The case for free trade

All criticisms of free trade on the basis of analogies with war, battle, assaults, predation, hegemony, unfair domination and such like, are mistaken. It is precisely the fact of voluntary exchange under the social division of labour, that enables human beings, more than any other animal, to practise the highest degree of peaceful and mutually beneficial social co-operation.

With the development of a common medium of exchange – money –the circle of possible social co-operation expanded astronomically to include everyone who participates in market exchanges. Thus the theoretical upper limit of human wealth is when all people participate in the peaceful division of labour in one free trade zone.

In practice, the circle of social co-operation made possible by free trade has expanded only slowly. This is because the benefits of social co-operation were only extended beyond the narrow circle of immediate family and tribe when the benefits were realized. But they were realized only gradually - the original condition was one of ignorance. For countless millenia, the predominant idea of where wealth comes from, is that you take it by force from some "other" group, as the old legends of so many societies testify. The warrior ethos, and the spirit of conquest, remained strong against the principles of peaceful co-operation with strangers under a division of labour based on voluntary exchange – free trade.

The great contribution of the classical economists was to explain how and why the division of labour and its corollary free trade, form the basis of the increasing intensification of human social co-operation, and the wealth of all those who participate in it. David Ricardo demonstrated in arithmetic terms how, even where one party was superior in the production of all items being traded, free trade was still more beneficial for all participants than producing for self-sufficiency.

(Ricardo assumed that only the goods are mobile: capital and labour are restricted. However his demonstration holds good to the extent that capital and labour cannot freely move between countries. And to the extent that capital and labour can freely move between countries, the argument for free trade still holds good; it would only be invalid for a country so little suited for production that it would cease to be used as the basis of any human industry, like the polar ice-caps or the deserts.)

The influence of Ricardo's demonstration was enormous. The rational understanding of the benefits of free trade that he made explicit for the first time in history was followed by a high tide for the political movement to repeal restrictions of trade. Many such restrictions had been in place since the dark ages with the traditional beliefs that trade was somehow morally suspect – only landholding was noble; that government's proper source of revenues was the licensing of monopolies; and that a proper role of government was to stop efficient businesses from out-competing inefficient ones.

It is no coincidence that the repeal of trade barriers on an unprecedented scale was immediately followed by an unprecedented rise in living standards, including those of the poorest of the poor. For the first time in history, an increasing population was supported at increasing standards of living.

The debate about free trade was well and truly won and lost in the first half of the nineteenth century. The protectionists lost. They have been unable to advance a single tenable argument in refutation of Ricardo's theory. Yet they have never ceased to wage a rearguard action in favour of privileges for the few at the expense of the many, always dressed up as the common good.

Frederic Bastiat in 1845 in one short humorous article "A Negative Railway" lampoons and destroys the arguments of all protectionists: http://mises.org/daily/5201

So if the arguments for protectionism are based on fallacies, why are we still hearing them today?

Henry Hazlitt explains why:

"Economics is haunted by more fallacies than any