European Economic Review 3 (1972) 2 ! ! -245.

© North-Ilolland Publishing Company

FREE T R A D E AND EUROPEAN ECONOMIC DEVELOPMENT IN

THE 19TH CENTURY i

Paul BA1 ROCH

University o f Geneva. and Ecole des Hautes Etudes. Sorbtmne

First version received January 1972. final version received May 1972

This article is an attempt to analyse empirically the effects of the free trade period which
began around 1860 on three then "less developed" countries: France, Germany and It'fly. and
on the "developed" country: Great Britain.
From the analysis of data actually available it clearly appears that free trade had radically
different effects in the two types of countries, in the "developed" country, the effects were on
the whole positive, .since it was during this period that United Kingdom's economxc growth was
the speediest. For the "less developed countries", the results were negative. In all tt~ three
cases, the effects of the free trade ~:~:riod were the very opposite of tho~ predicted by the
liberal theories: deceleration of economic growth, of innovation and of investment. Since
economic growth was faster in Great Britain than on the continent, this resulted in a larger gap
between development levels, instead of the attenuated disparity forecast in neo-liberal theories.
The reintroduction of protective tariffs (around 1880 - 1890) in the "le~s developed" countries
coincided in each case with a total reversal of the economic ~'~ends: g~owth accelerated and the
pace of innovation and investment speeded up.
However, the support that tb~ experience might bring to protectionist theories must be
tempered since after analyzing ~he causes of the negative evolution of continental, Europe
during the free trade period, it appears that it was es,~entially due to a slowing down of the rate
of increase of ~:he demand of the rural population (which at the thne still represented some 60%
of the consumers) whose incomes had been strongly affected by large imports of cereals mainly
from North Araerica.

1. Introduction

The present article forms part of a more comprehensive empirical

research project which we have undertaken, to investigate the links

n Slightly r~odified version of a paper presented at the 4th Congress of the Canadian
Economic Association (Winnipeg, June 1970). We want to thank Messrs. Ph. Carte', IL Glejser
and J. Waelbroeck for their constructive comments on the provisional version of this survey.
Unfortunately, owirt; to the scarcity of statistics for the perio~ under examination, we have not
been able to implement all their suggestions.
212 P. BatreJeh, F r e e trade in t h e 19th centur~ ~

between internationa~ trade and tile first stages of developrrlent of vari-

ous type,~ ~I" econon~y. 2 This project is by no means complete as yet.
and we want to underline the wholly provisional character of the pre-
sent survey. Especially as far as Germany, Italy and Great Britai0, are
concerned, it consists of preliminary 0ata, on which we have not yet
completed our re~earch an,q analysis: and eve~i these preliminary data
have had to be condensed for this particular purpose.
Tile present survey has been divided into three sections. The first is a
presentation of the general framework within which the free trade ex-
permlent took place: it starts with an analysis of the development levels
of the principal countries of Europe. with particular attention to the
wide gap which e×iste6 in this field between Great Britain and the rest
of Europe. As a result tile impact which the free trade experiment had
on economic development bears a very different meaning whether we
consider Britain or the other European countries. This is why we pro-
pose to approacl~ these two types of ecotlomy separately. But before
passing on to secti~n 3, we will take a very brief look at the results
which the exponents of free trade hoped to achieve.
The third section deals with the effect which the liberalization of
forcign trade had on France, Germany and Italy; the case o f smaller
countrics w~ill not be tackled in this article, owing to the specific condi-
tions they present) Itence Europe has not been treated as an entity,
since the relevant data are still so fragmentary. The fact that more space
has been allotted to France is due not only to the economic importance
which this countr2¢ enjoyed in the middle of the 19th century, 4 but
also to the length of its period o f liberalism and to the fact that our
research in th~s field is more advanced.
The fourth and last section is about Great Britain, i.e. tile case o f the
"'developed" country.
We should hke to add that we are fully aware of the dual weakness o f
this survey. First there is a weakness inherent to any analysis of a
period for which there is not enough statistical information. And since
this article is intended for a readership of economists who may not be

F r o m March 1970 to March 1971, o u r r e . a r c h was greatly helped b y the subsidy which
The Canada Council granted us for this project, and for which we wish t o express our gratitude.
3 This case will however be analysed in o u r global s t u d y ; but the data collected so far is too
limited for inclusion in the present article.
4 Towards 1860, | l a n c e came immediately after Great Britain as regards the volume of
industrial p r o d u c t i o n .
 P. Bairoch, Free trade in ttle i 9th ce~,urv 213

aware of this grave shortcoming, it is a point Ihat is worth mentioning.

But perhaps the principal weakness of this study lies in the fact that wc
have chosen an approach which, by concentrating on the consequences
of a single factor in the process of economic developmtq~t no matter
how important this factor may be - cannot ca.q sufficient light on the
complcxity of the economic phenomez~a.

2. General backEround to the free trzde experiment

2+I. Development levels o f the Eur~Jpea~ cc,~,zir,+'s in the middle +)! the
19th centuo'
It was at the instigation o f the United Kingdom that ['r~e trade was
widely adopted in Europe from 1860 to about 1880. Britain's attitude
in this matter is easy to understand, bearing in mind the extent of the
gap which existed towards the middle of ~l,.e 19th century between that
country's level of development and that of the rest of Europe. Table I
gives us some indicators illustrating the relative levels of development of
the United Kingdom and of nine European countries 5 in ~bout 1860,
i.e. at the beginning of the free trade eta.
The lead United Kingdom had wa3 very important: its agricultural
productivity was approximately twice as high as the ,~verage for the rest
of Europe; industrial production per capita was 9--I I times ifigher In
1860, Europe had not yet made up its arrears caused by the fact that
the industrial revolution first began in Britain, at~d that it had needed
some 3 0 - 4 0 year~ for the first European countries to tollow Britain's
example, t
Compared to ti~e average for the rest ,9[ Europe, it cat~ be es'~inzatecJ
that at this time Britain was ahead by about half a century in terms of
the rate of economic growth of the first half of the 19+:h century.
Comparisons betweea national income per capita are very imprecise
owing to the problem of international price differences; very broadly
speakfi~g, i~ can be estimated tbat the gap in this field, in about 1860,
was of the order o f 2Vz to I as between the Uxaited Kingdom and the
zest of Europe, and of about 3 to 1 between the United Kingdom and

s The population of these ten counlries represents 96% of the total popv,lation for Europe
as a whole land the missing 4% do not differ basically from the rest). Hence the weighted
average calculated in this table is fully representative of the European c+,~ntinenl.
214 P Bairoch. Free trade in the 19th century

Table 1
lndwators of lhe development levels of a number of l-aropcan countries in about 1860.

Agriculture Industry and transport

Produc- Portion of Cotton Pig Coal Motive Rail-

tivity ~ c t o r I%) iron power ways
(1) (2) (3) ~4) (5) 16) (7)

United Kingdom 20. D 24 1 ~. 1 130 2450 24 44

Austrm 8.5 ±60 2.5 14 ~- 2 I0
Belgium 1 i .0 45 2.9 69 1310 2! 30
France 14.5 51 2.7 25 390 5 18
Germany 10.5 *52 1.4 14 400 5 21
Ital.~ 5.0 -~65 0.2 2 - - 6
Russia 7.5 ±75 0.5 5 - 1 1
Spain I 1.0 (8) -+75 1.4 3 . . . . 6
Sweden 10.5 64 1.5 47 ~-90 -- 3
Switzerland 9.0 z45 5.3 - - - 28
Weighted average of
the nine European
continental countries 9.5 63 1.4 13 . 10

(1 I Ne, production per active male employed in agriculture (expressed in millions of direct
calories).
(23 Proportion o f the agricultural working popula,ion.
13) Per capita consumption of raw cotton (in kilos).
q'4~ Per capita production of pig iron (in kilos).
(5) ?e; capita consumption of coal (in kilos).
(6) Fixed steam engines per capita (in H.P.).
(7) Development index of the rail network calculated on the basis of V/(P+ 3S), where V =
length in kilometres of the railways being operated, P = populatien expressea per 100,000
inhabitants, S = area o f the country expressed per 10,000 squaxe kilometres.
(8) But only 7.0 towards the year [880.
Source:: based on our article Niveaux de dt~veloppement 6eonomique de 1810 ~t 1910, in:
Annales E.S.C., No. 6, Nov.-De :. 1965. E x ~ p t : working population figuJres which are bascd~ on
The working population and its structure, Vol. ! of International Historical Statistics, b y T. Del-
dycke, H. Gelders, J.-M. Lirnbor, under the direction of P. Baitoch; Brussels and New-York 1968.

the rest o f the world. At the present time, the gap between the United
States and Eurc .e (including tile Eastern countries) is of the order o f 3
to I, and between the United States and the rest of the world it is
something like 7 to i (without allowing for differences in price struc-
tures). Despite this smaller gap, the predominance o f the United King-
dom in the world economy towards 1860 was stronger than that en-
joyed by the United States at present, or even at the time o f their
maximum predominance. The apparent contradiction between these
 P. Bairoch, Free trade in the 19rh century 215

Table 2
Relative economic importance of Great Britain and the United States at the time of their eco-
nomic predominance {percenlages in relation to the world iotal}.

