Okay, I guess we'll begin. Let's talk on free trade and its enemies. I mentioned in my first talk on Monday that there are certain issues, especially where  neoclassical economists and Austrians are in sympathy with each other. They  hold very similar views. The mainstream also you know understands the  principle of comparative advantage and use this and talk about the division of  labor and so on and in this sense the the Austrian view goes beyond right what  the neoclassical economists do with their models and so on, and you know we  have a more robust analysis than they do. But we're not really seeing things that would you know shock them, or you know they would say, "Oh, there can't be a  division of labor. You know that's just comparative cost is crazy or whatever. And it's the same with free trade. You'll find, in fact, seeming paradox that  neoclassical economists tend to be in favor of free trade. Free trade is  understood now as trade between nations, right? Free free trade, free  movement of goods and people and capital between nations, much more than  they are domestic free markets, you know. So even guys like Paul Samuelson  tend to be sort of, you know, loosely speaking, a free trade. It's sort of strange,  right? I mean, why why would this? You would think if they held this view, they  could see the logic, the or the illogic of saying that you know we ought to have  all these domestic, each state should intervene and control domestic trade, but  but between states we ought to have an you know almost entirely free trade,  because the classic it's a classic reductio ad absurdum for economists to point  out that you know free traders don't argue that Pennsylvania should should erect trade barriers against California, right? Everybody can see, or at least those who accept free trade can see that that would be a bad thing, right? That and  therefore we shouldn't have the state intervening domestically to create barriers  of trade between the natives of that country, right? So it seems to just kind of  follow out. Seems like this is a gigantic conflict, right? Almost contradiction to  hold domestic intervention is a good thing, while simultaneously free trade is  also a good thing. Anyway, we want to. What we want to do in this talk is just  very briefly outline the case for free trade. You know exactly what additional  theoretical work we have to do to get to this argument for free trade, and then  we want to spend the bulk of the time talking about the objections to it, the the  arguments for protectionism and against free trade. Okay, so let's let's start for  the just a quick review of the case for the market economy. And remember, up to this point, we've made this case only for a single territory. Right, so I don't think  any of the talks up to this point have at least focused on what if we have  different, you know, political territories in the world. We so we've just said, hey,  we have an economy, we have a market economy, and there's private property  and contract, and there's money, sound money, market provided money, and  then through this there would be economic calculation, and the advantage of  this is that we're all able to more efficiently arrange the division of labor because entrepreneurs can use economic calculation to determine the efficient 

arrangement of things, and then we can all self-select according to monetary  incentives into the different occupations and the different things we buy, and and the different lines of investment, and so on and so forth, right? And the same  argument about capital accumulation. So here, the market gives full outlet to our time preference desires to save and invest, and then the entrepreneurs can  direct that investment. The capitalists and the entrepreneurs direct that  investment to valuable lines of the buildup of the capital structure, and so we get economic progress and higher standards of living over time. And and again, it's  not that faster growing standards of living are better than slower growing  standards of living. It's that the market gives us what we prefer. So if we we  have a society with high time preferences, well, we you know we want present  gratification. Then that's what the market will give us relative to the future, right?  So that so the market operates in this fashion, and any. Position then of state of  the state of coercive power of the state would simply interfere with this process  and slow it down, you know, muck it up, make it less effective. Right, so that so  that's the basic argument, right? Basic ground that we've covered up to this  point. Now, what we add when we move to the to the issue of of free trade is this question of different political territories. What if we have not not one you know  single political economy, if you will, but a multiplicity of political units in the world, then that opens up another question, right? It doesn't. It isn't, one has to do a  little bit more theoretical work to see what should be the policy of any one polity  within a world of different polities, right? That would be an interesting question to think about. Okay, well, again, we're not going to go elaborate discussion of this. I'm just kind of relying on your general knowledge of this area. It's not again  rocket science to make the application here. We want to spend most of our time  with arguments in favor of protectionism, but anyway, the basic argument about  different polities is that the economy, the economy is that people interacting in  the division of labor economy knows no geographic territory. We have we have a world economy, regardless of political territories. The economy would extend  throughout the world, and therefore it follows from that that if we can extend the  economy throughout the world, one one system of economic calculation and  entrepreneurial, you know, decision making in production and the self selection  process, right? If it could be extended to the whole world, then we'd get the  benefits that we've been talking about, right, across the whole world for, for that  we've been talking about just as implicitly as one single political territory. So the  best policy for all all political territories is to adopt free and open trade, right? So  that doesn't seem like too much of a stretch of our theory to to cover that case,  because all we have to do is recognize that the regardless of political  interference, there's just one world economy, right? We're all integrated into the  same economy, or will be, you know, unless the state coercion prevents us  altogether. We would just do this, so we would we would integrate the Chinese  into our production, in the division of labor and our consumption and the 

