DemocracyThe God That Failed

by Hans-Hermann Hoppe

  8

  On Free Trade and Restricted Immigration

  I

  It is frequently maintained that "free trade" is connected with "free immigration" as is "protectionism" with "restricted immigration." That is, the claim is made that while it is not impossible that someone might combine protectionism with free immigration or free trade with restricted immigration, these positions are intellectually inconsistent and thus erroneous. Hence, insofar as people seek to avoid errors, they should be the exception rather than the rule. The facts, insofar as they have a bearing on the issue, appear to be consistent with this claim. As the last Republican presidential primaries indicated, for instance, most professed free traders are advocates of relatively free and nondiscriminatory immigration policies, while most protectionists are proponents of highly restrictive and selective immigration policies.

  Appearances to the contrary notwithstanding, I will argue that this thesis and its implicit claim are fundamentally wrong. In particular, I will demonstrate that free trade and restricted immigration are not only perfectly consistent but even mutually reinforcing policies. That is, it is not the advocates of free trade and restricted immigration who are wrong, but rather the proponents of free trade and free immigration. In taking the "intellectual guilt" out of the free-trade-and-restricted-immigration position and putting it where it actually belongs, I hope to promote a change in current public opinion and facilitate substantial political realignments.

  II

  Since the days of Ricardo, the case for free trade has been logically unassailable. For the sake of argumentative thoroughness it would be useful to summarize it briefly. The restatement will be in the form of a reductio ad absurdum of the protectionist thesis as proposed most recently by Patrick Buchanan.1

  1David Ricardo's discussion can be found in his Principles of Political Economy and Taxation (New York: E.P. Dutton, 1948), chap. 7; the most brilliant nineteenth century defense of free trade and intellectual demolition of all forms of protectionist policies can be found in Frederic Bastiat, Economic Sophisms (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1975); and idem, Selected Essays on Political Economy (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1975); for a modern, abstract and theoretically rigorous treatment of the subject of free trade see Ludwig von Mises, Human Action: A Treatise on Economics, Scholar's Edition (Auburn, Ala.: Ludwig von Mises Institute, 1998), chap. 8, esp. pp. 158ff.; Patrick J. Buchanan's contrary antifree trade pronouncements are presented in his The Great Betrayal: How American Sovereignty and Social Justice are Sacrificed to the Gods of the Global Economy (Boston: Little, Brown, 1998). Lest it be thought that protectionist views are restricted to journalistic or political circles see David S. Landes, The Wealth and Poverty of Nations (New York: Norton, 1998), esp. pp. 265ff., 452ff., 521ff., who displays views quite similar to Buchanan's. The free-trade doctrine, according to Landes, is a "religion" (p. 452) and its proponents such as William Stanley Jevons are "true believers" (p. 523). Landes quotes Jevons as stating (in 1883) that

  The central argument advanced in favor of protectionism is one of domestic job protection. How can American producers paying their workers $10 per hour possibly compete with Mexican producers paying $1 or less per hour? They cannot, and American jobs will be lost unless import tariffs are imposed to insulate American wages from Mexican competition. Free trade is only possible between countries that have equal wage rates and thus compete "on a level playing field." As long as this is not the case, as with the U.S. and Mexico, the playing field must be made level by means of tariffs. As for the consequences of such a policy of domestic job protection, Buchanan and his fellow protectionists claim that it will lead to domestic strength and prosperity, and in support of this claim, examples are cited of free-trade countries that lost their once preeminent international economic position, such as nineteenth-century England, and of protectionist countries which gained such preeminence, such as nineteenth-century America.

  This or any other alleged "empirical proof" of the protectionist thesis must be rejected out of hand as containing a post hoc, ergo propter hoc fallacy. The inference drawn from historical data is no more convincing than if one were to conclude from the observation that rich people consume more than poor people that it must be consumption that makes a person rich. Indeed, protectionists such as Buchanan characteristically fail to understand what is actually involved in defending their thesis. Any argument in favor of international protectionism rather than free trade is simultaneously an argument in favor of interregional and interlocal protectionism. Just as different wage rates exist between the United States and Mexico, Haiti, or China, for instance, such differences also exist between New York and Alabama, or between Manhattan, the Bronx and Harlem. Thus, if it were true that international protectionism could make an entire nation prosperous and strong, it must also be true that interregional and interlocal protectionism could make regions and localities prosperous and strong. In fact, one may even go one step further. If the protectionist argument were right, it would amount to an indictment of all trade and a defense of the thesis that everyone would be the most prosperous and strongest if he never traded with anyone else and remained in self-sufficient isolation. Certainly, in this case no one would ever lose his job, and unemployment due to "unfair" competition would be reduced to zero. In thus deducing the ultimate implication of the protectionist argument, its complete absurdity is revealed, for such a "full-employment society" would not be prosperous and strong; it would be composed of people who, despite working from dawn to dusk, would be condemned to poverty and destitution or death from starvation.2

