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… is from pages 73-74 of the 40th Anniversary Edition of Milton and Rose Friedman’s classic 1962 volume, Capitalism and Freedom:

I believe that it would be far better for us to move to free trade unilaterally, as Britain did in the nineteenth century when it repealed the corn laws….

There are few measures that we could take that would do more to promote the cause of freedom at home and abroad.  Instead of making grants to foreign governments in the name of economic aid – and thereby promoting socialism – while at the same time imposing restrictions on the products they succeed in producing – and thereby hindering free enterprise – we could assume a consistent and principled stance.  We could say to the rest of the world: We believe in freedom and intend to practice it.  No one can force you to be free.  That is your business.  But we can offer you full co-operation on equal terms to all.  Our market is open to you.  Sell here what you can and wish to.  Use the proceeds to buy what you wish.  In this way co-operation among individuals can be world wide yet free.

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… is from page 178 of the 2007 Definitive Edition (Bruce Caldwell, ed.) of F.A. Hayek’s classic 1944 volume, The Road to Serfdom:

Perhaps the most alarming fact is that contempt for intellectual liberty is not a thing which arises only once the totalitarian system is established but one which can be found everywhere among intellectuals who have embraced a collectivist faith and who are acclaimed as intellectual leaders even in countries still under a liberal regime.

DBx: People – especially those with graduate degrees – who have convinced themselves that they are ordained to guide others to the Promised Land are unlikely to be restrained by appropriate doses of humility to let those others choose their own paths.

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Here’s a follow-up letter to Mr. Chris Smith who wrote in response to my earlier letter that he didn’t get the relevance of my analogy.

Mr. Smith:

Thanks for your reply.  I apologize for being unclear in my earlier letter to you.  Let me here try a different approach.

Suppose that you’re given the opportunity to select Option A or Option B.  If you select Option A, you get an amount of money equal to the full value of Bill Gates’s net worth ($90 billion).  You can take your $90 billion worth of money in whatever monetary form you like – in dollars, in euros, in pesos, in renminbi, in gold, in whatever widely regarded money you care to name – but you may never exchange any of this money for real goods or services.

In contrast, if you select Option B you get no money, but you do get to create from among all the goods and services currently available on the market a bundle of these goods and services the total value of which is 1/1,000,000^th of Gates’s net worth.  (1/1,000,000^th of Gates’s net worth is $90,000.)  You get to keep and to use this bundle of goods and services in whatever peaceful ways you like.

If your goal is to select the option that will do the most to increase your material prosperity, will you select Option A or Option B?  I trust that you’ll select Option B, for by doing so your material prosperity will rise  – by about $90,000 – while selecting Option A will increase your material prosperity not one bit.

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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Below is a letter to a college sophomore, Chris Smith, from Indiana.  This young man tells me that he once, when still in high school, “naively believed in free trade” but “now see[s] the numerous weaknesses” in the case for free trade.  I’m dismayed to report that he says also that he “regularly read[s]” Cafe Hayek – a fact that tells me that I have in this blog done a poor job explaining the case for free trade.

Mr. Smith:

Thanks for your e-mail.  You ask why I deny that we Americans get poorer if we buy more from foreigners than foreigners buy from us.  “Don’t we accumulate wealth the more we save what we earn instead of spending it?” you inquire.

Although you pose your question rhetorically, the answer to it is not obviously “yes.”  I’ll answer your question with questions that would surely be put to you by another Smith, Adam.  What good is having money if it is ultimately not spent?  How wealthy would Bill Gates be if he were prevented from spending any of his money?

Suppose that you work hard for Amazon and that Amazon pays you in Amazon gift cards.  An officious neighbor who says that he wants to ensure that you grow richer successfully uses threats of violence to prevent you from spending any but a tiny fraction of your gift cards.  As a result, after fifteen years you have in your closet a cache of gift cards worth $1 million – cards that you earned by selling your labor services to Amazon.  Your meddlesome neighbor knocks on your door expecting to be thanked for his role in making you rich, and he reminds you, with much self-satisfaction, that he will continue to enrich you by continuing to obstruct your efforts to spend your gift cards.

Have you really been enriched by your neighbor?  Did your neighbor, by obstructing your efforts to exchange your earnings for clothing, furniture, and other goods and services that you and your family would have otherwise consumed, improve your economic well-being?  Sure, you have lots of pieces of plastic the nominal values of which add up to a great deal of dollars.  But obstructed in your efforts to transform those piece of plastic into goods and services for consumption you are not rich; you are poor.  And so it is that when Uncle Sam obstructs our efforts to spend our earnings as we see fit, Uncle Sam makes us materially poorer even if his efforts succeed in having us accumulate lots of money.

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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… is from page 133 of an excerpt from Josiah Warren‘s 1868 book, True Civilization, as this excerpt appears in the superb 2015 reader, Individualism, edited by George H. Smith and Marilyn Moore (emphasis original to Warren):

That it is not the true function of governments to prescribe opinions, either moral, religious, or political; to meddle with manufactures or importations; to prescribe the cut of the citizen’s hair, the employment of his time, or the disposal of his life or his property, but simply and solely to protect him against such impertinences.

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Ilya Somin documents the happy trend of left-leaning thinkers who are coming to realize the economic damage that zoning restrictions unleash – damage unleashed disproportionately on those groups that thinkers on the political left care most about.

On the question of using legislation to force bakers to bake cakes for gay couples (or, for that matter, for straight couples, for chaste couples, for ménage à trois groups, for Super Bowl parties, for First Communions, for whoever and whatever), I agree with Richard Epstein that the state has no business doing so.  George Will disagrees.

My Mercatus Center colleague (and GMU Econ alum) James Broughel co-authored, with Kip Viscusi, this study showing that many government-issued regulations increase mortality risks.