Malaysians and the right and the Germans and and so on and so forth. Okay, so so that so that again is not hopefully that just seems straightforward application  of our previous case and but now we get to the case at hand, right? The case of  

that we need to pursue, which is, what if we have a world though that's  configured in different polities, where not every government of every other  political territory accepts free trade? Then what do we do? Then what's the best  policy, right? What what if what if the what if the Chinese put barriers to trade  between Americans and Chinese, or you know vice versa? What if the  Americans put up barriers to the Chinese to trade with other Americans? What if what if that happens? What then would be the best policy for for a given state,  given that other states are interfering with free trade, you know, among among  the citizens of their territory and the citizens of this country. Okay, well, again,  we're not going to spend much time with this. Hopefully, again, you can see that  this is a fairly straightforward application of our previous discussion. The best  policy for any, economically speaking, the best policy for any state over one  territory in a world of states that are interfering with free trade is to have free  trade, right? And again, the the argument is very straightforward. It's just that  okay, so if the Chinese government is interfering with, let's say, American sales  of automobiles in China by having tariffs on, you know, cars that are imported  from the U.S. And this this lowers our standard of living to some degree, right?  As we talked about before, anytime the state interferes, it reduces the extension  of the division of labor and makes us physically less productive, less efficient,  and therefore standards of living are lower. It doesn't help citizens of the country  being affected by this if its state then does the same thing, lowering standards of living again for, you know, erects its own trade barriers. Let's say against the  Chinese. And then, you know, in another area like agriculture, we get this  disillusion of the division of labor even further. So, if you know one one person  comes along and cuts off your right hand, it's not a good policy to cut off your left in response, right? I mean that. Okay, so this is the this is the basic argument.  And again, there are nuances to this that we won't go into, it just seems like a  pretty straightforward application of of the basic argument for the market  economy that we've developed throughout the week. And by the way, let me just reiterate that if a person can't accept this, if they have some sort of nativist bias,  or you know their nationalist prejudice, or whatever it is. It's always helpful to  use this reductio ad absurdum on them. Well, okay. So if you think it's a really  good idea for the state to erect barriers to trade between the you know the evil  Chinese because they're they're evil and they're taking over or whatever. Then  why don't we erect barriers? Why isn't it good to erect barriers? Good for us  Americans to erect barriers between ourselves, right? Why why don't why  doesn't Pennsylvania secede from the union and erect barriers with everyone?  Or if if Washington erected barriers between trade of people in Pennsylvania  and California. We wouldn't think it a good idea for the Pennsylvanians then to 

erect more barriers to trade with people in Ohio, right? That that just doesn't. So  hopefully the logic of the of the case becomes exposed when you do this kind of thought experiment. Okay, so now let's move to arguments for protection, and  here let's just, for clarity, let's just list out the categories of what what we'll call  protectionist policies. So protectionist policy, the state in one political territory,  like so, the federal government in the U.S. would coercively interfere with market activity between its citizens and citizens of other political territories, right? And  and typically, this literature is divided into barriers of the movement of goods and services, so they're you know like tariffs and quotas and so on and so forth. So,  so the American government erects sanctions for trade with Iranians. Right? It's  illegal now for Americans to sell to Iranians, or you know, and they would be  thrown in jail for doing this sort of thing. So, so that's one kind of a protectionist  policy, and then the other would be capital controls, right? The governments  can, and this is just a kind of arbitrary distinction, right? We it's useful just for the purpose of doing analytical work, but it's not like a logically necessary distinction between the two, but they're but then they're capital controls. So the Greek  government right now won't permit people to you know move funding out of the  country. In fact, they won't even let them take their funding out of banks. Right.  So there could be there could be that kind of a that could be a protectionist  element. There could be a protectionist impulse behind that sort of a thing. So  their their trade barriers and their capital controls. These are the that that's how  the literature divides the different types of protectionist policies. Okay. So with all that as background, let's jump into some of these. Let's start with mercantilism.  Most of you know that the mercantilists were the first, well, at least the Western  European sort of systematic protectionist policies, and this began with the with  the Spanish in the 16th century, and you remember the history here: the  Spanish conquered Mexico, what's now Mexico, right? And they enslaved the  natives and put them to work in the gold and silver mines, extracted the gold  and silver, minted it into coins, and then ship the coins back to Spain, and this  led to a huge, you know, largess for the Spanish government. They were  running this production system, right? So the the the money would come into  Spain, and they they bought, you know, they funded the big armada and all this,  all these lavish expenditures for the crown and and what have you, and all the  other all the other governments of Europe, who and they were moving.  Remember into this period of what we call royal absolutism, right? Strong  central governments wanted to mimic this. Well, they. It was very hard to mimic  it in the same way that the Spanish had done by conquering some territory  where there was gold mines, you know, and then enslaving people and  producing gold. You know, they tried some of that, but it didn't really pan out very well. So, so they thought, well, you know, maybe there are other ways in which  we can arrange our interaction. You know, the interaction internationally, the  economic activity internationally, so that money flows into our country, and then 

