The 20th century will go down in history as an age of wars, wars and more wars. And these wars have not yet stopped. They continue - and threaten to continue forever. The 21st century has barely begun - and there are wars all over the place.
The 19th century was different. There was a time then when many people thought that an era of free trade between nations had dawned - an end to wars, an era of perpetual peace. This was particularly true of the "Manchesterites" led by Cobden and Bright. They led a working class movement - the first "mass movement" in history - for free trade in the 1830s and '40s. Cobden sat in Parliament but never joined government - yet, he was the most highly feted politician in Europe. It is indeed tragic that this great beginning of "liberal politics" came to an end by the time the 20th century dawned. From the 1850s, the masses became attracted to other political visions - including communism, socialism and democracy. Protectionism became the norm, and the slogan "free trade" was never uttered again. Nations retreated behind tariff walls, pursued the goals of "national economy," and international co-operation gave way to perpetual war. "When goods do not cross borders, armies will," said Bastiat, a free trader and associate of Cobden.
There is simply nothing "good" about war. Wars cause death and destruction. Huge amounts of precious Capital - including human capital - are blown away. Wars are barbaric. Civilisation, on the other hand, requires peace and trade in order to flourish. Only peaceful trade results in the accumulation of Capital - which translates into "investment." Adam Smith thought that if his "System of Natural Liberty" was put in place in every nation, the result would be "universal opulence." Half the planet is still mired in poverty - and the only cure is peaceful trade. "Foreign aid," on the other hand, is positively harmful - as Peter Bauer tellingly argued. It is in peaceful foreign trade that the salvation of humanity lies. This is the only way to save civilisation, and also to spread its benefits. "Universal opulence" - how I love that phrase!
International trade is also "win-win" - but even more so than domestic trade. Goods that come in from abroad are invariably those that are not available at home, and are therefore highly prized by all consumers. This is particularly true of India, where "firang maal" has always been treasured, despite all the "swadeshi" rhetoric. By closing our vast markets to foreign trade, we are not only impoverishing ourselves; we are also impoverishing the rest of the world. Lose-lose.
Protectionism is an anti-consumer, pro-producer philosophy. It is also "nationalistic" - with roots in "mercantilism" and "national economy." These are all extremely vile and corrupt ideas - and they end up "politicising economic life." Corrupt cronyism develops at home. Foreign trade is politicised as well. Instead of international co-operation and peace, we have the roots of perpetual international conflict. The ordinary people suffer as consumers, as taxpayers, and as soldiers. The "worst get on top."
It is often argued that trade benefits the rich nations alone. This is as false as the other argument that free markets benefit rich people alone. Just as the poor gain as consumers in an era of mass production, just as poor people gain as workers in factories employing Capital which does not belong to them - so too does international trade benefit poor countries and their people the most. Just look at Hong Kong and Singapore.
In a global free market, each of us will have to specialise in the "international division of labour." We will therefore choose our specialisations according to our own, individual "comparative advantage." Now, it is a great error to think that comparative advantage implies that only the fittest and the best will survive. In fact, if we notice spontaneous specialisation in the world around us, we will see that it is filled with instances of individuals who are better at a particular task and yet gain by associating with those who are in fact worse at the same task. For example - the owner of a car is often a better driver than the chauffeur he has hired. This principle of comparative advantage, credited to David Ricardo - but faultily explained by him - is what Ludwig von Mises called the "law of human association." It is the First Law of Sociology. It tells us that all are gainers in free association - and that this is the pathway to building a Great and Open Society comprising the whole world. This is how we can end war forever. I have written a column explaining this important law, which you can read here.
Living on the Konkan Coast for so many years, travelling up and down watching the action in all its ports, I am often overcome by a great sadness. These are almost all ancient ports. Before anyone understood "Economics," there was trade, trade and more trade. If a ship came in, loaded with goodies, everyone cheered. Nowadays, things are starkly different. Be it Mangalore, Karwar, or Mormugao - all that seems to be happening is the exportation of low-grade iron ore, and the importation of nothing. All exports; no imports. This is the Kamal D Nutt theory of international trade. This is the theory that politicises international trade. We must get politics out of trade. We must get The State out of The Market.
These politicians and "diplomats" often argue that there must be "reciprocity" in international trade - and they have a vital role to play in negotiating the terms of this reciprocity. Actually, all trades are inherently reciprocal, and that is why both the buyer and the seller agree to undertake them. Bastiat has written two wonderful, short essays against this phony doctrine of reciprocity, which you can find in my collection of his writings, here. These two essays of Bastiat's, written in the golden age of Manchesterism, give the clarion call for unilateral free trade. Free international trade - without politicians and diplomats having anything to do with it.
Trade is the health of the people. War is the health of The State.
Think about it.
Sir,
ReplyDeleteThe seventh paragraph is interesting.