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<h2>freetrd2</h2>
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<p>A CAPITALIST LOOKS AT FREE TRADE</p>
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<p>By WILLIAM L. LAW</p>
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<p>Protectionists seeking relief from the rigors of foreign
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competition bring to mind Milton Friedman's dictum, "The great
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enemies of free enterprise are businessmen and intellectuals--
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businessmen because they want socialism for themselves and
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free enterprise for everyone else; intellectuals, because they
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want free enterprise for themselves and socialism for everyone
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else."</p>
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<p>I speak from personal experience. Baseball-glove leather was
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the principal product of our firm until 1957 when ball gloves
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of <span class="NORP">Japanese</span> manufacture appeared and ultimately gained seventy
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percent of the United States' market. Today, we tan no
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baseball-glove leather. Sentiment in the ball-glove industry
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at that time was very strong for protective action. I
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investigated the matter in some depth and found that I could
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not in good faith urge protectionist action on my political
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representatives; such action would have been wrong
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economically, politically and morally.</p>
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<p>My sentiments stem from the fact that I look upon myself not
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as a tanner whose product is leather, but as a capitalist
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whose product is profit. That climate most beneficial to
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capitalists--and to workers--is one in which there exists a
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minimum of governmental interference.</p>
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<p>The protectionist argument is almost as widespread today as it
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was two hundred years ago when Adam Smith in his treatise An
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Inquiry into the Nature and Causes of The Wealth of Nations so
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brilliantly demonstrated its fallacies. Fortunately, we have
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the work of Smith and his many successors, plus the empirical
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lessons on the benefits of free trade--our fifty states united
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in one common market are a notable example--to demonstrate the
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advantages of free exchange.</p>
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<p>No improvement can be made on Smith's understanding:</p>
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<p> It is the highest impertinence of kings and
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ministers, to pretend to watch over the economy of
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private people, and to restrain their expense, either
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by sumptuary laws, or by prohibiting the importation
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of foreign luxuries. They are themselves always, and
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without any exception, the greatest spendthrifts in
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society. Let them look well after their own expense,
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and they may safely trust private people with theirs.
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If their own extravagance does not ruin the state,
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that of their subjects never will. . . .</p>
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<p> To give the monopoly of the home market to the
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produce of domestic industry . . . must, in almost
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all cases be either a useless or a hurtful regulation.
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If the produce of domestic industry can be bought
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there as cheap as that of foreign industry, the
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regulation is evidently useless. If it cannot, it
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must generally be hurtful.</p>
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<p> It is the maxim of every prudent master of a family,
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never to attempt to make at home what it will cost
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him more to make than to buy. The tailor does not
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attempt to make his own shoes, but buys them of a
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shoemaker. The shoemaker does not attempt to make his
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own clothes, but employs a tailor. The farmer attempts
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to make neither the one nor the other, but employs
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those different artificers. All of them find it in
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their interests to employ their whole industry in a way
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in which they have some advantage over their neighbors,
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and to purchase with a part of its produce, or what is
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the same thing, with the price of a part of it, whatever
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else they have occasion for. What is prudence in the
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conduct of every private family, can scarce be folly in
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that of a great kingdom. . . .</p>
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<p> That it was the spirit of monopoly which originally
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both invented and propagated this [protectionist]
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doctrine cannot be doubted; and they who first taught
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it were by no means such fools as they who believed it.
