Friday, 26 October 2018


"Now free trade is not a theory in any sense of the word. It is only a mode of liberty; one form of the assault (and therefore negative) which the expanding intelligence of the present is making on the trammels which it has inherited from the past."
~ William Graham Sumner, from his 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth. Hat tip Don Boudreaux, who adds:
Sumner is exactly correct that domestic citizens’ freedom to trade with foreigners is no more a theory than is women’s freedom to trade with men, or blue-eyed people’s freedom to trade with brown-eyed people.
    We can and do use economic theory to better understand patterns and specific effects of international trade, just as we can, and sometimes do, use economic theory to better understand patterns and specific effects of purely domestic changes in the trading arrangements of some groups with others. But the case for a policy of free international trade is no more esoteric than is the case for a policy of free inter-eye-coloured trade or free inter-hair-coloured trade. That voluntarily struck trades between citizens of, say, the United States and citizens of Mexico increase the well-being of all parties to these trades without causing economically relevant harm to anyone should be no more controversial or notable than is the fact that voluntarily struck trades between blue-eyed people and brown-eyed people increase the well-being of all parties to these trades without causing economically relevant harm to anyone.
    And yet, of course, the weapons in the protectionists’ arsenal are all aimed at destroying the clarity of vision offered about international commerce by sound economics.
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1 comment:

  1. I think this line of reasoning is far to simplistic and does not explore higer order effects.
    For me, Charlie Mauger gave a wonderful explanation of some ot the higher order consequences of free trade with China. :....

    "Now let’s follow and second and third order consequences: You are more prosperous than you would have been if you hadn’t traded with China in terms of average well-being in the United States, right? Ricardo proved it. But which nation is going to be growing faster in economic terms? It’s obviously China. They’re absorbing all the modern technology of the world through this great facilitator in free trade, and, like the Asian Tigers have proved, they will get ahead fast. Look at Hong Kong. Look at Taiwan. Look at early Japan. So, you start in a place where you’ve got a weak nation of backward peasants, a billion and a quarter of them, and in the end they’re going to be a much bigger, stronger nation than you are, maybe even having more and better atomic bombs. Well, Ricardo did not prove that that’s a wonderful outcome for the former leading nation. He didn’t try to determine second order and higher order effects.
    -16-
    If you try and talk like this to an economics professor, and I’ve done this three times, they shrink in horror and offense because they don’t like this kind of talk. It really gums up this nice discipline of theirs, which is so much simpler when you ignore second and third order consequences.
    The best answer I ever got on that subject – in three tries – was from George Schultz. He said, “Charlie, the way I figure it is if we stop trading with China, the other advanced nations will do it anyway, and we wouldn’t stop the ascent of China compared to us, and we’d lose the Ricardo-diagnosed advantages of trade.” Which is obviously correct. And I said, “Well George, you’ve just invented a new form of the tragedy of the commons. You’re locked in this system and you can’t fix it. You’re going to go to a tragic hell in a handbasket, if going to hell involves being once the great leader of the world and finally going to the shallows in terms of leadership.” And he said, “Charlie, I do not want to think about this.” I think he’s wise. He’s even older than I am, and maybe I should learn from him. "

    http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Charlie%20Munger/MungerUCSBspeech.pdf

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