Mar

12

 Ian Fletcher's poor grasp of economics is comical, especially in light of his obvious self-delusion that he's a deep thinker.

Here's a letter I wrote to him:

Mr. Ian Fletcher

Dear Ian:

You continue to misunderstand the case for free trade. Let's take two examples from your latest essay ("Free Trade Theory Known to be Wrong - Since 1817!"), which you exported to me yesterday by e-mail.

First, it's untrue that "The economic argument for free trade is ultimately based on the theory of comparative advantage." Comparative advantage does supply one important basis for justifying free trade. But as Adam Smith showed, specialization and exchange generate net economic gains independently of specialization according to comparative advantage. Likewise with the greater ability made possible by expanding markets for producers to take advantages of larger economies of scale.

Second, contrary to your claim, the principle of comparative advantage applies even when capital is mobile. Mobil capital can CHANGE the pattern of comparative advantage, but this mobility doesn't eliminate comparative advantage. The reason is that a producer has a comparative advantage whenever the amount of good A that he (or it) can produce relative to the amount of good B he can produce differs from the amount of good A that some other producer can produce relative to the amount of good B that that other producer can produce. Unless and until the opportunity cost of producing EVERY good and service in the world is identical for EVERY producer in the world, comparative advantage will exist and provide occasions for mutually productive specialization and trade.

Capital mobility is highly unlikely to bring about such a weird, universal equality in productive capacities. But if, per chance, it should, still no need to worry: see Example 1 (above).

Sincerely,

Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA
22030

Stefan Jovanovich writes:

This is an argument that only the past, present and futured tenured could love. To the now long dead advocates of "free trade" - Smith and Mill being the best known - the debate would have seemed largely useless because the term "free" is being used in a way that would have made no sense to them. Smith and Mill, like Lawrence and the other post non-progressive, unMarxist American economists who followed them, would have thought open borders - both for goods and for people - were an absurdity. What they understood "free" to mean was that the government's restrictions could only be for reasons of what the term "general welfare" once meant - i.e. people infected with smallpox should not be allowed to get off the boat. Immigration and food inspections were certainly necessary but they should not be used to restrict the otherwise "free" flow of goods and people. Tariffs were also necessary for a very practical reason: they were the easiest and least corrupt way for the national government to raise revenue. But tariffs, like immigration inspections, should not be used to hinder the volument of activity.

Mr. Fletcher may or may not be self-deluded but he strongly disapproves of the radical idea that people should be free to buy what they want to pay for with the least possible interference. Trade must be regulated "in the national interest". But, of course, it is now. The national interest includes quantity restrictions on sugar, ethanol and literally thousands of other goods. Mr. Fletcher dislikes our present trade laws because he disapproves of their preferences; but he accepts their underlying premise - the idea that the government should decide how much of various imported things Americans should be allowed to buy.

Try this for a thought experiment. Open the 1040 Instruction pamphlet and start reading; when you halfway through the first page, stop and consider this. You have just read as many words as the entire U.S. tax code contained regarding imports and exports when Robert J. Walker was Secretary of the Treasury.

One of the liberties to be treasured is the freedom not to have to pay attention to the government's detailed instructions about how to behave.


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