under Ramsay Macdonald convened an Imperial Conference in Ottawa to thrash out a trade agreement in which the Dominions were granted preferential access to British markets by way of reduced tariffs while Britain, in return, demanded a removal of tariffs on British manufactures exported to those states. Where tariffs were not imposed, quotas were determined. Since the Dominions were at that time trying to establish their own manufacturing capability, they were for the most part not well disposed towards this arrangement. Nonetheless in 1932, after some horse-trading, a system of tariffs known as the Ottawa Agreements, or Imperial Preference, was enacted and determined trade within the Empire for the next five years.

When push came to shove, Britain once again retreated from the discipline of the free market, preferring the balmier economic climes of tariffs and quotas. By the time that Imperial Preference came to an end, Britain's economic concerns took a back seat as the prospect of war in Europe loomed. Normal economic activity came to an abrupt end in 1939 and it was not until the clear prospect of victory was seen that the world once again turned its attentions to economic matters at the Bretton Woods Conference of 1944. Here, John Maynard Keynes, the minence grise of economics, was called upon to argue the British case. Already ill and suffering from fatigue, he failed to achieve the dispensation he had hoped for - not surprisingly since Britain was now effectively bankrupt and dependent upon the crumbs from the American table. Bretton Woods was settled to US advantage.

Bretton Woods established the frame work of post-war economics and trade in the West, and itt might have been hoped that an era of genuinely free trade might have been ushered in but in the end the settlement was greatly biased in favour of America.

The USA likes to project itself as the world's principal advocate of free trade but it was never thus. America is just as wedded to its tariffs and subsidies as any other. Senator John D Rockefeller IV spoke, in 2002, in support of higher tariffs on steel imported to the USA (1) to protect the domestic steel industry.

Adam Smith's vision of the free market was one in which a continuum of agents, that is, an infinite number - or at least practically, a very large number - interacted. He understood that each agent must be so small as to be individually incapable of distorting the market. What we have had in recent times, and most egregiously in the world of finance, are huge organisations of vast power which can distort the market as they wish; as has become evident, their power exceeds that of government to reign them in. There is no doubt that in the course of this year, governments will regulate the bankers, if only to avoid future political embarrassment. It is hoped that their policies might be informed by reference to Adam Smith's essential principles.

References
Ordinance and Statute of Labourers
White, Albert Beebe and Wallace Notestein, eds. Source Problems in English History. New York: Harper and Brothers Publishers, 1915.
Peasants' Revolt
Woodruff Smith, Consumption and the Making of Respectability, 1600-1800
Senator Rockefeller
Washington Post.

Chris Waller - Permission granted to freely distribute this article for non-commercial purposes if attributed to Chris Waller, unedited and copied in full, including this notice.

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