Free Trade: The Litmus Test of Economics
Tea Party Economist
by Gary North: Tax-Loving
trade is the litmus test of economic reasoning. It has been ever
since David Hume wrote his 1752
essay on commerce.
trade, by its imports, furnishes materials for new manufactures;
and by its exports, it produces labour in particular commodities,
which could not be consumed at home. In short, a kingdom, that has
a large import and export, must abound more with industry, and that
employed upon delicacies and luxuries, than a kingdom which rests
contented with its native commodities. It is, therefore, more powerful,
as well as richer and happier. The individuals reap the benefit
of these commodities, so far as they gratify the senses and appetites.
And the public is also a gainer, while a greater stock of labour
is, by this means, stored up against any public exigency; that is,
a greater number of laborious men are maintained, who may be diverted
to the public service, without robbing any one of the necessaries,
or even the chief conveniencies of life.
Adam Smith made it the touchstone of economic logic and policy.
His great work, The Wealth of Nations (1776), challenged
the mercantilists, who believed in the mixed economy: free markets,
legal monopolies, and tariffs.
is the default setting for most people. It is based on trust in
state power. As I have put it, it is faith in the economic productivity
of men with badges and guns.
I have never
had any illusions about persuading people who trust in the creativity
of badges and guns. The universal trust in state power in every
area of life is an extension of what I call the power religion.
It is the religion of every empire.
means free choice. Power-lovers hate free choice, so they hate free
In 1972, I
wrote an Introduction to the reprint of my 1969 article, "Tariff
War, Libertarian Style." I reprinted it in my book, An
Introduction to Christian Economics (Craig Press, 1973).
It deals with the inability of rational people to understand the
logic of economics. In my Introduction, I wrote this:
come now to the economic issue that separates the economists from
the special interest pleaders. There are a lot of supposedly free
market capitalists who shout the praises of open competition, but
when the chips are really down, they call for the intervention of
the monopolistic, coercive State to keep Americans from trading
with other Free World countries. Competition among Americans, but
not between American companies and foreign companies: here is the
cry of the tariff advocates. The fact that less than 5% of our economy
is directly involved in foreign trade never phazes these enthusiasts:
free trade is "destroying" the other 95% of the American economy!
Somehow, the principles of capitalism operate only within national
boundaries. Somehow the intervention of the State will "protect"
Americans. Henry Hazlitt's classic little book, Economics
in One Lesson, so completely destroys the arguments of the
tariff supporters that there is nothing left of their position;
still they keep coming. For two centuries their position has been
intellectually bankrupt; still they keep coming. Tariffs hurt all
consumers except those on the public dole of tariff intervention,
e.g., the "infant industries" such as steel or textiles. Yet the
advocates say that all Americans are "protected." The logic of economics
cannot seem to penetrate otherwise rational minds.
I rejoice that the 5% of GDP figure is now close
to 24%. The idea of free trade has spread. The world is richer
than it was in 1973.
of mercantilism have a religion: the religion of state worship.
They do not believe that individuals acting in their own self-interest
by trading with each other in order to benefit themselves are reliable
sources of innovation, exploration, and creativity. They believe
that the free market is an incomplete organization. They believe
that there must be a sovereign judicial entity which provides guidance,
by which they really mean coercion, in directing the flow of scarce
economic resources. They believe that bureaucrats are trustworthy,
that politicians act in the interest of the people. They believe
that the state is a reliable source of economic wisdom, correct
understanding of the future, correct understanding of the present,
and is therefore the proper agency to equate supply with demand.
is always a philosophy of state power. Mercantilism says that the
state has a superior interest to the individuals who live under
its jurisdiction. Anything that weakens the nation, anything that
benefits individuals at the expense of the state, anything that
elevates the judgment of property owners above the judgment of politicians
and bureaucrats is considered by the mercantilist to be an enemy
of the state, meaning an enemy of society, meaning an enemy of the
in the 17th century said that they believed in markets, but only
regulated markets. They believed in monopolies granted by the state.
They believed in exchange, but only when regulated by the state.
What they really believed in was the expansion of the power of the
state. They believed that the wisdom given to state bureaucrats
is greater than the wisdom given to society as a whole by means
of knowledge possessed by individuals. They believed that centralized
knowledge, based on coercive statistics, is better than, meaning
superior to, meaning more productive, than information possessed
by all of the members of society. The information that all the members
of society bring to bear on individual cases is considered inferior
statement against this was made by F. A. Hayek in 1945. (Chapter
4) It has been rejected by modern mercantilists ever since.
is the philosophy of state legal sovereignty over individual economic
authority. Mercantilism is the philosophy of creativity in the realm
of government bureaucracy. Mercantilism is the belief that individuals
who, as individuals, have no particular advantage in knowledge,
when given a badge and a gun, become wiser than individuals who
pursue their own self-interest. These people are wiser, and they
are also completely selfless, sacrificing their interests for the
sake of the broad masses of society.
groups have used this widespread faith a faith now fading
to persuade voters that politicians and bureaucrats are reliable
decision-makers who act only in the interest of the voters. They
tell the voters that politicians merely want to make certain that
workers are defended against unscrupulous, low-cost, foreign workers
who make offers to sell goods at low prices to customers all over
belief is this: individuals who want to buy from foreigners are
misguided, because foreigners are a threat to the prosperity of
workers, even though foreigners are a tremendous benefit to the
prosperity of those same workers, who take their money and go into
the market looking for something to buy. It is the belief that workers,
in their capacity as workers, are incapable of effective competition
with foreigners. They need help from politicians and bureaucrats
to maintain their income. The mercantilist philosophy also says
that an individual is equally incapable of understanding his best
interest as a customer, and this is proven by the fact that he is
willing to buy something produced by a foreigner rather than by
somebody inside his nation's geographical boundaries. In other words,
the citizen is incompetent. He is incompetent to compete
in the world market, and he is incompetent to judge what is really
good for him and the nation.
