u2018Italian Finance Minister Giulio Tremonti wants trade barriers for inexpensive Asian imports to help protect the European economy… [as] Europe was opening itself to foreign products without any means of protection for internal markets, a situation he described to Panorama as "suicidal" in some cases.
Tremonti also said that the strength of the euro and the weakness of the dollar have further undermined the European economy by making Asian goods even less expensive. He said Italy will invest in making its companies more competitive, but noted that competition must be regulated as well, the magazine reported.’
~ Bloomberg News, 22nd August 2003
“One way to make sure that the manufacturing sector does well is to send a message overseas, [to] say, look, we expect there to be a fair playing field when it comes to trade. See, we in America believe we can compete with anybody, just so long as the rules are fair, and we intend to keep the rules fair.”
~ Dubya-Dubya-III in Richfield, Ohio, various newswires
In response to a recent article on LRC, lauding Jim Rogers’ defence of free markets and the unhindered movement of peoples in his book u2018Adventure Capitalist’ I received a series of well articulated, if faultily reasoned, objections to the standpoint I espoused there. Tremonti’s comments — as well as those emanating from any number of vote-hungry US congressmen — show that, once again, old truths need to be reasserted
To do this, the following turns a number of these dissenting replies into a single dialogue, with only the lightest editing of my correspondents’ words.
HE: Your support of advocates of open, massive immigration among countries is not congruent with what I usually see on LRC. Oh well, not everyone is perfect!
ME: Austrians would open the borders to all — though, naturally we’d have to abolish the welfare state first to make sure they were coming to take jobs, not dole
It is conceivable, however, that if borders were totally transparent to the passage of goods and capital, the physical presence of the Outfolk, which discomforts so many, would not need to materialize since they could enrich both us and themselves with their enterprise and endeavour while remaining happily ensconced among their own Green, Green Fields of Home, if they so chose.
Incidentally, ‘mass’ immigration is not what anyone endorses — that being a suspiciously Collectivist term, with overtones of some form of compulsion, or the work of some non-market incentive.
What Austrians would agree with is that any hard-working individuals, who wish to come, should be allowed the attempt to make an honest living in your country or mine, as much as anywhere else — again, once the welfare state has been dismantled.
If they then find they can’t compete with the existing residents, they won’t find that living and they will soon move on to try their luck elsewhere. If they do succeed, well, we are all the better for the higher quality and/or cheaper service they must be offering us.
HE: You and other free traders seem to think that comparative advantage can overcome all other economic theories or “laws.” There is a huge amount of “excess” labour available in the world and supply and demand tells us that in a free trade world, the rate for labour will go closer and closer to subsistence.
ME: The return due to labour is equal to its marginal productivity of value, nothing more, nothing less in a free market. Relatively less productive workers will thus only ‘subsist’, but the rest of us won’t.
Further, the more capital we can apply to that labour, the higher its real productivity will become in any case, so maybe we don’t have an u2018excess’ of labour about which to worry, but rather a shortage of capital.
Also ask yourself, how can there be ‘excess’ labour in the first place when so much of the world is so heart-breakingly and grindingly poor?
Could it be because all the protectionists and welfarists abroad, no less than all the tin-pot dictators and warlords at home, prevent the poor from selling their labour at its true price and so making an honest living?
Additionally, deprivation exists because, in too much of the world, those very same factors of socialism and arbitrary government prevent people building up and circulating the vital real capital they need to leverage up the works of their hands, raise their output and so escape from "subsistence."
One day, it will be recognised that, in a world of supposedly shrinking resources (to hear the envirofascists put it), people are themselves the greatest asset we have, not the greatest liability.
Think of all that computing capacity, muscle power, that vast, adaptable, non-linear programming networked through the free market and the price system in order to achieve the aims of harmonious self-improvement!
Think of it again: six billion odd willing souls endowed with the finest data-processing systems in the known universe — most of them motivated by a desire to better themselves and their families and only able to do this (in a world of free exchange and solid property rights) by providing for the benefit of those who voluntarily deal with them and buy their produce through offering other goods and services in return.
HE: Opening our markets to countries with poor economic systems is not going to change their system. If anything, the money gained from trade with the US will increase the length of time in power and increase the power of the current ruling class.
