The Free Trade Cult

I started Throne, Altar, Liberty in May of 2010, but I had been writing essays on political, theological, and cultural topics for at least a year before then. I distributed these to friends through e-mail and Facebook. Since starting Throne, Altar, Liberty I have reposted several of these earlier essays here. Last year in April and May, for example, I posted nine of them, with new introductions, as a series entitled “GTN Tory Classics”. My main reason for doing this is that I did not want Throne, Altar, Liberty to sit dormant while I researched a couple of topics that I wished to write new essays on.

Among the essays reposted last year, were several from an eight-part series on economic subjects that I had written in 2009. I had intended to include the final essay in that series, “The Free Trade Cult”, but for some reason or another neglected to so. Since I once again wish to buy myself time to complete some new essays, I will make up for that neglect by posting it now.

My argument against free trade in this essay, is built upon the fact that history has demonstrated that free trade does not work the way it is supposed to. Liberalism – and free trade is the cornerstone of economic liberalism – predicts that the more countries reduce barriers to trade the more they will prosper. History, however, shows the opposite. Countries that are industrialized or are undergoing industrialization, become economically strong under protection and decline under free trade. I pointed to two elements of liberal theory as the explanation for why free trade does not work – liberalism’s placing the individual over the family, community, and nation and placing consumption over production.

Liberalism’s exaltation of consumption over production is derived from liberalism’s desire to be fair. Protectionism is not fair. I don’t think anybody ever claimed that it was. A tariff on milk benefits domestic dairy producers at the expense of foreign dairy producers and all domestic consumers of dairy products. A tariff on grain benefits domestic grain producers at the expense of foreign grain producers and all domestic consumers of grain. The same can be said for any tariff on any product. The unfairness of this is manifest for anyone to see.

Free trade, liberalism claims, is fair. Under free trade domestic and foreign producers compete in the market, with no unfair advantage given to either. The advantage is rather to the consumer, who is able to buy goods at a lower price. Since the consumers of any particular good will always outnumber the producers of that same good, free trade is the fairest system possible.

There is a certain logic to this, and even a certain truth. No false doctrine is ever entirely false – otherwise, nobody would ever be deceived, by it. The problem is that this kind of reasoning leads inevitably to the conclusion that the economy should favour consumption over production. It is true in one sense, that the producer must be the servant of the consumer. If a producer were to decide that he was going to produce whatever he wanted regardless of whether anyone else wanted it, and so begin manufacturing such things as manure-flavoured licorice, pills that do nothing but enhance the pain from which one is already suffering, and record albums such as “Chalkboard Scratching: the Greatest Hits”, he would not remain in business very long. The only exception to this rule that comes immediately to mind is the contemporary artist, who is subsidized at the taxpayer’s expense by an arts council that believes that artists are entitled to public support and that restrictions on the artist’s output, such as that it should be something people want to see or hear, squelch creativity.

If it is true that production should and must be the servant of consumption, it is only true, as Evelyn Waugh’s Mr. Milner said to Lord Copper, “up to a point”. Looked at from a different angle, production must take precedence over consumption. Some forms of consumption, such as that of food and drink, are necessary to sustain our existence, whereas other forms of consumption, such as that of the products of the entertainment industry, are not. Whether necessary or not, however, consumption cannot take place without production. If we encounter a person who consumes without producing anything by living off of what he has previously accumulated or by borrowing from others we know that that person will not be able to do so indefinitely. Eventually, he will run out of accumulated resources, credit, or both. Then he must become productive or die.

That this is true of individual persons is not disputed. It is also true of countries. A country cannot survive long with an economy that consists primarily of moving existing wealth around and consuming goods that are produced elsewhere. Only production can increase wealth – consumption always decreases it. The liberal, who seems only the individual as being real and not the country, does not appear to recognize this. He also, and for the same reason, is blind to the fact that in practice, his doctrine, like that of the protectionist he so despises, does actually work to the benefit of one group of producers against another. Large, multinational or transnational companies, that answer to the laws of no one country in particular, are given an advantage over the smaller domestic producers of any country, by free trade.

At some point in the future I will likely compose an essay exploring the reasons why the classical liberal concept of the free market works better within the context of a national economy than when it is extended internationally. For now, I give you "The Free Trade Cult". - GTN

The Free Trade Cult


By Gerry T. Neal
June 30, 2009

Although there is much that economists disagree on, one thing that unites most if not all mainstream schools of economic thought is a belief in free trade. Free trade is one of the earliest concepts of modern economics. Adam Smith argued in the 18th Century that a country would be foolish to produce at home what it is cheaper to import from abroad. David Ricardo built on this theory in the 19th Century and Richard Cobden made it his life’s goal to see free trade implemented.