Reason’s Nick Gillespie debates so-called ‘net neutrality.’

Pierre Lemieux writes about unicorns.

My intrepid Mercatus Center colleague Veronique de Rugy concludes that the Joint Committee on Taxation underestimates the likely effects that enactment of U.S. Senate’s tax plan will have on economic growth.

Matt Ridley writes that biotech is urgently needed in Africa.

Jeffrey Tucker riffs on a Fed official’s complaint about Bitcoin that it isn’t “backed.”

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… is from page 13 of Douglas Irwin’s new, vital 2017 volume, Clashing Over Commerce (footnote excluded; link added):

The interdependence of exports and imports has long been recognized.  A proposition known as the Lerner Symmetry Theorem holds that a tax on imports is equivalent to a tax on exports.  In effect, by levying a tax to restrict imports, policymakers are also levying a tax that restricts exports.

DBx: Pictured here is Abba Lerner (who, although a man of the left, studied at the L.S.E. under Hayek.)

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As I expected, I’m greatly enjoying – and learning much from – reading Doug Irwin’s hefty new volume, Clashing Over Commerce (2017).  It’s a masterpiece of scholarship.  I’m sure that I’ll quote from it, as well as write more about it, in the weeks and months – even years – to come.

In this post, though, I pick a nit.  It’s a nit that I pick not only with Doug but with most other economists, for most other economists routinely commit the same sort of slip-up that I here flag (or, rather, what I regard to be a slip-up).  Here’s Doug on page nine:

Economists generally believe that trade restrictions reduce national income, but there are theoretical reasons for promoting “infant industries” if certain conditions are met.

My gripe is with the second part of this sentence.

Although Doug immediately goes on, correctly, to explain that identifying these conditions is practically difficult, recognizing this practical difficulty doesn’t adequately capture the depth and breadth of the weakness of the argument for protecting so-called “infant industries.”  Indeed, as I argue below, there in fact really aren’t any theoretical reasons for promoting infant industries.  Here’s what I mean: to say that “there are theoretical reasons for promoting ‘infant industries'” is no different, in essence, from saying (for example) that there are theoretical reasons for believing that brown-eyed people can be made better off economically by authorizing blue-eyed people to restrict how brown-eyed people spend their own money.

It’s very easy to describe circumstances under which people with brown-eyes sometimes spend their money in ways that they each individually come later to regret.  It’s also easy to describe theoretical conditions under which blue-eyed people, if given the power to superintend and override the spending decisions of brown-eyed people, will use that power in ways that improve the economic well-being of brown-eyed people (even as assessed, after the fact, by brown-eyed people themselves).  And yet no one would take seriously the claim that there are theoretical reasons for giving blue-eyed people the power to superintended and override the spending decisions of brown-eyed people.  Claims about promoting “infant industries” should be regarded with the very same lack of seriousness.

The theoretical case for government promotion of “infant industries” rests on what Harold Demsetz long ago identified as the “nirvana fallacy.”  This case sneaks in the premise that the appropriate standard is a world of perfect knowledge – or, at least, a world in which government officials possess more knowledge of the future, as well as more knowledge of the manifold details of the present, than these officials actually do possess and than we have any good reason for believing that these officials can possibly come to possess.

Of course it’s incontestably true that if we have access to the insights of an honest and hyper-knowledgeable agent, then the economic case is quite strong for giving that agent the power to improve our future welfare by directing our present actions.  But no such agent exists.  Yet when people write or talk about a ‘theoretical case’ for this or that intervention, they too often simply assume that it is theoretically possible for the government to have the knowledge and information (and incentives) necessary to carry out the intervention in ways that improve human well-being.  Those people who are disposed more favorably toward government intervention often believe (or act as if they believe) that government can in practice gather and process such knowledge, while those people (such as Doug) who are generally disposed to look with suspicion upon government intervention correctly point out that government cannot typically in practice gather and process such knowledge.

My point in this post is to note that whenever we use perfect (or super-human) knowledge as a standard, there is no more reason to suppose that such knowledge is, or can be, possessed by government officials than to suppose that such knowledge is, or can be, possessed by any other group of people that you care to name.  That is, if, for example, someone writes that there are theoretical reasons for believing that government protection of infant industries will yield positive net results, someone else can write with equal (im)plausibility that there are theoretical reasons for believing that the suppression by blue-eyed people of the economic decisions of brown-eyed people will yield positive net results.

Put differently, if a case for government intervention contains, beyond the usually rather banal demonstration that real-world markets are ‘imperfect,’ merely the assumption that government has both the knowledge and the incentives to carry out the intervention in a welfare-enhancing manner, then it is either meaningless or untrue to say that this is a ‘theoretical’ case for government intervention.  The reason is that there is here no plausible theory of how government will get the required information, will process it correctly, and will act on it productively.  Without such a coherent and plausible theory of government action, nothing that deserves the name “theoretical reasons” or “theoretical case” for this or that government intervention exists.

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… is from page 59 of UCLA emeritus economist William Allen’s superb 1989 collection of the transcripts of his radio addresses, The Midnight Economist; specifically, it’s from Allen’s September 1988 address “Quality, Diversity, and the University” (original emphases):

Great diversity is inherent in a university.  The very word – university – suggests a fruitful bringing together of diverse elements and activities.  But the latest cause of campus agitators is for still more diversity.

The agitation typically is incoherent at any level above sloganeering, but doubtless the main pressure is on race or gender.  Everyone with legitimate business on a university campus agrees that it is totally reprehensible to deny faculty appointment or student admission on grounds of race and gender – or on grounds of religion, as was done in an earlier day.  Should it be more acceptable to favor people on such grounds?