Great Britain United States

1860 1%) 1953 a I,%) 1968 1970(';)

Steel industry (production of iro1~

for 1860; of steel for 1953 and 1968) 53 43 22
Energy (consumption) 27 41 30
Exports 25 l9 14
Merchant fleet 34 29 9
Population 1.8 6.3 5. 9

a The year 1953 may be regz,~:'eti as representative of the period in which the supremacy of the
United States was the mo,o,~significant (e~cluding the immediate post-war year~l. The data for
1968-1970 are given for purpo~s of comparison.
Sources: P. Baitoch, Le Tiers-Monde darts I'impu~se. Le d~marrage t~conomk]ue du XVIlle an
XXe sii~cle, Paris 197 I.

two facts can be explained by the smaller international gap which ex-
isted around 1860 in the development levels of agriculture and services.
The degrees of predominance c f these two economies are shown in
table 2.
Clearly this very great advance puts the case of the United Kingdom
in an entirely differ~.t context to that of the other European countries.
Here we are already in the presence of problems resulting from econom-
ic relations bet'seen developed and ~ess developed regions (the devel-
oped regions in this case being confined to the United Kingdom only),
with - as is the case today --- fairly large d~tTerences in d(wel.npment
levels within the underdeveloped regions. However, the gap between die
two regions was at that time smaller than it is between the two econom-
ic groups today.
As the problem of the less developed regions is by far the most
importar:t, this is the aspect on which we propose to concentrate.

2.2. A brief presentation of the results expected from free trade

In view of the extensive development attained by the theory, or
rather theories, of international trade, it is by no means easy to sum-
marize all the arguments involved without distorting or over-simplifying
them. It is no simple matter to condense the "great doctrinal conflicts,
of both historic and contemporary importance" inherent in the debate
216 P. Bairoch, Free tr~ule in the 19th century

between tile advocates of protectionism and of free trade. 6 As Haberler

already noted in lt136, i.e. before the abundance of new research in this
field: "it would bc better to build a ladder, with the advocates of
absolute free trade at one end, the "autarachists", tile advocates of
closed economies at the other end, and with all the other authors
placed between these two points, depending on the degree o f protec-
tion they recommend". 7
Building such a ladder would by now be an extremely difticult task,
certainly one that would exceed the framework of our present research.
This is wily we shall confine ourselves to a brief presentation of the
principal results anticipated by liberal or neo-liberal theoreticial~s on
international trade from increased tbreign trade.
For this presentation of the free trade theory we shall start from the
excellent summary which Barre gave in his textbook on political econo-
my, 8 regrouping under three headings the positive economic aspects 9
which the advocates of free trade attribute to this policy:
(a) free trade allows for production to be distributed according to the
law of comparative costs and leads to specialization which is beneficial
to all concerned;
(b) free trade facilitates the development of competition and fosters a
spirit of innovation, not only between the producers of any one coun-
try but also among nations:
(c) free ~rade permits an increase in the size of markets, tb.tts encot,,rag-
ing mass production and the advantages which this yields.
q-hese three poitits can perhaps best be summed up by saying that
frcc trade speeds tip the pace o f economic growth and fost :rs innova-
tion, thanks notably to more efficient territorial distributio~ of produc-
tion at the international level.
However, int the field in which we are primarily interes~.ed here, i.e..
economic devt, lopment, we must also mention the contribution made
by what SamueSson has described as the O h l i n - H e c k s c h e r theory, and
which still occupies an important place in contemporary theories about

6 M. Bye, Relations economiques internationalcs, 2nd edition; Paris 1965, p. 285.

7 G. Habede The theory of international trade with its impfications to commercial policy,
London 1936; pp. 212-213.
s R. Bt~e, I~conomic politique; vol. 11; Paris 1956; pp. 671--672.
9 One of the non-economic arguments invoked in favour of free trade is that it helps to
promote world peace.
 t~ Bairoch, Free trade in the t 9th century 217

internatiooal trade. 10 It will be relnembered that, accordit~g tu these

attthors, international trade tends to equalize the renlunela.?~:~,~ of fac-
tors of production from country to country. This leads to potential
equalization, if not of indttstrial d,:velopment, at least of ti~e income
levels in different countries. According to Le.vrler and Samuelson, sub-
ject to certain conditions fairly numerous, i~ must be admitted free
trade even leads to complete equalization both of absolute and relative
factor costs. 'l-his, in turn must lead to equalization of economic devel-
opment, which, as Caire has shown, l I is the "'third facet of the over-
optimistic triptych of those who ¢.hampion the theory that industriali-
zation is ~tchieved through international trade": the first two facets
being "development by transmission", which aims to prove the stimu-
lating impact of foreign trade, and "mutual promotion of trading na-
tions", which stems from the previous element. Moreover. according to
studies by Tinbergen, Meade and Laursen. who went deeper into the
Lerner and Samuelson theorem, t'r,:e trade may constitute not only a
partial but a total substitute for the free movement .of labour or o~ the
other factors of production. 1 2
These recent developments of the pure theory of interna!icnal trade.
of which we cannot here make a sufficiently detailed analysis, have thus
resulted in substantial rethinking of a fundamental aspect of the classi-
cal theory which, within the inod,2rn economic context of very tmcqual
development levels, had very negative and pessimistic contaotations.
One of the basic a,;s~.m~ptions of the classical theory i~, that "'nations arc

IO ["or a survey of re.:ent theories, the t'olIowing works are useful:

J. Bhagwati, Les tendances recentes de la Th~orie pure du commerce international, in the Minutes
of the BtismFe-conferen~+~;Cahiers de I'I.S.E.A. {p. 11 ), Nov. 1963 (pp. 11-50).
J.S. Chipman, A survey of the theory of international trade, (in three pints in Econometrica);
especially part 3, T h e modern Theory (January 1966; pp. 18- 76).
W.M. Corden, Recent developments in the theory of international trade, Princeton 1965.
G. ilaberler, A survey ot international trade theory, Princeton, 1961.
G.P. Kindleberger, International econotnics, 4th Edition Homewood 1968.
M. Motet, L'6change international, Rivi~re, Paris 1957.
R.A. Mundell, Tile pure theory of international trade, American Economic Review, Match
1960; pp. 6 7 - I !0.
.1. Weiller, Les relations e'conomiques internalionales (depuis la theorie g~n~rale), in: tlistoire de
la I~ns~e ~conomique au XXe cibcle, by E..lames: PUF, Paris 1955;Tome II, pp. 545-573.
J. Weiiler, L'6conomie in ternationale depuis 1950, PUF. Paris 1965.
I! G. Caire, Industrialisation et 6changes exterieurs, in Tiers-Monde, vol. VIII, No. 31.
July-September 1967.
t2 G. Haberkr, A survey of international trade theory, op. tit. p. 17.
218 P. Bairoeh, Free trade in ttw ! 9th century

destined to engage in immutable specialization, the benefits gained

from international labour division encouraging each country to special-
ize; once attained, specialization must be regarded as definitive, or at
any rate the theory does not contemplate the possibility of any change.
Nor, logically speaking, can the theory contemplate such a change." 1 3
As long as inequality between the levels o f development remained mod-
erate, 14 and, more especially as long as the gap between th~ earnings
per head o f the working population in the most advanced industrial
sectors and of the least productive farmers remained less pronounced
than it has now become, 15 this crystallization of the structures did
necessarily entail any negative aspects. One may therefore ask oneself
to what extent the development o f these classical theories was influ-
enced by wishful thinking, at the expense o f concrete analysis o f facts:
despite the quality and seriousness o f the research carried out. Clearly
the cases we shall raise here are not enough to answer this question, but
they can help to throw some light on it. For although account has to be
taken of the fact that the free trade experiment in Europe occurred ip.
the economic and technical context of the second half of the 19th
century, it should be noted also that this period already had two impor-

3 M. Moret, op. cit. p, 41.

*4 We hart already seen in section 2 that the gap between the per capita income in the
United Kingdom and the average for the rest of the world was approx. 3 to I in about 1860, as
against a difference of 7 to 1 in the presen~ day betweeP the United States and the average for
the rest of the world. On the basis of estimates by M,G. Mulltall, (The progress of the World),
l.cndoa 1880, p. 42; and Industries and Wealth of Nations, London 1896, p. 391) the most
e x t r e m e gal: between the per capita earnings in the various countries of Europe was, in
t 8 8 0 - 1 8 9 0 , a difference of 1 to 4 (and probably 1 to 10 for the world as a whole). In the first
stages of industrialization, towards 1 7 8 0 - ! 800, when the classical theory was beginning to take
shape this gap must have been still smaller, probably only 2 to 3.
Nowaday~ this gap is 1 to 6 if you consider the countries of Western Europe only, and ! !~ 50
for the world as a whole. These, of coulse, are only rough comparisons, not corrected for
differences in the cunencies purchasing power (which were very aleatory in the 19th century).
however, they do provide some indication of trends in this field.
, s According to the statistics available, the hourly wage of a male agricultural worker in the
least developed cf the developing countries can be a~,~sessedat less than 0. I dollar. In the United
States on the other hand, the hourly wage lalso for a male worker) amounts to and may even
exceed 5 dollars in cectain industrial sectors, a gap of approximately I to 60 (data for 1968
sources: agricultural earnings, F.A.O. Production Yearbook: Unite:l States: Statistical Abstract
of the United States). "i~tis is the gap as regards workmen's salaries; it would be greater still if a
comparison were made bet',~een the average earnings per head of the working population in the
sectors concerned, for in t . e developed countries indu,q~al sectors include a much larger
~oportion of highly skJIJed pessonnel than can be found in agriculture in the developing
cou n t ri.,.~5.
 P Bairoch, Free ~rade m the 19th century 219

tant structural characteristics of our own era: namely uneven levels of

development, and transportation costs low enough tc~ allow for a large
volunae of international trade.
We shall concentrate our analysis of tile results of the free trade
policy in France on the following three aspects 16 as these sum up the
effects which the advocates of liberal or neo-liberal theories ascribe to
the intensification of trade: (1) acceleration of economic growth, ~2)
stimulation of the spirit of innovation, and intensification of industrial
equipment, (3) attenuation of the gaps betweel~ levels of economic
development and factor cost', equalization.
As our research covering the other countries of continental Europe
are less advanced, our analysis here wilf be more succinct and concen-
trated mainly on the first of the three effects listed above. As regards
the United Kingdom, in view of the fact that its foreign trade is relative-
ly far more important, we shall, in addition to an analysis of its eco-
nomic development, also take a brief look at the evolution o f its foreign
trade.

