Free Trade, Freedom of Enterprise and All That
FEBRUARY 01, 1977 by DONALD BILLINGS
The current low price for the world’s "surplus" sugar has in recent weeks brought to center stage a conflict which is always lurking just beneath the surface of conversation, namely the extent to which Americans really do or do not believe in the "free market philosophy." Our attempted defense of free trade and the free enterprise system has elicited heated criticism from a community nominally devoted to the "free market" order. The chairman of a major sugar company is disappointed in our decision "to champion a ‘free market’ philosophy, as is popular in academic circles." The president of an association of beet growers suggests that he is "a firm believer in the free market and free trade [but] free trade in sugar is a horse of a different color." It would seem that the commitment to a free market system of economic institutions is only for the other guy. Our own horse is always of a different color.
Fortunately the appeal and defense of free markets in which new producers, foreign and domestic, are free to enter and compete does not exist "only in texts." The drafters of our Constitution saw the great wisdom of prohibiting restrictions on the flow of goods and services across state lines by explicitly providing in Article 1, Section 10, that "No State shall, without the Consent of Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws." The
Those who argue that a particular industry should be subsidized and protected from foreign competition in order to provide for "orderly" and "stable" markets would, presumably, also be in favor of amending the U.S. Constitution so that
On the other hand,
Low Foreign Wages
The traditional low-foreign-wages argument once again emerges as an argument for protection. It is argued that one of the reasons for the lower dollar cost of many foreign goods is the high "level of wages paid in the
Unfortunately, the argument is unsound. Relatively high wages are a result of high productivity, and relatively low wages are a result of low productivity. If American labor has high wages, it is because American labor has higher man-hour productivity than foreign labor.
If low foreign wages are the source of our troubles, then why is it the case that
If labor is "cheap" abroad, we should be cultivating its use in those industries which use relatively more unskilled and semiskilled labor, and be making efforts simultaneously to transfer our more productive (i.e., high wage) labor force into those industries in which a productivity advantage, arising from technology, marketing, skill levels, and the like, is demonstrated. The Trade Reform Act of 1974 provides for liberal doses of "adjustment assistance" to ease the movement of labor and capital to the relatively more productive sectors of the American economy.
It Takes Two to Trade
Of course, this is a two-way street. When trade has developed between nations, restrictions on exports will reduce that nation’s capacity to import foreign products, the result being lower living standards in both the exporting and importing countries. The embargoes on our exports of wheat and soybeans in recent years are examples of this wrong-headed policy. The fundamental error of logic of those who want "free markets" for the other guy and "orderly" markets for themselves was well exposed in 1846 by Frederic Bastiat in his imaginary petition to the French Chamber of Deputies. His satirization of the protectionist fallacy was in the name of free trade and freedom of enterprise. He entitled it a "Petition from the Manufacturers of Candles, Wax-lights, Lamps, Chandeliers, Reflectors, Snuffers, Extinguishers; and from Producers of Tallow, Oil, Resin, Alcohol, and in General Everything That Concerns Lighting:"
Gentlemen, you are right: you reject abstract theories. As practical men, you are anxious only to free the producer from foreign competition and secure the national market to national labor.
We now offer you an admirable opportunity to apply your practice. We are subjected to the intolerable competition of a foreign rival whose superior facilities for producing light enable him to flood the French market at so low a price as to take away all our customers the moment he appears, suddenly reducing an important branch of French industry to stagnation. This rival is the sun.
We request a law to shut up all windows, dormers, skylights, openings, holes, chinks, and fissures through which sunlight penetrates. Our industry provides such valuable manufactures that our country cannot, without ingratitude, leave us now to struggle unprotected through so unequal a contest.
Do not repulse our petition as a satire without hearing our reasons. Your protection of artificial lighting will benefit every industry in
Navigation will equally profit. Thousands of vessels will soon be employed in whaling, and thence will arise a navy capable of upholding the honor of
Paris will become magnificent with the glittering splendor of gildings, bronzes, crystal chandeliers, lamps, reflectors, and candelabras. When we and our many suppliers have become rich, our great consumption will contribute to the prosperity of workers in every industry. No one, not even the poor resin manufacturer amidst his pine forest nor the miserable miner in his dark dwelling, will fail to enjoy an increase of salary and comforts. There is perhaps not one Frenchman, from the rich stockholder to the poorest match-seller, who is not interested in the success of our petition.
We foresee your objections, gentlemen; but there is not one which you will not have to take from the free-traders and which is not opposed to your practice. Do you object that the consumer must pay the price of protecting us? You have yourselves already answered the objection. When told that the consumer is interested in free importation of iron, coal, corn, wheat, cloth, etc., you have answered that the producer is interested in their exclusion. You have always acted to encourage labor, to increase the demand for labor.
Will you say that sunlight is a free gift, and that to repulse free gifts is to repulse riches under pretense of encouraging the means of obtaining them? Take care—you deal a death-blow to your own policy. Remember: hitherto you have always repulsed foreign produce because it was an approach to a free gift; and the closer this approach, the more you have repulsed the goods. You have, in obeying the wishes of other monopolists, acted only from a half-motive; to grant our petition there is a much fuller inducement.
To turn us down just because our case is much stronger than any previous one would be to accumulate absurdity upon absurdity.
When we buy a Portuguese orange at half the price of a French orange, we in effect get it half as a gift. If you protect national labor against the competition of a half- gift, what principle justifies allowing the importation of something just because it is entirely a gift? You are no logicians if, refusing the half-gift as hurtful to human labor, you do not with double zeal reject the full gift.
The difference in price between an imported article and the corresponding French articles is a free gift to us. The bigger the difference, the bigger the gift. It is as complete as possible when the producer gives us his goods entirely free, as the sun does with light. The question is whether you wish for