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Free Trade Does Not Need Sovereign Oversight

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Here’s a letter to a Cafe Hayek reader:

Mr. John G____

Mr. G____:

Thanks for your e-mail, and I apologize for the tardiness of my reply.

You write that “In order for trade to be free, the terms of trade must be enforceable. In other words, a legal system that enforces contracts freely entered into must exist, and there must be a law of contract within which the freedom of trade can thrive. There is no liberty unless there is a rule of law within which individuals can freely trade.”

I agree. Yet contrary to your later claim, these conditions for trade require neither a world government (which, like you, I would fear and loathe) nor “nations … negotiating rules of trade on behalf of their citizens.”

All that a policy of free trade requires is that a government not obstruct its citizens’ individual choices to carry out commerce with foreigners. Period. That’s it. If America had a policy of free trade, each American, individually, would determine whether or not the terms of trade on each particular deal are acceptable. These terms, of course, would include the risk of the foreign counterparty not living up to its side of the deal. You as an adult American no more need Uncle Sam to superintend – and much less to override – your choices in such matters than you need Uncle Sam to superintend or to override the peaceful choices you make in any other aspect of your life.

Not only do terms of trade not need to be uniform across all citizens within a jurisdiction (what is acceptable for you might not be acceptable for me, and vice-versa), laws of commerce do not need to be crafted or enforced by sovereign authorities. Traders for centuries have created through their daily practices, and without the assistance of sovereign states, nuanced laws to govern their commerce – laws that work remarkably well. Indeed, the core of commercial law that most modern sovereign states have adopted and use today – the lex mercatoria – was the creation, not of states or sovereign rulers, but of traders going about their daily business [2].

If you think my previous two paragraph to be fanciful, consider Hong Kong. The people of Hong Kong today suffer almost no obstacles erected by their government to their commerce with people outside of Hong Kong [3]. And that policy of free trade has been successful by any measure. It has been instrumental in allowing the people of that resource-poor jurisdiction to rapidly transform themselves into among the world’s wealthiest.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
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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