Economic Freedom in the United States vs the British Empire from 1776

[DiscoveryJoy]

Hello guys,

 

unfortunately, I so far have not seen anything like an Index of Ecnomic freedom for the time period in my topic's title to at least get a compact glimpse at what was actually going on.

 

But it shocks me into disbelief time and again how much economic freedom was actually lacking even in so-called "capitalist" America right from day one. My image of at least early till 19th century America used to be that of a Free Markets loving, pro Free Trade, Banks-Can-Do-Anything, Railroads-where-built-by-Rockefeller-alone America, since that was the impression that we got from school and through the media.

 

I didn't know that, in spite of everything, there was such a bad understanding of what freedom actually means that even a Founding Father like Hamilton actually was such an opponent of economic freedom, as expressed by the so-called "American System": National Banking, limits on inter-state banking, protectionism, heavy subsidies in industry and science etc. In its proponents' own vocabulary, the "American System" was intended to protect America from what was explicitly seen as the British System, i.e. Free Trade and Laissez-Faire, or in other words, from economic freedom.

 

I didn't know that it was actually the British that really originated and represented economic freedom, and that the mixed economy, i.e. the opposite of economic freedom - was actually THE "American" idea in politics.

 

So what really makes so many free-market liberals claim that America used to be economically freer than any other country in history, if they where actually counteracting essential pillars of such freedom against a country that did represent them, i.e. the British Empire (or at least those Dominions or Colonies of the Empire whose internal economic policies Britain controlled)?

Edited October 10, 2014 by DiscoveryJoy

[abott1776]

Interesting topic. From what I know about history in general, not a detailed analysis of each nations economic history, the British Empire changed from a mercantile system to a more free-market, free-trade economy (not systematically but generally). The mercantile policies before and during the American Revolution (or as I like to call it The Second English Civil War) was what driven the American Revolutionaries to rebel. They saw it, and rightly so, as hindering their prosperity. Mercantile policies viewed wealth as basically static, if one nation gained, another lost as opposed to the free-market idea of you know "let's grow the pie, not bicker over what slice everybody gets". The Americans intuitively saw what Adam Smith later made an official theory. After the American Revolution the Liberals gained power for most of the nineteenth century, changing the way the Empire viewed trade and economics. The revolution was figuratively a slap in the face to wake them up, that their policies weren't working, they just pissed a whole lot of people off. Even in England, smuggling was viewed by a lot of people as a just robinhoodesque action, read Edward Cline's Sparrowhawk series, it will give you a very good representation of the opposing views of economics in the Anglo-American sphere at that time. In America after the revolution, there were two opposing sides, the Federalists and the Republican. The Fed's wanted that American System, big national banks, monetarily support industry (two examples that come to mind, steamboats and railroads were subsidized disastrously), the Rep wanted to basically leave everyone alone, but they gave us that distrust for national banks, and they sought to restrict by closing banks from interstate finance.

 

Overall after the war the Anglo-American sphere as a whole grew increasingly more free culminating in the late nineteenth century, with America I think having an edge over the British in terms of culture (individualism, entrepreneurship, drive to strive better). There were specific delimited things the American government(s) did such as subsidizing this or that business, nothing like the all-encompassing attitude today that business is inherently corrupt, that it needs to be constantly regulated, that people needed to be guided in what they do, massive government redistribution programs.

[Nicky]

unfortunately, I so far have not seen anything like an Index of Ecnomic freedom for the time period in my topic's title to at least get a compact glimpse at what was actually going on.

Heritage quantifies 10 freedoms, and then weighs them equally to produce a final score for its index.

Here they are, grouped into 4 categories:

1. Rule of Law (property rights, freedom from corruption);

2. Limited Government (fiscal freedom, government spending);

3. Regulatory Efficiency (business freedom, labor freedom, monetary freedom); and

4. Open Markets (trade freedom, investment freedom, financial freedom).

Here's a sortable table with all the countries and all the individual scores: http://www.heritage.org/index/explore

It's not too hard to go over the list, and come up with a rough estimate for the score of 19th century developing nations like the US, Britain, France, Germany, maybe even Japan, etc. I'll focus on the US with my score keeping:

1. I would score both about the same as current free countries (averages out at around 90). Feel free to bring evidence to the contrary.

2. Should earn near perfect scores, because they are better than even the first two modern countries on the Heritage list (and those countries get around 90 out of 100). Let's go with 98... I don't see how it could be any lower than that. Taxes and gov. spending were both very low back then.

3. Labor freedom was 100, business freedom near 100 (I'm not aware of any limits on starting a business, in the 19th century US at least). Monetary freedom was curbed to some extent, but nowhere near to where it is now in even the most free countries. Modern Japan leads this category with 87 (because they haven't had much inflation, I assume), let's give the old US a 90. I'm not sure about the European countries' monetary policies.

