Capitalism in One Country

The consensus in favor of free trade is as authoritative as it is diverse, ranging from the Republican and Democrat parties (especially the Clinton and Bush dynasties), the Freshwater and Saltwater economic schools (even the otherwise-contrarian libertarians), the press (depending, of course, on whatever the daily vagaries of Democrat party politics dictate), and of course the Mexicans and the Chinese (on the receiving end of American trade deficits). Those who have questioned this theory, such as the paleo-conservatives, have been dismissed as “nativists” and “protectionists,” and even compared to “fascists” and “Nazis.” Donald Trump, with his rollicking brand of populist-nationalism, has sent shudders through the globalist elite because of his “America First” stance on trade, as well as immigration and interventionism. Trump’s recent “deal” with Carrier, which stops some of the company’s outsourcing to Mexico, has led to hilarious howls of protest from Friedmanite libertarians and Reaganite conservatives stuck on free-trade theory.

There is no doubt that if the economy were a machine, the function of which was to produce as much wealth as possible, then total free trade would be the most efficient design for that machine. That is, if the economy were a science experiment, then a system of free trade would take home a blue ribbon at the science fair. In other words, the claim that free trade maximizes global wealth is not in dispute.

The economy is not a machine or a science experiment, however. It is the product of people – not programmable robots, but real people – trying to get by, have some fun, and set something aside for the future. Put differently, if the economy were a machine or a science experiment, then it would be one comprised of human beings, who are more than just parts and pieces. Indeed, to these real people, maximizing global wealth production is almost never the point; stability is often as important as efficiency. In other words, people are not robots, and are willing to sacrifice global wealth production for other social and economic ends, such as steady work and comfortable standards of living. As the grand, old Patrick Buchanan has said again and again, “The country comes before the economy and the economy exists for the people.”

Kevin D. Williamson (a National Review pundit constantly struggling to do his best H.L. Mencken impression), writing yet another anti-Trump column predictably titled “The Father-Führer,” decreed that American working-class/blue-collar communities which cannot manufacture goods as cheaply as the Third World should be leveled. According to Williamson, these communities are “negative assets” and thus “deserve to die.” Williamson’s arrogant column was a true “let them eat cake” moment for Buckleyite conservatism, exposing the contempt which the donor class has for its voter base and highlighting how this so-called movement has failed to conserve anything. Old-fashioned Burkeans and Kirkeans, who believed that conservatism was about preserving the “permanent things” which were “true” and “beautiful” about a society, would recoil in horror at these “ideolobbyists” of Conservatism, Inc. How perverse for self-proclaimed conservatives to cheer the “creative destruction” of the Mayberries of America – the last bastions of blood-and-soil patriotism and other traditional values! What is “conservative” about tearing up people and places by their roots – destroying ways of life in order to create cheaper goods? Indeed, to the white working class, the “creative destruction” toasted by the court-economists and crony-capitalists of Conservatism, Inc. has been more “destructive” than “creative.” After all, what is global wealth production to all of the working-class white men who have seen their small-town communities desolated by cheap foreign competition?

The original theory of free trade, as fully formulated by the British economist David Ricardo, was based on the immobility of the factors of production (in particular, labor and capital). In Ricardo’s day and age, the high costs of transportation, travel, and communication, as well as old-fashioned loyalty to king and country, fixed the factors of production within given national borders, meaning that comparative advantage would not be traded for corporate profits. Today, however, the virtually free costs of transportation, travel, and communication, along with the rootlessness of globalism, have invalidated Ricardo’s assumption of immobile factors of production. With this newfound freedom, capital flows from high-wage to low-wage countries while labor flows from low-wage to high-wage countries. This outcome – an ongoing and never-ending redistribution of resources around the world – was inconceivable to classical-liberal economists in the eighteenth century.

