Conversation With A Young German

Hearing that I propagated "radical capitalism," a young German tourist entered into a debate with me. He said he stood for "social market economy," and when I inquired as to what kind of interventionism he desired, he said German farmers needed protection. Free trade would hurt them, he said. The German State must impose high tariffs on tomato imports, he argued. I replied as follows:

If this tariff is imposed, and Germans pay more to consume locally-grown tomatoes, they will have less to spend on other goods - like beer. Thus, the move will backfire. The farmer's gain will be the brewer's loss. Consumers will lose, too.

I added that the "international division of labour" means specialisation among all nations. Thus, if Germans import tomatoes from, say, Indian farmers, and specialise in engineering, they will benefit. But if they protect inefficient tomato farmers, then Indian farmers will lose - and they will be unable to buy BMWs from Germany. Protectionism is a Lose-Lose proposition, I told him. The whole world loses. The world would be a much better place if tariffs were abolished altogether.

He hemmed-and-hawed awhile, and then took the tack that my "radicalism" was something new - a belief in a "pure capitalism" that had never been articulated before. I advised him to read Ludwig von Mises' Liberalismus - the original German edition of his Liberalism: The Classical Tradition dating back to the 1920s (which you can buy here; the PDF file of the English version is available here).

I also told him about Adam Smith's "Three Duties of the Sovereign" dated 1776, and how these duties excluded the production of money, poor relief and even the making of law. The sovereign only had to defend his subjects from internal and external foes - and undertake "certain public works" that neither businessmen nor charities would invest in, like roads. Rather than making law, the sovereign had to establish an "exact administration of justice." In Smith's immortal words:

According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings:

first, the duty of protecting the society from violence and invasion of other independent societies; 

secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice;

and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.

Thus, these views are neither radical, nor new. And Smith's use of the expression "Great Society" is also noteworthy. This Great Society is not a nation-state; rather, it is internationalist and world-embracing. Smith's Great Society is exactly what Sir Karl Popper meant by "Open Society." I have myself written a recent column on Open Society, which you can read here. This open or great society has nothing to do with "narrow domestic walls." Classical liberalism was about all of humanity. Smith dreamt of "universal opulence."

The young German said he was planning to pursue an MBA programme in the USSA. I advised him against it, asking him to study Economics instead - at home.

Why are Germans so sceptical of the Free Market when they have seen the failure of East Germany? The answer probably lies in the fact that their schooling is provided by their State. It is in Germany that the Welfare State was born - under Bismarck. It is in Germany that "bureaucrat-professors" proclaimed themselves to be "intellectual bodyguards of the House of Hohenzollern."

But there is hope. The Euro will fail, soon, only because of Socialism - the "social market" my young friend so stoutly defended. "Social welfare" has failed in four EU nations: Portugal, Ireland, Greece and Spain (PIGS). Soon, all of Europe will learn that welfarism is not "economically sustainable." We in India must learn this too.