4. These are the categories that really drag the modern US down. Trade freedom is OK at 86, I guess tariffs are not that high compared to other countries. I seriously doubt that they are lower than they were in the 19th century, but if someone has evidence to the contrary, we'll recalculate. Meanwhile, leave it at 86. Restriction on investments and financial transactions are mostly a 20th century development, as far as I know, so, again, on limited evidence, I'll settle for a 90 for both, at least until we have more facts. (in modern US, they're both way down to 70, for obvious reasons)

With those numbers, the final score comes in at 93.2 . That's much better than the 90.1 the current most free country, Hong Kong, gets.

National Banking, limits on inter-state banking, protectionism, heavy subsidies in industry and science etc.

The British Crown had most of those too.

In its proponents' own vocabulary, the "American System" was intended to protect America from what was explicitly seen as the British System, i.e. Free Trade and Laissez-Faire, or in other words, from economic freedom.

If you're gonna lead with "their own vocabulary", direct quotes should follow.

Anyway, I don't see this supposed big difference in economic freedom, between the US and the British Empire. Feel free to correct my scoring above but, as it stands, there's not much room above 93.2, for Britain to be significantly more free.

But the score isn't what's important here, since that's just an educated guess anyway. What matters is the list of categories Heritage uses. If you want to make an argument for Britain being more free, just specify the categories, and the specific differences within those categories, that make Britain more free.

[DiscoveryJoy]

First of all, I'm definitely not saying that very old school Mercantilism of the old empire is in any way freer than the American System (Mercantilism is completely out of the picture here). 

 

I am of course talking about the British Empire after Adam Smith's publication of "Wealth of Nations", i.e. after Mercantilism, in other words during Classical Liberalism.

 

The "American System" by Clay was competing with the "British System" by Smith at the time:

 

http://digital.library.cornell.edu/cgi/t/text/pageviewer-idx?c=amwh;cc=amwh;rgn=full%20text;idno=amwh0007-3;didno=amwh0007-3;view=image;seq=278;node=amwh0007-3%3A1;page=root;size=100

 

As for categories, I had given some for which the two systems are historically known to have opposing views on (Free Trade clearly being one of the big ones). Be it for the Americans' view that everything their arch war enemies stand for must be bad. Or be it because they put too much or the wrong emphasis on certain constitutional elements like "provide for general welfare" or on "We the People".

As for degree, I'm not sure where to find such a comprising overview. I am just arguing in terms of official systemic elements that by themselves suggest something about the general status of economic freedom a country should enjoy officially living under such a system.

 

On Free Trade: Maybe one would need an overview of how open trading borders really were: How free was the British "Free Trade System"? How strongly was an absence of tariffs for importing goods into the territory of the Empire enforced? How high were the remaining tariffs and on which goods? How was the same for the United States?

 

On subsidies: What was the share of government spending on the economy in the United States compared to the Empire?

 

On regulations: Very complicated, subdivide into categories. Banking probably the most important one, so:

How much percent of Banking was regulated in the two systems?

I know both had a national currency, and while America had the National Bank, Britain had the Bank of England. The inter-state banking limits and things like Glass-Steagall must have been exclusively to America, since that's what ultimately made people complain about the lacking competitiveness of American banks. Canadian banks were for a long time much more efficient and larger, as compared to the highly fragmented U.S. banking market due to the inter-state banking limits.

[dream_weaver]

One more important one that is missing from the regulation list is education. Regulations on education shape the capacity of future generations to think, or be taught to think they are thinking. Spiral education back into what is being examined here. What role did it play in Heritage selecting the categories it did, and populating the categories while leaving education out. What, other than perhaps banking, has such a far-reaching all-pervasive influence?

[DiscoveryJoy]

One more important one that is missing from the regulation list is education. Regulations on education shape the capacity of future generations to think, or be taught to think they are thinking. Spiral education back into what is being examined here. What role did it play in Heritage selecting the categories it did, and populating the categories while leaving education out. What, other than perhaps banking, has such a far-reaching all-pervasive influence?

 

Yes, well, if you count education as part of economic freedom. Although I'd say that's rather the groundwork that shapes whether economic freedom is considered a good thing at all, i.e. whether economic freedom is established.

[Nicky]

One more important one that is missing from the regulation list is education. Regulations on education shape the capacity of future generations to think, or be taught to think they are thinking. Spiral education back into what is being examined here. What role did it play in Heritage selecting the categories it did, and populating the categories while leaving education out. What, other than perhaps banking, has such a far-reaching all-pervasive influence?

The Heritage list seems aimed more at helping people decide where to live and where to invest NOW. Education certainly has an effect on economic freedom over generations, but it doesn't speak to what that level of freedom IS, NOW. 

 

And they update their list every year, to make sure it stays current.

[DiscoveryJoy]

The Heritage list seems aimed more at helping people decide where to live and where to invest NOW. Education certainly has an effect on economic freedom over generations, but it doesn't speak to what that level of freedom IS, NOW. 

 

And they update their list every year, to make sure it stays current.

