French Wine and the Fable of Free-Trade Britain

A new book challenges the economic conventional wisdom and helps explain the rise of big government.

If economics is often a dry and dusty affair, the new book War, Wine, and Taxes: The Political Economy of Anglo-French Trade, 1689-1900, is a wet and wild ride—and not simply because it's about alcohol.

John V.C. Nye debunks the conventional wisdom that Britain was a free-trade nation during the 19th century. If you look at actual trade policy rather than the self-aggrandizing pronouncements of politicians and ideologues, argues Nye, Britain remained a bastion of protectionism and mercantilism throughout the century. In comparison, France, often derided by contemporary free-marketers, was wide open to trade. In concise and eminently readable prose, he tells a story in which well-connected special interests and government officials joined forces to line their own pockets while reducing the choices available to consumers.

In answering the question, "Why do the British drink beer and not wine?," Nye not only advances our understanding of the past, he shows how economic policy can often have a major effect not just on trade but on national identity.

The 48-year-old Nye was born and raised in the Philippines and educated at Caltech and Northwestern. The married father of two sons, he and his family recently relocated to Northern Virginia, where he teaches at George Mason University and holds the Frederic Bastiat chair in Political Economy at the Mercatus Center.

In late September, he spoke with reason Editor-in-Chief Nick Gillespie via AOL Instant Messenger. What follows is an edited transcript of their interview. Comments can be sent to [e-mail].

reason: You open your book with this line: "The idea that Britain was the leading free trader of the nineteenth century is one of those rare stylized facts in economic history…." Your book is dedicated to proving this wrong. How is that conventional view wrong?

John V.C. Nye: No one had ever bothered to examine in detail what the overall tariff burden of British policy was in the 19th century. When you used standard measures to compare average tariffs in Britain with those of France—supposedly Britain's opposite number in trade—what you find is that the French were clearly much closer to being free traders than were the British for most of the 19th century. Most of the different ways we can slice the data make clear that the British had higher average tariffs than the French even after their supposed move to abolish all protection from the 1840s on. Britain had tariffs on fewer items than did France, but British tariffs were on items that were such a substantial part of British trade that the impact was more serious.

reason: Speaking of specific tariffs, explain the significance of the one part of your title everyone can get behind: Wine. You ask the question, "Why do the British drink beer and not wine?" Give the short version of your answer (hiccup) with regard to tariffs.

Nye: The core of British tariffs was directed against the French and specifically against French wine. This policy dated back to the late 1600s, when the two countries were at war for a quarter century. Tariffs designed to exclude all but the best French wine—and to a large extent depress imports from most other wine-exporting nations—were matched with policies targeted to assist brewers and domestic producers of spirits. Over time, the exclusion of cheaper French wine—especially during the Industrial Revolution—meant that lower- and middle-class drinkers had to settle almost exclusively for beer, gin, whiskey, and rum.

reason: My god! The horror!

Nye: We probably have no idea how bad some of that stuff actually was!

reason: That's speaking as someone who has obviously never drank anti-freeze. Your book is in many ways a primer on public choice economics and how officials respond to the demands of the very people they are supposed to be regulating in the name of the public good. Talk about the brewers in England as a special interest group and their relationship to the state.

Nye: During the quarter century (from 1689 to 1715) when French wine was excluded from the British market, the beer industry experienced what historian Peter Mathias refers to as the Brewing Industrial Revolution. Technology made it possible to produce beer (initially porter) in quantity. At the same time, protection meant these guys were earning money hand over fist.

When war ended, domestic beverage interests successfully lobbied to have very high tariffs placed on wine, and extra high tariffs on French wine. But a cynical public choice scholar would argue that the government would not be content with handing out goodies to the brewers. Now the state had the brewers over a barrel (so to speak). They were able to impose excise taxes on the industry and expect to collect them. The latter point is very important. In previous times, high excise taxes were not always accompanied by high revenues because of evasion.

Now the government had both a carrot and a stick…

reason: …and access to beer! A dangerous combination, as the senators from Massachusetts and Connecticut could tell you. Or more precisely, as waitresses who have served them could tell you.

Nye: If the brewers didn't make sure that the government got their taxes, tariffs on competing drinks could be lowered. At the same time, the government wanted the brewers to be highly concentrated, because it made regulation and bargaining easier, so they worked to destroy competition in brewing.

reason: You posit that this, in some ways, is the beginning of big government. Or if not the beginning, a clear example of how big government and big business (for lack of better terms) conjure one another into existence, right?