ME: Well, we were talking about free trade, which implies these people — not their rulers — get to keep the produce of their labour. Even so, if the People’s Republic of Gulagstan wants to give its goods away, put me down for a share! That way, I can go about trying to solve the eternal problems of economic scarcity by not having to worry any longer about the provision of their particular wares and I can work on satisfying my next most pressing need instead — Happy days!
HE: In fact, under present conditions, free trade will work to the detriment of world prosperity in the long run.
Firstly, look at, the most important development in the last 30—40 years, the home computer. Without the US and its high wage, large middle class, the home computer would not be the world commodity product today. It takes a large number of first acceptors to bring a new product to the level where it can be mass-produced and the cost lowered enough that it is available to the masses. Even today, neither China nor India with their billions of people could support a computer industry which would develop at a pace equivalent to the pace in the 70’s—80’s in the US.
Secondly, we can look at the mobile phone industry. China is currently the largest market in the world for mobile phones. However, once again, it was the US market which lead the way, developed the technology and brought the price down to make mobile phones available to the world.
ME: I’d have to say the question of Chinese and Indian capability is a supposition of cultural supremacy on your part, untested, indeed untestable, in the real world — and I’d have to point out that European cell-phone technology is way ahead of yours over on the West side of the Atlantic, but, in any case, I disagree!
Apart from anything, we could extend your logic of the over-paying u2018first acceptor’ of these goods to the idea that NASA’s multi-billion drain of tax-payer resources to send state-glorifying fireworks (not to mention spy satellites) into space has been well worthwhile because we now know how to freeze-dry survival rations and we have a pen that writes upside down in zero gravity, yours for $19.95 over the Internet!
We could even reach further and argue with some of the social Darwinists and Jungerian divines that, as war is a noted force-feeder of technological innovation, it repays many of its costs!
We might even argue — a lot less contentiously since, even today, there are many soi-disant pundits pushing this line — that easy-money—fuelled stock market booms are good because otherwise we wouldn’t have had as many canals & railways, or mobile phones, or as much broadband access built, produced and laid as we do!
In fact, progress doesn’t need high wage earners for their capacity to pay blindly up for the first, expensive, introductory models of a new good, but high saving wage earners and entrepreneurs of all types, who put a goodly part of their income aside as capital for the employment and commercial implementation of such new technologies as human ingenuity has already devised.
Spending is not the issue.
Spending little enough on immediate gratification so that sufficient spending on productive efforts can occur instead is the trick to generating a sustainable increase in the general standard of living.
This, unfortunately, is something we in the West have largely forgotten how to do.
Once we save the money and give it to Michael Dell, Bill Gates and their ilk, they can take something only affordable by the rich (or by the state, in the case of much early IT) and make it a commodity for enjoyment by the masses, enriching themselves justifiably as their reward for this service: think Henry Ford versus Enzo Ferrari.
Before you object, I am well aware that, in practice, all such men operate within our flawed and intrinsically corrupt system, and so many of their kind, if not necessarily the named worthies themselves, are rich instead because they have been able legally to exploit financial market distortions, or they have been the recipients of political favouritism, and because they have then acquired the size and scale to perpetuate their businesses unfairly at the expense of leaner and hungrier young innovators, by playing politics, not economics. However, the sordid realities of our modern world should not obscure the fundamental mechanisms at work in wealth creation.
Serving the mass of consumers as the route to wealth is what makes capitalism different from other systems. It is this that drives material progress in general (and thus gives time away from the daily grind for spiritual enrichment, too), not the art of making expensive luxuries with which to embellish the courts of kings.
Finally, if you make your u2018high wage’ middle classes pay more for their goods than they need to, by erecting barriers to free trade, then, by definition, they get to buy fewer goods with those wages, meaning they are, in truth, only high nominal wage earners, not high real wage earners — and it’s indisputably the latter reality, not the former illusion, which counts towards people’s well-being.
If the car mechanic in your town is lazy, inefficient and pricey, do you enrich yourself or your neighbours by getting the town council to pass an edict not to employ the services of the mechanically-gifted Stakhanovite in the next district, or only to do so after the payment of a stipend to the wastrel across the road to compensate him for his self-inflicted loss of your custom?
Hardly! And neither is this the case just because the next district happens to be the other side of an international border, or because the more diligent worker there speaks a different language, worships a different god, or has a different skin colour.