  Freedom of trade may be regarded as a fundamental axiom of political economy.... We may welcome bona fide investigations into the state of trade, and the causes of our present depression, but we can no more expect to have our opinions on free trade altered by such an investigation, than the Mathematical Society would expect to have axioms of Euclid disproved during the investigation of a complex problem, (p. 453)

  While he obviously disapproves of Jevons's contention, Landes (like Buchanan) does not attempt to provide anything resembling a refutation of it.

  International protectionism, while obviously less destructive than a policy of interpersonal or interregional protectionism, would have precisely the same effect and be a recipe for America's further economic decline. To be sure, some American jobs and industries would be saved, but such "savings" would come at a price. The standard of living and the real income of the American consumers of foreign products would be forcibly reduced. The cost to all United States producers who use the protected industry's products as their own input factors would be raised, and they would be rendered less competitive internationally. Moreover, what could foreigners do with the money they earned from their U.S. imports? They could either buy American goods, or they could leave it in the U.S. and invest it, and if their imports were stopped or reduced, they would buy fewer American goods or invest smaller amounts. Hence, as a result of saving a few inefficient American jobs, a far greater number of efficient American jobs would be destroyed or never come into existence.3

  2Murray N. Rothbard, Power and Market (Kansas City: Sheed Andrews and McMeel, 1977), p. 48 has offered this reductio ad absurdum of the protectionist thesis:

  Suppose that Jones has a farm, "Jones' Acres," and Smith works for him. Having become steeped in pro-tariff ideas, Jones exhorts Smith to "buy Jones . "Keep the money in Jones' Acres," "don't be exploited by the flood of products from the cheap labor of foreigners outside of Jones' Acres," and similar maxims become the watchword of the two men. To make sure that their aim is accomplished, Jones levies a 1000 percent tariff on the imports of all goods and services from "abroad," i.e., from outside the farm. As a result, Jones and Smith see their leisure, or "problem of unemployment," disappear as they work from dawn to dusk trying to eke out the production of all the goods they desire. Many they cannot raise at all; others they can, given centuries of e
ffort. It is true that they reap the promise of the protectionists: "self-sufficiency," although the "sufficiency" is bare subsistence instead of a comfortable standard of living. Money is "kept at home," and they can pay each other very high nominal wages and prices, but the men find that the real value of their wages, in terms of goods, plummets drastically.

  3See further on this Murray N. Rothbard, The Dangerous Nonsense of Protectionism (Auburn, Ala.: Ludwig von Mises Institute, 1988). What the proponents of "fair" trade typically leave unanswered, Rothbard here points out, is why U.S. wage rates are higher than in Mexico or Taiwan in the first place.

  [I]f the American wage is twice that of the Taiwanese, it is because the American laborer is more heavily capitalized, is equipped with more and better tools, and is therefore, on the average, twice as productive. In a sense, I suppose, it is not "fair" for the American worker to make more than the Taiwanese, not because of his personal qualities, but because savers and investors have supplied him with more tools. But a wage rate is determined not just by personal quality but also by relative scarcity, and in the United States the worker is far scarcer compared to capital than he is in Taiwan. ... Putting it another way, the fact that American wage rates are on the average twice that of the Taiwanese, does not make the cost of labor in the U.S. twice that of Taiwan. Since the U.S. labor is twice as productive, this means that the double wage rate in the U.S. is offset by the double productivity, so that the cost of labor per unit product in the U.S. and Taiwan tends, on the average, to be the same. One of the major protectionist fallacies is to confuse the price of labor (wage rates) with its cost, which also depends on its relative productivity.... Thus, the problem faced by American employers is not really with the "cheap labor" in Taiwan, because "expensive labor" in the U.S. is precisely the result of the bidding for scarce labor by us. employers. The problem faced by less efficient U.S. textile or auto firms is not so much cheap labor in Taiwan or Japan, but the fact that other U.S. industries are efficient enough to afford it, because they bid wages that high in the first place.... So, by imposing protective tariffs and quotas to save, bail out, and keep in place less efficient U.S. textile or auto or microchip firms, the protectionists are not only injuring the American consumer. They are also harming efficient U.S. firms and industries, which are prevented from employing resources now locked into incompetent firms, and who would otherwise be able to expand and sell their efficient products at home and abroad, (pp. 6-7)

  See also Henry Hazlitt, Economics in One Lesson (New Rochelle, N.Y.: Arlington House, 1979), chap. 11.