Nye: It was the beginning of the growth spurt in the British state. Throughout the 18th century, British revenues grew four to five times faster than the growth of Gross Domestic Product. This was simply unprecedented in Europe and comes as a surprise to those who think of 18th-century Britain solely in terms of Adam Smith and David Hume.

reason: What was happening across the Channel in terms of government growth?

Nye: French officials were trying their best to grow revenues but their hands were mostly tied. Constraints on the way that the drown could raise revenue in France were part of the reason that Louis foolishly called the Estates General at the beginning of the French Revolution.

Studies of French taxation show that average taxes as a share of GDP were roughly constant or even declining prior to the Revolution. In contrast, they were rising steadily in Great Britain.

reason: The conventional story goes something like this: Adam Smith and others argued for free markets in the 18th century and then in 19th century, with the repeal of the Corn Laws especially, England became this free-market Mecca (or something). Your book demonstrates—concisely, though with too much math for this English major—just how wrong that story is. Why did it take your colleagues in economics so long to look at the data?

Nye: That's a difficult question. For one thing, I think that economists don't look at history very much. Economic history is a lively but very small subfield and digging through archives for statistics is not usually rewarded. There is a tendency to confuse the problem of intent with outcomes. Why were the British free traders? Because they told us so. I would also add that Britain did move to liberalize trade quite dramatically; it's just that they didn't do it as smoothly as the conventional wisdom claims.

reason: Politicians espousing free-market ideals while being protectionist? Zut! I've never heard of such a thing!

Nye: Finally, I would note that some people get hung up on the question as to whether British tariffs were "efficient" from the standpoint of fiscal policy. And that is a separate question altogether. It is possible that a [classically] liberal Britain might have had to impose some sorts of taxes, and the ones they chose were probably not too awful. However, this is entirely separate from the question of who was a free trader.

reason: Is part of the slowness in accepting Britain as protectionist that it messes up a very happy ideological picture of England=Good/France=Bad in many free-market circles?

Nye: Maybe. I've thought about this a lot but I don't have good answers. When I completed the first article on this stuff (the basis for the opening chapter in the book) almost two decades ago, I was taken aback by the response I got. Some people just said, "This result is preposterous, case closed." Others said, "Oh, this proves that free trade is a bad thing!" While still others said, "Who cares about wine? What matters are manufactures."

Most simply didn't want to engage me on the central point itself. From a factual/descriptive perspective, was Britain really a free trader, especially in comparison to France? If not, why? If so, what does this tell us about economics, history, politics, and the way in which countries successfully transition to liberal market economies in the real world?

reason: How had things changed by the end of the 19th century?

Nye: By the end of the 19th century, Britain was the most genuinely free trade nation in Europe and France had begun to revert to some protectionist policies. But all told, France's policies were still quite liberal and a fair reading would say that most of Europe was extremely open to trade and commerce of all sorts. If one takes labor and capital mobility into account, Europe was more liberal around 1900 than at any point since then.

Tariffs were low. Capital moved freely and labor moved much more easily than today. Moreover, it was much harder to enforce restrictions on commerce and on the free movement of goods and labor than today as well. While no one has done a rigorous study of this, I am pretty certain that Europe today is far less open than it was from about 1870 to 1910.

reason: What's the relevance of your book to contemporary politics and economics?

Nye: The first and most obvious point is: Don't rely on what is politically significant to gauge what is economically significant. The debates on the front pages of newspapers are not reliable evidence of the thrust of policy or the relative importance of issues.

Second, small policy changes can have large unanticipated consequences. The British-French trade war began in the late 17th century out of very local conflicts. No one had any clue that it would have such far-reaching repercussions.

Third, I think it's very interesting how much of what we think of as tastes or culture are really manifestations of the prices and constraints that we and our parents have faced for awhile. I certainly think that economists have paid insufficient attention to culture, but those studying culture have paid insufficient attention to how relative prices shape what we think of as luxurious or beautiful or normal.

reason: I should ask, do you prefer wine or beer?

