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Introduction
In 1876, Walter Bagehot, the much respected editor of The Economist, reflected on the influence of Adam Smith's Wealth of Nations, written a century earlier. In 1776 its publication marked a major critique of Britain's mercantilist political economy, an almost utopian plea for an era of free trade that appeared distant and remote. Yet a century later, Bagehot remarked,
the whole commercial policy of the country is not so much founded on it as in instinct with it. Ideas which are paradoxes everywhere else in the world are accepted axioms here as results of it. No other form of political philosophy has ever had one thousandth part of the influence on us; its teachings have settled down into the common sense of the nation, and have become irreversible.
How then did Smith's once-reviled argument that only free trade could ensure the wealth of nations become accepted as a self-evident truth and part of the natural order of things? It is an especially perplexing transformation given that, as Bagehot acknowledged, it was clearly a ‘political philosophy’ not a simple piece of economic policy, and outside of Britain was neither believed nor practised.
Although Bagehot insisted that the ‘life of almost everyone in England – perhaps of everyone – is … better in consequence of it’, that was, and remains, a matter of great debate. It is beyond question that Britain's embrace of free trade during the nineteenth century helped forge, for the first time, a global economic system. Within this system, Britain took full advantage of its early innovations in industrial manufacturing by exporting finished goods to its Empire and the world in return for natural resources and raw materials. This flow of trade created an increasingly globalized economy that was tied together by British shipping and communication networks, as well as British capital. Secured by the gold standard, the pound sterling became the global currency whose value other currencies were pegged to. As London's capital markets flourished, the stock market boomed. Overseas investment opened up foreign markets by providing railways and sufficient development for the import of British goods. Britain became not just the workshop of the world, but its transport hub and financial centre.
Just as the global economy was shaped around Britain's commitment to the free flow of trade and capital, so the country itself was transformed by it.
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