FREE TRADE: THE MYTH & THE REALITY

 

 

 

By Steven Yates
September 12, 2005
NewsWithViews.com

�When goods cross borders, armies don't.� Thus spoke Frederic Bastiat, economist, statesman, and author of The Law, a short, easily-digestible treatise on political and economic liberty written around 1850. As a defender of liberty working squarely within the natural law tradition, Bastiat was one of the good guys�and he was a free trader.

On the other hand, the defenders of NAFTA and CAFTA also portrayed themselves as �free traders.� The FT in both of the above stands for Free Trade, after all. What gives?

To answer that question, we need to face a more basic one: what is free trade? With a huge push for the Free Trade Area of the Americas (FTAA) right around the corner, this is a multimillion-dollar question right now. To answer it is to realize that the meaning of the phrase has undergone a 180-degree switch that would have jolted even Orwell (�slavery is freedom,� �some are more equal than others,� etc.).

Since I quoted Bastiat, let�s consider his conceptual framework. According to this framework, the only legitimate purpose of �the law��a government�s legal apparatus�is to encode and protect the natural rights to life, liberty, and property of those individuals within its borders (and, perhaps, other specific functions such as coining money and regulating its value). To say that rights are natural is to say they antecede law. They are not created by law or convention, legal positivism notwithstanding. There are no such things as government-designated entitlements. It is right, however, that individuals be free to discharge their natural rights through actions, securing property that is thereby theirs to keep. This is the political and moral side of Bastiat�s conceptual framework.

Its economic side distinguishes wealth created through productive action from wealth acquired through plundering the productive actions of others. Bastiat distinguishes wealth acquired through illegal plunder�open stealing, that is, at gunpoint�from that acquired through legal plunder�stealing by some other name, the guns out of sight. Legal plunder occurs when �the law� is hijacked from its original intent and made to serve some special interest. The special interest may be a corporation (or group of corporations, or cartel). It may be a political party. Or it may be some government-designated protected group (think of affirmative action, or its current euphemism, diversity). Legal plunder forcibly takes the fruits of the actions of some and distributes them to others. It seizes wealth from those who produced it and gives it to those who did not. It may seize property from its rightful owners (rightful in the sense that they acquired it through purchase or inheritance or honest work) and gives it to those who promise government more loot. (Think Kelo!)

Legal plunder nourishes an ethic of envy�the resentment felt by those who do not produce against those who do. This ethic often masquerades as a demand for �equality.� Legal plunder is deadly, because as it spreads and as its ethic of envy spreads, the masses will abandon liberty en masse in order to share in the spoils system. If they don�t, they place themselves at an economic disadvantage. The system encircles them. Nonparticipants cut their own throats.

Legal plunder appeals to those who are fascinated by power, and who have convinced themselves of their special qualifications to rule over others because of their superior �enlightenment.�

With all this as background, let�s turn to free trade. What does the phrase mean? Where does it fit in our conceptual hierarchy? Let�s be as precise as we can.

Suppose I have identified a need and produced a good (or service) that others want and are willing to pay for. Suppose we agree on a reasonable price��reasonable� here is a compromise between what I desire to earn and what people are willing to pay me for the good (or service). So I offer the good; my customers offer me money. We trade; each of us goes away satisfied. There was no coercion anywhere. I produced the good (or service) through my ingenuity, undertaking the actions necessary to bring it to my would-be customers� attention. They saw it as something of value to them�something they believed would improve their lives.

That, my friends, is free trade.

If enough people want the good (or service) I have to offer, then due to increased revenue I am soon in a position to produce more of it, and then still more after that. I can no longer do everything myself, but must assemble a team of people to do the work�a workforce. In this way I create jobs. I can get rich�legitimately, through production and not through plunder; those under me also increase their standard of living, possibly to the point of getting rich themselves if they stick around long enough and save rather than spend. Or they may decide to compete with me. The competition will keep me on my toes. This is called free enterprise. It will build prosperity�the real thing! Notice that government is not involved. It has not restricted my earnings; nor has it restricted the customer�s right to buy. Nor has it given any of us special favors�otherwise known as subsidies or tax breaks (in a genuine free enterprise system neither property nor personal income are taxed). That yield�s our first really important result here: if trade is really free, then government is not involved. It plays hands off! Nor are investment bankers involved in this system! Government coins money and regulates the value thereof�backing it with precious metals such as gold and silver.