 

Right.

Edited February 18, 2015 by DiscoveryJoy

[DiscoveryJoy]

Any more leads to the topic?

[andie holland]

Hello guys,

 

unfortunately, I so far have not seen anything like an Index of Ecnomic freedom for the time period in my topic's title to at least get a compact glimpse at what was actually going on.

 

But it shocks me into disbelief time and again how much economic freedom was actually lacking even in so-called "capitalist" America right from day one. My image of at least early till 19th century America used to be that of a Free Markets loving, pro Free Trade, Banks-Can-Do-Anything, Railroads-where-built-by-Rockefeller-alone America, since that was the impression that we got from school and through the media.

 

I didn't know that, in spite of everything, there was such a bad understanding of what freedom actually means that even a Founding Father like Hamilton actually was such an opponent of economic freedom, as expressed by the so-called "American System": National Banking, limits on inter-state banking, protectionism, heavy subsidies in industry and science etc. In its proponents' own vocabulary, the "American System" was intended to protect America from what was explicitly seen as the British System, i.e. Free Trade and Laissez-Faire, or in other words, from economic freedom.

 

I didn't know that it was actually the British that really originated and represented economic freedom, and that the mixed economy, i.e. the opposite of economic freedom - was actually THE "American" idea in politics.

 

So what really makes so many free-market liberals claim that America used to be economically freer than any other country in history, if they where actually counteracting essential pillars of such freedom against a country that did represent them, i.e. the British Empire (or at least those Dominions or Colonies of the Empire whose internal economic policies Britain controlled)?

What was then defined as 'The British System' were the ideas of A.Smith in 'Wealth of Nations' as seized upon by 'free-market' advocates. 

 

Paramount among these were the notions that the market-value of free labor would be higher than any (pre-existing) subsidy that the government might devise--the so-called 'Poor Laws' kept people poor.

 

Likewise, The Crown should not have a monopoly on trade and direct banking.

 

As for the first, the Townsend acts of 1834 a repealed Spreenhamland's subsidies of 1795. Yet by 1836, Parliament was forced to admit that 'free labor' actually emmiserated the working class--and was therefore repealed. Smith was wrong.

 

Free trade existed until the Sepoy Revolt in India, in 1855, when England discovered what Hamilton had said to be true: there is no foreign trade without political and military oversight.

 

As for banking, no one seemed to follow Smith except the Americans. While all European nations continue with the model that Hamilton saw and advocated, The American system seems half-and -half with a semi independent Federal reserve.

[DiscoveryJoy]

What was then defined as 'The British System' were the ideas of A.Smith in 'Wealth of Nations' as seized upon by 'free-market' advocates. 

 

Paramount among these were the notions that the market-value of free labor would be higher than any (pre-existing) subsidy that the government might devise--the so-called 'Poor Laws' kept people poor.

 

Likewise, The Crown should not have a monopoly on trade and direct banking.

 

As for the first, the Townsend acts of 1834 a repealed Spreenhamland's subsidies of 1795. Yet by 1836, Parliament was forced to admit that 'free labor' actually emmiserated the working class--and was therefore repealed. Smith was wrong.

 

Free trade existed until the Sepoy Revolt in India, in 1855, when England discovered what Hamilton had said to be true: there is no foreign trade without political and military oversight.

 

As for banking, no one seemed to follow Smith except the Americans. While all European nations continue with the model that Hamilton saw and advocated, The American system seems half-and -half with a semi independent Federal reserve.

 

O.K., granted, the East India Company as kind of a monopoly is a form of government-granted privilege. Or is that what you mean by "monopoly on trade"? There were also subsidies in U.S. industries like in the railway business. The question is how to weight those things.

 

On the other hand, you have Britain's repeal of the Corn Laws in 1846 as an expression of the general policy for free trade that allowed them to dominate foreign economies through free trade alone. Take the gunboat diplomacy leading to the Opium Wars in China and the establishment of Hong Kong as a trading post. As for the Sepoy Revolt in India, how does the lesson drawn according to you, "there is no foreign trade without political and military oversight", a restriction on free trade? The presence of a military to enforce free trade is not an abolition of free trade, it merely ensures it. Just like the police forces you not to commit theft so people are free to earn the rewards of their labor.

Contrast that with the imposition of protectionist import tariffs under Hamilton's American System to protect domestic infant industries.

 

And how did Europe continue like Hamilton in Banking more than the U.S.? With interstate-banking laws and the culmination in Glass-Steagall (although that's already 20th century), European banks seemed to have a big competitive advantage, didn't they? Also don't see the semi independence of the Federal Reserve, with all key positions in it appointed by government.

 

Well, all in all, it would be nice to have some kind of benchmark that evaluates the economic impact of each restriction, law, regulation etc. in the economy and weighs it so one can better compare who's actually been freer. A kind of historical benchmark for the period between the late 18th and 19th centuries.

Edited February 22, 2015 by DiscoveryJoy