Freedom gives ordinary people the boldness to innovate

by Deirdre Nansen McCloskey - 21 June 2017

All around the world, politicians are punished for pursuing international free trade – for not putting America or Britain or Moldova first. That is the way voters divide up, and always have done. Trumpism is nothing new. English medieval guilds defined “international” as “anything outside Norwich” and applied tariffs to match. The United States was fixated on not having Norwich-type traffic between states – but in international terms it was protectionist from the beginning, encumbering its small international trade with “scientific” tariffs.

Yet the distinction between domestic and international free trade is really nonsense. What matters, and has always mattered, is freedom to trade, tout court. Free trade, with no additional adjectives, is a good principle at every point on the scale, from your household up to the World Trade Organisation.

Allowing every man [and woman, dear] to pursue his own interest in his own way, upon the liberal plan of equality, liberty, and justice.

The Blessed Adam Smith described it as “allowing every man [and woman, dear] to pursue his own interest in his own way, upon the liberal plan of equality, liberty, and justice.” If you are not allowed to set up as a professional economist because the state requires an expensive licence and an oath of allegiance to free trade, you are not being allowed to pursue your own interest – an interest that benefits the voluntary customers of your splendid economic advice. If you live in the United Kingdom and are subject to a tariff when you try to buy a car from Tatsuro Ishishi, who lives in Japan, you do not have liberty and justice, and are sacrificed to car manufacturers in Coventry (should there be any left).

In other words, freed international trade is merely an application of the principle of non-violent agreements, exchange-tested betterment. We call it liberty. By a voluntary agreement between me and thee, we are better off.

The state does not “protect jobs” in any useful way by stopping trade, any more than you would if you refused to trade with your grocery store or your employer. Grow your own wheat. Make your own accordion. The Trump administration’s recent indignation against Canadian “dumping” of lumber is silly. For one thing, if Canadians want to subsidise American consumers by letting Canadian forestry companies harvest timber on public lands for free, good on them, and good on us Americans, who get the cheap lumber. For another, the more expensive lumber favoured by the new and notably gormless American secretary of commerce will hurt other Americans. If the UK protects British steel makers, British users of steel are made worse off.

“Protecting jobs” is a fool’s errand. On his trip to China, Milton Friedman was shown an excavation. He asked why there was no mechanised earth-moving equipment on the site, only shovels. The Communist party official replied proudly that this meant there were more jobs. “Oh, I see,” said Friedman. “In that case I have a proposal. Take the shovels away and give them all teaspoons. That way there will be even more jobs.”

The two ways of organising human life are through voluntary agreement or violent coercion. Yes, we need some coercion, for the defence of the realm and protection against domestic force and fraud. But we do not need it in the economy. No tariffs. No licences. No prohibiting of earth-moving equipment and other “robots”. My little canary-yellow car in Chicago has a bumper sticker recommending “Separation of Economy and State”. As John Stuart Mill put it in On Liberty, “society admits no right, either legal or moral, in the disappointed competitors to immunity from… suffering; and feels called on to interfere only when means of success have been employed which it is contrary to the general interest to permit – namely, fraud or treachery, and force”.

Obviously if you apply “protection” from top to bottom in the society, you will stop all trade, domestic and international, and can retreat to Walden Pond and live on about a pound a week. Until 1991, India was good at this. That’s one way of understanding the good of liberty of trade – imagining all of it outlawed.

Another way to reckon the good of liberty in trade, the Professional Economist’s way, is to speak of marginal ups and downs of the liberty: higher or smaller tariffs on Tatsuro’s car, say, or less or more stringent licensing of foreign doctors practising in London. The watchword in such economics, which I have taught with enthusiasm for 50 years, is efficiency. It is splendid that goods and services are provided in the cheapest way that present technology allows. We reap numerous, if modest, efficiencies from it. Surely it is idiotic for India to charge tariffs between Indian states. Surely the Treaty of Rome was a Good Idea. Granted.

But such efficiencies from marginal changes are, well, marginal. The huge payoff from Smith’s formula of social equality, economic liberty, and legal justice – as he himself did not realise – comes from future technologies, what the so-called Austrian economists call “discovery”. Not mere shuffling, but very large novelties.

How large? Since 1800, Britain, Japan and Sweden have created a rise in goods and services per person of at least 3,000 per cent. If the improved quality of those goods is acknowledged, such as better medicine and speedier transportation, the figure is more like 10,000 per cent.

All of which is to say that liberty in society, politics, and law, expressed in liberal economic policies, made us rich.

Why? It happened, and will go on happening, because Smith’s “liberal plan” was adopted more and more widely. Equality, liberty, and justice made ordinary people bold: bold to venture, to have a go. Of course it was imperfect. Parts of the United States were a slave society. Married women in Britain could not own property until late in the 19th century. But even such an imperfect liberalism was epoch-making, the first time since hunter-gathering that the ordinary Jack and Jill could venture. And they did.

All of which is to say that liberty in society, politics, and law, expressed in liberal economic policies, made us rich. Not governments. To quote Smith again, “it is the highest impertinence and presumption… in kings and ministers, to pretend to watch over the economy of private people”. When the French minister Colbert asked the bourgeois in 1681 what L’État could do for them, they replied, Laissez-nous faire. Let us do it. Indeed.