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Wednesday, March 12, 2008

Libertarian Philosophy, Economics, and Hegemonial Free Trade: 4th in a Series


This, the 4th buggy article in a series on Libertarian and Free-Market thought shifts course to deal with the naïve, simpleminded views that prevail in those circles about three related things crucial to their mutually entangling philosophical views about free-trade:

  • How a wide-ranging free-trade system, never mind a global one, is supposed to arise. The prevailing Libertarian view is that it will arise spontaneously, through state-negotiations, provided state leaders are rational and understand the joint gains in economic efficiency and consumption that such as system entails.

As you'll see, there is an ingenuous premise here: a misguided confusion between "absolute" and "relative" economic and technological gains in free trade.  Absolute gains refer to the improvement in the economic well-being of any one territorial state (or country), compared to the economic status quo before the free-trade system emerges.  Relative gains refer to the how these gains across countries are divided.  Mainstream economics, to be blunt, is concerned strictly with "absolute" gains or improvement in any one country's economic performance.

  • How such a far-flung free-trade system can be maintained, in the face of turbulent technological and economic change, not to mention shifting distributions in the balance of power among great powers that such change invariably entails in the long-run.

Bluntly said again, such turbulent change will likely shift the relative power balance --- economic, technological, and military --- among great powers or aspiring states to that status.  They will also likely shift the balance noticeably among regional powers: think, for instance, of the huge power of tiny Israel --- with 6 million people, 1 million of which are the only Arabs living in a democratic society --- as opposed to 350 million Arabs and 70 million Iranians, thanks to the enormous human skills and vast technological lead of Israeli Jews. 

Libertarian thought --- which goes back to 19th century liberal views about free-trade --- simply ignores these jolting changes and recurring upheavals in the balance of global and region power.  Focused strictly on absolute economic gains, it assumes that rational statesmen will always seek to maintain a free trade system that has improved their individual countries' economic performance.

  • And thirdly, on top of all these naïve assumptions, Libertarian and most mainstream economics predict that the spread of free-market logic across state-boundaries will make war increasingly costly among mutually entangled, interdependent states. Sooner or later, on this Libertarian logic, power politics will fade under pressure of such joint-gains interdependence and bring about universal peace among the free-trade member-states.

20th Century Liberal Developments

This faith in the peace-transforming nature of free-market logic regionally and globally is rooted in late 18th century and 19th century liberal thought, itself an offshoot of the European and American Enlightenment --- a belief in human progress, growing wealth, and peace on earth thanks to the ever greater mushrooming of human reason and understanding.  In the early 20th century, two additions were added to this traditional liberal thought by Woodrow Wilson, the culminating political thinker of the international side of liberal thought.

 The first: the need for democratic polities of a fully transparent sort to spread among the great and mid-level powers of the world ---- which transformation might require the use of military power by the US and other powerful solidly democratic states.  And secondly, as an essential adjunct --- the way military power should be wielded --- the creation of a League of Nations that subordinates the use of unilateral military force by states to a collective security system. 

A caution rears up here suddenly.  It involves the need for some terminological clarification.

Specifically, American visitors to this buggy site need to remember that "liberal" still retains its 19th century meaning in West Europe: support for free-markets, free-trade, limited government, and individual freedom and responsibility.  Liberal political parties don't even exist except in three or four European polities, and they are small, and if ever in power, only as a tiny centrist member of either left-wing socialist dominated coalitions or of moderate conservative (statist) coalitions.  In the United States, for complex historical reasons --- not least, the almost total absence of a socialist tradition and at the other pole the similar absence of statist conservatism rooted in pre-industrial, pre-democratic traditions --- the US political spectrum divides into moderate  "left-wing liberalism" (with vocal semi-socialist and populist radicals in its activist ranks) and moderate "right-wing conservatism") that is traditionally libertarian in the 19th century sense, with different factions of it comprising the Republican Party today . . . including, oddly, moral majority conservatives who balk at non-judgmental individual free choice and, almost as oddly, neo-conservative intellectuals who favor an active if fairly small welfare state and a vigorous use of American power to advance the cause of democracy and human rights abroad. 

The moral? 