3. The effects of free trade on continental Europe

We shall start our attalysis with the case of Fran,:e, followed by a l'a~"
more superficial survey of the developments in Germany and Italy.

3.1. France 17
In France, the free trade experiment began with the Franco-British
treaty of 1860. and ended in 1892 with the introduction of the tariff o f
M~line.
Below we examine the consequences of the liberalization of foreign
trade as it affected economic growth, innovation and equipment, the
reduction of disparities between the development of countries, and the
factor costs equalization.
t 6 As .lean Waelbroeck has pointed out to us, we hay,: in this analysis omitted the potential-
ly im'~ortant impact which a unilateral reduction in cus.toms tariffs may have on the terms of
trade and on the balance o f exchange rates. We hope to deal with this aspect of the matter later
on, despite the lack of relevant data.
17 Readers who are particularly interested in this case may refer to our article Commerce
exterieur et developpement economique: quelques enseignements de I'expe'rience libre-
¢¢changiste de la France au XlXe si/~cle, Revue Economique. volume XXI, No. I January 1970.
pp. 1 - 3 3 .
220 p. Bairoch F~ee trade in ehe 19th century

3. I. I. E c o n o m i c
growth Thanks to the extensive programme of col-
lective research, undertaken under the leadership of Jean Marczew-
ski.18 into the qua,titative history of the French e c o n o m y far more
valid data than before are now becoming available.
"lhe basic calculations which the Mar, zewski team has undertaken
cover then-year periods, beginning usually in the middle of a decade,
and this somewhat complicates the comparison of the growth rates for
periods which exactly span those of the various phases of ,'he tariff
policies. But the differences in growth rates are so large that one very
clear conclusion can be drawn for the free trade period taken as a
whole, namely that il was quite obviously coupled with substantial
deceleration of economic growth. I 9
The rates of growlh from 1865--74 to 1885--94 are in fact the
lowest, of all those recorded from !803+ 12 to 1925--34. In fact be-
tween 1780 and the present day. the only periods in which lower rates
were recorded are those of the French Rewqution and of the big slump
of the It;30's. Calculation of the weighted averages of the growth rates
derived from Marc;,:ewski's data for the free trade era and the imme-
diatt:ly preceding and following 15eriods, yields the Ibllowing annual
rates:

Total p[~ysieal in which In which

product {%) agriculture (V,) industry (f~,:)

1824 1859 1.82 i.15 2.30

1860- 1891 1.06 0.23 1,67
1892-- 1913 1.49 0.78 1.94

Hence the differences between the growth rates are very large and
certainly large enough not 1:o be attributable to margins of error in the
data. T rlose margins as far ~is these d i ] f e r e n c e s in the rate of growth are

i~ Published in ~ries A.F. of the Cahiers de I'|.S.E.A. {Paris) by a team including, in

addition to J. Masczewski, T.L Markowitch and J.C. Tout~dn.
,9 It .,.houldbe noted that if the annual data of M. Levy-Leboyer {Croissance ~conomique
en France au XIXe ~i~cle, Annales E.S.C. July-August 1968, 23rd year No. 4) further strength-
en our conclusion~. For, based on the trend of the global volume of production in agriculture
and in the extractive and manufactu ring industries as well as building, growth would have been
as follow~ {using the triennial averages around the given year): ] 8 2 4 - 5 9 : !.83%; 1860-91:
0.93%, 1892-1913: 1.80%.
 P Bairoch, I,'ree trade In the I qth century 221

]able 3
G r o w l h of the French product after the eliminatk;n ol exogenous lactors (annua~ rates ,.hown
as percentages).

Total product Product per capita

a b J b

1824-1859 1.9 1.9 1.5 1.5

1860-1891 1.2 IA 1.1 l,O
1892-1913 1.5 1.8 1.4 1.7

a Based on lhe datt~ of Marczewski.

b Based on the dala of Levy-Leboyer,

concerned luu~t probably not exceed 10'~/ {but it is obvious lha! tile
margin of error of the data related to the volume of the physical prod-
uct is ranch higher than 10%}.
It will also be observed that not only the liberalization of trade
substantially slowed down economic growth, but that the reintroduc-
tion of protectionism led to accelerat,otl in the rate of growth, eveil
ti~ough this was slower than in the period preceding the experiment. It
shonld also be noted and this is a poi~t we ,:hall rett, rn to later in this
text - that the deceleration of growth was greater in agriculture than m
indvstry.
However, before discussing the other effects of the free trade experi-
ment, it is worth investigating whether the deceleration of growth could
not be attributed to exogenous factors. During the period 1824- 1913.
there were four such factors which might have had ¢, relatively impor-
tant effect on economic growth. They consisted of the following four
events: ( I ) the Revolution of 1848, 12) the incorporation of Savoy in
1860. (3) the "'cotton famine" caused in the years 1862 e,4 by the
American civil war, (4) the war of 1870 71 and the loss of Alsace-
Lorraine.
Clearly three of these events must have lowered the rt, te of growth of
the ~otal physical prodt, ct, and only tire incorporation of Savoy had the
opposite effect. We eliminated these exogenous factors, either b~..
adopting existing estimates or by working out estimates ourselves, but
only for the total physical product. Taking into account the elimination
of these factors, we obtain the corrected rates of growth .,;how~a in
table 3.
Thus, even after elimination of exogenous factors, there is a very
222 P. Bairt~h. Free trade in the 19th ¢~'ntury

substantial margin betweeJl the pace of growth in the different periods,

leading to the c,mclusion that there was consic!erable deceleration o f
growth during tile period of free trade. This deceleration is the more
significant in that it emerges not only from comparison of the growth
rates for this period with those of the preceding period, but also from
comparison with the rates for the whole of the 19th and 20th centuries.
Another relatively important exogenous cause could be invoked to
"'explain" the deceleratior of growth: nameJy, the impact of long-term
economic fluctuation, i.e. the Kondratieff cycles as they arc still called.
One part of tha,~ period, starting with the years 1870--75 is, in the
opinion of most researchers, 2° situated in the downward or depressive
phase o f this cycle: i.e. in the phase during which price trends tend to
decrease and economic activity is characterized by a slower pace o f
de, elopment. Personally we regard this largely as a bogus problem;
suggesting that the long-term cycles could be responsible for a modifica-
tion in the rates of growth is on the whole tantamount to regarding the
causes as effects; and it allots too much importance to the concept that
long-term cycles are entirely independent and regular, ttowever, if you
ignore this opinion, you have to admit that the reversal o f the cycle did
not have a marked effect on the most deveiol~ed country to participate
in this liberalization venture for, as we shall see later on, economic
growth in Britain actually speeded u p Lastly, the fact that the period
o f free trade was fairly long (more than a quarter o f a century), as well
as the fact that economic growth after this free trade interlude was
somewhat slower than be:fore, aiso argues against the theory that this
deceleration was no more than a temporary contraction which allowed
for the elimination of marginal enterprises and thus promoted faster
subsequent growi.L.

3.1.2. hmovation and equipment. Innovation is a major issue in the

controversy about protecti,onism. As we have seen, theories in support
of the liberalization of trade always stress that free trade necessarily
constitutes an incentive to innovation, notably through the interplay o f
competition. Hence it was of some interest to ascertain in how far this
had been confirmed in the case o f France. Similarly, it is claimed that
the equipment and modernization o f industry depend largely on the
stimulus provided by competitive foreign products.