So, in order
to overcome the total ignorance and weakness of the American producer-customer,
the mercantilist says that he can solve the problem by getting politicians
to tax imports. This is safe, we are assured by mercantilists, because
politicians' main goal in life is to make things better for the
voters. Voters should trust the good intentions of politicians and
the superbly informed decisions of tenured bureaucrats.
When put this
way, no conservative will admit to being a mercantilist. Yet every
conservative who defends tariffs as anything other than revenue-generating
taxes is in fact a mercantilist, and by necessity he must accept
the mercantilist philosophy of life.
are statists, and so is every conservative who believes that a tariff
can benefit American consumers and workers. Every philosophy of
mercantilism is a philosophy of a gun stuck in the belly of another
American. Every mercantilist idea is a defense of gun-in-the-belly
I have only
heard one conservative admit this. It was at a dinner party in 1976.
I had been invited by a man I knew who was on the staff of Senator
Jesse Helms. I was on the staff of Ron Paul. At the meeting, there
was a man I had never seen before. He was an oaf. The group got
into a discussion of free trade. Here is what he said:
will tell you what free trade is. It is when I put the barrel of
my .45 at the head of some gook and tell him: "We are going to trade,
and we're going to trade on my terms."
does not tell the American what he must trade. He only tells him
what he may not trade and who he cannot trade with. It is a negative
philosophy of government control. It is control by prohibition,
not control by active compulsion. It is not socialism. It is not
the government ownership of the means of production. It is rather
the right of the government to stick a gun in the belly of an American
who wants to trade with a foreigner, and to tell that person that
he does not have the right to do so without paying the government
some money. In short, it is extortion.
are quotas. Quotas do not even get the government any tax money.
Quotas transfer all of the extorted wealth to domestic producers
of whatever item is being protected, meaning forbidden to buy from
sellers located outside the nation. The classic example in the USA
is sugar. Quotas are ways to subsidize farmers who grow corn and
sugarcane at the expense of foreign farmers who grow sugarcane.
It is coercion against all those customers who prefer the taste
of cheap sugar to fructose.
great for Louisiana sugarcane growers, who get to sell their product
at a high price. It is not great for candy manufacturers. It is
not great for people who love the taste of sugar. But mercantilists
believe that politicians have a perfect right to sell their votes
to sugarcane growers and corn growers at the expense of the personal
tastes of candy lovers, soda pop lovers, and other consumers of
sugar. It is a philosophy of political sugar daddies at the
expense of sugar lovers.
I realize that
this is resented by the gun-loving, badge-loving, head-banging,
power-seeking, economics-hating conservatives, who I call Hamiltonians. They want
to parade themselves as lovers of freedom. They are not lovers of
freedom; they are lovers of selective coercion. They believe that
violence threatened by government bureaucrats is a superior way
to allocate the scarce means of production. They believe in power
over voluntarism. They believe in the state over the free market.
They believe in coercion over free choice.
I have dealt
with these people for over 50 years. They do not change, because
they really are power-lovers. They really do trust the state. They
really do not trust the free market. They really do not trust customers.
They really do not believe that individuals should be given the
right to make their own decisions regarding whatever wealth they
possess. They resent the fact that other individuals have the right
to make their own decisions with their own money.
cannot understand the logic of the free market, once they get to
the invisible border known as a national boundary. At that point,
they completely throw out everything they say they believe in regarding
what takes place inside those borders. For them, truth is determined
by which side of an invisible line called the border you live on.
I believe in
free trade. That is because I believe that the same principles of
private ownership and voluntary exchange which exist inside the
borders of the United States cities, counties, states
should also apply to voluntary exchange across the borders of the
United States. I believe that UPS and FedEx should have the same
function across all borders.
reject this outlook. They believe in guns and badges, and anybody
who calls into question the wisdom of politicians and bureaucrats
to organize production by means of badges and guns is unpatriotic.
says that he knows better than property owners do what is good for
individuals and the nation. Maybe he admits that he personally does
not know, but he is sure that Congress does and tenured bureaucrats
do. He insists that Congress should pass laws that empower tenured
bureaucrats to decide who should trade and on what terms across
the nation's borders.
Do you believe
in the wisdom and incorruptible nature of politicians and bureaucrats?
Then you are a prime recruit for mercantilism. If you don't, then
promotes a tariff is a mercantilist, unless he is also calling for
the abolition of the federal income tax and any national sales tax.
Anyone who promotes quotas of any kind is a mercantilist. He may
deny this. He may not understand this. He probably cannot follow
an argument based on voluntarism. He does not believe in voluntarism.
He believes in the wisdom conveyed by badges and guns.
advice: do not trust his judgment.
about his arguments. He cannot follow them, so you don't have to.
They will make no sense. That is not because you are unable to follow
an argument. It is because he can't follow one, including his own,
which he got from some expert, who also cannot follow an argument.
capitalism transfers wealth to those producers who can serve customers
best, as determined by customers. Mercantilists focus on the desires
of the domestic producers, not the desires of the customers. They
want to protect domestic producers when foreign producers deliver
better goods, as determined by customers. They are always ready
to use state violence to protect domestic producers. They have been
crony capitalists for 350 years.
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2012 Gary North
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