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Subject:
Can Free Trade Really Prevent War?
Pakistani
3/20/2002 10:04:18 AM
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| Can Free Trade Really Prevent War?
by Richard M. Ebeling
[Posted March 20, 2002]
Delivered as part of a panel devoted to "The Warfare State," during the Ludwig von Mises Institute's Austrian Scholars Conference 8, March 15-16, 2002 in Auburn, Alabama.
The Classical Liberals of the nineteenth century were certain that the end of the old Mercantilist system--with its government control of trade and commerce, its bounties (subsidies) and prohibitions on exports and imports--would open wide vistas for improving the material conditions of man through the internationalization of the system of division of labor. They also believed that the elimination of barriers to trade and the free intercourse among men would help to significantly reduce if not end the causes of war among nations.
The economists of that earlier era had demonstrated the mutual gains from trade that would develop and be reinforced from specialization in productive activities among the people of the world. No longer would the material improvements of one nation be viewed as the inevitable cause of the poverty and economic hardships of other countries.
And with the addition of the theory of comparative advantage these economists were able show that even the "weak" and less productive in the world community could find a niche for their material betterment in the network of trade among nations. At the same time, the "strong" and more productive in that same community of nations would improve their circumstances by purchasing goods from the less productive so they could be freed to specialize in those lines of production in which they had a relative superiority.
Suppose that in the country of Superioristan, one yard of cloth can be produced in four hours and one bushel of potatoes can be harvested in one hour, while in the nation of Inferioristan, producing a yard of cloth takes twelve hours and harvesting a bushel of potatoes takes two hours. Clearly, Superioristan is a lower cost producer of both products in comparison to Inferioristan. Superioristan is three times more productive at cloth manufacturing and twice as productive in potato harvesting.
But equally clear is the fact that Superioristan is comparatively more cost-efficient in cloth manufacturing. That is, when Superioristan foregoes the manufacture of a yard of cloth, it can harvest four bushels of potatoes. But when Inferioristan foregoes the manufacture of a yard of cloth, it can harvest six bushels of potatoes. If Superioristan and Inferioristan were to exchange cloth for potatoes at the price ratio of, say, one yard of cloth for five bushels of potatoes, both nations could be made better off, with Superioristan specializing in cloth manufacturing and Inferioristan in potato harvesting. Superioristan would now receive five bushels of potatoes for a yard of its cloth, rather than the four bushels if it harvested at home all the potatoes it consumed. And Inferioristan would receive a yard of cloth for only giving up five bushels of potatoes, rather than the six bushels if it manufactured at home all of the cloth it used.
Thus, in the middle of the eighteenth century, David Hume could declare, in his famous essay, "Of the Jealousy of Trade," "I shall therefore venture to acknowledge that, not only as a man, but as a British subject, I pray for the flourishing commerce of Germany, Spain, Italy, and even France itself."[1] The wealthier and more productive a nation?s potential trading partners, the greater the number and the less expensive the array of goods that it may be able to obtain through exchange in comparison to being solely dependent for its material well-being upon its own domestic productive capabilities.
But the Classical Liberals believed that free trade meant more than just a more plentiful supply of goods and services. They also were confident that with freedom of trade would come a world of peace and international tranquility. As the French economist, Frederic Passy, expressed it in the 1840s,
"Some day all barriers will fall; some day mankind, constantly united by continuous transactions, will form just one workshop, one market, and one family. . . . And this is . . . the grandeur, the truth, the nobility, I might almost say the holiness of the free-trade doctrine; by the prosaic but effective pressure of [material] interest it tends to make justice and harmony prevail in the world."
War, therefore, is not only destructive but also contrary to the long-run economic well-being of all belligerents because it disrupts the existing or potential bonds of the division of labor from which the prosperity can come to replace the poverty and conflicts of mankind. "War," Frederic Passy declared, "is no longer merely a crime; it is an absurdity. It is no longer merely immoral and cruel; it is stupid. It is no longer merely murder on a large scale; it is suicide and voluntary ruin."[2]
The nineteenth century was not without war and international c |
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