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Getting to the Root of a Protectionist Fallacy

Here’s a letter to a new reader of Cafe Hayek. He asked me not to reveal his full name or the name of his school.

Mr. John A_____

Mr. A_____:

Thanks for your e-mail, and good luck to you in your senior year of college.

Your professor insists that, because (as you put it) “trade helps some consumers at the cost of some producers, the case in favor of trade requires consumers who gain to compensate sellers that lose.” I disagree with your professor.

Compensation is required only if and when someone’s property or contract rights are violated. A consumer who changes the way that she spends her income – say, a consumer who reduces her purchases of Big Macs in order to increase her purchases of locally grown carrots – violates no one’s property or contract rights and, thus, owes no compensation to McDonald’s even though McDonald’s revenues fall as a result.

If your professor were correct to insist that compensation is owed to each domestic producer whose revenues fall when consumers are led by the greater availability of imports to buy fewer domestically produced outputs, then he should also insist that compensation is owed to McDonald’s when consumers are led by the greater availability of locally grown carrots to buy fewer Big Macs.

Ask your professor if he believes that people who switch from buying Big Macs to buying locally grown carrots owe compensation to McDonald’s. If he answers “no” (as I predict he will), then ask him to explain why matters differ when the goods or services whose greater availability causes losses to some domestic producers happen to come from outside of the United States.

I’ll be interested to learn your professor’s answer.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030


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