The History of Trade Is One of Peace and Cooperation
I’m just back from seeing Star Wars: Episode I, The Phantom Menace with my 11-year-old son, Ben. The space adventure, full of eye-popping special effects, lives up to expectations.
But, alas, I must report on an aspect that will be disappointing to readers of The Freeman. The conflict that is the focus of the movie has to do with trade, and the traders are the bad guys. The opening scroll tells the audience that the Galactic Republic has imposed a tax on trade routes to the outer star systems, but “the greedy Trade Federation” is disputing the tax.
The Trade Federation is an organization of merchants so powerful that it has a seat in the Galactic Senate. To challenge the Republic’s jurisdiction over the trade routes, the Federation blockades the peaceful planet Naboo, ruled by the teen-aged Queen Amidala. It then invades Naboo, rounds up resisters, and puts them in camps. The Federation seeks to impose a treaty on the planet to legitimate the invasion and persuade the Senate to keep hands off. The Federation’s objective is to demonstrate that it controls trade in the outer star systems. The queen refuses to capitulate, and the oppressed inhabitants suffer and starve.
Admittedly, this is a small part of the story. The trade dispute is barely mentioned again. It’s simply Lucas’s way of getting the story off the ground: the subjugated Naboo must be liberated—a job for the Jedi Knights and their Gungan allies. Lucas’s ultimate purpose is to launch the Jedi career of Anakin Skywalker, who will grow up to be Darth Vader. (Whose idea was it to train that kid anyway?)
But militaristic traders? It’s oxymoronic. Traders tend to be peaceful. It’s hard to conduct business in the midst of combat. Napoleon dismissed capitalist England as a “nation of shopkeepers.” Tocqueville and others feared that commercial virtues would drive out martial virtues. Some early Americans shared this view.
The history of trade is a history of peace and cooperation. In the late eleventh and twelfth centuries, traders rebuilt world commerce and developed the transnational “law merchant,” the sophisticated, pacific commercial code that plays a role in governing trade to this day. Under that code, traders from different cultures and legal systems resolved their disputes peacefully, swiftly, and efficiently in the merchant-run courts. Form followed function, the function being the facilitating of commerce.
Legal scholar Harold Berman, in Law and Revolution, calls the mercantile law “capitalist law par excellence.” He notes that “reciprocity of rights” was a key feature of the law. That principle refers to “the element of equality of burdens or benefits as between the parties to the transaction—the element, that is, of fairness of the exchange.”
The law was not the product of government. Gerard Malynes wrote in 1622 that “it is customary law approved by the authority of all kingdoms and commonwealths, and not a law established by the sovereignty of any prince.” Berman says that “the initial development of mercantile law was left largely, though not entirely, to the merchants themselves, who organized international fairs and markets, formed mercantile courts, and established mercantile offices in the new urban communities that were springing up throughout western Europe.”
I can’t imagine these merchants imposing an aggressive blockade on peaceful people. They’d have found other ways to dispute a tax on trade. Maybe someone should send George Lucas a copy of Law and Revolution.
I don’t wish to single out Lucas. Trade is often misunderstood. While merchants were accused of being pacifists with no loyalty to their nations, they were also suspected of pursuing base and dishonest work. Zero-sum thinking has led people to believe that if a merchant makes a profit, the buyer must lose.
Sometimes the image of trade is ridiculous. If you’ve ever been to the Federal Trade Commission in Washington, D.C., you may have noticed two statues each depicting a man struggling to hold back a wild horse. The Soviet-style statues are titled “Man Tames Trade.” You won’t be surprised to learn that they were the winning entry in a sculpting contest during the New Deal. (The winner was the brother of Walter Lantz, creator of Woody Woodpecker.)
Deconstructing the statues is enlightening. The man represents collective Man. The wild horse represents trade. Trade is an activity of individual human beings. Thus, the statue symbolizes collective Man restraining individuals. This puts a new spin on the work of art. Since trade is consensual and occurs only when both parties expect to get more than they give—making the wild horse a poor choice of symbol—we’re left with what should have been an ominous (and accurate) message from the government: the Federal Trade Commission exists to restrain free exchange for mutual advantage.
The misunderstanding of trade is on display every time the newspapers announce America’s foreign trade deficit. I recall a day when the front page of my newspaper declared in dark tones a record trade deficit, while the business page of the same newspaper pointed out in an upbeat story that since the U.S. economy was doing better than foreign economies, Americans were importing more than foreigners were. Was the trade deficit good or bad news?
In fact, the United States has run both trade surpluses and deficits in good times, but usually surpluses in deep recessions and depressions. More fundamentally, the presence of a deficit or surplus is a sign that one is not looking at a full accounting of economic activity. The trade deficit refers to the merchandise account. We Americans buy more goods from foreigners than they buy from us. But merchandise is not the entirety of economic activity. Foreigners also buy services from us, and they invest here. There’s no reason to worry that one account doesn’t balance. Foreign merchants have a limited number of ways to dispose of the dollars they earn from sales here. They can buy American merchandise, services, or investments. If they don’t want to do any of those things, they can trade their dollars for their own currency. But then the new holder of dollars faces the same choices. However you slice it, there’s nothing to worry about.
If everything is counted, the books must balance. It’s an accounting imperative. Someone once attempted to do a worldwide accounting of all economic activity. He found that the world was running a deficit in the hundreds of billions of dollars. Who was running the surplus? Naboo? Or were the trade statistics deficient?
While the national trade accounts must balance, that still gives a misleading picture. Nations don’t trade. Individuals do, and individuals don’t trade in an effort to break even. They trade to come out ahead. And barring error, they do just that.
Forget the Force. May peace and freedom be with you.
