Wednesday, April 22, 2009

Trade is Beneficial But Not Free

Peter Cresswell writes in the (exciting) Not PC Blog (. . . promoting capitalist acts between consenting adults’) HERE:

ANZAC WEEK: The Horsemen of non-apocalypse’

Trade. Trade works. Trade is simply the voluntary exchange of goods and services to mutual advantage. In the words of the economists, when I trade my apples for my neighbour's oranges, it is because I value the oranges more than my apples, and my neighbour values my apples more than his oranges. We both see mutual advantage in the exchange, and since both sets of goods are each moved from a 'lower value' to a 'higher value,' the nett result of this and every voluntary trade is that both traders win - everyone kicks a goal! -- and from each trade new wealth is created thereby: the economy is greater for the sum of the higher values achieved, and my breakfast table is richer by some freshly squeezed orange juice -- and my neighbours by my apples.

It us thus that men live by production and voluntary exchange, not by plunder. This is the benevolent 'invisible hand' of which Adam Smith spoke. It is a hand of peace, since as Frederic Bastiat observed, "when goods don't cross border, armies will." Countries that trade with each other don't go to war with each other: there's too much to lose.

"Free trade helps quell government's passion for war. It creates powerful lobbying groups on all sides that demand the preservation of peace and the triumph of diplomacy over hostility. International trade networks create intermediating structures of business relations that work as a barrier to bombs and belligerence.

Trade trumps conquest. Rather than seeing trade itself as a conflict, as something involving embargoes, sanctions and aggressive 'trade wars,' we should realise that peace and free trade are mutually dependent."

Let those who are actually concerned with peace observe, for example, that the free trade era of the nineteenth-century trade brought to the world the most peaceful century yet known. And in the twentieth century, post-war trade brought benefits to twentieth-century Germany and Japan that their earlier destructive attempts at conquest never could.

I agree with much of this article but a few caveats are called for.

‘This is the benevolent 'invisible hand' of which Adam Smith spoke’.

An exaggeration surely. I refer new readers to several article on Adam Smith’s use of the metaphor of ‘an invisible hand’ (you can down load my paper, ‘Adam and the Invisible Hand: from metaphor to myth’ from the ASLL home page; ‘click’ on message).

Bastiat was right in theory, but wrong historically, as is Peter Cresswell:

Countries that trade with each other don't go to war with each other: there's too much to lose.’

France and Britain traded with each other – and could have traded more, except for the mercantile political economy practised by All European governments, which Smith criticised in Book IV of Wealth Of Nations – and were at war several times in the 18th century and in the early 19th century when Bastiat wrote his article.

The problem is one of what David Hume called ‘jealousy of trade’ – the proclivity to treat neighbouring trading partners as deadly rivals, which festers into hostile actions and eventually into wars. Tariff protection often is a prelude to war. Armies cross borders in pursuit of commercial advantage, apart from wars of dynastic succession, of which there were many in Europe.

Trade is a civilising influence, but it is subject to ideology, religious extremism, passionate causes, economic illiteracy, politics and emotional ignorance. Add in mercantile fallacies, protectionism, discrimination, short-term advantage, and the cussedness of people, and Bastiat’s optimism is soon compromised.

All the more reason to make the case for free trade on sound grounds (and often!).



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