we would get the benefits, just like the Spanish, right? We would get these  benefits. That's how they were thinking about this, right? And so, so that's what  they began to do. They they they would subsidize exports, and they would tax  imports and try to create a imbalance in trade, an artificial imbalance in trade.  So that that was really maybe the first prominent in Western civilization, at least  the first prominent use of protectionist measures as we've defined them. Okay,  well, the the classical economists were up to the task of criticizing this. In fact,  just the work of David Hume was sufficient to smash all of this, right? And Hume  pointed out the following had the following arguments against this. First was his  famous price specie flow mechanism, where he pointed out, wait a minute, think about this. This is great. This is a great economic mind at work, right? He's  thinking like an economist. He's saying, okay, you do this, and then that causes  this effect, and then that effect causes this next effect, and there's a whole chain of events put into motion by what by this policy, so you create this policy that  artificially stimulates the inflow of money, and remember David Hume is writing  in a period where there was a universal money, a worldwide money. So gold and silver were the worldwide monies, right? So so we didn't have distinct monetary  regimes in different countries like we do today, different fiat monies. And so,  okay, so all this money, all this money flows out of one country and into your  country, and then the then the question is what happens next. Well, what  happens next is prices are bid up in your country, right? And prices are bid down in the country where the money is flowing out, but that means that your exports  become more expensive, and imports cheaper, and so the the the policy is  reversed; it's self-reversing, and so it's just so it only works temporarily to do  this, and then and then people will will reequilibrate, and so the price specie flow mechanism a brilliant response right to this to this policy. He also, as an adjunct  to this, he pointed out that no social benefit accrues by having more money. Any  amount of money can perform all of the exchanges that people want to perform  in society. So there's no social benefit. It doesn't enhance the medium of  exchange function of money to have more of it. It just means that prices will be  higher, and if we have less of it, prices will be lower. But we can make all the  exchanges that we want to make, regardless. And so you see what he's doing,  right? He's saying, therefore, since there's no social benefit here, there's only  benefit to certain groups at the expense of other groups. Right? What the money inflow does, what money inflation does, is create wealth transfers. And so then  you can ask the question: Who gets this money first, and and you know who's  benefiting the state and its you know who who benefited in Spain when the  money came in, and the answer is the Spanish crown, and then the producers  who catered to their demands for things, the shipbuilders who built the armada,  and you know tapestry weavers who made the tapestries in their castles, and so on. They they all benefited, but but then the other people were harmed, right?  We're just shifting wealth, since since having more money doesn't create wealth,