20 There is o n e school of though~t which denies the existence of such cyclcs.

 P. Bain~ch, bYee trade ~n the 19th c¢'rmtrv 223

These aspects of the question are of course more difficul! to analy~,e

than those of growth, especially if one wants 1o work on the basis of
quantitative data. The first point to note is that, as regards major inno-
vations, this period dongs not show any substantial difference with either
the preceding or following perioas. It could even bc said that it was less
productive of major innovations.
We have collected statistics covering the number of patcnts granted
and the number of designs and model:s registered, as well as the power
of steam engines used in industry. These data have been corrected m
order to allow for the geographical changes which occt,rred in France.
Examination of these statisttcs 21 shows that during the period of free
trade the pace at which industry was being equipped with stream en-
gines diminished; during this same period, the total volume of energy
used by industry rose more slowly than m the preceding and following
periods There was a similar deceleration in growth for the t:umbers of
patents taken out and in the number of models and designs registered.
It is true that these indications are not enough to constitme formal
p r o o f that innovation and equipment lost pace, especially as the data
available for certain industries reve:.,I accelerated modernization of
equipment.
Thus for instance, it appear,; th;~rt the modernization of tile steel
industry did not slow down and even accelerated in some respects: the
elimination o f blast-furnaces fuelled with wood ~as faster during this
period, which is perhaps normal considering the logistic curve which
usually characterizes the spread of inventions. However, the increase in
average size of blast-ft,rnaces showed more tmiform development. Simi-
larly, the available figures seem to show some stagnation in the modern-
ization o f the cotton industry, which at that time was one of the key
sectors of industrialization.
At a more general level, the data concerning capital formation do not
atlow for any very clear conclusioe. Although the rate of capital forma-
tion for 1 8 5 4 - 4 4 was much higher than m previous decades, it dimin-
ished somewhat in the next two decades, only to resume its expansion
after the restoration of protectionism.
In so far as account has to be taken of the delay between evolution

2 ! For more detail~, readers can refer to our article, Commerce exte*rieur et d#veloppemenl
~ o n o m k l u e : quelques enseignement~ de I'exp~ri~nce libre-dchangiste dela France au XIXe
siecle, op. cit. pp. 16-19.
224 P Bai¢och. Free trade in the l g t h century

of production (or of demand) and the moment of actual investment, it

could well be that nlanufacturers anticipated a rise in production which
did not in fact materi'dize. The aid which lnanufacturers received from
lhc govcrmnent to enable thein to adjust to the change in competition
can only have contributed slightly to this temporary increase in capital
fornmtion, since the 40 million francs allocated for this purpose, and of
which 38 iniilion were spent, 22 represent no more than 4 ~ of the value
of durable goods (excluding building) produced in a single year. The
data covering .t~ e production of durable goods show a fairly favourable
trend for the free trade period, if they are based on the maximal esti-
mates made b~ Markowilch (i.e. those including durable goods o f a
non-productive character); but if only the stricter concept of equip-
ment goods is used, i.e. that which correspomts to this author's minimal
estimate ~which seems to ua to be tile nlore valid in this context), then
the trend for the period is unfavour~ble.
As can thus be seen. the conclusions are by no means clear but they
do tend to slmw that the development of equipment in the period
18~,0- 1892 was, if not actually negative, certainly not positive either.
And as we have also seen, in the field of innovation the negative charac-
ver of the period was still more cvidznt.

3.1.3 Attenuation o.t the gaps between levels ~ff'del, elopment in differ-
ent countries and ]actor costs equalization. One of the essential
poi~ts to be found (explicitly or implicitly) in the vast majority o f
neo-liberal theories, is the conviction that trade, and especially the
liberalization of trade, leads to potential equalization between nations.
ttence it was interesting to ascertain the extent to which attenuation o f
disparities and factor costs equalization had occurred during the period
and in the case under analysis. Liberal policy in France was centred
chiefly on the development o f trade with the United Kingdom, and the
Franco-British treaty was the cornerstone of this policy. 23 Since, as we
have seen, the United Kingdom was at that time the most developed

22 A.L. Dunham, The Anglo*French treaty of commerce of 1860 and the progress of the
industrial revolution in I:r~nce, Michigan, 1930; pp. 148-150.
23 The place of the United Kingdom in Fr:nch foreign trade was dominant and risin8 since
the middle of the Igth century. But the trade treaty further accelerated this phenomenon. The
Untted Kingdom's share in total French exports increased form 23% for 1847-56 to 29% for
1857-66.
 P 8airoch, Free trade In the 19th century 225

nation, comparison between the two countries will show whether the
said attenuation and equalization took place.
Let us look first ~t the attcnuution of disparities in dev,:lopment
levels. Marczewski carried out a .,;cries of calculations to make the
French and British physical proaucts fairly comparable. 24 As diflL'r-
ences in tile metilods of census introduce additional distortion in com-
parisons based on the physical product per head of the working popula-
tion, we have used those for the physical product per capita. Leaving
aside fluctuations which, as Marczewski notes, result chiefly from the
annual character of the British estimates, it appears that the period of
tree trade did not bring abot.t an alignment of the Frez/ch product per
capita with that of the U.K. Calculation of the averages for two periods,
namely those before and after the period of free trade, shows the
following gaps:

Gaps bard on French Gaps bared on British Averageof

relative prices (%) re~ tire prices t%) the~ gaps !~ )
1851-1861 26 16.5 21
[891-1901 29 29 29

Thus there has been ,'in increase in the disparity between tile two
countries, which is confirmed by the rates o f economic growth for the
two economies (see table 7 further on).
Let us now see, very. briefly, the extent to which there was an equali-
zation in production factor prices. The only field ( fortunately+ the most
important+ in which comparisons may be attempted is that showing the
trends in wage levels. Befo:'e doing so, it should be noted that, contrary
to what might be assumed in view of the disparity in levels of develop-
ment+ the average level of industrial wages in the U.K, in about 18(+0
does not aF+pear to have been muct, higher than in France. Accor~.mg to
Marczewski's calculations '+until the middle of the 19th century, the
equivalent purchasing power of French industrial wages seems to have
been higher than tha of wages in the U.K, ''25
It is possible that these calculations have overestimated the relative

24 L Marezewski, Le produit physique de r~'conomie franqaise de 1789 ~ 1913 (comparai-

son avee la Grande-Br~tagne), in Cahiers de rI.S.E.A., ~ries A.F. No. 163, July 1965.
25 .I. Marczewski, op. cit., p. 53.
226 1~ Bairoch, Free trade in the 19th eentury

level o1" French wages to some extent. Equality of wages towards 1860
seems to us the maximum hypothesis, with a probability of higher
wages in Britain, but not to the extent which might simplistically be
assumed on the basis of gaps in the development levels. This particular
distortion should perhap.~ be attributeu to the fact that the working
class in Fr~.,nce enjoyed better social conditions. Far more precise data
would be ~ceded. especially covering Britain, to allow for further inves-
tigation of this point. But far the case under discussion here, only the
trend is of interest; and the available data show that wages rose far
more speedily in Great Britain than in France, i.e. that instead of align-
ment there was in fact an increase in disparities. For the period between
18.51 anti 180 I. on the basis of Marczewski's calculations there was an
2t,% increase in gross wages in France co,. "-nred to 4tY~, in the U.K. 26
Although in the problem which interests us here this point is more
marginal, the trend of real e~rnings (taking account of the cost of
living1 further accentuates the disparity, since it appears that between
these two dates the cost of living dropped (by about 20%) in Britain
whereas in France it went up (by about 5%).

3. ~.4. Conclusions and temptative interpretation o f the French case.

The above analysis allow for very clear conclusions to be drawn a
regards the impact of the French liberal policy in international trade
between 1860 and 1892: this impact was on the whole strongly nega-
tive. and at the very opposite of the effects expected by liberal or
neo-!~beral theories.
Economic growth slowed down considerably (even if exogenous fac-
tors are excluded); not only was the rate of growth during this period
substantially lower than in the periods o f equal duration before and
after the free trade interlude, but it was also the lowest rate which
France has experienced since the end of the 18th century, except for
the troubled times of the French Revolution and the First Empire, and
except for the slump of the ! 930's.
Far from promoting innovation, it emerges that the period was in
fact unfavourable in this respect; all indicatln-s available in this field
point to deceleration. However, it must be noted that the conclusions

26 Wages expressed in local currencies. If Fgench wages ale explessed in terms o f stealing
purchasing power and British wages in terms of the Franc's pugchashtg power, the trend is as
follows: 10 and 20%, thus showing even greater dispa~ty
 P. Bairoch, Free trede in the 19th century 227

regarding capital formation are not as unfavourable, even though these

too demonstrate the negative character of the period.
Attenuation of the gap between development levels of France and
Britain, whicil should in theory have been protnoted by increased trade,
did not occur; on the contrary, all available indicators show that eco-
nomic growth speeded up on the other side of tile Chamlel, and that as
a result tilt" gap between the two countries became even more pro-
nounced during this period. Similarly, instead of an equalization o f
production factor costs, which should also have occurred, increased
dispari~'~' developed in this field too, especially wages in the U.K. rising
much ~'zster than in France.
Thus the liberalization of trade, far from yielding tile beneficial ef-
fects postulated by liberal or rico-liberal theories, actually slowed down
the pa,.e of economic development with all thai this implies. The fact
that, on the one hand, the period of free trade was fairly long (over a
quarter of a ce,-ttury) and, on the other hand, that economic growth
after this interlude was slower tha~: before, also rules out tile suggestion
that this deceleration was no more than a temporary contraction which,
by eliminating marginal firms, served as a springboard for faster growth
afterwards. These negative effects of free trade are relative to a country
with an advanced level of development lower than that of its principal
trading partners. 27 The problematical framework and consequences of
such a policy were of course different for the more developed countr3,'
since, as we shall see later on, during the free trade period tim rate of
growth of the British economy was the highest of any recorded be-
tween 1700 and 1960.
The better knowledge that we have now in the macro-economic data
of this period thus fully justifies the decisions which the French govern-
ment took when, under combined pressure from farmers and induslrial-
ists, it reintroduced protectionism in France (as was done also in most
of the European countriesL But the support which this French experi-
ment may give to the advocates of protectionist or neo-protectionist
theories has to be qualified; for it emerges, and this is important, that it
was not industry which suffered the most from the experiment: as
' already explained, the deceleration of growth was most pronounced in

