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would overthrow the Colossus with feet of Paper Credit. He was also, as the head of a nation in arms, in sore need of funds, and therefore, while Great Britain issued licences in order to keep control over the course of trade, he, as time went on, issued them lavishly in order to replenish his exchequer. It is necessary undoubtedly to injure our enemies, but above all one must live,' he said.1 The Continental System was a self-blockade against Great Britain, and to succeed it must be complete. By granting exemptions in the interests of French trade and his own treasury he stultified his policy and estranged his allies.

Napoleon acted by Decrees, to which Great Britain replied by Orders in Council. The Berlin Decree of November 1806 prohibiting trade with or from Great Britain was followed by the Orders in Council of November 1807 and others, the effect of which was to make a call at a British port obligatory upon all neutrals, of whom the U.S.A. was the chief. In retaliation Napoleon decreed from Milan, December 1807, that any vessels submitting to British regulations or examination by a British man-of-war were lawful prizes of war. Therefore the neutrals were bound to violate the laws of one or other of the belligerents. By the victory of Jena, October 1806, and the Treaty of Tilsit with the Czar of Russia, 1807, the chain of exclusion was completed. But as Napoleon's allies were unwilling partners-apart from Denmark, who smarted under two recent seizures of her fleet by Great Britain-the Decrees were enforced only to the extent that French officials were present to enforce them. Hamburg became the headquarters of an illicit trade which was so normal that the risk of breaking the French cordon was evaluated exactly and added to the price of the goods.

By the Decree of Fontainebleau, 1810, Napoleon made a final effort to impose his will on the course of trade. Colonial produce which had touched at British ports was confiscated and resold to the profit of his treasury. British-made goods were burned at autos-da-fé to the accompaniment of military music. French manufacturers welcomed this drastic elimination of competition, but continental importers, from whom British merchants had exacted cash on delivery, substituted rubbish for genuine articles on the fire-piles as far as they dared. The tightening of the blockade hurt the export trade of Great Britain but did not throttle it. For she found new markets in South America and roundabout routes to her old markets-by the Baltic ports on the

1 Cf. Eli Heckscher, The Continental System, p. 253.

* Excellent examples of blockade running by the British iron and steel exporters are given in T. S. Ashton, Iron and Steel Industry in the Industrial Revolution, pp. 148-50.

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north and the Danube ports on the south. Gothenburg on the Swedish mainland was the headquarters of the Baltic blockaderunning. Salonika was an important base in the Mediterranean. John Galt the novelist, father of Sir A. T. Galt, started life as a blockade-runner in the Levant. Of all Napoleon's allies Russia was the most loth to enforce the blockade; and when Russia broke loose and Napoleon lost battles his system collapsed like a pack of cards. Contraband goods followed in the wake of the allied armies in their march on Paris, and by 1814 the blockade was no more.

America from the outset of the European conflagration did her best to play a neutral rôle. And for a time Great Britain acquiesced in the very great profits which neutrals were able to earn in war time, but in 1805, disturbed by the loss of some of her colonial trade, she began to interpret strictly the rule of international law under which a neutral was forbidden to convey to enemy ports the produce of ex-enemy colonies. America retaliated, and in 1807, finding it impossible to steer between Napoleon's Decree and the British Orders in Council, introduced an Embargo Act which prohibited American vessels from sailing to foreign ports. But this spiritless policy was not to the liking of American merchants, who freely evaded it by using Canadian ports; and in 1809 the Embargo Act was replaced by a milder Non-Intercourse Act, which limited non-intercourse to trade with belligerents. But this played into the hands of British shippers by confining American vessels to the short haul to nominally neutral ports in the West Indies, and accordingly the Non-Intercourse Act was renewed in 1810 as a diplomatic weapon : if one of the belligerents rescinded its regulations and the other did not follow suit within three months, the Act was to come into force against the recalcitrant party. Here was Napoleon's chance. Slurring over his brazen confiscation of American shipping in French ports in March 1810, he announced in November the abrogation of his Decrees as against America and called upon her to enforce non-intercourse against Great Britain. This she did, and in June 1812 the British Orders in Council were rescinded in her favour.

But to the dismay of British traders, America declared war on Great Britain a few days previous to this; for the original quarrel was now overlaid by a sharper difference arising out of the impressment of seamen from American vessels. Great Britain recruited her fleet by the old and barbarous method of the press gang. To escape its severities and better their lot many British seamen had taken service in American ships. With the two nations speaking one language the recovery of deserters

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inevitably led to mistakes, and though America conceded the right of recovery she resented the insult to which the exercise of the right exposed her. Therefore when her commercial differences with Great Britain were on the eve of settlement, the insult to her flag carried her into war. It was of all wars the most futile. When peace was signed at Ghent in December 1814 the status quo was accepted. The Orders in Council, having been already abolished, did not enter into the terms. The right of search was not disavowed, but the exercise of it lapsed with the cessation of war between Great Britain and France and the press gang, the original cause of the trouble, was not employed any more. In 1815 a commercial treaty was concluded between Great Britain and the U.S.A. Between 1783, when Great Britain recognised American independence, and 1793, when she declared war on France, no formal settlement of trade relations had been reached. Yet some settlement was very necessary. For what had been the main portion of the Empire was now outside it, while its commerce was intimately concerned with the parts of the Empire which remained loyal. In 1794 John Jay secured a treaty, but it granted little and the trade sections expired in 1804. The treaty of 1815 settled one issue, it put an end to the discriminating duties which both nations had imposed on each other's shipping in the direct trade between them. It gave, in Huskisson's words, ' equality of all charges upon the ships belonging to either country in the ports of the other, and a like equality of duty upon all articles the production of the one country, imported into the other, whether such importation be made in the ships of the one or of the other.' But Great Britain was very loth to make any breach in the lucrative triangular trade between herself, the West Indies, and the mainland, and in this theatre an understanding was not reached until 1830, by which time the trading relations between British colonies and foreign countries generally had been radically revised.

