Tag: free trade

Tom Woods has posted Episode 684 Debate on Free Trade, with Bob Murphy and Vox Day, on his site. Below is part of my 10-minute presentation opposing the resolution, which stated:

Free trade is always economically beneficial in the long term,
and the more free trade is practiced by a country, the higher the
standard of living of its inhabitants will be.

The Japanese novelist Natsume Soseki once wrote: “The memory of having sat at someone’s feet will later make you want to trample him underfoot.” While I have been seated, metaphorically, at the feet of the great Austrian economists for most of my life, I harbor no desire to trample them. I retain genuine affection and respect for the Austrian School of economics.

However, just as the classical economists eventually gave way to the superior understanding of the Austrians, so Ludwig von Mises and Murray Rothbard will one day be surpassed by the post-Austrian economists of the future. Is that day here yet? I will argue that it is, at least with regards to the doctrine of free trade.

The world has changed in many ways in the 240 years since Adam Smith triumphed over the mercantilists. The most significant changes, with regard to the topic at hand, concern the mobility of capital, a factor which was not accounted for by either Smith or Ricardo, and the mobility of labor, a factor which was never taken into consideration by Mises or Rothbard.

Let me first state that I accept Bob’s general terms with regards to both free trade meaning unlimited transactions between domestic and foreign parties, and national wealth being measured on average. I am presenting five arguments against free trade tonight: they are empirical, mathematical, existential, practical, and logical. Given the time constraints, it is not possible to go very deep into any of them, but each of the five represents a very serious and substantial challenge to the claim that free trade makes a nation wealthier in the long term.

My first argument is empirical. The conventional argument in favor of free trade has changed very little over the centuries, and was repeated this very week in a major essay by Francis Fukuyama in Foreign Affairs. It states:

1. International trade has become increasingly free over time.
2. Wealth has increased during the same period.
3. Therefore, free trade produces wealth.

Or to put it another way, as Bob did in his excellent textbook, Lessons for a Young Economist, “If we imagine an initial situation of worldwide free trade, and then further imagine that an individual country decided to “protect” its domestic industries and “save jobs” by preventing foreign goods from crossing its borders, its residents would become much poorer.”

But this is not true. We have considerable evidence that freer global trade does not necessarily make an individual country wealthier. For example, although the free trade in goods has considerably increased over the last 50 years, real wages are lower in the USA than they were 43 years ago. So is the country wealthier? Proponents of free trade often cite growing GDP per capita, and it is true that since 1964, US GDP per capita has risen from $3.5 thousand to $54.6 thousand, a 15-times increase.

That means the USA is wealthier, right? No, because over the same 50-year period, total US debt per capita has risen 34 times. If your income doubles, but your personal debt goes up by a factor of 4.5, are you wealthier? No, of course not. Your perceived increase in wealth is a mirage.

Freer trade has clearly not produced greater wealth for America or Americans, but rather, greater indebtedness. This is not to say free trade can never benefit a national economy, but we have clear empirical evidence that in the case of the United States, it has not. Therefore, the resolution is false.

My second argument against free trade is mathematical. Free trade theory relies, at its core, upon the Law of Supply and Demand. But in Debunking Economics, Steve Keen cites the work of William Gorman, who in 1953 utilized mathematical logic to prove that the Law of Demand does not apply to a market demand curve. It only applies to single individuals, and it is not possible to derive a market demand curve by simply adding together the quantities demanded by all individuals at each price. In other words, the combination of all rational consumer preferences results in an irrational market where lower prices may or may not increase demand.

This proof has many implications for economics that have not yet been explored, and among the obvious casualties is David Ricardo’s theory of Comparative Advantage. The math literally does not add up. Therefore, the resolution is false.


Listen to the rest of it there. Brainstorm members will receive a full transcript once it is complete. I should note that Steve Keen informed me that there is a more substantial mathematical case to be made against free trade than the one I presented, but as it was his point and not mine – and frankly, I don’t fully understand it yet – I did not utilize it in the debate. I will devote a separate post to it later.

We had a nice turnout for the Day-Murphy debate on free trade last Friday, and most of the 250+ registrants showed up for it. It generated more than a few questions, and here are some that later showed up in my email. NC wonders about the role of the state:

I greatly enjoyed the debate. Thank you broadcasting the debate and the work you put into the arguments.  I found the debate valuable as I mull over my own thoughts.

