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Daily Journal

Free trade won, long ago

Oct. 22nd, 2002
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RALEIGH — Senate candidates Elizabeth Dole and Erskine Bowles have traded barbs on the issue of free trade. Like the Social Security issue discussed yesterday, the trade issue is easy for demagogues to misuse as they see ways of swaying the votes of those with limited information about candidates and economics.

Not a single argument Bowles (and sometimes Dole) has made about “unfair trade practices” and the like is younger than about 300 years old. Back in the 17th and 18th centuries, trade policy was debated by the likes of Thomas Hobbes, John Locke, Adam Smith, David Hume, and Edmund Burke. European empires at the time practiced a set of big-government policies called “mercantilism” that attempted to shift the balance of trade so that the home country would be a net exporter of finished goods after imported raw materials from captive markets.

Mercantilists believed that consumer welfare was a secondary matter. The key was to “win” the trade wars that raged for a host of goods. Although there were some serious believers of the tenets of mercantilism, I would argue that it most represented the ability of special interests – those who enjoyed royal prerogatives and monopoly grants –to manipulate governments for their own personal ends.

Basically, the intellectual debate about free trade ended in 1776. Three important events happened that year. First, Scottish thinker Adam Smith essentially invented economics in his Wealth of Nations, which serves as a book-length rejection of protectionism and a defense of division and specialization of labor. Smith made a key point that deserves repeating even today: even when producers in a foreign country cannot produce a good as well or as cheaply as the home country can, it can still make sense for production to move to that foreign country. It’s an issue of comparative advantage. If the home country can make product A and product B better than the foreign country, but its advantage is greater in the production of product B, then it make sense for home-country resources to gravitate towards the production of productB and let someone else make product A. The result is more goods, of higher quality, at lower prices that consumers could ever find in a closed domestic market.

The second event of 1776 was the publication of Edward Gibbon’s The Decline and Fall of the Roman Empire. It showed clearly the deleterious consequences for ancient Rome of the growth of taxes, trade barriers, and bureaucracy.

Lastly, the American colonies, in rebellion against the British Crown for outrageous taxes and interference with their rights to engage in trade, codified their stance in the Declaration of Independence. Eventually, pushed by a number of different internal and external trends, the British empire embraced free trade in the 19th century — and became the economic powerhouse of the world.

Now, in 2002, we are still having this conversation about whether consumers have the right to choose what and from whom they will buy. The answer is obvious. Openness is better than isolation. Competition is better than monopoly. And freedom is better than coercion.