27 During the period 1857 1876, sales to the United Kingdom, to Belgium, to the United
States and to Switzerland - "all of them more developed countries than France in the industrial
field at any rate - represented 56% of tolal French exports (28% of which went to the United
Kingdom alone).
228 P. Bairoch, Free trade in the 19th century

agriculture. This can very largely be explained by the contraction of

local markets resulting from increased imports o f agricultural goods.
The trade deficit for those goods .... which represented less than 3% of
the gross agricultural product in the 20 - 30 years prior to 1860 -- rose
to 15% between 1875 and 1895. In fact, taking account also of imports
of tropical agricultural goods (which however are only very partial sub-
stitutes for local commodities), the deft_it for the period represents
close on 20% of the agricultural product. It must be remembered that
the liberalization of trade was also accompanied by a drop in transpor-
tation costs which enabled cereals, particularly Iorm America, to re-
main competitive, not only upon arrival in the European ports -- thanks
to the decrease in maritime freight costs - but also to reach the heart
of the continent thanks to the railways which had also, on the other
side of the Atlantic, brought about a decrease in price levels at the
export harbours. It can be estimated that in the 19th century real
transport costs dropped at a ratio of more than IO to I in the field o f
maritime freight, and of 20 to I for overland traffic. :z8 The resulting
cc, atraction of agricultural outlets 29 had a nuraber o f highly negative
eff:.:ts, for it occurred at a m o m e n t when half of the French working
~'~pLdation was still engaged in agriculture, thus greatly hindering ac-
:elcration of the rural exodus which would have enabled industry to
absorb agricultural underemployment, as hz~d been the case in Britain
some I0 20 years before. Broadly speaking this is a matter of relative
proportions. Hereafter we show the respective position of the two
countries in terms of percentages o f the total working population in
agriculture and industry shortly before the introduction of their liberal
policy in respect of agricultural imports:

2a See: Paul Bairoch, R~volution industrieUe ¢t sous-dc~veloppement, Paris 1963 (3rd edi-
tion 1969), pp. 177-178.
29 We shall not speculate here as to the ways in which agriculture could have readjusted, by
greater specialization in the production of more processed items (meat, dairy products). But in
this connexion it should be noted that a rapid increase in the production of these commodities
implies either a speedy increase in the standard of living, or great scope for exports to more
developed countries. But as we have seen, economic growth had decelerated. In addition,
British agriculture had already to some extent specialized in these products, hence the scope for
exports was limited, especially if you consider the importance of French agriculture. It is cleat
therefore that any such reconversion would have had to be a slow and gradual process. More-
over, France would in that case have met with competition from Holland and Denmark, which
had of necessity adopted this course because of the high density of their farming population
and the relative absence of industrialization.
 P. Bairoctl, Free trade irl the 19th century 229

Agriculture i(:~) Industry ('7,.I

Great Britain Ih40 27 a 39

France 51 27

a Corrected figure; the basic data only give 23%, but we have included one-third of domestic
servants in agriculture.

On the theoretical assumption that industry could absorb 3.0% of

the agricultural working population per year (we even considcr here
that the tertiary sector absorb,; 20';,; of this yearly working population
surpl~us) the industrial labor foa'ce would have had to rise by 4.5¢~
annually in France and by only 1.6f:/, in Great Britain1 - a dift2"renc,: of
almost 3 to I.
As this speedy shift to industry could not be achieved, there was a
deceleration in the growth of agricultural productivity wbi~:h led to
relative stagnation and even, for a time, to a drop in farmers" ~urchasing
power. And this despite the improvement in the terms of trade of
agricultural products, as was the case throughout the whole of the I q~h
century. As farmers still represented the dominant section of the popu-
lation, this stagnation stowed down the global demand for industrial
products. This was felt even more strongly by local ind'astry because
the liberalization of trzde had had another negative effect in tha~ it had
slowed down the glowlh of the foreign trade surplus tor industrial
commodities, which hati been very substantial from 1830 to 1860 and
which resumed after 1892. As foreign markets could not comi~ensate
for the contraction, or rather for the slow progress of domertic de-
mand, industrial growth suffered.
Before reaching more general conclusions, we should now ascertain
what happened in two other large European countries. This briell analy-
sis starts with Germany, the third industrial power in Europe.

3.2. Gernumy
In Germany, the period of free trade began at the end of 1852 and
lasted until 1879. Industrialization had begun later in this c o u n t ' y than
in France and, despite faster growth, the German level of ec~momic
development towards t860 was lower than in France (see the in6icators
in tabel I). Another notable difference between Germany -- as well as
230 P. Ba#och. Free trade in the 191h centur.v

most other European countries -- and France, resided in the fact that it
enjoyed speedier demographic growth than France. 30
As our research is not yet sufficiently advanced, we shall at present
confine ourself to a very brief examination of the two following points:
economic growth and investments) 1 The attenuation of disparities be-
tween development Ievels will be dealt with after the Italian case.

3.2.1. Economic growth (Germany). As the estimates of German's

n~nal product only begin in 1850, the data for the period to the
introduction of free trade may not be sufficiently representative of
previous trends. The available data for the period 1 8 2 0 - 1 8 5 0 is too
fragmentary to give useful indications.
Table 4 shows the main data concerning the pace of growth during
significant periods selected on the basis o f modifications in tariff poli-
cies.
Table 4
, mnual rates of growth in the volume of production (Germanyl (percentages).

Overall production a Agriculture b Industry

Per Per Per

Total Total Total
capita capita capita

1850/52 to 1860/62 2.1 1.4 1.9 1.3 2.8 2.2

1860/62 to 1877/79 2.5 1.7 1.2 0.3 4.5 3.6
1877/79 to 1898/1900 2.8 1.7 1.8 0.7 3.7 2.6
1898/1900 to 1911/13 2.9 1.5 0.9 -0.5 3.9 2.5

a Including other sectors than agriculture and industry.

b On the basis of five-yearly averages.
Sources: :.ce text (footnote 31 ).

On the whole, trends in Germany show great similarities with those

observed in France: in particular, deceleration in the growth of agricul-
tural production, which dropped from !.9% p.a. before free trade, to
1.2% during this period; in terms of growth per capita, this amounts to

30 Whereas between 1850 and 1900 the European population (except Fnmce) rose at an
annual rate of 0.9%, for France this rate was only 0.2%, despite the fact that there was less
emigration in France than elsewhere in Europe.
31 Virtually all the basic data used in this analysis are taken from the important book of
W.G. Hoffmann (in collaboration with F. Grumbach and H. Hesse), Das Wachstum der Deut-
schen Wirtschaft seit der Mitte des 19. ;ahrhunderts, Berlin 1965, and from the data collected
for our article Niveaux de d~'vel,~ppement e'conomklue de 1810 ~ 1910, op. cit.
 P. Bairoch. Free trade In the i q t h cenlury 23t

a virtual stagnation under free trade. As m France, the return of protec-

tionism enabled agriculture to revert to its pr~:vious rate of growth.
And, as in France, this deceleration of agricu;tural growth largely re-
sults from the increase in imports of foodstuff.,,.
Between 1860/65 and 1876/70, the volume of these imports i,lcreas-
ed fourtbld, representing an annual rate of growth of q'.;~ as against
0.6% for the period 1836/40-1860/65. This was followed by stagna-
tion from 1880 to 1890, and further progress of 7',;~ p.a. from 1890 to
1913 (3.5% from 1875/7c) to IC)10/13~. Thus during the liberal era.
imports of agricultural produce increased nine times faster than the
volume of domestic production (see table 4). Towards tile end of the
period of free trade, the value of agricultural imports represented ap-
proximately 2(Y~, of the total value of agricultural production, against
less than 6% at the beginning of this period.
One may ask why, despite ,his strong deceleration of growth in
agricultural production and, hence, in the income of rural areas, indus-
t r / was able to accelerate its rate of growth. For this there were two
major reasons.
The lirst is linked to the fact that, towards 1860, the level of produc-
tion in industry was still fairly low and hence the demand created by
equipment goods had, in relative terms, a stronger impact than in
France. For example, between 1860 and 1880, Germany put into oper-
ation 22,000 km of railway network against 16,500 km in France; but
towards 1860 the production of pig iron anaounted to approximately
900,000 tons in France, against only 500,000 :ons i,1 Germany. The
available indices covering industrial production clea,ly sho~ the differ-
ence between growth rates for the manufacture o~ quipment goods
and those of consumer goods. Between 1860-62 ~..d 1877-79, we
observe the following progress in the volume of production of the
various sectors (annual rates) (in per cent):

Food 3.0 Construction 4.9

Timber 3.7 Metal manufactures 6.7
Textiles 2.8 Metallurgy 7.2
Clothing 22

The secorad factor which fostered faster growth o f industrial produc-

tion was the speedy rise in exports of manufactured goods, and particu-
larly of semi-manufactured goods, the volume of which rose at an an-
232 13. Bairoch, Free trade in the 19th century

'l'able 5
Annual rates of growth of the volume of exports and of the production of manufactured goods
{Germany) Ipercentages).

