Adam Smith is widely-known as an advocate of free trade. In his masterpiece
An Inquiry into the Nature and Causes of the Wealth of Nations Smith writes that "no regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain". It is, according to Smith, best left to the self-interest of businessmen to direct their capital into profitable venues. He argues they have the best information due to their close proximity and the best incentive to invest resources widely.
Smith writes convincingly:
The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, assumes an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
Smith argues that this logic applies directly to restrictions in international trade; they are the same in nature and result.
So where is the "Isolationist Tradition" the title of this post speaks to? Admittedly, Smith does not really belong in that tradition. His academic dedication (not withstanding his later
behavior as a customs collector) is to favor free trade as a means of extending the division of labor and taking advantage of specialization -- all to the benefit of the countries. However, Smith does put forth several arguments, in Book IV Chapter II, favoring restraint of foreign trade that are commonly heard today.
There are two main caveats to free trade and two minor issues which, under "proper deliberation", may lead a prudent statesman to restrict foreign trade.
Smith's first case in which "it will generally be advantageous to lay some burden upon foreign, for the encouragement of domestic industry" is that of when the industry is "necessary for the defence of the country". Smith makes the common argument that it is foolish to depend on foreign producers to provide the martial materials for a country. He then uses Great Britain's restraints on navigation as an example of advisable actions; he notes that "as defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulation of England.
The second case warranting a burden "upon foreign for the encouragement of domestic industry, is, when some tax is imposed at home upon the produce of the latter". This is a "level playing field" argument. Instead of taxing foreign industry because of dumping or cheap labor, Smith is arguing that we ought to tax foreign industry because of the domestic burdens placed on industry. Without such restraint, foreign industry will have an unfair advantage over domestic.
Smith then offers two other situations where free importation of foreign goods should be curtailed. The first case is when "some foreign nation restrains by high duties or prohibitions the importation of some of our manufactures into their country". The sole purpose of which would be to retaliate in order that the foreign country may remove the restrictions. He notes that "when there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people, to do another injury ourselves, not only to those classes, but to almost all the other classes of them".
The final possible exception to free trade listed here relates to the effect of foreign competition on employment. Where "those high duties and prohibitions taken away all at once, cheaper foreign goods of the same kind might be poured so fast into the home market, as to deprive all at once many thousands of people of their ordinary employment and means of subsistence". Smith notes that this is rarely adequate, for very few industries are so completely sensitive to foreign competition and further that it is far from clear that losing a job in one industry would lead to no employment or no subsistence.
Was the great Adam Smith in favor of free trade? The answer is clearly that he was, but he also believed that there were legitimate exceptions to it. The exceptions he has made are common today, much like those
made by List.
In a letter to Pigou, Alfred Marshall laid out the following six rules of expressing economics:
It doesn't need too much of an introduction, so I'll just give the title of this story from Finland: "Court says $32,000 is too much to fondle bosom."
Why do we have to return to the moon? First, the obvious negative before the debatable positives: the fiscal drain is enormous. The article notes that President Bush called for a $12 billion commitment from NASA for the start of the program, with more to follow. That's $40 per American; what could every American do with that money back in their pocket? Further, is it worth it to you to get back to the moon for $40?
The worst eminent domain cases tend to hit the headlines, especially since Kelo v. New London, but it's nice to see cases of the market working it out. Read about Evelyn Wray's settlement with the Dallas Cowboys. (Though it is a bit troublesome to see a court-appointed panel setting private land values.) It sounds like the case was heading to a bitter conclusion in the court system...but it's nice to see property rights respected, isn't it? Even if it's just a little bit?
The seed collectors of the world get their day in the spotlight today. My two favorites:
Death fades with time. It's a fact of life that a lot of people don't like to admit to, but it's nonetheless true. September 11 is no less horrific now than it was five years ago, but the general public is less resolved. It's the same for any tragedy-- Flight 800, the Loma Prieta earthquake, Pearl Harbor. Even Katrina isn't what it was a year ago. It's just a fact of life.
Respect us and our peanut-restricted schools. In short, peanuts and peanut-related products are banned. Well, not banned, but merely strongly suggested against. Though a note from your parents will suffice if that's all that your child will eat. Another well-defined law here in West Virginia! I'll try to provide as many of these as I can, as I run across them.
Vladimir vodka is the drink of choice in West Virginia. Only the highest quality here in the Mountain State. Maybe a lot of people here in Morgantown are conducting scientific experiments. Maybe not.
Yes, West Virginia is near the top of the obesity list, too.
There is a great piece by Malcolm Gladwell on the history of collectivized pension funds in today's paper version of The New Yorker. Interestingly, the word "diversification" does not appear once in the entire piece.
This blog hasn't devoted enough time to writing about cows.
To break the record of "Most e-mails I've received pointing to something in the news about West Virginia," this article was brought to my attention. It turns out West Virginia has an immigration problem to go along with its economic, mining, government and dental problems. Of the fifty states, only West Virginia and Hawaii saw their percentage of whites rise over the last five years-- and Hawaii's white population is still an overall minority. The argument could then be made that West Virginia is the only state becoming less diverse.
Studying for comprehensive exams is something just about every aspiring Ph.D. student in economics has to deal with. The more time I devote to learning the theoretical ins and outs of my profession, the more I realize that this whole comprehensive exam process is a big, real-life cost minimization problem. (Quick, write up the Lagrangian for it.)
Colin P.A. Jones wrote a terrific piece on the privatization of marriage for the San Francisco Chronicle earlier this year; it is linked here through The Independent Institute. If you like what you read, the extended version is here, linked from The Independent Review.
...let markets get the job done. There's nothing like a little profit motive to get information to the surface.
A recent debate over drinks...