Whenever an American visitor sees the term "liberal" used here, always think of libertarianism.  The same is true of American visitors to West Europe.  Thus Milton Friedman told Der Spiegel, the windy, superficial magazine of choice among German left-wingers and politically correct types of all sorts --- especially anti-Americans (the summit of political correctness in Germany and much of West Europe) --- that when he visits West Europe he describes himself as a liberal, not a conservative.  The latter conjures up images of statist-conservative parties like the Christian Democrats in Germany or the weak waning Tory wing of the British Conservative Party.  Remember all this, and you will avoid the confusion built into specific American political terminology


The First Credo Is Economic: Mainstream Economists and Libertarians Believe In  Spontaneously Negotiated Free-Trade

A good little think-piece, Arnold --- especially for libertarians, who tend, virtually one and all, to think that the role of states in international life is largely mercantilist, predatory, and exploitative, and that all would be put right with one radical change in trade policies: just let free-market logic expand globally by means of total free trade: in goods, services, financial investments, technology transfers, and what we now call multinational implants.  In turn, there would be huge political spillovers into the realm of power politics and war, as ancient as the territorial state system itself --- roughly back ftof 5000-6000 B.C.

The theoretical forigins of this broad free-trade view go back, of course, to the 1770s and the writings of Adam Smith.  Later theoretical work,  especially by David Ricardo early in the 19th century, founded the economic benefits of free trade with his idea of comparative advantage.  Subsequent work in the late 19th and early 20th century then refined the whole theory of benefits (and costs to certain groups of firms, their workers, and their investors) that free trade generated.  Even today, there is controversy about how to best understand which firms and groups benefit from free trade and which are harmed in the short- and long-term . . . not that any mainstream economist doubts that the nation as a whole clearly benefits. 

The Second Credo Is Both Economic and Political:  The Domestic Benefits

The political origins of instituting such a free-trade policy go back to the 1830s and 1840s, when Richard Cobden and John Bright --- two wealthy manufacturers in Manchester, the center of Britain's booming industrialization --- organized a mass nation-wide protest movement in favor of free trade, the Anti-Corn-Law League.  (Remember, corn in those days referred in Britain to wheat, the country's biggest grain product.) 

The League's mass-agitation and electoral support for free-trade politicians was remarkably successful.  In 1849, despite the big blows to British agriculture and age-old aristocratic land-owning, the British Conservative Party --- the bastion of the gentry and aristocracy --- joined the Liberal Party to enact free-trade.  Quickly, both in Europe and around the world, several other countries reciprocated, and for a good three decades the world moved toward its first global free-trade system.  (Note, in passing, that the United States wasn't one of these free-traders.  It followed a Hamiltonian policy of protective tariffs around its budding manufacturing firms, most of which --- by the 1830s and 1840s --- were already matching or exceeding the productivity levels of their British competitors.)

Why was the League so successful? 

Simply said, because free-trade chimed powerfully in line with the self-interest of the two dominant social-classes in British life, both new: the rising middle class entrepreneurs in manufacturing and in banking, and the far greater numbers of the relatively new urban working class. 

Take Bright and Cobden, spokesmen for the first group. 

As heads of profitable manufacturing firms, it was in their self-interest and that of other British firms in cotton, iron, railway engines, and shipbuilding --- the cutting-edge industries in those days, with a large British lead over other industrializing countries (except for the US) ---  to have Britain switch to free-trade . . . and precisely as a hefty inducement to other countries to open up their markets to British industrial goods, in return, of course, for free access of their exports in agriculture and raw materials.  By the same token, British commercial shipping would naturally expect to transport almost all the industrial, agricultural, and raw materials goods in the lucrative two-way trade that would ensue.  Needless to say, a similar benefit would ensue for British banking and other financial services --- by then, and for a long time, the most sophisticated in the world, with the pound sterling quickly becoming the key currency for short-term and long-term investment flows to help finance trade and, eventually, infra-structural and industrial development in foreign countries. 

Hence the middle-class interests, which were already beginning to dominate the reformed electoral system to Parliament, thanks to the 1832 Reform Act. 

The support of the much larger numbers of the urban working classes is no less easy to set out.  As Cobden and British put it, the price of food for these workers --- close to 40-50% of their household budgets in those days --- would drastically fall as cheaper, more efficiently produced food-stuffs entered Britain duty-free.  And with the promise of ever greater manufacturing output by British firms as foreign countries opened to British products, Cobden and Bright rightly pointed out that the working classes' wages would invariably rise too . . . on the unstated assumption, of course, that almost all British manufacturing industries and firms would enjoy a productivity lead world-wide.

The Third Credo Is Wholly Political: The Huge Expected International Benefits

Cobden, Bright, and several other Liberal intellectuals and budding economists also took up a minor theme in Adam Smith's free-market work, The Wealth of Nations (1776), and turned it into a leitmotif of free-trade agitation.  To wit?  As free trade expanded globally, it would undermine any motives for power politics and war and lead, sooner or later, to world-peace.  In the words of Cobden, not only would the expansion of free-market logic across the countries of the world underscore a key point made by Adam Smith --- imperialism and empire-building were extravagantly costly and unnecessary, always entailing far more costs then benefits --- but, in addition, the surging interdependence between free-trade countries would bring the added benefit of shattering the motives for power-politics and war; and for two reasons:

  • Any strictly economic motive for territorial expansion to conquer colonies and dominate foreign markets --- which invariably led to wars with the conquered peoples and rival great powers --- would be exorcised by enjoying the cost-free benefits of free-market exchange between Britain and all other countries, whether industrializing or producers of food-stuffs and raw materials.