Exports
Production
Semi- Wholly Total a {total)
manufact~ed manufactured

2850/52 to 1860/62 5.4 5.6 5.5 2.8

1860/62 to 1877/79 10,0 4.3 5.3 4.5
1877/79 to 1898/1900 4.1 3.7 3.8 3.7
1898/1900 to 1911/I 3 8.7 5.9 68 3.9

a Estimates ba~ed on the two previous sets of figures and on their reFative ~mportance.
Ya~urces. see text ffootnote 31).

nuat rate of I(Y;;~between 1860/62 and 1877/79. However, it should be

noted that semi-manufactured goods only accounted tbr a small propor-
tion of the total value of production in the manufacturing industry and
that, for manufactured articles taken as a whole, growth in the volume
of exports was faster before free trade and for certain years after it,
than during tt~e free trade period itself(see table 5).
As in France, there was no great increase in imports of manufactured
good~ During the free trade period, these rose (in volume) at an annual
rate of 4.5%. i.e. more slowly than exports of these same goods. After
1879, exports rose thr more rapidly titan imports, titus further increas-
ing the trade surplus for these commodities, which rose from 112% of
imports; in 1880/82 to 229% in 1911/13.
Before turning to investments+ it is worth noting that the decelera-
tion of growth of agrictdture in the first years of the present century
only had a limited effect on overall growth because this sector repre-
se,~ted a strongly diminishing relative share of the economy taken as a
whole. Agriculture, which represented 46% of the value ,)f total produc-
tion towards 1850, dropped to 40% towards 1870 and to only 30%
towards 1900 (for the working population in agriculture the trend was:
1850 = 52%; 1870 = 49%; 1900 = 38%).

3.2.2. Investments (Germany). In this field the trend was still more
clearly negati~,e not only in relation to growth, but also in relation to
the French case. Investments clearly tended to remain stagnant, in
strong contrast with the trend before and after the free trade era.
 P. Bairoch, Free trade in the / 9 t h eent,~rv 233

The following figures illustrate this point; they ~:oI~cern the share of
net investments calculated as a percentage of the net social product:

1850-1854 9.6
t859 ~ 1863 10.3
1876 1880 10.4
1897 1901 14.9
1909-1913 15.3

As it was the case of economic growth, the deceleration int lhc pace
of investments also resulted from the agricultural situation. The free
trade period was characterized by a virtual standstill of investments in
agriculture which (in constant marks of 1913) rose from 294 million
marks p.a. for the years 1852---1862 to 31 I million for 1863-l~qT~L :~n
increase of only 6% whereas ~he value of production in the sector ( again
in 1913 marks) increased by 28c~.
However, even in industry investments rose far more slowly during
the free trade period than before and particularly after this period. The
only sector in which investments advanced faster under free trade than
alter is the railways, llowever, in this case there was a mere coincidence
in time between the development of thi,., form of transport and the
liberal tariffs policy. It was in the ye~,:s 1860--1890 that the develop-
ment of the railways ~as fastest in virtually all countries, inc%ding the
protectionist United States.
Thu~, in these two important aspects of economic develop::~ent ex-
peri~'nce in Germany did not differ from that in France: free trade did
not yield the results which the liberal theories expected, on the con-
trary.
As alre:~dy mentioned we propose to examine the attenuation of
disparities in levels of development after the Italian case.

3.3. Italy
In Italy, the period of free trade lasted for some 24 years, from the
beginning o f 1863 until the end o f 1887. As for Germany we shall only
provide a very brief analysis of economic growth and of investments. 32
a2 Virtw,db, all the basic data used here were taken from the foUowing works: G. Fua,
Notes on Italian economic growth 1861-1964, Milan 1965. S.B. Clough, The Economic Histo-
ry of Modern Italy, New York and London 1964. Sommario de statistiche storiche italiane
186~,-1955, Rome 1958. As well as information as~sembled for our work Niveaux de d~vel-
oppement e'conomique de 1810 ~ 1910; op. cir.
234 t: Batroch, Free trade in the 1 ~,Th eentury

3.3.1. l:'¢onomi~ grt,,~,th (ltalyL No vaqd data are available as yet

regarding the trend of the national product I~efore 1860: hence compar-
ison is possible only with the years after the lrec ~rade period.

"gable 6
n,nnual rates of growt/'l in the vo~ame of the natkmal product (Italy) (percentages).

(;ros~ Agricult urt, lnda guy

rtal~onol produc! value added value added

Per Pet Per

1oral Total Total
capita capita capita

1863/65 -- il8 ~5/87 0.7 0. I 0.4 0.3 1.5 0.9

1885/87 - 1!911/13 L9 1.2 1.3 0.6 2.6 !.9

~f~mr¢ "s De:rived from G. buta ~p. cir.

"File trend here is seen to be simi!ar to that in France and in Ger-

many: a low rate of growth during the liberal period, acceleration after-
wards. In this case to the role of agricu!ture was decisive as regards the
low rate of growth, and tk~r the same reasons as in France and Germany.
Imports of wheat alone increased form 300,000 tons before 1863 to
over q00.O00 tons towards 1887, i.e. lbrm 8% to approximately 27%, o f
domestic production. As towards 1860~5% of the working oopulation
was still engaged in agriculture, the low rate of growth in this sector
strongly affected the development of the economy as a whole.

3.3.2. bt~,estments (ltalyL Gross capital formation rose much faster

after than during the period of free trade: 3.2% p.a. against 2.4%; and
these rates are still largely affected by the very high levels of capital
formation in 1886 and 1887.33 If these years are excluded, the rates
are 3.8% and 1.5%. Perhaps more significant still is the level ot invest-
ments for equipment, which rose from 3.5% p.a. from 1862/66 to
1884/38 and by 4.5% p.a. from 1884/88 to 1909113. As in Germany,
the rate of investment here was favourably affected, during the free
trade era, by the development of the railways. 34 If this factor is elim-
inated, then the negative aspect of the period of free trade is further
enhanced.
33 Owlin8 to a large increase in stocks.
34 Some 7,000 kw. put into operation during the two decades of free trade, against 3,500
for the next two decades.
 P. Bairoch, b'vee trade in the 19N- century 235

3.4. Attenuatiott o J" disparities between d,el,eh~pment levef.~" ~ f,ra~::.e.

Germany. ltal.v. Swedelt. Norway)
For France, we have seen that. far from the diminishing as an ~cipat-
ed by liberal theorists, the gap between this c~untry's de~elo~,ment
level and that of Great Britain had in fact become larger. Let us set~ now
what the trends were in this respect for the other countries o~:~ the
European continent. To this end, we have in table 7 compared the

Table 7
Comparison of tl:c ave~al~e annual rates of growth during the period of free trade Ipercentag,es).

Natmonal produc! or income

rotal Per capita

Great Britain 1860/62 -- 1880182 2.8 L.6

France 1859161 --. 1890/92 !.2 I. 1
Germany 1860/62 ~ 1877179 2.5 1.6
Italy 1863165- 1885/87 03? 0.1
Sweden 1862[64 -- 1890192 2.4 1.5
Norway 1865/67 1890/92 1.8 I. I
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sour¢.e~" {except for Sweden and Norway): ~ e c~.,~-responding sections. Sweder.: from (.L ]ohans-
sen, The gross domestic product ,ff Sweden al,d its composition 1861 - 1955, Stockholm 1967.
Norway: from J. Bjerke, Langtidst~nger i Norsk Okonomi 1865- 1960, Oslo 1966.

average annual rates of growth of tile national product or income dttr-

ing the period of free trade for each of these countries. In addition to
Germany and Italy, we have also included Sweden and Norway (which
were at that time linked by an economic unionL the only large Europ-
e:in economic entity for which statistics are also available in this respect
tbr the period under consideration.
As far as the total growth rates are concerned, Britain w~s well ahead
of the other countries, which ail showed slower increase ~n their do-
mestic product. At the level of per capita growth rates which is a
more significant measure of the level of development - only Germany
enjoyed a rate which was very similar (allowing for margins of error) to
that of Great Britain. In the other four cases there was slower growth,
hence a probable increase in the disparity between these countries' level
of development and that of Britain. This conclusion should however be
tempered by two observations with regard to Germany.
The first is that economic growth in this country was considerably
faster than in France, although towards 1860 France was more devel-
236 P. Bairoeh. Free trade in the 19th centuo,

oped than Germany. Thus in this case there was attenuation and even
elimination of the disparity. 35 However, towards,: the year 1860, the
gap between these two, countries was not very gJeat and the level of
trade between them not important.
The second remark is that the r~te of growth of German industry was
much faster than in Great Britain. llence there was no doubt attenua-
tion of the gap between industrial development levels. But to what
extent can this rapid industrial growth be attributed to the effects of
free lrade, bearing in mind on the one hand that these efl%cts were
negative in the other countries of continenta} Europe and, on the other
hand, as we have seen, that growth o f the ex'ernal market (though
relatively limited) was faster bcfore and after than during the free trade
period'? The problem here is in fact a [hr wider one: that o f the causes
of Germany's rapid economic growth in the second half of the 19th
century. And for which the three main explanations probably reside in
the advanced level of education, 36 in a higher level of savings, and in
more judicious channeling of investments towards specifi,: industries. 37

4. The effects of free trade in Great Britain 38

"]~h,~ difference in the problematic framework of the impact of free

trade on the British economy and on that o f continental Europe is due
not only to the fact that Britain had already attained a far higher level
of development, but also to the fact that, towards 1860, foreign trade
was a far more important factor in the British economy. From the
beginning of the 18th century, England had been the principal trading
power in Europe. This situation combined with the scope for exoorts