HE: Free trade is destroying the US middle class. Median wages have stagnated for 30 years and will soon be going lower. In all countries in the world, the disparity in incomes between the rich and poor is growing. In the US, the top 1% now control more wealth than in the time of our “robber barons.”
ME: No! Firstly this presumes we have ‘free trade’ — but what about all the subsidies, tariffs, quotas, export loans and foreign-aid—tied purchases at work? What about the corrupted global monetary system — the fiat Dollar hegemony — which keeps world supply dangerously out of kilter with demand?
Please, let’s not set up straw men to knock down! This has nothing to do with ‘free’ trade, but much more with a perversion of Manchester liberalism and the death of your representative republic.
What has impoverished the middle classes is their engulfment in swingeing taxation, the oppressive hand of the regulation-minded welfare state, and the morass of dishonest money.
All these things have stolen their capital, sapped their energies and destroyed their virtues of thrift, to the point that most of them are not the free, self-reliant burghers who were the backbone of the republic any more, but simply slightly better-paid wage slaves and better credit-rated debt peons, wholly at the mercy of the overlords whose protection they now crave and for the crumbs from whose tables they squabble.
The middle classes throughout history have always been at their lowest ebb in systems where rich oligarchs vie to control wealth they have had little hand in producing, while keeping themselves in the luxuries of office through a little judicious bribery of the proletariat with a share of the spoils.
Just because we elect the ostensible leaders of our society, it doesn’t mean that arbitrary government, bread & circuses, privileged tax exemption, together with a continuously debased coinage, are any less the characteristics of the system over which our latter day Caesars preside.
You should look to the Beltway, and we to Brussels, not to Beijing, for the source of our woes.
HE: Since you are from England, or at least living there, you should be more aware of it than most. England’s decline began when it embraced “free trade” around the 1850’s. By the turn of the century, the US and Germany, both protectionist countries, had surpassed England in economic power.
ME: I would say the mid-Nineteenth century was the high-water mark of that brief efflorescence of free trade espoused by Cobden and Bright, sadly all too soon to pass.
Britain (please!) began to decline when the late Victorian imperialists started fretting about Socialist Germany’s rise under Bismarck and when our largely English ruling elite turned their back on the teachings of the (Scottish) Enlightenment and became enamoured of the supposed ideals of Rome, with whose state worship they were indoctrinated by u2018Socialists of the Chair’ at their public schools and in the great universities.
We may have had our (German) queen and they may have had their (closely-related) kaiser, but our shared militarized socialism was what destroyed our prosperity, not free trade.
Your forefathers, however, had the advantage of a vast unharvested continent, full of untapped riches to exploit, but also of a willing crowd of poor immigrants — the Old World’s u2018excess’ labour! — who operated for a considerable period, thankfully beyond the reach of the grasping Hamiltonians on the East Coast, to generate much of your nation’s initial prosperity.
More importantly, you did not succumb to Plato, Hegel, Marx — and later Keynes — until Teddy Roosevelt, Wilson and — in spades — FDR — destroyed what remained of Jefferson’s ideals after Lincoln had finished with them, so we Brits had a head start on you on the road to ruin.
HE: It is also interesting to note that each of at least four different statistical studies of the late 19th century found that the most protectionist countries grew the fastest. I know folks like you think I don’t understand economics, but, the only problem is that all the statistical data supports my position.
ME: Statistics, as we know, can support many hypotheses, all usually after the fact, but that is not the same as scientific verification of a truth, especially in the social sciences where there is no possibility of performing a controlled experiment, or of determining the repeatability of whatever u2018test’ has in fact been conducted by Fate.
For example, did the countries you cite ‘grow faster’ by free riding on the large, rich, freer trading blocs already in existence — in the manner the Soviet Union only limped along with the help of the freer West?
Were these countries newly industrializing nations whose growth rates were thus skewed as they caught up, but which might have grown even more rapidly had they opened up their borders?
What, in any case, do you mean by ‘growth’? An increase in private benefits, voluntarily sought and honestly earned — or a gain in a statistical artefact like GDP, especially one boosted by military spending, government make-work projects and mass over-consumption based on easy money, as in the Anglo nations today?
I could go on….
Remember the essential point: for every producer whom you would ‘protect’ there is also a consumer whom you would despoil — and the two are usually one and the same being, would he but realize it.