Libertarian schools of economics like the Chicago School of the late Milton Friedman and the Austrian School of Mises, Hayek and Rothbard believe devoutly in free trade. But so does Paul Krugman, the most prominent contemporary exponent of Keynesianism. Free trade, we find, gets a lot of support from people who are otherwise not big fans of laissez faire. Liberal columnist for the New York Times, Thomas L. Friedman, is a noted advocate of globalization. American Presidents Franklin D. Roosevelt, John F. Kennedy, and William J. Clinton all devoutly believed in international free trade while supporting massive state intervention in the domestic economy.

Free trade’s wide, cross-spectrum support base, among political and economical theorists may suggest to many that it is a basic concept, obviously true, that only a fool would question.

But is it? What is free trade, how is it supposed to work, and where is the evidence that it does work?

Free trade is the expansion of the concept of the free market across international borders. At the time free trade was first being proposed as a theory the Western nations practiced an economic policy known as mercantilism. Mercantilism was the idea that to become wealthy a nation needed to amass gold and silver, and that the way to do so was to have a trade surplus, i.e., to have more products flowing out of your country than flow in. The powers of Europe sought to accomplish this by subsidizing exports and restricting imports by quotas, tariffs, and other measures that today are known as protectionism.

Adam Smith, in his An Inquiry into the Nature and Causes of the Wealth of Nations, challenged mercantilist thought. Wealth, he argued, was the result of production and production was enhanced by the division of labor and specialization. These, in turn, were made possible by trade, which allowed the specialist to concentrate on producing one thing and trading his surplus for everything else he needed. Trade, operates best when buyers and sellers are allowed to come to their own agreements as to price rather than having them set by government.

This was the case for the free market and Smith argued that it applied to nations as well as to individuals within a nation. Tariffs, quotas, etc., Smith argued, only prevent a country from obtaining what they need at the lowest price possible, and so rather than enriching a country, impoverished it.

The argument seems impeccable on paper. If it is true then observing the results of free trade versus protection in practice should bear the theory out. After all, all other predictions of laissez faire theory can be demonstrated to be correct. Laissez faire theory says that minimum wage laws do nothing but eliminate jobs that are not worth minimum wage to the employer, usually starter jobs. It says that price controls cause shortages. It says that rent controls lead to housing shortages and neighborhoods decaying into slums. We can point to case after case where these interventionist measures have had exactly these outcomes.

What have been the results of free trade?

The United Kingdom was the first country to put the theory into practice. This began with the repeal of the Corn Laws, which protected British agriculture from imports, in 1846. This was accomplished by the government of Sir Robert Peel after relentless campaigning by Richard Cobden, “The Apostle of Free Trade” and a league of Manchester manufacturers he led. Over the next two decades the UK would lower its tariffs to the point where the average import duty on the vast majority of goods was 0. This would remain UK policy until the first World War.

Did this help or harm Britain?

The UK was the home of the Industrial Revolution, which had started there in the late 18th Century. At the time Britain began her experiment in free trade she dominated the world of manufacturing. Her steel and textile industries were surpassed by none. By the time her long experiment in free trade came to an end she had been eclipsed by another industrial power – the United States of America.

What was America’s trade policy?

The USA had always been protectionist, but during the period when the UK was practicing unilateral free trade it was taking protectionism to an all time high. The 1860’s had seen the rise of the Republican Party, which succeeded in putting into practice the “American system” of Alexander Hamilton and Henry Clay. The main feature of the “American system” was a tariff wall protecting American industry. Following the Republican institution of this system the average tariff on manufactured goods was around 45%.

Did this help or hurt America?

The century from 1870 to 1970 is often called America’s “Golden Age”. As America became the world’s leading industrial power, profits and wages rose simultaneously as did the average American standard of living. When the War came, and the UK was no longer producing enough to meet her own needs, it was to the USA that she looked for help – help the USA was able to provide.

How does the free trader explain that?

“Other factors were involved”. “That is a post hoc ergo propter hoc argument”.

Perhaps. But the USA wasn’t the only country that fared well under protection in that era. In 1879 Otto von Bismark introduced economic nationalism based upon the American system to Germany. The same year the Conservatives brought in protectionism here in Canada. Both countries did very well under high tariffs.

What happened when America abandoned protection?