There is a separate moral lesson here. There is nothing fundamentally wrong with getting rich�provided one�s wealth came from legitimate trade, not through legal plunder, or borrowing against the future, or through the kinds of subterfuge that internationalist investment bankers have always used to enrich themselves by creating �wealth� out of thin air.

The Bastiat quote above simply assumes that trade need not be restricted to one�s own countrymen. If news of my product reaches people in a neighboring nation�or, for that matter, a nation half way around the world, and they wish to arrange purchases, government may not restrict them from doing so. Legitimate government, we should always remember, is limited to the encoding and protection of individuals� natural rights to life, liberty, and property�and protecting their money.

Obviously, something ghastly went wrong!

If investment bankers gain control of a country�s money supply, they can control the country�usually, again, through money lending. If investment bankers operate across national boundaries, they can control many countries. Witness the control exercised over late 18th and 19th century Europe by the House of Rothschild.

The 1800s also provide abundant evidence of the �cold war� between bankers and just about everyone else in our country (see The Coming Battle). If the value of a country�s currency is destroyed, its economy is hijacked. It serves an increasingly powerful elite, not the entrepreneurs or their customers. Arguably, that happened to America.

Earlier we mentioned in passing that minority of individuals in any population that thinks in terms of power. This minority has no scruples about using plunder to attain wealth or political goals. They prefer legal to illegal plunder for obvious reasons, and subterfuge to the obvious theft of a nation�s inheritance and culture. This minority might go into banking, loaning money to governments and attaching conditions. Thus it might become a hidden establishment behind the visible one�a shadow government behind the official one. Or this minority might go into government to reap the rewards of the freebies, writing new laws extending the powers of government even though these do more to increase the power of the hidden establishment. In other words, they ruthlessly exploit situations such as the one sketched above. Or some of its members might take up residence in successful corporations and discover that wealth once produced is easier to maintain if one can borrow money or buy favors (subsidies, tax breaks) from government that gives them unearned advantages over competitors. That is, they adopting subtle plunder over genuine production, and thus contribute to the destruction of genuine free enterprise. Those in huge multinational corporations often don�t mind regulations. Regulations mean power. They can afford the lawyers and layers of bureaucracy. Their smaller competitors cannot. The regulations will fail to solve whatever hoked-up problems they were written to address. But only the na�ve can believe that the purpose of the regulatory state, or the micromanaged economy (dating essentially from the days of Fabian socialist John Maynard Keynes) is to benefit smaller companies, or help the workers, or protect consumers, or protect the environment. The regulatory state benefits those who like power and know how to work behind the scenes to increase theirs.

Very probably the most significant problem in political and legal philosophy is: how does a society whose members wish to remain free control this minority of vipers in its midst? Thomas Jefferson once said that vigilance is the price of liberty. He was right. If we are not vigilant, we will not long be free. Jefferson warned us against investment bankers. Here is what he said: �If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered� I believe that banking institutions are more dangerous to our liberties than standing armies...� That central banking was dangerous to both liberty and free enterprise couldn�t have been said more clearly. Jefferson had spent time in Europe. He cannot possibly not have known the situation there.

Vigilance in Jefferson�s sense includes closest possible attention to the language of freedom versus that of plunder and regulation. Words and phrases are not arbitrary. When used properly they refer to specific states of affairs in the world. Orwell�s great realization was that those who want power will manipulate language to conceal their true purposes. Seriously, now, are those who seek power going to come right out and say so unless they�re sure it�s a done deal? No�so they will speak not of building up an edifice of controls around entire populations but of the need to promote �global democracy,� or �sustainable development,� or the importance of allowing �no child left behind��or �free trade.�

With this, we come to our present reality. There were, and are, well-intentioned folks who saw NAFTA as good, because their brains were paralyzed by the phrase free trade in North American Free Trade Agreement. Same with CAFTA. What should have made those who approve of real free trade suspicious is the thousands of pages it took to have these supposed �free trade� agreements. Read those pages, and you�ll see thousands of regulations�some pertaining to the environment (sustainable development), ( see Video "Liberty or Sustainable Development") some pertaining to women (the influence of radical feminism), some pertaining to �diversity,� some to �health,� and so on.