  • Apart and on top of this new economic promise, the political leaders of all territorial states would soon learn that power politics --- which invariably entailed arms races and warfare --- had become too costly in national wealth and manpower for urbanized industrial societies. The spiraling costs were especially the case, as later Liberal theorists would argue, in an era in which military technologies were becoming ever more lethal: new kinds of rapid-fire rifles, machine guns, artillery, railway transportation of millions of troops, steel-clad battleships, and eventually submarines and big-bomber airplanes . . . not to mention the ultimate destructive weapons, nuclear-armed missiles carried on a variety of platforms operating on land, under the seas, and in the air.

So much for the cost sides of warfare in a global economy of entangling economic interdependence across countries.  On the benefits side, not only was warfare unnecessary to gain what free-trade could bring --- access to foreign markets' exports and as outlets for profitable industrial imports --- but any war between major trading countries would sunder their markets for exports and their access to vital flows of imports from them of finance and agriculture, manufacture, and raw material goods. 

Sum the two sides up, and what do you have?  Quite simply, age-old power politics and war no longer made any sense, not just in economic terms, but from any rational viewpoint.


The Original Credo

Back to the political visions of liberals in the late 18th and 19th centuries  . . . in particular, as voiced by Adam Smith, his economic followers, and the Bright-Cobden "Manchester School" publicists and activists, not to forget their later followers in Britain and elsewhere, at any rate until WWI.

Cobden, to single him out again, took free-trade-and-peace logic to its culminating point in 19th century liberal thought:  global free trade, as he put it in one speech, would overturn any need of Britain or other free-trading countries to have either a military or diplomatic corps. 

In effect, in his vision --- which is shared by almost all Libertarians today --- all foreign policy would reduce to little more than free-trade commerce: in goods of all sorts, in technology transfers, in investment flows, and in what we now call multinational implants.  Anything else undertaken by governments in the international realm should be suspect: whether military policies beyond, say, coast-guard cutters and possibly a small voluntary army, or alliances, or military interventions abroad even for the "alleged" promotion of human rights. 

Why Suspect? 

Tersely put . . . because politicians and bureaucrats (whether civilian or military) are motivated by strictly narrow self-interest that isn't checked or counter-balanced as economic transactions in the market-place are by competition for consumer votes for this firm or that one --- whether domestic or foreign.  True, there's competition for votes at election times, but these are distorted by a variety of markedly defective processes summarized under the heading of "public choice" . . . a category first clarified by Paul Samuelson (a moderate left-wing liberal), but turned into a pillar of free-market logic by James Buchanan and Gordon Tullock, among others.  (Buchanan won the Nobel Prize in economics in the late 1980s for his path-breaking work).

How, to go on, would this vision be realized?

The more free-trade spread across state-borders everywhere, the more it would transform power politics into an anachronism, a atavistic relic of primitive human nature and mistaken economic policies that only appealed to .  In its place, the sober rational calculations of capitalist firms, mangers, workers, and consumers in peaceful commerce would come to dominate policymaking in both foreign and security policies. 

Or, at any rate , such logic would prevail, provided the atavistic warrior-classes --- kings, the militarized aristocracies, and their supporters among illiterate peasants and the rapidly growing war-mongering mass-press --- didn't manage to divert the economic interests of the electorate by means of jingoist demagogy and convince them to vote for politicians who favored new imperial expansion, national glory, and warfare as the ultimate test of ethnic or racial superiority . . . the latter appeal increasingly invoked by the end of the 19th century in the crude forms of Social Darwinism, rampant everywhere in Europe, North America, and the newly industrializing Japan.   

Enter The Deux-Ex-Machina, The Enlightenment Faith
in Rationality and Reason

Sooner or later, though --- Liberals and free-trade enthusiasts insisted --- sober, rational middle class businessmen and their followers would take power as long as state-leaders themselves were in the grip of atavistic military elites and jingoist demagogues. 

That's the hope, for instance, placed by libertarians (and some others) that as China continues to progress economically, its Communist Party monopoly will continue, first, to be emptied of ideological content and, then --- more to the point --- open up entirely its domestic market to full free-trade and hence the demise of the powerful overweening Communist-dominated state in Chinese life, with its built-in repression of free-speech, of pluralist democratic politics, and the ongoing orgy of wealth-making for top Communist officials and top bureaucrats on a gigantic scale.  