I’m curious if you have thoughts on this:  I think that your arguments depend on the existence of the state.  I compare your arguments to a similar case of discriminately acting on relationship principles; that is, if one is interacting with a sociopath, one would not act on relationship principles of openness and honesty, for the sociopath would not conform to those principles, exploiting them for advantage.  I think Trump emphasizes “good deals” over free trade because of the realities of coercive government institutions–nation-states which would violate principles of free trade like a sociopath would violate principles in a relationship.

If, after a generation of peaceful parenting, the nation-state dissolves, would not a free trade environment be the principled and logical environment of such a society?

No, my arguments depend upon the existence of the nation, not the state. If there is no coherent group of self-identified people sharing traditions, characteristics, and values, then there is no need to concern ourselves with their collective fate, as we owe nothing to them, share nothing with them, and can abandon them and ignore their interests without a thought. This, of course, is one reason why the globalist elite wants to destroy cohesive, coherent nations, for much the same reason they want to destroy the family. The individual is easily corrupted or destroyed, the nation, not so readily.

The dissolution of the nation-state on the basis of peaceful parenting does not logically lead to a free trade environment, moreover, it is about as credible as a monetary system that relies upon leprechauns distributing gold harvested at the rainbow’s end. That is pure libertarian fantasy babble, which is even less coherent than the Marxian withering away of the state leading to the worker’s paradise.

GO also thought rather well of the debate, a transcript of which will be provided to Brainstorm members:

I thoroughly enjoyed the debate. I have enjoyed Mr. Murphy’s writings over the years. I thought he mildly tried to take you on personally. You didn’t do that and stuck to the debate issue making excellent points. I also like Tom Woods. I think they both learned a lot by getting involved with you. I have begin to wonder about the rigidness of some of the Austrians. I am happy to see a challenge to them from a non-communist or socialist perspective.

I was actually quite pleased that Bob was sufficiently concerned by the arguments I presented in the Miller debate to view me as a potential threat to the conceptual status quo. This is extremely unusual, as for the most part, free traders consider their position to be utterly unassailable. As for Tom, he was not only an excellent moderator – I was very impressed by him and think he would make a great talk radio guy – but he made a very interesting comment when we met the day before the debate to make sure everyone’s system was working correctly.

He commented that the free traders had not helped strengthen their own position by failing to seriously consider the arguments on the other side. This is understandable, as for two centuries, their underlying assumptions more or less held. And it was easy to dismiss the impact of the Japanese mass-immigrating to Australia, as Mises did, so long as they weren’t actually doing it.

So, I think that even if I’m not able to convince either Bob Murphy or Tom Woods of the inimical nature of free trade, I suspect this debate may mark a step towards stronger Austrian arguments in defense of free trade. Unless, of course, I am able to convince the entire Austrian School that a rethink of its core position on the subject is required.

JK saw the same flaw in one of Bob’s arguments that I did:

Great brainstorm yet again! I was annoyed by Bob’s use of a country giving a bunch of free SUVs to the US as a reductio ad absurdum, but a country might use that strategy to destroy another country’s infrastructure, and that would definitely not enrich the country who receives the goods.

But  I would have loved to have asked him this, had I thought of it: if the receiving country is enriched by cheaper imports then surely if the other country produces all things and therefore the receiving country nothing, then that country should be infinitely enriched, no?

Well done Vox.

I wasn’t annoyed by the argument, I was amused by it. There is a very good reason dumping, or selling goods below their cost, is legally prohibited by most countries, and that is because it is correctly seen as harmful to the recipient. As I mentioned in the debate, I don’t think Bob quite grasped how damaging the welfare analogy is to his neo-Bastiat “free sunlight” argument. Free goods damage an economy in much the same way free welfare checks damage an individual; in neither case do they make the economy or the individual wealthier in the long term. Quite to the contrary, they make them dependent.

Are tropical countries where everything grows easily and the fruit just drops from the trees generally more wealthy than others? No, because the effect on the populace is not wealth-generating, but enervating.

Over the next week, I’ll attempt to respond in detail to some of the questions that were addressed to me during the debate that Tom did not pass on to me because we did not have time to address them.

First, Dr. Miller has graciously provided the audio of our debate at Future Strategist, which, among other things, once more demonstrates the astuteness of my decision to avoid pursuing a career in radio or anything that involves speaking in public. It’s as if the more clearly I am able to think through these complicated issues, the harder I find verbally articulating the path through them. At this point, I have to expect that if I ever come to correctly grok the fullness of all the myriad pros and cons of free trade, my verbal explanations will be reduced to seemingly nonsensical word bursts.

move… you know… war… people… um, mask of credit!