There was one person in particular, a message-board denizen who criticized my last article as �protectionist� and regaled me with government numbers about how NAFTA �helped the economy.� It has been a long time since I trusted government numbers, but that�s another article; my focus here is on the abuse of language. If the promotion of such agreements as NAFTA, CAFTA and the FTAA as �free trade� agreements involves abuse of the words free trade, then a charge of protectionism is meaningless at best, hypocritical at worst. A system built up on regulations which only the big boys can afford to comply with, subsidies favoring some at the expense of others, etc., by its very nature protects the big boys at the expense of everyone else. The natural step is to advocate protections for one�s own, to avoid that nasty choice between outsourcing one�s workforce and being driven out of business. Protections for American textile jobs were, of course, one of the things offered to politicians in the House in exchange for votes for CAFTA. Never mind that protections always carry a price tag. What the powerful protect, they can cease protecting at will. Meanwhile, the protectionism of the powerful will go unchallenged.

In other words, our entire system is now build up around protectionism of various sorts. The �myth� referred to in the title is that free trade really exists today. The real thing is at home in the laissez-faire system writers such as Bastiat had in mind, and which began to create wealth in this once-great nation until the investment bankers and their henchmen in the federal government destroyed it. The �reality� is the near-universality of protectionism�the protectionism of sweetheart deals, entitlements, subsidies, tax breaks, partnerships, etc. ad nauseam. It is the system that comes about almost automatically when the dominant economics of an era becomes increasingly hostile to business understood as free enterprise, as opposed to corporate socialism. The latter is built up on subsidies and public-private partnerships, evolving around such movements as sustainable development (which, by the way, is incorporated into CAFTA as is openly stated in CAFTA�s Preamble).

We should never fall into the trap of thinking that a policy or agreement or economic system is about �free trade� simply because it parrots that phrase. I greatly admire the Austrian school of economics. Ludwig von Mises, the school�s leading 20th century proponent, is a hero of mine because of his clear, streamlined thought about free markets and their roots in human action in a world of causality, and because of his enormous courage. He worked tirelessly, relentlessly exposing the fallacies of the socialism of both Marxists and Fascists, in an intellectual environment resolutely hostile to everything he valued. Mises paid a steep price for the exercise of genuine freedom in the realm of ideas: no academic job or reputation despite his being among the most original thinkers and prolific writers in his field (four mammoth treatises: The Theory of Money and Credit, Socialism, Human Action, and Theory and History, as well as over a dozen shorter works and over a hundred articles).

Today, however, even Austrian economists have occasionally fallen prey to the idea that the outsourcing of jobs that is destroying America�s middle class is the product of �freedom� (i.e., �free trade�), as opposed to choices made within a highly regulated and controlled environment�the antithesis of genuine free trade.

These choices have resulted from the protectionism of the elites. It protects multinational corporations at the expense of small business, not to mention the politicians and bureaucrats who shower the former with favors and are favored in return when it comes time to run for re-election. In familiar jargon, this system is one of socialism for the wealthy and well-connected, and capitalism for the �cattle� (that�s the rest of us). Perhaps I should note that just about all multinational corporations have members of the super-elite Council on Foreign Relations in controlling positions.

This is not rocket science, folks. Anyone who agitates for free trade owes it to himself to get clear what he is talking about, and understand the kinds of circumstances where the real thing can happen. It isn�t the globalist-corporatist-socialism towards which we are currently hurling at breakneck speed. A genuine free-trader needs to recognize those factors that have undermined the real thing, especially the lust for power on the part of a few. This includes the protectionists comfortably housed in immensely wealthy multinational corporations, as well as in the political establishment (and the tax-exempt foundations and well-subsidized think tanks where the NAFTAs and CAFTAs of this world are dreamed up). He needs to recognize, finally, that such accords are no more about genuine free trade than they are about any other form of liberty. They are part of a system that sees centralization (especially central banking) as a kind of philosopher�s stone of �prosperity� and centralized internationalist �governance� (�global democracy�) as beneficent overlord. The bottom line is control: not just over trade but over resources (sustainable development) (also see Video "Liberty or Sustainable Development") and ultimately every other significant aspect of the individual�s life. All one has to do to see all this is call up the online text of CAFTA and read it. (My critic had nothing to say about my allegations that CAFTA is a threat to U.S. independence, or that by voting for it, members of the Senate and the House violated their oaths of office to uphold the U.S. Constitution as the Supreme Law of the Land�Article VI, Paragraph 2.)

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All of this is critically important as our attention turns to the FTAA. The same folks who forced CAFTA down our throats as �free trade� will doubtless do the same several times over with the FTAA, a �free trade� accord that is many, many times more dangerous!

� 2005 Steven Yates - All Rights Reserved