The notion of political “sovereignty” implies that each nation-state can follow policies that are in its own interest without having to discuss its choice of policy with the rulers of other sovereign states. We therefore do not need the “multilateral” World Trade Organization (WTO) to practise free international trade. Similarly, we do not need advice from the International Monetary Fund (IMF) in order to institute sound money and the gold standard. In other words, sovereignty is valuable only because it allows for unilateralism.
Let us begin with unilateral free trade. The idea of WTO-type multilateralism is tied up with the ridiculous notion of “reciprocity” in international trade. So, if other nations practise harmful protectionism, we must too. If they don’t reduce their tariff barriers, neither should we. Diplomats, politicians and other state personnel will forever “negotiate” trade agreements with each other, at exotic foreign locales, drinking duty-free Scotch denied to the citizenry.
The key point to note is that it is individuals who trade, not nations. Further, when individuals trade, reciprocity is meaningless. For example, suppose I am the owner of a bar that serves non-vegetarian food. Now, the tailor master opposite is a teetotaler and a vegetarian. He has not visited my establishment in 20 years. But I always get my suits stitched from him, simply because he is the best tailor in town. Would I be smarter if I ordered my suits from the drunken tailor, my very good customer, the last man to leave my bar every night, whose hands shake a lot?
Suppose, similarly, that a senior manager of Nokia dines regularly at my establishment. One day I show off my new Samsung phone to him. Will he take offence? Will he prefer henceforth to dine at some other restaurant, knowing well that my Afghani Chicken is superior to any you might get even in Kabul?
Look at it any way you like, from the viewpoint of individuals, reciprocity in trade is sheer nonsense. For further reading I recommend my The Essential Frederic Bastiat, which you can download for free here. It contains two essays against reciprocity. There are many more arguing for free trade, against protectionism. Bastiat was probably the first economist to write against customs departments. He saw them as evil. Adam Smith did not. He worked for many years as a customs commissioner, a blemish on an otherwise honourable career.
Bastiat clearly saw that customs men do not levy a “tax”; rather, they “debar” foreign goods from local markets. They impose an “interdiction.” He also clearly saw the corrupt nexus between protectionist politicians and resident businessmen. Read the play “Protectionism, or the Three Aldermen” in the above selection - and enact it in your school or college.
Thus, our nation can and should practice free trade, unilaterally, as such a policy is in our own interest. We will gain hugely as consumers and importers. The alternative is what the Nehruvian dynasty forced upon us for 50 years: autarky, empty shop-shelves, and protected industrialists who cheated their customers – us.
Over now to unilateralism in instituting sound money and the gold standard. In my recent column arguing for such a policy, I outlined the evils of unsound money, the kind we have today:
When paper money is a “property title without property”, and “legal tender” forces its exchange in markets for real goods and services, nothing is exchanged for something. When these propertyless notes multiply, while the real goods and services do not, there is only redistribution in society, away from savers, away from fixed-income earners, in favour of borrowers—all perverse incentives that destroy the character of society and promote “decivilisation”. Unsound money is terrible.
I then wrote what our nation would gain from sound money and the gold standard, if we pursued such a policy unilaterally:
Any nation can unilaterally revert to the gold standard whenever it chooses. If we do so, our rupee, now pegged to gold, will always appreciate against the rest of the world’s fiat papers. This will help us become big importers. And cheap imports, including of capital goods and components, will make our manufactured exports competitive in terms of technology, quality and price. Our banks will attract the world’s savings, and we will possess capital, the vital ingredient of “capitalism”. All prices will steadily fall and the consumption of the poor will rise in leaps and bounds. This is the power of “sound money”.
In my book, both free trade and sound money are essential “good policies” which we can and must institute unilaterally. Otherwise, “sovereignty” is useless.
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