Second, since I didn’t have any reason to fully cite a few of the more interesting quotes I’d found, (for, as Spacebunny observes, a very particular definition of interesting) I thought some of you might find reading them to be illuminating. Since Dr. Miller didn’t put much effort into distinguishing between free trade in goods and free trade in labor, there wasn’t any point in doing more than mentioning these statements in passing. But many free traders do attempt to make the distinction, which is why I believe they are worth noting.


Milton Friedman, “What is America” lecture at Stanford:

There is no doubt that free and open immigration is the right policy in a libertarian state, but in a welfare state it is a different story: the supply of immigrants will become infinite. Your proposal that someone only be able to come for employment is a good one but it would not solve the problem completely. The real hitch is in denying social benefits to the immigrants who are here. Look, for example, at the obvious, immediate, practical example of illegal Mexican immigration. Now, that Mexican immigration, over the border, is a good thing. It’s a good thing for the illegal immigrants. It’s a good thing for the United States. It’s a good thing for the citizens of the country. But, it’s only good so long as it’s illegal.

Ludwig von Mises, Liberalism, Chapter 8. Freedom of Movement

The natural conditions of production and, concomitantly, the productivity of labor are more favorable, and, as a consequence, wage rates are higher, in the United States than in vast areas of Europe. In the absence of immigration barriers, European workers would emigrate to the United States in great numbers to look for jobs. The American immigration laws make this exceptionally difficult. Thus, the wages of labor in the United States are kept above the height that they would reach if there were full freedom of migration, whereas in Europe they are depressed below this height. On the one hand, the American worker gains; on the other hand, the European worker loses.

However, it would be a mistake to consider the consequences of immigration barriers exclusively from the point of view of their immediate effect on wages. They go further. As a result of the relative oversupply of labor in areas with comparatively unfavorable conditions of production, and the relative shortage of labor in areas in which the conditions of production are comparatively favorable, production is further expanded in the former and more restricted in the latter than would be the case if there were full freedom of migration. Thus, the effects of restricting this freedom are just the same as those of a protective tariff. In one part of the world comparatively favorable opportunities for production are not utilized, while in another part of the world less favorable opportunities for production are being exploited. Looked at from the standpoint of humanity, the result is a lowering of the productivity of human labor, a reduction in the supply of goods at the disposal of mankind. Attempts to justify on economic grounds the policy of restricting immigration are therefore doomed from the outset. There cannot be the slightest doubt that migration barriers diminish the productivity of human labor. 

Gary North, “Tariffs as Welfare-State Economics”, Mises Institute

The ethics and economics of restricted trade surely apply to the person who wants to trade on the other side of the invisible line known as a national border. If the arguments for restricted trade apply to the American economy, then surely they apply to the other nation’s economy. Logic and ethics do not change just because we cross an invisible judicial line.… Any time a government sends out a man with a badge and a gun to restrict trade, this is an act of war. Nobody should favor a restriction on other people’s trade unless the results of that trade are comparable to the results of trade during wartime.

What I find interesting about these defenders of the free movement of people, or if you prefer, free trade in labor and services, is that although the greatest among them, Ludwig von Mises, clearly recognized the potential flaw in his pro-free trade position, he not only uncharacteristically chose to wave it away, but to the extent he considered it at all, he reached what is now obviously a completely wrong conclusion.

This issue is of the most momentous significance for the future of the world. Indeed, the fate of civilization depends on its satisfactory resolution. It is clear that no solution of the problem of immigration is possible if one adheres to the ideal of the interventionist state, which meddles in every field of human activity, or to that of the socialist state. Only the adoption of the liberal program could make the problem of immigration, which today seems insoluble, completely disappear. In an Australia governed according to liberal principles, what difficulties could arise from the fact that in some parts of the continent Japanese and in other parts Englishmen were in the majority?

To continue from my observation in last night’s debate, this is a 20th century defense of an 18th century argument that sounds utterly insane in the face of 21st century realities. Consider the application of this argument to current events:

In a Sweden governed according to liberal principles, what difficulties could arise from the fact that in some parts of the country Syrians and in other parts Swedes were in the majority?

What difficulties indeed?  Anyhow, it has become increasingly apparent to me that the lack of concern about national sovereignty shown by free traders is akin to that demonstrated by libertarians, and reflects a fundamental conflation of the concept of “the nation” with the concept of “the state”. They simply don’t understand that their positions are logically self-refuting in addition to being empirically false.

UPDATE: The paper I mentioned, Trade Wars, Trade Negotiations and Applied Game Theory, by Glenn W. Harrison and E. E. Rutström, can be found here.