Month: February 2007

Cafe Hayek: The Economic Meaninglessness of Political Borders:

Sheldon Richman, of the Foundation for Economic Education, firmly grasps what Adam Smith meant when that Great Scot wrote in The Wealth of Nations the following wise words:

In the foregoing Part of this Chapter I have endeavoured to shew, even upon the principles of the commercial system, how unnecessary it

is to lay extraordinary restraints upon the importation of goods from

those countries with which the balance of trade is supposed to be

disadvantageous.

Nothing, however, can be more absurd than this

whole doctrine of the balance of trade, upon which, not only these

restraints, but almost all the other regulations of commerce are

founded.

In this essay, Richman wisely asks

What is an export? What is an import? These words are defined in  reference to political boundaries of only one kind: national boundaries. If there were no such boundaries, there would  be no exports or imports. But political boundaries are just that.

They are not economic boundaries. To the extent that they can, people

go about their business as though those boundaries weren’t there.

People cross the Canadian-American and Mexican-American borders to

transact business every day. If they give them a thought it is only

because governments put up barriers patrolled my armed guards who make

them wait in line. People learn early in life that they can gain

immensely from trade, and with that understanding comes the insight

that it doesn’t much matter on which side of a Rand-McNally line your

trading partner lives.

So the very concepts imports and exports are

founded on an arbitrary construct that has little practical consequence

for people’s economic activities. Back in the 1980s, when

neomercantilists feared Japan’s economic success at selling us stuff

(seems a little crazy now, no?), I used to ask what would happen to the

trade deficit if Japan were made the 51st state. Obviously, the deficit

would have disappeared because we don’t reckon trade imbalances between

states. Why not?

In reality, then, there are no imports and

exports. There is only what I make and what everyone else makes. Few

people would want to live just on what they themselves could make. Frederic

Bastiat pointed out that each of us daily uses products we couldn’t

make in isolation in a thousand years. Talk about poor, solitary,

nasty, brutish, and short! "What makes this phenomenon stranger still

is that the same thing holds true for all men," Bastiat wrote. "Every

one of the members of society has consumed a million times more than he

could have produced; yet no one has robbed anyone else."

This is just another way of saying that the case for

free trade is conceded the moment someone eschews self-sufficiency.

After that, we’re just haggling over the size of the trade area. But if

free trade (read: division of labor) is good, then the bigger the

free-trade area the better. Globalization should be the worldwide

removal of all barriers to the exchange of goods and services — rather

than trade managed through state capitalism and multinational

bureaucracies. Unilateral, unconditional free trade is the smartest

policy.