The United States developed with the opposite of free trade

Many have made this crucial point, but Paul Ormerod makes the case as succinctly as anyone: any country that has industrialized has done so by blatantly violating the principles of free trade beloved by Adam Smith, millions of economists, and myself.

The economic history of the United States of America – “particularly during the second half of the nineteenth century when the foundations of its world dominance were being established” – reflects badly on “the almost sacred principle of free trade.”

Undoubtedly, the sheer resourcefulness and unbounded optimism of many Americans, which continue to the present day, were important factors.  But central government played an essential role in the whole process.  For example, beginning with the Morrill Tariff of 1861, a series of Acts until 1897 increased sharply the degree of protection which domestic producers in the United States enjoyed.  As the Western territories expanded, America became by far the largest domestic market in the world, sheltered behind tariff barriers.  Aware of the potential shortage of labour which might arise as the West was opened up, the federal government defended the interests of northern industry by maintaining open doors to immigrants.  Further, enormous grants were made from the public purse to the private railway companies [especially in the form of vast tracts of land... stolen from the First Peoples].

In short, in common with virtually every country which has ever industrialized successfully, America did so with policies which were in direct contradiction of the theorems of competitive markets and of pure free trade.  The Far Eastern economies are but the latest additions to this list.

Ormerod, Butterfly Economics (1998) pages 25-26.

Probably, well-chosen government intervention will always be able to do more for the economy than ‘letting the market alone’ (as I listen to Alabama’s “Song of the South”), but this isn’t necessarily as large an indictment of free trade theory as it seems (only free trade practice).  If every country followed free trade, that might be best for the world (under conditions of relative equality).  But if some countries promote certain industries, they win at the expense of others.  My parenthetical phrase “under conditions of relative equality” is critical: locking in free trade (even real free trade, not the one-sided investor privelege agreements being foisted on the world now) is devastating for countries that are not industrialized when they compete with industrialized countries.  Even if wealth were being redistributed worldwide, I think countries at similar levels of development would be best served by forming their own common markets, with protectionist tarrifs against outside countries.