Britain had been a major trading nation and an important exporter of manufactured goods long before the Industrial Revolution. Industrialisation built upon early success in trade and shipping and by 1870 Britain dominated world manufactured trade to an extent not seen before or since. By the late nineteenth century 25-30 per cent of British national income was traded in the form of imports and exports; foreign trade played an important role in the economy. There was an increasing dependence on imported food and raw materials and a corresponding need to pay for a growing volume of imports through the export of goods and services.
In these circumstances Britain had an apparent vested interest in removing barriers to trade and in ensuring an efficient and smoothly functioning system of international financial settlements. Free trade and the international gold standard were the methods chosen to promote these interests. During the nineteenth century world trade grew very rapidly, expanding faster than 25 per cent in every decade after 1830 (Kuznets 1966:306). Expansion was facilitated by a comparative absence of barriers to the free movement of goods, capital and people. In retrospect, the decades before 1914 have come to be viewed as a remarkable period of economic freedom. Factors of production, labour and capital flowed to where they were most productive and countries specialised in producing those goods and services that they were most efficient in producing, in line with the theory of comparative advantage. In theory the system promoted efficiency and optimised world income. In practice things were less simple. Markets were not perfect and economic liberalism produced winners and losers. Countries and governments became less willing to accept the pattern of economic life which international market circumstances dictated. Governments increasingly sought to protect and promote development through tariffs and other barriers to trade and there was less willingness to accept the painful adjustments