  Thus, it is nonsense to claim that England lost its former preeminence because of its free trade policies. It lost its position despite its free trade policy, and because of the socialist policies which took hold in England during the last third of the nineteenth century.4 Likewise, it is nonsense to claim that the rise of the United States to economic preeminence in the course of the nineteenth century was due to its protectionist policies. The United States attained this position despite its protectionism, and because of its unrivaled internal laissez-faire policies. Indeed, America's current economic decline, which Buchanan would want to halt and reverse, is not the result of her alleged free trade policies, but of the circumstance that America, in the course of the twentieth century, gradually adopted the same socialist policies that had ruined England earlier.5

  Ill

  Given the case for free trade, we will now develop the case for immigration restrictions to be combined with free trade policies. More specifically, we will build a successively stronger case for immigration restrictions: from the initial weak claim that free trade and immigration restrictions can be combined and do not exclude each other to the final strong claim that the principle underlying free trade actually requires such restrictions.

  From the outset, it must be emphasized that not even the most restrictive immigration policy or the most exclusive form of segregationism has anything to do with a rejection of free trade and the adoption of protectionism. From the fact that one does not want to associate with or live in a neighborhood of Germans, Haitians, Chinese, Koreans, Mexicans, Moslems, Hindus, Catholics, etc., it does not follow that one does not want to trade with them from a distance. Moreover, even if it were the case that one's real income would rise as a result of immigration, it does not follow that immigration must be considered "good," for material wealth is not the only thing that matters. Rather, what constitutes "welfare" and "wealth" is subjective, and one might prefer lower material living standards and a greater distance from certain other people over higher material living standards and a smaller distance. It is precisely the absolute voluntariness of human association and separation—the absence of any form of forced integration—which makes peaceful relationships—free trade—between racially, ethnically, linguistically, religiously, or culturally distinct people possible.

  4See on this William H. Greenleaf, The British Political Tradition, 3 vols. (London: Methuen, 1983-87), esp. vol. 1: The Rise of Collectivism; also Albert V. Dicey, Lectures on the Relation Between Law and Public Opinion During the Nineteenth Century (London: Macmillan, 1914).

  5See on this Murray N. Rothbard, "Origins of the Welfare State in America," Journal of Libertarian Studies 12, no. 2 (1996); Robert Higgs, Crisis and Leviathan (New York: Oxford University Press, 1987); A New History of Leviathan, Ronald Radosh and Murray N. Rothbard, eds. (New York: E.P. Dutton, 1972); James Weinstein, The Corporate Ideal in the Liberal State (Boston: Beacon Press, 1968); Arthur A. Ekirch, The Decline of American Liberalism (New York: Atheneum, 1967); Gabriel Kolko, Railroads and Regulation (Princeton, N.J.: Princeton University Press, 1965); idem, The Triumph of Conservatism (New York: Free Press, 1963).

  The relationship between trade and migration is one of elastic substitutibility (rather than rigid exclusivity): the more (less) you have of one, the less (more) you need of the other. Other things being equal, businesses move to low-wage areas, and labor moves to high-wage areas, thus effecting a tendency toward the equalization of wage rates (for the same kind of labor) as well as the optimal localization of capital. With political borders separating high from low-wage areas, and with national (nation-wide) trade and immigration policies in effect, these normal tendencies—of immigration and capital export—are weakened with free trade and strengthened with protectionism. As long as Mexican products—the products of a low-wage area—can freely enter a highwage area such as the United States, the incentive for Mexican people to move to the United States is reduced. In contrast, if Mexican products are prevented from entering the American market, the attraction for Mexican workers to move to the United States is increased. Similarly, when United States producers are free to buy from and sell to Mexican producers and consumers, capital exports from the United States to Mexico will be reduced; however, when United States producers are prevented from doing so, the attraction of moving production from the United States to Mexico is increased.6

  Similarly, as the foreign trade policy of the United States affects immigration, so does its domestic trade policy. Domestic free trade is what is typically referred to as laissez-faire capitalism. In other words, the national government follows a policy of noninterference with the voluntary transactions between domestic parties (citizens) regarding their private property. The government's policy is one of helping to protect its citizens and their private property from domestic aggression, damage, or fraud (exactly as in the case of foreign trade and aggression). If the United States followed strict domestic free trade policies, immigration from low-wage regions such as Mexico would be reduced, while when it pursues "social welfare" policies, immigration from low-wage areas is more attractive.

