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Quotation of the Day…

… is from John Steele Gordon’s essay, in today’s Wall Street Journal, titled “The United States of Free Trade“; the U.S. Supreme Court decision mentioned here is the 1824 ruling in Gibbons v. Ogden:

The court ruled unanimously against the monopoly, declaring that the power to regulate interstate commerce lay exclusively with the federal government and that states couldn’t impose impediments to that commerce in their parochial self-interest. The economic effect of the ruling was immediate. In one year the number of steamboats operating in New York waters rose from six to 43, while fares fell by 40%.

Charles Warren, the great historian of the Supreme Court, called Gibbons v. Ogden “the emancipation proclamation of the American economy.” The case made the U.S. the world’s largest free market by flattening state-imposed barriers to “commerce,” a word the court had defined broadly to include trade and navigation. Within a half-century, the American economy rose to become the mightiest in the world, due in no small part to the precedent created by that decision.

DBx: Protectionists insist that scarcities artificially contrived by a government for the political jurisdiction over which it reigns promote the economic development and prosperity of the people of that jurisdiction. If this insistence were correct, then Gibbons v. Ogden would have been a calamitous decision for all Americans. This decision of nearly 200 years ago, after all, prevented each U.S. state government from contriving the artificial scarcities that protectionists insist are key to economic growth and mass prosperity. And yet it is impossible within the rules of logic and acceptable evidence to conclude that the economic consequences of this consequential 1824 court ruling are those that protectionists would have predicted. The consequences were – and remain – quite the opposite.

Protectionists whose intellectual knuckles don’t quite reach the ground will protest the relevance of the historical experience of the great free-trade zone that has been, and largely continues to be, the United States. These protectionists will say that because no state gets to impose “unfair” trade restraints on other states, the free trade that prevails within the U.S. is true and acceptable. But (continue these protectionists) because the governments of countries with which Americans trade do impose “unfair” trade restraints, the U.S. government best serves Americans’ interests by “retaliating” with its own restraints.

But this protectionist protest fails for a number of reasons, all of which have been rehearsed here at Cafe Hayek again and again and again. And each of these reasons will, I’m sure, be yet again rehearsed here in the future. I content myself in this post to mention only one reason for the failure of this protectionist protest: it rests on the assumption that the ultimate goal of economic activity is production rather than consumption. This protectionist protest mistakenly treats consumers as means to further the ends of a subset of existing, politically powerful producers.*

Those who offer this protectionist protest fail to understand that the chief and ultimate benefit of trade comes in consumers having access to as many as possible goods and services at costs as low as possible. The chief and ultimate benefit, for example, of New Yorkers being free to choose to purchase river transportation from New Jerseyans is the greater access New York consumers have to river transportation, rather than in whatever additional business opportunities New York producers might have as a result.


* Protectionists are strangely silent about domestic producers who are harmed by protectionism. The same protectionist who, for example, is so touchingly solicitous of the welfare of American potato growers whose markets shrink because of Canadian agricultural policies never mentions the American producers whose markets expand because of the very same Canadian agricultural policies – and, thus, whose markets shrink because of U.S. government “retaliatory” protectionism.

In fact, I doubt that this protectionist is even aware of these other American producers. But these other American producers surely exist. Some of them enjoy increased sales because (in this example) Canadian policy arranges for Americans to spend less money on potatoes, while other of these American producers enjoy increased sales because of the artificially reduced sales of the Canadian industries from which the Canadian government draws the resources used to artificially favor Canadian potato growers. (Protectionists incessantly – if unawares – make the absurd assumption that foreign-government subsidies and tariffs are costless to the peoples of foreign countries whose governments use subsidies and tariffs.)