… is from page 38 of the original edition of the late Nobel-laureate economist James M. Buchanan’s 1975 book, The Limits of Liberty:
Ordinary exchange in private goods can be described as taking place under implicit unanimity. That is to say, if a buyer and a seller agree on terms, an exchange takes place and members of the community outside this two-party relationship acquiesce in the outcome. Explicit agreement is not required on the part of these outsiders and if any of this group should have desired to interfere with the observed exchange, he had the option of offering more favorable terms to either the buyer or seller.
DBx: Buchanan’s observation here is simultaneously obvious and profound. The combination makes it rich in implications.
When owners of steel mills in Ohio and Pennsylvania lobby government to impose, as is commonly described, protective tariffs on steel imports, they in fact lobby government to impose penalties on fellow Americans who choose to buy steel manufactured outside of the United States. Yet too few people recognize even this much about the tariff. The tariff is portrayed exclusively as a penalty imposed on foreigners – foreigners, by the way, who are frequently accused of nefariously benefiting as they take advantage of naive and ethically purer Americans. American voters – especially, but not only, those on the right – thrill when some tough-talking, all-action, ‘realistic’ American politician flies in with theatrical determination, courage, and strength to put these underhanded foreigners in their place by preventing them from offering attractive deals to American consumers.
Too few people step back from these accounts of our good guys and gals heroically battling bad, or at least dangerous, foreign guys and gals to recognize that it’s bizarre to regard as bad, or even as worrisome, foreigners offering deals to fellow Americans that fellow Americans, spending their own money, voluntarily accept.
One possibility is that those persons who look with suspicion upon Americans’ voluntary purchases of imports regard these American purchasers, not as adults, but as akin to children who ‘voluntarily’ accept candy offered by the sweaty, hooded man driving a van. Just as we need, in each neighborhood, adults to protect gullible young’uns from domestic predators, we need adults to protect gullible fellow adults from foreign predators.
This ‘foreign-sellers-mean-us-harm’ belief explains much sympathy for protectionism. But even greater support for protectionism comes from the implicit assumption that producers at home have a sort of property right in whatever patronage they’ve enjoyed in the past from consumers. And so if in 2012 I bought my car from a producer based in America but in 2022 I buy my car from a producer based in Japan, I’m believed in 2022 to deprive that American producer of a right that it obtained by my having earlier bought my automobile from it.
If sellers gain property rights in consumer patronage by the act of consumers patronizing them, then of course for me, who earlier bought a car from an American producer, to later buy my car from a foreign producer would violate the American producer’s property right. I could legally and ethically buy my new car from the foreign producer only after securing the American producer’s consent – consent that I’d obviously have to pay to receive.
Obviously, however, among the central tenets of a market economy is the recognition that consumers, by purchasing today from producer X, create for X no property right in on-going consumer patronage. This reality is what Buchanan refers to above when he writes “implicit unanimity.” In a market economy, we all agree that no seller (and no buyer) has a property right in any buyer’s (or seller’s) commercial engagement. So that when you today buy your carrots or cars from sellers different from those who you yesterday patronized, you violate no property right and, thus, you need no one’s prior approval to switch your patronage.
And so, as Buchanan notes at the end of the above quotation, if seller X wants your continued patronage, under the rules of a market economy he must ‘purchase’ from you such patronage. X must offer you a deal that you are free to reject and that, if you accept, you accept voluntarily. The property right to your income belongs to you and not to X (or to any other seller or to the collective).
Tariffs and other protectionist measures conflict categorically with this foundational tenet of a market economy, for these interventions spring from the presumption that you, the consumer, owe domestic producers your patronage (at least insofar as you can be restricted from giving that patronage to foreign sellers). A key protectionist presumption is that domestic producers possess some property-rights claim on the incomes of consumers. Consistent, principled application of this presumption would destroy the market economy and, along with it, much of humanity.
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The Limits of Liberty is not my favorite of all of Buchanan’s book. Nevertheless, it is rich in insights and is remarkably thought-provoking. It’s a work of deep scholarship and careful analysis.