When free-flowing factors of production are combined with free trade, Say’s Law (“supply creates its own demand”) no longer applies to labor: a supply of labor will not always create its own demand. In the past, when capital was fixed in a given country, labor displaced by trade could be easily reallocated to new industries in the same country. Out-of-work machinists and blacksmiths from the horse-and-buggy industry could, for example, get a new job at one of Ford’s automobile plants. In the present, however, when capital is not fixed in a given country, labor displaced by trade is not always reallocated to new industries in the same country; those industries are now often located outside of the country. Instead of getting a new job at the Ford plant opening up in town, unemployed workers would have to learn Spanish or Mandarin and move to cartel-controlled Mexico or Communist-controlled China just to continue to do the same job for less money. Needless to say, this is not something that the American working class is going to do. Thus, instead of trade reallocating the factors of production to their most-efficient utilizations within a given country, capital simply flows out of the country and labor is left idle.

In addition to economic upheaval, free trade also causes ethno-cultural upheaval, as seen in the ongoing mass-migration from the Third World into the West: labor from low-wage (“poor”) countries migrates to high-wage (“rich”) countries. In the case of the U.S., since the 1965 Hart-Celler Immigration Act, 59 million immigrants have entered the country (nearly triple the next-largest wave from 1890 to 1924). While pre-1965 immigration was virtually 100% European, 85% of post-1965 immigrants are from the Third World (particularly Latin America). From 1965 to the present, immigration accounted for 51% of American population growth, and is projected to account for 82% through 2055. In 1960, the U.S. was 82% white (with the remainder largely black), but today it is only 62% white. If the present mass-immigration to the U.S. continues, whites are projected to lose their majority status by 2055. Furthermore, of the post-1965 immigrants, 51% are dependent on welfare (as opposed to 30% of white Americans). Of Latinos, who comprise over half of all post-1965 immigrants, 70% are dependent on welfare. In the history of the world, there is simply no precedent for a mass-migration and demographic displacement – both of which have always been the downfall of superpowers – of such scale in such a short period of time. Unless a miracle occurs, bloodshed and Balkanization is inevitable.

The classical liberal Ludwig von Mises supported the freedom of travel for this very reason, arguing that opening the borders to people as well as goods was not only morally right but also economically efficient. Yet in a debate with the economist James Miller on free trade, the author Vox Day pointed out the unsustainability of open borders. “All of the arguments that apply to free trade also apply to the free movement of labor,” argued Vox, “and because the free movement of labor means that it is impossible to have national sovereignty and maintain a functional nation, both the free movement of labor and the free movement of goods are intrinsically antithetical to civilization, to the Constitution, and to any of the national values we hold dear.”

Indeed, the communists Karl Marx and Vladimir Lenin supported free trade for this very reason, predicting that the mass-outsourcing of national capital, mass-unemployment of national labor, and mass-immigration of foreign labor (what the latter termed the “parasitic” stage of capitalism) would weaken nationality, destabilize capitalism, and accelerate revolution.

The results of free trade in the U.S. are difficult to defend: the manufacturing base from World War II, unprotected from cheap foreign competition, has been gutted, and real wages have not risen in four decades, thanks to mass-immigration driving up the labor supply. Libertarians and conservatives prefer to blame taxation, regulation, and inflation (and they are absolutely correct that these are a problem), but the fact is that free trade has also made these real problems even worse.

The classical theory of free trade was well-suited for its day and age. George Washington was right to call for “extending our commercial relations” with foreign nations while having “as little political connection as possible.” As Washington put it, “Harmony, liberal intercourse with all nations, are recommended by policy, humanity, and interest.” It made economic sense for the United States – a newly free and independent country rich with natural resources – to open up trade not only with the mother country, but also with all of Europe. Thomas Jefferson’s vision of the United States as “a rising nation, spread over a wide and fruitful land, traversing all the seas with the rich productions of their industry, engaged in commerce with nations who feel power and forget right, advancing rapidly to destinies beyond the reach of mortal eye” was indeed the right course at the turn of the eighteenth century. Furthermore, trade can still be beneficial to the world economy (especially for developing economies “trading up” with established economies). As with everything, however, the ancient Greeks’ “golden mean” is optimal.