Nye: I guess I'm mostly a wine drinker, but I like beer on hot days and I like beer in preference to very low quality wine. I remember that the first time I traveled to France in the early 1980s, almost everyone seemed to drink wine all the time. By the 1990s, that seemed to have changed. Beer was much more common in the summer than the winter. On more than a few occasions, all the visiting American academics would drinking wine and all the French guys would be drinking beer.

reason: Where did your interest in this project come from? Who are your intellectual heroes in economics?

Nye: The project arose out of my research on the economic history of France in the mid-19th century. In the course of studying French trade I put out this graph of British and French average tariffs and was stunned to see the difference, a difference that no one had ever talked about. Fortunately for me, one of my colleagues was [Nobel Prize winner] Douglass North and I turned to Doug and said "Have you ever seen this before?" We got into a long discussion about this, I contacted several more people and as they say, the rest is my peculiar history.

As for intellectual heroes, I was strongly influenced by my advisors at Northwestern, Joel Mokyr and Jonathan Hughes, and by Doug North. They made me feel that economic history was perhaps the most undervalued and intellectually exciting area of economics. Because the payoff in econ was to do very abstruse and advanced mathematical theory in the 1980s and 1990s, we were also aware that you paid a price in terms of career prospects by doing history. That gave it a certain unconventional, risk-taking flavor.

reason: You recently moved from Washington University to George Mason University and the Mercatus Center. What prompted the move and how is it working out so far?

Nye: Well, as you say, I've just gotten here. But GMU has been doing very exciting and different sorts of things for quite some time. They have put together a group of scholars with a strong interest in political economy and development, very broadly speaking. More important is they have done something extremely rare—perhaps unprecedented in economics. At one shot they hired three senior-level economic historians. Aside from me, there are Werner Troesken and Gary Richardson, and we have the potential to make GMU one of the best places in the world to do economic history. Moreover, there are plans afoot to expand further in related areas.

I also get a kick out of talking to the non-historians here, especially Tyler Cowen, Pete Boettke, Bryan Caplan, Robin Hanson, Russell Roberts, and Alex Tabarrok. Lunch can be more interesting than the best seminars in the world when we get going on the right topics.

reason: How did you come to be a professional economist?

Nye: I was born and raised in the Philippines. I was fortunate to get admitted with aid to study at Caltech as an undergrad where I majored in Physics. However, when I got to Caltech, I quickly found that I wasn't quite right for the most abstruse forms of theoretical physics. At the same time I admired the rigor and intensity of the Caltech way of looking at the world. There were some very exciting people at Caltech at that time doing work in areas of political economy and rational choice politics, including Bob Bates, Mo Fiorina, Bruce Cain, John Ferejohn, as well as Lance Davis, who was the main economic historian.

I had originally thought about doing a Ph.D. in political science, but all the Caltech guys thought I would be better off studying economics. This was complicated because I had basically studied no economics. But apparently a degree in physics and enough math will get you far, so I went to Northwestern University to do my Ph.D.

reason: Did growing up in the Philippines affect your take on economics?

Nye: Yes, I think it has. Corruption was/is much more common than the US and many things just don't work right. Also, despite growing up with a privileged middle class life, being constantly surrounded by poverty was a reminder of how important basic economic growth is. I'm always struck how fortunate we are in the West and how rare, historically speaking, prosperity is. Most of the people I meet here just have no conception of either bad government or poverty. I also grew up during the Marcos/martial law era and remember being worried on the one hand about the increase of authoritarianism and militarism versus the threat of a radical or communist takeover. Again, people I meet in rich countries seem to take stable, market-oriented democracies for granted.

reason: How do you define yourself politically or ideologically?

Nye: Hard to say. I am probably a conservative with very modest libertarian sensibilities especially on economic issues. But I doubt that I would be a good fit for reason magazine on foreign policy or social issues.

reason: We're not measuring you for a suit! So you're for the indiscriminate invasion and subjugation of foreign countries (and parts of the U.S.) and aren't going to be volunterring at Planned Parenthood anytime soon, right?

You do believe in equal rights for Baal worshippers, I hope, at least until they die and go to Hell. That's really the only litmus test we've got here. And the bit about "Free Minds and Free Markets."

Nye: FMAFM!!

reason: We're working on an emoticon for that. Is there anything else you'd like to add?

Nye: Thanks for the opportunity to chat. And thanks to the two or three readers who actually made it to the end of this chat.

reason: Thanks very much for your time.