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A CAPITALIST LOOKS AT FREE TRADE
By WILLIAM L. LAW
Protectionists seeking relief from the rigors of foreign
competition bring to mind Milton Friedman's dictum, "The great
enemies of free enterprise are businessmen and intellectuals--
businessmen because they want socialism for themselves and
free enterprise for everyone else; intellectuals, because they
want free enterprise for themselves and socialism for everyone
else."
I speak from personal experience. Baseball-glove leather was
the principal product of our firm until 1957 when ball gloves
of Japanese manufacture appeared and ultimately gained seventy
percent of the United States' market. Today, we tan no
baseball-glove leather. Sentiment in the ball-glove industry
at that time was very strong for protective action. I
investigated the matter in some depth and found that I could
not in good faith urge protectionist action on my political
representatives; such action would have been wrong
economically, politically and morally.
My sentiments stem from the fact that I look upon myself not
as a tanner whose product is leather, but as a capitalist
whose product is profit. That climate most beneficial to
capitalists--and to workers--is one in which there exists a
minimum of governmental interference.
The protectionist argument is almost as widespread today as it
was two hundred years ago when Adam Smith in his treatise An
Inquiry into the Nature and Causes of The Wealth of Nations so
brilliantly demonstrated its fallacies. Fortunately, we have
the work of Smith and his many successors, plus the empirical
lessons on the benefits of free trade--our fifty states united
in one common market are a notable example--to demonstrate the
advantages of free exchange.
No improvement can be made on Smith's understanding:
It is the highest impertinence of kings and
ministers, to pretend to watch over the economy of
private people, and to restrain their expense, either
by sumptuary laws, or by prohibiting the importation
of foreign luxuries. They are themselves always, and
without any exception, the greatest spendthrifts in
society. Let them look well after their own expense,
and they may safely trust private people with theirs.
If their own extravagance does not ruin the state,
that of their subjects never will. . . .
To give the monopoly of the home market to the
produce of domestic industry . . . must, in almost
all cases be either a useless or a hurtful regulation.
If the produce of domestic industry can be bought
there as cheap as that of foreign industry, the
regulation is evidently useless. If it cannot, it
must generally be hurtful.
It is the maxim of every prudent master of a family,
never to attempt to make at home what it will cost
him more to make than to buy. The tailor does not
attempt to make his own shoes, but buys them of a
shoemaker. The shoemaker does not attempt to make his
own clothes, but employs a tailor. The farmer attempts
to make neither the one nor the other, but employs
those different artificers. All of them find it in
their interests to employ their whole industry in a way
in which they have some advantage over their neighbors,
and to purchase with a part of its produce, or what is
the same thing, with the price of a part of it, whatever
else they have occasion for. What is prudence in the
conduct of every private family, can scarce be folly in
that of a great kingdom. . . .
That it was the spirit of monopoly which originally
both invented and propagated this [protectionist]
doctrine cannot be doubted; and they who first taught
it were by no means such fools as they who believed it.
In every country it always is and must be the interest
of the great body of the people to buy whatever they
want of those who sell it cheapest. The proposition is
so very manifest, that it seems ridiculous to take any
pains to prove it; nor could it ever have been called
in question had not the interested sophistry of
merchants and manufacturers confounded the common sense
of mankind.
The "sophistry" of which Smith speaks is in essence that being
advanced today by protectionists: "The U.S. is a high-wage
country; its industry is unable to compete with that in low-
wage countries; imports are increasing, and unless remedial
measures are adopted, our industries will be destroyed and
large-scale unemployment will ensue."
But fortunately, we have the the rationale and arguments for
free trade.
We trade to obtain goods that are either unobtainable
domestically, such as chrome ore, diamonds, and teak wood, or
that can be obtained more cheaply abroad, such as baseball
gloves or textiles.
And free trade raises wages! Trade between individuals,
between states, between nations is beneficial, and far from
reducing the living standards of the participants, greatly
improves them. And the country with the freest trade policy
enjoys the maximum advantage.
I repeat: trade raises wages! Those who think otherwise fail
to understand that wages in the U.S. are the world's highest
for a reason: American industry has the world's highest
average-capital investment per worker ($125,000) and,
therefore, has the highest average productivity per worker.
And while we have high wages, because of the multiplier--
tools, we also have low labor costs!
Certainly, labor-intensive industries, i.e., textiles, find it
difficult to compete inside a capital-intensive country.
After all, a Chinese worker with minimal capital--a needle--
and working for $20 a week, will produce handmade lace at a
lower cost than an American worker using the same needle and
receiving $200 a week. While their productivity will be the
same, the Chinese labor cost will be one-tenth of the U.S.
cost.
But give the American worker a giant mechanical shovel and, at
the world's highest wage, he will produce the world's cheapest
coal. With advanced technology, workers will produce the
lowest-cost coal, wheat, jet aircraft and countless other
goods. And so, we import lace and ball gloves and petroleum,
and we export jet planes and wheat and chemicals. To attempt
to "retaliate" against lower costs in certain foreign
industries is an exercise in folly.
Moreover, contrary to popular belief, imports don't cause
unemployment, nor do immigration or automation. Unemployment
exists only when money wages are arbitrarily raised or held
above the market price.
The Great Depression is the classic case of "iatrogenic"
unemployment, i.e., induced by the economic doctor. For
example, when the stock market crashed in 1929, it
precipitated a deflation and concomitant lowering of all
prices. Presidents Hoover and Roosevelt, believing in the so-
called "purchasing power theory," cooperated with major
industrialists and union leaders to do everything in their
power to prevent wages from falling--even though prices in
general had dropped by one-third from 1929 to 1932! The result
was that twenty-five to thirty percent of the work force was
unemployed. The situation was not ameliorated until 1941 when
the government printed massive amounts of money to support the
war effort; and instead of trying to support wages, the
government took the opposite position and introduced controls
to hold wages down. Unemployment soon disappeared and industry
expanded.
Unfortunately, a false lesson was learned--that war is the
health of the economy. (Our current secretary of state,
justifying the military intervention in the Middle East,
reflected this when he stated, "If you want to sum it up in
one word, it's jobs.") The truth, of course, is that war is
actually the enemy of prosperity (and freedom) and that full
employment is actually the normal condition of a truly free
economy.
Protectionism is the age-old road to reduced exports,
increased unemployment, lower standards of living, war, and so
many other problems associated with government intervention in
economic activity. Free trade, on the other hand, is the way
to increased exports, full employment, higher standards of
living, peace, and so many other benefits associated with
economic freedom.
Mr. Law is chairman of the board of Cudahy Tanning Company in
Cudahy, Wisconsin.
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From the June 1991 issue of FREEDOM DAILY,
Copyright (c) 1991, The Future of Freedom Foundation,
PO Box 9752, Denver, Colorado 80209, 303-777-3588.
Permission granted to reprint; please give appropriate credit
and send one copy of reprinted material to the Foundation.