FDR, the author of American socialism, obtained for the American president the right to lower tariffs in negotiating treaties with other countries. This set the stage for America’s post-WWII retreat from protectionism. During this period of increased free trade America’s GNP and GDP have continued to rise but the average real wage (wages adjusted for inflation) has gone down as America’s manufacturing base has shrunk and her domestic economy has increasingly come to be based on services.

This era has seen the rise of new industrial giants – most notably Japan. Japan practices protection.

What have the free traders missed? What is wrong with their theory? Why are the results so different from what laissez faire would predict here when elsewhere laissez faire theory is so accurate?

The basic problem with free trade is that it is derived from classical liberal ideology. To classical liberalism individuals are all that matters – families, communities, and nations don’t count. Especially nations.

With the exception of Adam Smith (who made numerous exceptions to his theory of free trade) the classical free traders were contemptuous of nations. They believed in an enlightened age to come in which international trade would foster international friendship, war would disappear, there would be world peace, and we would all be one.

In the real world, however, nations matter. And it matters very much, to a nation, who produces the goods that it consumes. Remember that production creates wealth, consumption uses it up. Consuming more than you produce is not the path to prosperity, for individuals or for nations. It is the path to bankruptcy.

Free trade ideology insists that free trade is superior because it favors the consumer with low prices, whereas protection favors the producer with high prices. Everybody is a consumer, the free trader’s argue, but not everybody is a producer, so it is best to do what is in the interests of the consumer. Free traders are nothing if they are not utilitarian.

But how is the consumer going to pay for what he consumes? The answer for the last few decades has been cheap credit. That cannot last forever, however – or much longer, for that matter, if the recent economic crisis is any indication.

A policy that favors consumption over production is a policy that will doom your country to poverty.

A country that wishes to survive, that does not want to bring its people down into poverty, must encourage production, and it must produce more than it consumes. Socialists have attempted to do this by having their government’s seize control of the economy and try to plan it from the top down to be more efficient. All such experiments have been radical failures.

Protection, on the other hand, is historically associated with high productivity.

Today our government’s have got it backwards. They are removing barriers to international trade while doing everything in their power to intervene in their domestic markets with restrictions, and legislation, and red tape. They should be doing the exact opposite – protecting domestic producers while otherwise practicing laissez faire.

But our government’s no longer care about their countries. In lowering tariffs and other protective measures so as to free up international trade, they have surrendered part of their sovereignty to international institutions. The most complete form of this surrender of national sovereignty can be seen in the European Union. But NAFTA provides the basis for a future North American equivalent. On a global basis the long series of GATT talks resulted in the creation of the World Trade Organization. The path down which the free traders are taking us is clear: one market, one currency, one government.

Libertarian free traders will argue that what we are seeing in these developments is not true “free trade” as described in theory, but governments colluding to grant special trade privileges to favored corporations. That is certainly true but it may not be relevant. A one world system – dare I say “New World Order” - is exactly what David Ricardo, Richard Cobden, and the other formulators of classical free trade theory were hoping for.

It will not be the rosy paradise they had in mind however.

Those who do not want to live under the global regime of a global government, who prefer living in their own sovereign countries, and wish to see those countries prosper, should not support a global economy.

Liberalism and the Inevitability of War

For as long as human societies have existed upon this planet they have fought wars against one another.

This is a statement that I believe most people would agree with. The same consensus, however, does not exist with regards to the following statement:

Wars will continue to be fought for as long as human societies continue to exist upon this planet.

This second statement is as true as the first. While specific wars have specific causes, the cause of war in general is to be found in human nature. The only way to eliminate war, therefore, is to eliminate human beings. As long as men live upon this planet they will from time to time go to war against one another.

Consider what the history of the 20th Century has to teach us. Conflicts in the Balkan region in the first decade of that century, broke out into a world-wide conflict between the great powers in the second decade. This conflict was dubbed “the war to end all wars” by those who continued to hold to the progressive optimism of the 19th Century. A little over two decades after it ended, however, it broke out again, this time to be conducted on an even larger, costlier, and more destructive scale. This time, it was brought to end by a technological innovation, the development of which would have, if anything ever could, permanently checked man’s propensity for war. That innovation was the first nuclear weapon, the atomic bomb. The development of nuclear weaponry raised the potential cost of war to what should have been a prohibitive level by making the extinction of the species a real possibility as an outcome of war. This did not, however, prevent the outbreak of future wars. Major, multi-national conflicts were fought in Korea in the 1950’s and Vietnam in the 1960’s and 1970’s and if the large nuclear arsenals of the United States of America and the Soviet Union prevented the superpowers from directly confronting each other in war, it did not prevent them from using smaller allies, all over the globe, like pawns on a giant chessboard. The second half of the century saw conflict after conflict in the Middle East between the Arab nations and Israel and there is no end to those hostilities in sight. In the final decade of the 20th Century, the nations of the Balkans resumed the fighting that had led to the first World War earlier in the century.

