Bonus Quotation of the Day…

by Don Boudreaux on November 5, 2017

in Myths and Fallacies, Seen and Unseen, Trade

… is from pages 8-9 of the 1983 collection of some of the writings of the late G. Warren Nutter, entitled Political Economy and Freedom; specifically, it’s from Nutter’s 1974 essay “Freedom in a Revolutionary Economy”:

Good often issues more from powers denied to government than from those granted, this this was surely the case as far as economic development over our republic’s first century is concerned.  None of the prohibitory provisions of the Constitution was to take on greater significance than the one forbidding individual states to erect barriers to commerce among themselves.  Making trade free  with an internal market that was to expand to vast proportions permitted the nation to indulge, for example, in recurrently restrictive tariffs, as the politics of a good century and a half seemed to dictate, without serious hindrance to economic progress.  Our great market was to lie at home in a free-trade area larger than the world has yet experienced anywhere else.

DBx: Among protectionists’ favorite arguments in support of using tariffs to artificially restrict Americans’ access to imports is the historical fact that Uncle Sam practiced a great deal of protectionism in the 19th century.  Because the 19th century also witnessed for the United States historically unprecedented economic growth – and because Alexander Hamilton, Henry Clay, and other American protectionists asserted that tariffs promote growth – protectionists today conclude that, yessir, tariffs promote growth.

It’s trite but true – and relevant – to point out that correlation isn’t causation.  But if today’s protectionists insist on inferring causation from this correlation, they have a real problem if they are Trumpians.  The reason is that the 19th century was also a century of largely open immigration.  So to be consistent, “America Firsters” who fall for the argument that tariffs promoted 19th-century American economic growth must also agree that this growth was promoted also by open immigration.  (Reality, being highly complex and dynamic, can be understood only through theoretical lenses.  And while theory gives us good reason to believe that immigration does indeed promote economic growth, it also warns us not to fall for the claim that tariffs promote economic growth.  In short: immigration causes scarcity to decrease while tariffs cause scarcity to increase.)

But the biggest problem with the “tariffs-promoted-19th-century-American-growth” assertion is that when you investigate the matter in detail you discover that the assertion doesn’t stand up to the facts.  First there’s the research of Doug Irwin (here and here).  (See also this paper, by Bohanon and Van Cott, on the role of liberal immigration in helping to overcome the depressing economic effects of 19th-century tariffs in America.)

Second is the truth mentioned above by Nutter: being a vast nation with a growing population – and, by the way, with a largely free-market, private-property-rights-based economy – the free trade that occurred within the United States was able to promote economic growth.  This growth would surely have been even greater were the size of America’s market even larger – that is, were Americans able to buy and sell more freely abroad.  If government policies that artificially increase scarcity are the great boon to economic growth that protectionists insist them to be, then protectionists must believe that U.S. economic growth would have been even more impressive if each state were not prevented by the U.S. Constitution from protecting in-state suppliers from out-of-state rivals.  Yet Americans have from the 1789 forward enjoyed largely the absence of internal trade barriers.  Protectionists have yet to offer a good response to this challenge: if tariffs around the U.S. promoted U.S. more economic growth, why wouldn’t tariffs around each individual state promote yet more economic growth in each of the states?

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