9.10 Reciprocity and Free Trade
By the middle of the 19th century Britain was well established as the leading industrial economy on Earth. An alignment of domestic resources (especially iron and coal), innovations in harnessing new energy sources (from hydraulics through to steam), developments in the mechanization of looms, access to raw materials from colonies and non-colonial suppliers, an abundance of local free labour, and the extent to which British merchants as well as naval fleets ruled the waves produced and perpetuated a high-speed transformation of the economy of the British Isles. Western Europe as a whole played catch-up (some countries better than others) while the United States exploited its own natural advantages and ploughed ahead at a dramatic pace. The days of rough equality with France were well within living memory for many British leaders and capitalists; they could recall a time when mercantilism made sense. By the 1840s they and their younger counterparts were wondering whether it should continue. After all, British goods were in demand everywhere, and Britain had the economic and military muscle to impose commercial arrangements where needed. Increasingly influenced, as well, by free market economic theories that held to the view that one should always buy in the lowest market and sell in the highest, capitalists in particular thought that preferential tariffs interfered with the natural workings of the marketplace. What became known as laissez-faire capitalism was coming into fashion.
This was, of course, terrible news for a British North American economy that had been finely crafted to work within the comfort zone of protectionism. Under mercantilism (French and English alike) there were direct and indirect disincentives to diversification: some kinds of production were simply not allowed or not worth attempting. A thriving market in Britain for unprocessed products from the sea or the forests gave settlement and society its shape; the smart money went after those opportunities and little investment was sunk into manufacturing.
The staple theory describes how the pursuit of natural resources both expands and restricts an economy, both spatially and structurally. Whether they were chasing beaver pelts or trees, British North Americans followed rivers deeper into the interior rather than building up market towns with a healthy surplus of labour that could be used in small, artisanal factories of five to 20 people, the sort of operation that might expand to 50 or 100 employees one day. Staples, moreover, tend to favour what are called backward linkages: harbours, warehouses, some shipping capacity. These are things that are useful in any economy but they don’t propel it forward. A dock is a dock; it cannot be redeployed into the production of new kinds of goods. Forward linkages are more likely to arise from basic manufacturing: iron production begets iron tools, tools lead to machinery, machinery leads to manufacturing of