That war will be around for as long as human beings inhabit the earth is not universally recognized, however, and liberals in particular are inclined to reject this truth. In fact, liberalism’s primary error concerning war, is the idea that it can be eliminated and a permanently peaceful world order established. This is not the same thing as pacifism. Far too many conservatives make the mistake of associating liberalism with pacifism. Pacifism is the refusal to participate in war on the grounds of a belief that war is always morally wrong. Pacifists are susceptible to the charges of cowardice and free-riding (1) and for this reason accusing one’s opponents of pacifism makes for effective rhetoric. Liberals, however, are not pacifists. Indeed, history would seem to demonstrate that they are more likely than conservatives to involve their country in a war.

Consider the major wars the United States of America was involved in during the 20th Century. It was liberal Democrat Presidents who led the United States into the four largest of these wars. It was a liberal Democrat, Woodrow Wilson, who led the United States into World War I declaring that they needed to “make the world safe for democracy”. It was another liberal Democrat, Franklin Delano Roosevelt, who brought the United States into the second World War. (2) Liberal Democrat Harry Truman was the president who got the United States into the Korean War and Liberal Democrats John F. Kennedy and Lyndon Johnson got the United States into the Vietnam War. In contrast, conservative Republican President ordered the bombing of Libya, the invasion of Grenada, countless covert-ops and the support of anti-communist contras in Latin America, but he did not get his country involved in anything on the scale of World Wars I and II, Korea or Vietnam and, in fact, negotiated an end to the arms race and the 40 year Cold War with the Soviet Union.

Similarly, here in Canada, after the Statute of Westminster declared that our own Parliament would decide from then on whether or not we were at war, it was Liberal Prime Ministers who led our country into World War II (William Lyon Mackenzie King), Korea (Louis St. Laurent), and Afghanistan (Jean Chretien).

Clearly liberals are not pacifists. Liberals and conservatives have different ideas about war but those differences are not the same differences which distinguish doves from hawks. Liberalism’s error is to believe that mankind can build a world that is free of war.

This idea lies behind several significant liberal projects of the last couple of centuries. Liberals began calling for free trade – the elimination of tariffs, quotas, and other protectionist measures so as to merge the economies of all countries into one big market – as far back as the eighteenth century, arguing that the economic interdependence that free trade would bring, would merge the nations of the world into one, bringing about universal brotherhood and peace. Richard Cobden, the 19th Century British “Apostle of Free Trade”, proclaimed that free trade:

[A]rms its votaries by its own pacific nature, in that eternal truth—the more any nation trafficks abroad upon free and honest principles, the less it will be in danger of wars.(3)

In a speech given on January 15, 1846 he declared:

I see in the Free-trade principle that which shall act on the moral world as the principle of gravitation in the universe,—drawing men together, thrusting aside the antagonism of race, and creed, and language, and uniting us in the bonds of eternal peace.(4)

Similar utopian sentiments can be found in the speeches and writings of many other 18th and 19th century free traders.

When Woodrow Wilson asked the American Congress to declare the United States’ entry into World War I, he told Congress that “The world must be made safe for democracy”. This goal was connected in his mind with that of world peace. He immediately went on to say “Its peace must be planted upon the tested foundations of political liberty”. (5)

Wilson’s idea of world peace is very similar to that of free traders such as Richard Cobden. The difference is that Wilson saw elected government as being the means to world peace rather than international commerce.

The idea that democratic governments are more likely to be peaceful government is not borne out by history. The roots of democracy go back to ancient Athens and Athenian democracy is widely regarded as having reached its peak during the years of Pericles, which are often spoken of as Athens’ Golden Age. This was not, however, an era in which Athens lived in peace and harmony with its neighbors, but the era of the Peloponnesian War fought by Athens and her allies against Sparta and her allies. This war, the history of which we know from an account written by Athenian general Thucydides, was not a conflict in which a democratic state, desiring peace, was forced to defend herself against the aggression of her non-democratic neighbors. Athens was as belligerent and ambitious as Sparta. From that day to this, democracies have been no less likely to go to war than any other kind of country. Nor is it true that democracies do not go to war with each other. Historians often refer to the War of Southern Independence (6) as the “first modern war.” Both sides in that conflict, however, the United States of America and the Confederate States of America, were democratic republics. Furthermore, this was a particularly bloody war in which more Americans died than in any other war they have ever participated, including both World Wars and Vietnam combined.