3s The phenomenon was apparent in agriculture as well as in industry, according to the

indicators calculated in our article Niveaux de d6veloppement ffconomique de 1810 :~ 1910, op.
tit. But in part it was due to the fact that Alsace and Lorraine (very develop.~d French regions)
were annexed by Germany as from 1870 (the effects of this transfer have been removed from
the growth rates ezalculated in the present surcey, but not from the above-mentioned article in
which a comparison was made between the development levels of the various countries at
different dates).
36 in 1830, there were only 21% illiterates in Germany, whereas at that time the rate in
England was still 44%.
37 Notably equipment goods and chemicals rather than textiles.
3s As far as possible, our analysis is concentrated on Great Britain; but because of statistic~
contingencies we have repeatedly had to deal with the United Kingdom.
 P. Baitoch, Free trade in the I 9tlt century 237

whi,ch the new lcchnology deriving from the industrial revolution had
created, and the possession of a vast colonial Empire. led already t~t t.he
beginning of the lqth century to a relatively high share of exports
con'~pared to global domestic protluction. The repet:] of the ('orn Laws
and the ensuing considerable increase in imports of foodstuffs further
accelerated this trench, and it can be estimate,.| that, towards 1860, the
U.K.'s total exports ;epresented 34';; of tile value of tile agrictdtural
and industrial prodttct. ('orresponding rates for tile same period
amounted t~., ! 3 ~ in France, ] 4;"~ in (',ern~any and I 0':~ in Italy. 3~
Another major difference in Britain's position, as explained above.
flowed from the size of her colonial empire at u time when neither
Germany nor Italy possessed any colonies and when the Frencll colon-
ial empire had a population which was nine times lower than that of
Britain.
The size of this vast empire and, even more, the great volume of
more or less compulsory trade which Britain maintained with it. have
incited us to exantine first of all the trends of the re.'~peclivc importance
of the data relative to growth, investtnents and innovation. 40
Although the U.K.'s liberal tariffs policy lasted until after lt)15, for
the problem which concerns us here we can only consider the period
during which this policy was also shared by its main European trade
partners. On this basis, and taking account of the key role of Ger-
many, 41 we have decid..t to regard the years 1860- I ~579 as the period
of free trade. 42

39 Although we I,ave endeavoured to calculate the~:e rates in relation to similar aggregates,

the methods of calculations of these aggregates are not homogeneous enough Ibr the rates we
quote to be regarded as strictly comparable.
4o For this ~ction the basic sources ate as follows:
P. Dearie, New estimates of gross national product for the United Kingdom 1830-1914, 'l-he
Review of Income and Wealth; No. 2, June 1968; pp. 95- 112.
P. Dearie and W.A. Cole, British economic growth 1688--1959: Cambridge (2nd edition) 1967.
A.H. lmlah, Economic Elements in the Pax Britannica: Harvard 1968.
B.R. Mitchell and P. Deaae, Abstract of Briz~sh historical statistics, Cambridge 1962.
W. Schlote, B~itish o v e r , a s trade. From 1700 to the 1930's Oxford, undated.
As w.~ll as data collected for our study: R~volution industrielle et sous ddveloppement; op. cir.
4.. During the yeats 1857-59 Germany absorbed 33~ of 'all l~titish exports to Europe,
against 14% fnr the Netherlands, 12% for France, 8% :for Russia and 4'% for Belgium.
4,~ From 1877, however, Russia raised its tariff barriers; and as from 1882 in France and
188~; in Swit,-.erland, there was some attenuation of the liberal character of the tariffs legisla-
tion
238 P. Bairoch, Fre~: trade in the 19th century

4. I . E x p o r t s e x p a n s i o n a n d E u r o p e
It should first be noted that tile 1850's, i.e. the decade prior to the
period under analysis, witnessed extremely fast growth in British for-
eign trade. J:rom 1 8 4 6 . 4 8 to ! 858--60, the volume of exports rose at
an annual rate of 7.3%, the highest rate of growth ever registered for a
period of such duration. This growth was due mainly to increased trade
with the Empire, whose share of the country's total exports rose from
25,8% to 34.0% between these two periods.
"lhough still fast. the development of exports was much slower
during the period of European free trade: 2.8% p.a. But whereas sales
to Europe rose in terms of value at an annual rate of 3.0%, those for the
rest of the world only increased by 2.09~ p.a. If manufactured articles
represented a hi.rher share of tile sales to the Empire, 43 exports to
',-urope consiste0 mainly of commodities with a higher value added.
The r,eriod also witnessed large increases in the sales of equipment
goods, which rose from under £4 million sterling before 1860 to close
Ol'~ I0 million towards 1880 (or from 3 to 5% of global exports). But it
shot~hl not be forgotten that the opening o f the British market also
facilitatod impo¢ts of manufactured goods from Europe. Table 8 shows

lable 8
Foreign tradt' of United Kingdom with industrialized Earope for manufactured goods (in mil.
lions of pouted sterling, at current values: annual averages).

BMance
Imports Exports
Grogs Corrected a

1854 1857 8.5 20.3 +11.8 +~4.6

1877-1879 42.4 4!.2 - 1.2 + 3.7
1898 1901 71.9 42.4 -29.5 -25.3
i 9 09- 1913 98.9 65.8 - 33.1 - 26.5

a To allow for transport costs, we have arbitrarily increased the value of exports by 14% for
1854 57, by 12% for 1877-79 and by I0% for the other two periods.
Sources." Derived from W. Schote, o F. cir. pp. 85-86,

the trend of the trade in manufactured goods between United Kingdom

and industriMized Europe, 44 on the basis of Schlote's data.
43 9~/O against 75% respectively towards 1860.
44 i.e. the following eight countries: Germany, the Netherlands, France Belgium, Luxem-
bourg, Switzerland, Austr~a-Hungary, and Italy.
 ?~. Bairoch, Free trade in the t 9th century 239

These data are highly signiff, cant: whereas lhe openhlg of the Europ-
ean markets enabled the United Kingdom Io doable its sales of manu-
factured goods, the opening of the British market led to a five-fold
increase in European exports of these goods. ']~hus enabling Europe to
reduce its deficit in the trade balance of these articles from ~ 15 million
to £4 million. The closing of the European market~; at a imle when free
trade was still being practised in Britain led to a complete reversal of
the balance of trade in manufactured goods: U.K. sales marked time,
whereas those of Europe continued to make speedy progress. 4s More
thorough analysis would be needed here to determine which groups of
manufactured articles were responsible for tl.~s trend, but at tl~e present
stage our data are still too fragmentary. On the whole, however, such
information as is already available confirms our findings for the three
principal countries of Western Europe: namely that the opening of
markets did not cause the continent to be llooded with manufactured
goods from Britain. Here again it would be interesting to obtain data
explaining the causes of this phenomenon, but here also:our r,:searches
are not yet sufficiently advanced. It may however be said that one of
the probable causes of this phenomenon, which at first sight would
seem aberrant, lies in the fact that the lowering of tariff barriers on the
continent was not as complete as it was in the U.K. Thus, whereas
towards 1870 the tariffs on manufactured goods were virtually nil in
the U.K., they still amounted to 20 to 40e,~ ad valorem in the conti-
nental countries.
Since it is our intention to illustrate in this paper the effects of free
trade on economic development, we shall therefore stop here with our
analysis of foreign trade, and pass on to economic growth: investment
and innovation.

4.2. Economic growth

The first point to note here is that new estimates of U.K. gross
national product 46 have caused a substantial decline in the growth rates
as compared to the figures that had previously been accepted. For the
period 1830--1900, growth of U.K.'s gross national product has thus

4s The figures in current values actually underestimate the trend, for belg'een 1877[79 and
1898/1901 prices cf manufaetered goods dropped by about 9% (according to the index of P.
Rous~aux, Les mouvemenls de fona de I'6conomie anglaise, 1800--1913, Louvain. 1938).
4 6 p. Dearie, N e w e s t i m a t e s ... op. cit.
240 P. Bairoch. Free trade in the 19th century

Table 9
Average annual rates oi growth of the volume of gross national product in (;teat Britain
(percentage.s).

Total Per capita

1830 1840 2.8 1.5

1840 1860 2.5 1.4
1860- 1880 2.8 1.6
1880-1900 2.4 1.3
1900-1910 1.6 0.8

Sources: P. Dearie. New estimates ... op. cit.: p. 98.

been reduced by some 35%. As will be seen in table 9, the period o f

free trade brought accelerated economic growth to Great Britain, which
was no~ the case in the principal countries on the continent of Europe.
Working on the basis o f twenty-year periods, it is worth stressing that
the period from 1860 to 1880 showed the fastest economic growth in
ever recorded British history. 47
As on the continent, the growth of British agriculture was handi-
capped by imports of farm products. Between 1860 and 1880 prodpc-
lion,in this sector was almost entirely stagnar t: in volume, the annual
rate' of growth was n o more than 0.1%. But, as already explained,
tov, ards the year 1860 British agriculture was no longer the dominant
economic activity: by then it was only providing 18% of the national
product and the working population in agriculture only represented
19% of the total ion the continent this latter figure was as high as 60%).
Hence the impact of agricultural stagnation on overall economic growth
was very limited.