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Meanwhile, America by her Navigation Act of 1817 had reserved her coastwise shipping: and having abandoned in 1815 the policy of protecting her overseas shipping by discriminating duties, she turned to a policy of protecting her domestic industries by means of a protective tariff. Just as the forcing of Napoleon's blockade was the prelude to Britain's peaceful penetration of Europe by a policy of free trade, so the natural protection given to American industries by the period of war was the prelude to their consolidation by tariff protection when the war was over. In both countries the manufacturing interests bore down the opposition of the agriculturists. The result in the U.S.A. was 1 Huskisson, Speeches, II. 13, May 12, 1826.

protection for industry during the 19th century, supplemented by protection for agriculture in the 20th, when competition was threatened from the newer lands of the Canadian West. The result in Great Britain was free trade in the 19th century, and in the 20th century a partial return to protection except for the agriculturists, who have the most reason for claiming it.

Section 4. The Financial Policy of William Pitt

Pitt became Prime Minister in December 1783. He was in office from 1783 to 1801 and again from 1804 to the end of 1805. Between 1783 and 1789, when the French Revolution put an end to normal conditions, he introduced important fiscal reforms. In trade policy under the stimulus of Adam Smith,1 he went as far towards free trade as the industrialists would allow him, but that was not far. The breach in the colonial system was not refashioned into a permanent settlement. In 1785 he failed with Ireland, which in 1780 in the stress of war had been admitted to the colonial trade. Anxious in particular to encourage the Irish linen industry, he proposed reciprocal lowering of duties on manufactures between England and Ireland; but the cotton manufacturers and iron masters feared the competition of Ireland with its low wages and easy taxation, and with the help of Wedgwood and Boulton they defeated the Irish proposals in Parliament. To the Treaty concluded with France in 1786 the big industrialists were favourable, for none of them were vintners and the prohibition on French silks remained. But the Treaty was so one-sided that even if there had been no French Revolution the protests of French manufacturers must have brought it to a speedy end.

As a financier Pitt observed the principle that ' true economy is better than a great revenue.' He reduced waste by abolishing sinecures and rooting out jobbery and corruption. He addressed himself at once to the revenue frauds which had beaten Walpole. By reducing in 1784 the heavy duties on tea (part customs and part excise) to a single ad valorem rate of 12% and collecting the whole of it through the agency of the East India Company, he cut the ground from under the smugglers' feet. The City of London supported a change which promised to employ twenty more ships in the China tea trade and to destroy the contraband that the French and Dutch East India Companies had carried on in defiance of the East India Company's monopoly. With the City in a complacent mood Pitt induced Parliament to accept the Budget of 1784, which imposed new excise and licence duties

1 See above, p. 16.

with rigid machinery for collection, and the Manifest Act of 1786 (26 Geo. III, c. 40) which, in brief, required the masters of vessels to produce for the Customs a duly authenticated Manifest of the contents of the cargo and forbade the breaking of bulk within four leagues of the coast. Certain of the excises, however, were very unpopular with the industrialists. The iron masters persuaded Pitt to withdraw the excise on coal before it became law, and next year, 1785, the fustian manufacturers secured modifications in the new cotton excise, the fustian tax as it was called.

Pitt, like Walpole, saw that the key to the smuggling situation lay in the use of the Excise authorities; therefore while he maintained and indeed clarified the distinction between the Customs and Excise Departments, he worked them in close conjunction, collecting through the Excise a part of the Customs. When in 1793 war broke out, he relied for his indirect war taxation mainly on increase in the Excise with its special machinery for sure collection. The trade in tea and spirits, home made, foreign and colonial (where the duties of Excise were heavier than those of Customs), was under Excise supervision before Pitt's time. In 1786 he extended this supervision to wines, where the Excise duty had hitherto been relatively small, and in 1789-90 by two drastic Acts 1 to tobacco. Over the tobacco manufacture and the tobacco trade a thorough-going system of supervision by Permit and Survey was established.

While taking these steps for prevention of smuggling and the tightening of indirect taxation, Pitt effected in 1787 by 27 Geo. III, c. 13 a consolidation of the tariff. He substituted for the existing compound duties a single rate for each article and thereby simplified enormously the burden on the trader. The importer of Russian linen, for example, now paid one definite duty instead of a duty under ten different heads built up by the arithmeticians of the Customs House. Other duties, such as the wine duties, had been even more complicated; and their ascertainment had involved legal technicalities and the payment of many fees. In the new Rate Book, i.e. the schedules of the tariff of 1787, the duties as far as possible were made specific, i.e. calculated on weight and size. Specific duties avoided discrepancies between official values and current values in the case of articles enumerated in the Schedules as well as under-valuation in the case of articles not enumerated.

The consolidation of the revenue was in keeping with the consolidation of the tariff. Hitherto the proceeds of particular taxes had been pledged to the service of particular loans. By 27 Geo. III. c. 13 aforesaid, all were paid into one consolidated 1 29 Geo. III, c. 68, and 30 Geo. III, c. 40.

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