While Alexander Hamilton’s proposed reestablishment of British-style mercantilism was far too cumbersome for the developing American economy (as well as arguably corrupt), the fundamental changes in eighteenth-century economic preconditions have left Thomas Jefferson’s rival plan for free trade relatively outmoded. After all, back then, people rarely left their birthplaces, the immigration debate was over whether the Germans and Irish were compatible with Anglo-Saxons, and the closest thing to outsourcing was slavery. Under such conditions, Jefferson’s opinion of free trade – “an exchange of surpluses and wants between neighbor nations is both a right and a duty under the moral law” – makes the most sense. Today, however, with jobs draining out of the country, Hamilton’s plan of “weighty inducements to prefer the employment of capital at home even at less profit, to an investment of it abroad, though with greater gain” is sound and sensible.

One other discredited aspect of the theory of free trade is its corollary “peace theory” – the idea that trade ties countries together and makes war impossible. As the classical liberal Frederic Bastiat put it, “When goods don’t cross borders, soldiers will.” History has repeatedly refuted this hopeful, however. For instance, World War I: despite unprecedented freedom of trade in the West – trade which classical liberals at the time specifically predicted would be a pacifistic force – the West fought a war of unprecedented death and destruction. When the classical liberal Immanuel Kant, writing Perpetual Peace in 1795, rhapsodized that “the spirit of commerce sooner or later takes hold of every nation, and is incompatible with war,” the theory of free trade was still new and full of possibilities. Today, the limits of those possibilities are clear to those who pay attention to experience and are not blinded by pure theory.

In the face of all the economic changes since the eighteenth century, continuing to insist – as national capital flows out, national labor stagnates, and foreign labor floods in – that free trade is an unalloyed benefit simply because it maximizes global wealth production is ignorant and irresponsible. True, the infinite number of variables in the economy makes theory essential to interpretation, but clinging to a theory in the face of contradictory evidence is irrational. “Let experience be our guide,” the Pennsylvanian Founder John Dickinson advised. “Reason may mislead us.” The theory of free trade, after all, is not infallible. Far from divinely inspired, it was formulated by a few British classical liberals (the Scottish philosopher Adam Smith, the Jewish capitalist David Ricardo, etc.) as a challenge to the reigning economic theory of mercantilism. When labor and capital were immobile, free trade was mutually beneficial to all nations: each produced/exported its “comparative advantages” and consumed/imported her comparative disadvantages. With the international mobility of labor and capital, however, free trade has become economically, culturally, and politically destabilizing.

The spectacle of libertarians claiming that Indiana’s “tax cuts” for Carrier are actually “taxpayer costs” is a fitting sequel to the insufferable Gary Johnson’s hapless presidential campaign. Thanks to the infection of their institutions with social-justice warriors and their tendency of taking esoteric positions which have no practical value, libertarians have, in just a few years, removed themselves from any influence over public affairs, thus squandering the massive movement which Ron Paul built. Earlier this year, libertarians amused themselves by trolling the Internet with “taxation is theft” memes. Given how Trump has tied them up in knots, “taxation is liberty” memes cannot be far behind.

Of course, if Barack Obama ever had the brains and the balls to inform government vendors that if they wanted their contracts renewed then they should minimize outsourcing, journalists and pundits would be writing headlines like “Obama uses his power as purchaser-in-chief for good.” Instead of using his power as “purchaser-in-chief” to help the white working class, however, Obama was busy issuing executive orders to government vendors prohibiting LGBT discrimination while opining that there was nothing he could do about job loss to Mexico and China. Fed up with the anti-white, anti-capitalist direction of the Democratic Party, the key constituency of the white working class is defecting to Trump’s populist-nationalist Republican Party in droves.

Even though the consensus on free trade is in need of a reassessment, it would be a terrible mistake to pile higher tariffs atop already existing taxes. The twisted incentives and deadweight losses from the existing tax system are bad enough without even heavier taxation. Libertarian economists such as David Stockman (Ronald Reagan’s OMB Director) and Peter Schiff (Ron Paul’s economic adviser) have acknowledged, however, that replacing the current labyrinth of individual and corporate taxes with a simple tariff wall would be a huge improvement in efficiency. Behind that protective tariff wall, the powerhouse that was American laissez-faire capitalism – “capitalism in one country,” so to speak – could regain its strength.

Thus, Trump has two walls to build: one for immigrants, another for imports.

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Who called in the cavalry?