At the end of World War I, Kaiser Wilhelm II of Germany and Emperor Karl von Hapsburg I of Austria were both forced off of their thrones and Germany and Austria became democratic republics. By Wilson’s logic, this should have made these countries less likely to want to resume the conflict at a later date. In fact it had the exact opposite effect. In the 1930’s Germany and Austria came under the control of Adolf Hitler who launched a second war that was far worse from the first. Now the point might be made that under Hitler, Germany and Austria ceased to be democratic. However true that might be it is very much the case that had the German Kaiser and the Austrian Emperor kept their thrones, Hitler would never have had the opportunity to rise to power. Hitler was a demagogue and democracy is the ladder a demagogue climbs to achieve power.

The spread of democracy was not the only part of Wilson’s plan for world peace. The last of his famous Fourteen Points was that:

A general association of nations must be formed under specific covenants for the purpose of affording mutual guarantees of political independence and territorial integrity to great and small nations alike. (7)

This association took the form of the League of Nations. Although it was proposed by the American President, the United States never joined it. The countries that did join need not have bothered because it failed completely in its appointed task.

The failure of the League of Nations did not prevent a second liberal American President from repeating the experiment at the end of the second World War. FDR’s United Nations was conceived of as a forum in which the nations of the world could voice their grievances with each other and resolve those grievances without resorting to war. If the League of Nations was useless, the United Nations was worse than useless. The General Assembly simply became a platform upon which the representatives of every Soviet vassal state, Third World dictatorship, and Islamic theocracy in the world, were invited to stand and espouse their poisonous drivel to the world. The Security Council is powerless to oppose wrongdoing on the part of any of its permanent members, each of which has a veto. Since the Soviet Union was one of those permanent members the Security Council was powerless against Communist aggression in the Cold War, just as it is powerless to stop the sole remaining superpower, the United States of America, from doing whatever she wants. The only thing the United Nations has proven effective at doing has been wasting the money it receives from its member states as it tries, thankfully less effectively, to tell them how to manage their own affairs, usually in the name of some inane left-wing agenda. It has not made the world a more peaceful place.

These examples, I believe, are sufficient to establish the truth of my contention that there is a strong tendency in liberalism to believe that it is possible to construct a peaceful world order in which war is eliminated and that this belief lies behind several of liberalism’s most important projects. They also demonstrate that whatever the scheme the liberal comes up with his goal of world peace continues to elude him. (8) Today the economies of the world have been integrated into a global market, democracy is widespread, and the United Nations has been established for almost seven decades, yet perpetual universal peace is nowhere in sight.


(1) A free rider is someone who benefits from participation in a group without paying his fair share of the dues. A pacifist is susceptible to the charge of free-riding because he enjoys the benefits of living in his country, including the security provided by his country’s military, although he is not willing to serve his country militarily if called upon to do so.

(2) Granted, the Japanese empire attacked the United States first. However, FDR was in favour of the United States entering the second World War long before Pearl Harbor. He and his advisors in the year leading up to Pearl Harbor talked about war with Japan as a “backdoor” into the war with Germany. At the time, public opinion in the United States was strongly against American involvement in the war with Germany. See Thomas Fleming, The New Dealers’ War: FDR and the War Within World War II (New York: Basic Books, 2001) and Robert Stinnett Day of Deceit: The Truth About FDR and Pearl Harbor (New York: The Free Press, 1999).

(3) Richard Cobden, The Political Writings of Richard Cobden, (London: William Ridgway, 1878) p. 126.

(4) http://www.econlib.org/library/YPDBooks/Cobden/cbdSPP20.html

(5) http://historymatters.gmu.edu/d/4943/

(6) This is usually called the “American Civil War”. Ordinarily, the phrase “civil war” refers to an internal struggle for control of a state. In the English Civil War, the Roundheads fought to turn England into a Puritan republic against the Cavaliers who fought to keep it an Anglican monarchy. In the Spanish Civil War, the Republicans and the Nationalists fought each other for the control of Spain. In American history, however, the North and South did not struggle for control of the United States, but over whether the secession of the Southern states and their independence from Washington D. C. would be allowed.

(7) http://www.ourdocuments.gov/doc.php?doc=62

(8) If permanent world peace is an unattainable goal and it is inevitable that men will from time to time go to war with each other it does not follow from this that any particular conflict is inevitable and that attempts to prevent particular wars are always foolish and doomed to fail.