4.3. Investments
Tile data concerning investments and capital formation are very in-
complete, especially before 1860. On the basis of available figures, it
would seem that gross cal~ital formation, which had remained relatively

47 it may be considered that, duriL ~, the 18th century, the yearly per capita rate of growth
did not, in any twenty-year period, exc¢ ~d 1.2%. On the basis of unrevised figures for 1820-
1840, growth was faster then than for th, revised f'qgure 1860-1880, but not faster than the
unrevised figure for this period. Dearie notx ~ that "'the longest period of sustained expansion
s e e m s to have been the 17-year period 1858-75 when gross national product is estimated to
have grown at about 2.8% p.a. and per head at about 2% (P. Deane, New estimates.., op. cit. p.
97).
 P. Bairoch, Free trade in the 19th century 241

stable (in terms of percentage of the gross national product) at about

7%, rose very fast during the period of free trade, increasing from t~.7~;
for 1860/63 to 8.7'A for 1876/79. After this period the rate fell back,
dropping as low as 5.5% towards 1890; after which there was another
peak towards the year 1900, with just over 9c2~,,then it declined again to
5.5% towards 1910.
in the second half of the 19th century, the United Kingdom was (by
far) the principal foreign investor, and it is therefore worth casting a
brief glance at the trend in this field. The first point to stress is the large
volume of these foreign investments which, for a number of years, even
exceeded the level of domestic investment. 4 g in fact, there was usually
an inverse correlation between the two series: whe:a local capital forma-
tion was high, investment abroad was low, and vice versa. During the
period 1860- 1914, there were three periods of particularly large invest-
ment abroad: 1867--1874, 1881-1891, 1906-1914. It is difficult to
discern any cogent connection with European tariffs policies in these
dates; but it is true that Europe only absorbed a very minor share of
these investments abroad, the bulk of which went to North America
and the Empire. 49
Hence, whereas Europe:m tariffs policies appear to hart' influenced
local capital formation, the same cannot be said of investments abroad.
And the effect on local capital formation in the U.K. was the very
opposit~ to th; which it had on the continent, i.e. it had a favourable
effect.

4.4. Innovation
The only series analysed here is that c~wering patents; and its homo-
geneity is limited owing to changes wl~it:h occurred in the relevant
legislation (in 1852 and in 1884).
Whereas from 1839/41 to 1849/51 the number of patents sealed
increased only by 1.4% p.a., and by - 0 . 2 % p.a. between 1853/55 and
1858/60 (+ 0.9% as regards for patent applications), from 1858/60 to
1877179 the rate was 2.9% 50 (and 3.0% as regards patents applica-

48 This was the case namely from 1886 to 1890 and from 1907 to 1914 (for the period
1830-1914).
49 Towards 1914 Europe accounted for only about 6% of British foreign investments.
H. Feis, Europe, the world banker 1870-1914, Yale 1930.
A.R. Hall, (ed.) The export of capital from Britain (collected actictes), London 1968.
s 0 Rates calculated on the basis of homogeneous series.
242 P. Bairoeh, Free trade in the 19th c e n t u ~

tions). After which the pace slowed down considerably: 2.0% from
1886/88 to 19 ! I / 13 ( 1.5% as regards applications).
Thus here too ~he free trade period had a beneficial effect. It con-
firms that, in the three fields analysed here, the period o f free trade had
a favourable impact for the United Kingdom. It is true of course that
the three fields covered are interdependent, as are almost all the varia-
bles of economic activity. A rise in the rates of capital formation usual-
ly means faster economic growth, and faster economic growth usually
stimulates the spirit of innovation. And the innovation variable (or
production variable) may equally well be used as a starting point (+
innovation = + investment = + growth). But the fact remains that at
least one o f the variables has to change, and this is what happened. To
avoid repetitiveness, we shall pursue this line o f thought in the next
section containing our general conclusions.

5. P r o v i s i o n a l g e n e r a l conclusions s !

We believe that tile following three main points can be drawn from
tile data summarised and analysed in this article:
I) Free trade had radically different effects in the most developed
country (Great Britain) compared to the other large countries o f
Europe. In the developed country, the effects were on the whole posi-
tive, since it was during this period that Britain's economic growth was
the speediest. For the less developed countries, the results were nega-
tive. In all the three cases examined, the effects o f the free
trade period were the very opposite o f those predicted by the liberal
theories: namely, but not solely, deceleration o f economic growth, of
innovation and of investment. Growth was faster in Great Britain than
on the continent, and this resulted in a larger gap between development
levels, instead o¢ the attenuated disparity forecast in neo-liberai theo-
ties.
(2) The negative character of the period o f free trade for continental
Europe was not caused by an influx of manufactured goods from more
productive industries across the Channel, but by the influx o f cereals,
especially from overseas. This influx was so great as to cause decelera-

s, Provisional owing to the pt©iiminazy ¢haracteg of certain sections of our geaeaxch (s¢~e
introduction).
 P. Balro¢'h, Free trade m the 19th century 243

tion of growth in agriculture and, hence of the economy as a whole,

since farming still represented a ,,cry important sector of the economy.
Massive imports of cereals and other foodstuffs became possible not
only as a result of lower tariff barriers in Europe but also, and especial-
ly, because of the large decrease in transportation costs which occurred
at this time. Thanks to the use of the steam engine, the economics of
transportation underwent extensive mutation ir. this period. Briefly,
those who were responsible for the economy at that time, had not
anticipated the implications of the rapid technical progress achieved in
transportation.
(3) As regards the international trade in manufactured goods, it
emerges that continental Europe benefited more from the free trade
period than the United Kingdom did. The probable cause of this seem-
ingly unlikely development was that the removal o f customs barriers
was far more complete in the United Kingdom than on the continent.
The last two points arising from this all too scantly analysis have
incited us to be less affirmative in our conclusions concerning the theo-
retical implications. For it is likely that the liberalization of trade
would have had fewer unfavourable economic effects in continental
Europe if it had not occurred a~ a time when the following three
conditions prevailed: relatively great importance of the agricultural sec-
tor; low transport costs; and the existence of areas with far higher
agricultural productivity (hence this is one local condition and two
international conditions). A fourth condition could eventually be added
to those three, namely the absence o f any measures to help the farmers
to adjust to the new situation arising from external coml:,.'tition. In fact
such measures should have been more substantial than those introduced
to help industry of continental Europe to equip themselves in order to
resist British competition. But it is probable and understandable that
the authorities at the time had not anticipated this avalanche of cheap
agricultural products resulting from the combination of lower tariffs
and cheaper transport, s 2
However, as a. least three of these conditions now exist (and in more

s= The French authorities had chiefly foreseen the favougable effects (which did not entire-
ly materialize) resulting from the opening of the U.K. market to local agricultural produce,
especially wine. It should, however, b¢~ noted that the pubfic works programme initiated early
in the 1860's was presented as being aimed both at a~riculture and industry. But by improving
communications to enable farm produce to reach the urban centres mote easily, the authorities
were also helping the penetration of imported produce in rural areas.
244 P. Bairoch. F~ee trade in the 19th century

marked l~)rm) in the underdeveloped countries, tile experience o f con-

tinental Europe in the 19th century should urge caution upon those
who are in charge of these countries' economic policies and who want
to embark o ~, ~ncreased foreign trade with economies which enjoy sub-
stantially higher levels o f agricultural or industrial productivity. Natu-
rally, as the structural conditions vary so much from country to coun-
try, it is difficult to establish any general rule. Even omitting the big
differences in the size of countries a simple comparison between the
conditions prevailing in oil and mining countries $3 and the others is
enough to demonstrate the vast differences which exist in the develop-
ment problems of each of the third world's countries. But if one ex-
cludes the oil and mining producers, which are numerically important
but which from a demographic point of view represent only a small
fraction o f the developing countries, 54 the cases analysed here may be
of some practical value, for they confirm that although free trade may
perhaps lead to improved use o f world resources, it may occur at the
expense of th~: less developed countries if they have not first set up
corrective measures.
However, although the nega:ive results of the free trade experiment
in Europe illustrate the dangers arising from liberal policy, as already
demonstrated in regard to the underdeveloped countries by Myrdal,
Prebisch and Singer, 55 this does not mean that international trade need
always entail unfavourable effects for the economically backward areas.
International trade organized in such a way as to allow for and
correct the constraints which the rules of market economy place upon
the underdeveloped countries, could help to promote their growtl~. And

5.~ Leaving aside the extreme c a s e of the sheikhdoms, it is worth noting, for example, that
oil exports represented 24% of the gross domestic product of Venezuela (19681; 43% of that of
Iraq (1965) and 53% of that of Libya (in 1968, 67% Jn 1964).
s4 The oil exporring countries represent less than 3% of the population of the underdevel-
oped countries (excluding Asian countries with centralised planning; if they are included then
the figure Ls less than 2%).
s See namely:
G. Myrdal: An international economy, New York 1956, and Economic theory and underdevel-
oped legions, London 1957.~
R. Prebish, International trade and payments in an era of coexistehce. Commercial policy in the
underdeveloped countries, The American Economic Review, May 1959, pp. 251-272, and Vegs
une nouvelle politique comt::erciale en ,me du d~veioppement ~'conomique, U.N. Conference on
Trade and Development; U.N.O. Dnnod, Paris 1964, Volume il.
lt.W. Singer, International development growth and change, New York 1954.
 P. Bairoch. Free trade in the 19th century 245

especially if it formed part o f a global development strategy, it is only

when such mec~,anisms are lacking - be they national or, preferably,
international in character -- that some form of autarchy (for large
countries or groups of countries) is preferable to more massive interna-
tional trade perpetuates and further increases the gap between the de-
velopment levels of the various nations.
The European example may therefore make a limited contribution to
an improved fornmlation of the theory of international trade for, as
Haberler concluded when discussing the scope which international trade
theories offered as regards the choice of national development policies:
"Economic history has more to offer than theoretical analysis for the
solution of these problems". 5 6

s6 G. HmbetlcL A survey of international trade theory, op. cir. p. 58.