  6See further on this Ludwig von Mises, Nation, State, and Economy (New York: New York University Press, 1983), esp. pp. 56ff.; Rothbard, Power and Market, pp. 52ff.

  IV

  To the extent that a high-wage area such as the United States engages in unrestricted free trade, internationally as well as domestically, the
immigration pressure from low-wage countries will be kept low or reduced, and hence, the question as to what to do about immigration will be less urgent. On the other hand, insofar as the United States engages in protectionist policies against the products of low-wage areas products and in welfare policies at home, immigration pressure will be kept high or even raised, and the immigration question will assume great importance in public debate.

  Obviously, the world's major high-wage regions—North America and Western Europe—are presently in this latter situation, in which immigration has become an increasingly urgent public concern.7 In light of steadily mounting immigration pressure from the world's low-wage regions, three general strategies of dealing with immigration have been proposed: unconditional free immigration, conditional free immigration, and restrictive immigration. While our main concern will be with the latter two alternatives, a few observations regarding the unconditional free immigration position are appropriate, if only to illustrate the extent of its intellectual bankruptcy and irresponsibility.

  In order to put matters into proper perspective, it might be useful to supply some brief comments on these regions' free-trade and domestic-welfare records. These remarks concern in particular the situation in the U.S., but they apply by and large to the situation in Western Europe, too. Free trade means to impose neither import tariffs or quotas, nor to subsidize the exportation of goods or engage in any other export promotion schemes. In particular, free trade does not require any bilateral or multilateral agreements or treaties. Instead, free trade policies can be implemented instantaneously and unilaterally, and intergovernmental trade agreements, regardless of what they are called, must invariably be regarded as indicators of international trade restrictions rather than free trade. In light of this, the free trade record of the U.S. must be considered dismal. (See on this, for instance, James Gwartney, Robert Lawson and Walter Block, Economic Freedom of the World 1975-1995 (Vancouver: Frazer Institute, 1996), pp. 35f, 299,302.) A labyrinthine system of tariffs and regulation restricts the free importation of literally thousands of foreign goods, from raw materials to agricultural products, machine tools and high-technology products. At the same time, the U.S. government engages in a wide variety of export promotion schemes, ranging from simple export subsidies and foreign aid requiring the purchase of certain U.S. goods to massive financial bailouts of U.S. investors in foreign countries and open or concealed military pressure and threat. Moreover, with the so-called North American Free Trade Agreement (NAFTA), a document of about 2,400 pages (when free trade prescriptions can be summarized in two sentences!) the U.S. government, in collaboration with the governments of Canada and Mexico, has recently adopted another maze of international trade restrictions and regulations. In effect, NAFTA involves the upward-harmonization of the tax and regulation structure across North America (very much like the so-called European Union (EU) does for most of Western Europe). Similar strictures apply to the new creation, as the result of GATT's (General Agreement on Tariffs and Trade) recent "Uruguay Round," of the World Trade Organization. See on this The Nafta Reader: Free-Market Critiques of the North American "Free Trade" Agreement (Auburn, Ala.: Ludwig von Mises Institute, 1993), and The WTO Reader: Free Market Critiques of the World Trade Organization (Auburn, Ala.: Ludwig von Mises Institute, 1994). Clearly even more striking is the domestic welfare record of the U.S. (and similarly of Western Europe). The record in this regard is not uniform across the U.S. Public welfare assistance is higher in California than in Alabama, for example, which explains significant welfare-migration within the U.S. Suffice it to say, however, that U.S. welfare assistance, including cash grants as well as numerous in kind benefits such as food stamps, housing allowances, medicaid, aid to dependent children, and public education, etc., can easily reach a household net-income of $ 20,000 per year and rise as high as $ 40,000 per year.