The Chinese, you see, will soon reach a point in their industrialization where market-logic dictates such a self-immolation by a heavily entrenched, greedy, ultra-nationalist cadre of CP leaders and big-shot bureaucrats.  Only in that way, by doing something no heavily institutionalized dictatorship has ever voluntarily done in all of history --- give up all their vast privileges of power, wealth, and status and let democracy and freedom prevail --- will China presumably be able to shift to a high-quality, market-dictated form of qualitative economic growth fueled by ever greater innovation near the frontier of cutting edge technologies.


 World Wars I and II: The Wilsonian Expansion of Liberal Logic

This 19th century liberal vision of expanding capitalism, expanding free-trade, and eventual global peace among capitalist free-market countries culminated 70 years later in Woodrow Wilson's vision of global peace and prosperity, prompted by the huge four-years of carnage in World War One.  It was the huge carnage of that war --- several million dead, in four years of brutal slaughter in the heart of European civilization, followed by revolutionary upheavals that creates the Communist Soviet Union --- that prompted President Wilson and his entourage to recognize the deficiencies that marked the by then traditional liberal faith.

Specifically, Wilson added two other credo-premises to traditional liberalism that, subsequently, have underpinned what is now called the liberal theory of permanent peace. (Note, in passing, that the great Enlightenment philosopher, Immanuel Kant first sketched out these two credos in a little tract published in 1795 that was largely ignored by liberals in the 19th century . . . who focused on the logic of free-markets, domestically and globally, something Kant knew nothing about.   The title of Kant's work?  On Perpetual Peace) Both these credo-ideas, Wilson stressed, had to be translated directly into international political life if the breakdown of civilization and mass slaughter that occurred between 1914 and 1918 were to be avoided in the future.  It was necessary, to put it tersely, to ensure . . .

  • The spread of democracy, which alone would guarantee "open diplomacy" and hence end once and for all the age-old secret agreements among allied countries as to how the gains and spoils of war would be divided, territorially and otherwise.

The pivotal assumption here, of course, was that the peoples of the world were inherently peace-loving.  Wars, if they occurred, were manipulated by powerful anti-capitalist elites, who operated in secrecy for their own selfish interests, started wars by whipping up nationalist agitation, and looked forward to all the spoils of imperial expansion. 

Who, in particular, were the arch scheming culprits? 

Kings, Emperors, and ruling Oligarchs, along with the militarized aristocracies and generals, were singled out as the age-old power-wielders who benefitted from national blood, glory, and loot.   Later, especially in the arms races that preceded WWI, new culprits were added to this demonic list: above all, the heads of business firms and powerful lobbies who manipulated nationalist passions for strict economic gains.  Some were the owners of inefficient businesses that couldn't compete with foreign firms; others were arms-makers who earned vast profits from arms races and warfare.  Both groups worked stealthily.  They bribed politicians, bought newspapers and whipped up jingoist sentiments, took control of campaign financing, and threatened peace-loving politicians with electoral defeat.   They could also count on the support of ultra-nationalist intellectuals, whose activities the financial and business elites would agreeably finance. 

Enter the Wilsonian solution.  To end these devious machinations, two related changes were needed in domestic life.  First, existing democratic countries had to be reformed so that all policymaking in foreign and security matters became fully transparent and accountable to parliaments and the mass media.  In turn, this kind of open democracy would have to spread throughout the rest of the world --- not that Wilson or his liberal followers ever spelled out how this was to be accomplished.  By example?  By interfering in these non-democratic countries' politics in non-coercive ways, say by human rights resolutions?  Or, if need be,  war and conquest?  It's a dilemma that continues to haunt American foreign policy to this day.

  • The need for a global peace-making, peace-preserving organization ---- the League of Nations (after 1945 the United Nations --- where all the world's countries would support collective security action against aggressors, with the key decision making to be determined by a small coalition of the great powers . . . as in the Security Council today, in which five great powers actually have a veto over any UN action.


 Until the industrial revolution of the late 18th and 19th centuries, any wide ranging free-trade system --- at any rate, beyond certain negotiated ones by city-states as in ancient Greece or medieval Italy or the Rhine areas in northern Europe --- invariably depended on a powerful imperial state that conquered colonies and imposed such trade on them: think of the ancient and medieval Chinese empire, the Macedonian empire, the Roman empire, the Aztec and Inca empires, and the thrust abroad of West European powers into the . . .

Oh Oh, the argument has been running on at a fairly long stretch, so let's end here for the day.  The subsequent article will take up the argument at this point and bring the current buggy series to an end.