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In every country it always is and must be the interest
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of the great body of the people to buy whatever they
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want of those who sell it cheapest. The proposition is
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so very manifest, that it seems ridiculous to take any
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pains to prove it; nor could it ever have been called
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in question had not the interested sophistry of
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merchants and manufacturers confounded the common sense
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of mankind.</p>
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<p>The "sophistry" of which Smith speaks is in essence that being
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advanced today by protectionists: "The U.S. is a high-wage
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country; its industry is unable to compete with that in low-wage countries; imports are increasing, and unless remedial
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measures are adopted, our industries will be destroyed and
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large-scale unemployment will ensue."</p>
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<p>But fortunately, we have the the rationale and arguments for
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free trade.</p>
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<p>We trade to obtain goods that are either unobtainable
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domestically, such as chrome ore, diamonds, and teak wood, or
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that can be obtained more cheaply abroad, such as baseball
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gloves or textiles.</p>
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<p>And free trade raises wages! Trade between individuals,
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between states, between nations is beneficial, and far from
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reducing the living standards of the participants, greatly
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improves them. And the country with the freest trade policy
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enjoys the maximum advantage.</p>
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<p>I repeat: trade raises wages! Those who think otherwise fail
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to understand that wages in the U.S. are the world's highest
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for a reason: American industry has the world's highest
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average-capital investment per worker ($125000) and,
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therefore, has the highest average productivity per worker.
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And while we have high wages, because of the multiplier--
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tools, we also have low labor costs!</p>
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<p>Certainly, labor-intensive industries, i.e., textiles, find it
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difficult to compete inside a capital-intensive country.
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After all, a Chinese worker with minimal capital--a needle--
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and working for $20 a week, will produce handmade lace at a
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lower cost than an American worker using the same needle and
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receiving $200 a week. While their productivity will be the
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same, the Chinese labor cost will be one-tenth of the U.S.
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cost.</p>
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<p>But give the American worker a giant mechanical shovel and, at
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the world's highest wage, he will produce the world's cheapest
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coal. With advanced technology, workers will produce the
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lowest-cost coal, wheat, jet aircraft and countless other
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goods. And so, we import lace and ball gloves and petroleum,
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and we export jet planes and wheat and chemicals. To attempt
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to "retaliate" against lower costs in certain foreign
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industries is an exercise in folly.</p>
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<p>Moreover, contrary to popular belief, imports don't cause
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unemployment, nor do immigration or automation. Unemployment
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exists only when money wages are arbitrarily raised or held
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above the market price.</p>
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<p>The Great Depression is the classic case of "iatrogenic"
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unemployment, i.e., induced by the economic doctor. For
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example, when the stock market crashed in 1929, it
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precipitated a deflation and concomitant lowering of all
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prices. Presidents Hoover and Roosevelt, believing in the so-called "purchasing power theory," cooperated with major
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industrialists and union leaders to do everything in their
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power to prevent wages from falling--even though prices in
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general had dropped by one-third from 1929 to 1932! The result
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was that twenty-five to thirty percent of the work force was
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unemployed. The situation was not ameliorated until 1941 when
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the government printed massive amounts of money to support the
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war effort; and instead of trying to support wages, the
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government took the opposite position and introduced controls
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to hold wages down. Unemployment soon disappeared and industry
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expanded.</p>
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<p>Unfortunately, a false lesson was learned--that war is the
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health of the economy. (Our current secretary of state,
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justifying the military intervention in the Middle East,
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reflected this when he stated, "If you want to sum it up in
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one word, it's jobs.") The truth, of course, is that war is
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actually the enemy of prosperity (and freedom) and that full
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employment is actually the normal condition of a truly free
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economy.</p>
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<p>Protectionism is the age-old road to reduced exports,
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increased unemployment, lower standards of living, war, and so
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many other problems associated with government intervention in
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economic activity. Free trade, on the other hand, is the way
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to increased exports, full employment, higher standards of
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living, peace, and so many other benefits associated with
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economic freedom.</p>
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<p>Mr. Law is chairman of the board of Cudahy Tanning Company in
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Cudahy, Wisconsin.
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------------------------------------------------------------
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From the June 1991 issue of FREEDOM DAILY,
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Copyright (c) 1991, The Future of Freedom Foundation,
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PO Box 9752, Denver, Colorado 80209, 303-777-3588.
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Permission granted to reprint; please give appropriate credit
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and send one copy of reprinted material to the Foundation.
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</p>
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