01 January 2008

American Civil War

By Ha-Joon Chang

"Almost all of today’s rich countries used tariff protection and subsidies to develop their industries. Interestingly, Britain and the USA, the two countries that are supposed to have reached the summit of the world economy through their free-market, free-trade policy, are actually the ones that had most aggressively used protection and subsidies.

Contrary to the popular myth, Britain had been an aggressive user, and in certain areas a pioneer, of activist policies intended to promote its industries. Such policies, although limited in scope, date back from the 14th century (Edward III) and the 15th century (Henry VII) in relation to woollen manufacturing, the leading industry of the time. England then was an exporter of raw wool to the Low Countries, and Henry VII for example tried to change this by taxing raw wool exports and poaching skilled workers from the Low Countries.

Particularly between the trade policy reform of its first Prime Minister Robert Walpole in 1721 and its adoption of free trade around 1860, Britain used very dirigiste trade and industrial policies, involving measures very similar to what countries like Japan and Korea later used in order to develop their industries. During this period, it protected its industries a lot more heavily than did France, the supposed dirigiste counterpoint to its free-trade, free-market system. Given this history, argued Friedrich List, the leading German economist of the mid-19th century, Britain preaching free trade to less advanced countries like Germany and the USA was like someone trying to “kick away the ladder” with which he had climbed to the top.
Between the Civil War and the Second World War, the USA was literally the most heavily protected economy in the world.

In this context, it is important to note that the American Civil War was fought on the issue of tariff as much as, if not more, on the issue of slavery. Of the two major issues that divided the North and the South, the South had actually more to fear on the tariff front than on the slavery front.

Abraham Lincoln was a well-known protectionist who cut his political teeth under the charismatic politician Henry Clay in the Whig Party, which advocated the “American System” based on infrastructural development and protectionism (thus named on recognition that free trade is for the British interest).

One of Lincoln’s top economic advisors was the famous protectionist economist, Henry Carey, who once was described as “the only American economist of importance” by Marx and Engels in the early 1850s but has now been almost completely air-brushed out of the history of American economic thought. On the other hand, Lincoln thought that African Americans were racially inferior and that slave emancipation was an idealistic proposal with no prospect of immediate implementation – he is said to have emancipated the slaves in 1862 as a strategic move to win the War rather than out of some moral conviction.

In protecting their industries, the Americans were going against the advice of such prominent economists as Adam Smith and Jean Baptiste Say, who saw the country’s future in agriculture. However, the Americans knew exactly what the game was. They knew that Britain reached the top through protection and subsidies and therefore that they needed to do the same if they were going to get anywhere. "

Post-Autistic Economics Network

The Newark [N.J.] Daily Advertiser, which was a Republican Party mouthpiece, warned on April 2, 1861, that the "free-trade doctrines of Adam Smith" were dangerously popular in the South as southerners had "taken to their bosoms the liberal and popular doctrine of free trade" and that they "might be willing to go . . . toward free trade with the European powers."

This "must operate to the serious disadvantage of the North," as "commerce will be largely diverted to the Southern cities." And, "We apprehend that the chief instigator of the present troubles – South Carolina – have all along for years been preparing the way for the adoption of free trade." This must be stopped, the New Jersey paper editorialized, by "the closing of the [Southern] ports" by military force (see Howard C. Perkins, Northern Editorials on Secession, p. 601).

This of course is exactly what Lincoln set out do to, two weeks after Fort Sumter, in announcing a naval blockade of the South. In doing so he offered the nation one reason and one reason only for the blockade: tariff collection.

Economy of the Confederate States of America
"The Confederate States of America had an agrarian-based economy that relied heavily on slave-worked plantations for the production of cotton for export to Europe and the northern US states. If ranked as an independent nation, it would have been the fourth richest country of the world in 1860.

The states that entered the Confederate States accounted for 70% of total US exports, and the Confederate leaders believed that this would give the new nation a firm financial basis. Cotton was the primary potential export, accounting for 75% of Southern goods either shipped to northern US states or exported in 1860. The Confederate States entered the war with the hope that its near monopoly of the world cotton trade would force the European importing countries, especially Great Britain and France, to intervene in the war on her behalf.

Disputes over the proper tariff rate had been a political issue between northern and southern US states. Southerners mostly opposed protectionist tariffs and in fact kept the tariffs at low levels from 1847 through 1860. The founders of the Confederate States adopted the doctrine of free trade and enshrined this in the Confederate States Constitution with a prohibition of protectionist tariffs. One of the first acts of the Confederate Congress was the lowering of import tariffs from the then current US average rate of 20% to 10%."

Henry Charles Carey
(December 15, 1793 - October 13, 1879), a leading 19th century economist of the American School of capitalism. He is now best known for the book Harmony of Interest, to compare and contrast what he called the "British System" of laissez faire free trade capitalism with the "American System" of developmental capitalism, through tariff protection and government intervention to encourage production.

He was born in Philadelphia, Pennsylvania in 1793 and was a chief economic advisor to Abraham Lincoln during his presidency.

Carey, who had set out as an earnest advocate of free trade, accordingly arrived at the doctrine of protection: the coordinating power in society must intervene to prevent private advantage from working public mischief. He attributed his conversion on this question to his observation of the effects of liberal and protective tariffs respectively on American prosperity.

This observation, he says, threw him back on theory, and led him to see that the intervention referred to might be necessary to remove (as he phrases it) the obstacles to the progress of younger communities created by the action of older and wealthier nations.


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