it just it just makes the price structure move up and down. Well, up if we have  more money, and down if we have less. So again, an excellent response. And  then finally, the classical economists also pointed out that the balance of  payments accounts upon which this policy depends, you know, creating a net  inflow, the merchandise trade surplus, in the balance of payments accounts.  They pointed out that really these balance of payments accounts are not  fundamental to economic activity. They're they're they're really just sort of  ancillary to that. So let's take a minute to look at this. The balance of payments  come calculations come about in the following fashion. So we could do this for  any person or any group of people. We could calculate the balance of payments. So it would go in the following way: a person has goods and services to sell to  other people, and so he exports these things to other people, and then and then  he gets paid. He gets paid in money. Then he takes the money and he does one of these four things, right? He can buy goods and services from other people.  He would be importing the goods from them then, or he could buy real assets  from other people, or he could buy financial assets from other people, right?  Claims to the value of the assets, or he could just hold the money. So these are  the options that any person has, or group of people have, when they when they  participate in the market, they sell things in the market, then they get funding,  and then they buy things from other people, and so on. And if we want to keep  track of the summary of this, it's quite obvious that these four options exhaust  the logical possibilities, right? So that's why this is called a balance of payments. So if we add up the four, the sums of the four, I'll give you a numeric example in  a minute. But if we add up the the sum of what the person does with the income  that they earn from selling things into these four categories, it must add up to  their income. Right. That's why it's called the balance of payments. So it always  balances, right? That's a critical feature of this. Okay, so here's what we would  then say as we think about the logic of this, the meaning of the balance of  payments accounts. First of all, is to point out the balance of payments accounts are not a form of economic calculation. They're not an aid to decision making  about what to do. Let me just give you again a reductio ad absurdum example. I  run a huge balance of payment deficit with Amazon. I import everything from  them, all the goods that come to me, and I just pay with money. I export no  goods or services to them whatsoever, I just pay in money. There's a huge  balance of payments surplus. Now, that that doesn't the fact that I run this  balance of payments surplus with them doesn't enter into my decision to buy  from them at all. Right? I never think, oh, you know, I better not buy from  Amazon today because I'll have a balance of payments. You know, I'll increase  my balance of payments surplus. This might injure my my you know situation  somehow. Now, of course, I might say, look, I don't have enough money to you  know that, but that's different, right? That's a different. I don't need balance of  payments to know that. I can I can see that just on my checking account ledger, 

you know, my bank balance. Okay, so that's right. So we can see this. You know, to give you to extend the example, I run a huge balance of payment surplus with Grove City College, where I work. I export my services to them. I don't import  any goods from them at all. Hardly any. Right? Buy a sweater at the bookstore  or something, but and they and they just pay me money. So and I don't say, oh  hurrah, you know this is wonderful. I'm going to keep doing this because it's a  balance because money is flowing in. You know it's a balance of payments. No, I do it because I just have a preference for this, right? I don't need to know about  my balance of payments to make a decision as to whether or not to sell my labor services to Grove City College. I don't need the balance of payments. The  balance of payments is just a ledger account. I'm not saying the balance of  payments is meaningless. I'm just saying I don't need to know it for making  economic decisions. I can keep track of my the decisions that I've made in the  past. I keep track of with the balance of payments. You see, that's it's a different  thing, right? I don't need to, you know, with with economic calculation, what  we're doing is Joe Salerno explained, is appraisement, right? We're using the  accounts to make anticipations of the future, so we can act efficiently into the  future. But balance of payments, I don't I don't need to, I don't make any  expectations about the balance of payments in order to act efficiently into the  future. I just say, you know, it'd be better for me to work overtime, get a little bit  more cash because I've got this, you know, preference for, for you know, making this transaction. I have this anticipated use for the cash or whatever. I don't need to know anything about my balance. I don't need to say, oh, I need to increase  my surplus with Grove City College. You know that's just superfluous. I'm just,  I'm just sort of keeping a ledger account when I do this, and there may be some  reason for me to do this, but again, it's not essential for my decision making. I  can dispense with it. Okay, so let's. I'll just throw up real quickly this example.  Spend too much time with this, but this is a nice numeric example of what the  balance payments accounts would look like for one country in a in a year. Now,  notice they they have a merchandise deficit, right? They're importing more than  they're exporting. This is the merchandise trade. Balance. This is what the  protectionists tend to worry about. We'll see why in a minute. We'll see their  argument in a minute. And services. They're also running a deficit in services.  They're importing more than they're exporting, right? So this is a debit item and  a credit item. And then the current account would also include invest investment  income that that comes from investments that one has made, foreign  investments, and then the income comes. That's part of the what's called the  current account, and unilateral receipts are gifts. So if I had a Chinese friend  and this friend you know just sent me a Christmas bonus or something, you  know that would be a unilateral receipt. And then the capital account will always  balance out the current account, but it has to because these are the offsetting  money flows to the goods flows that are in the current account. So here, there 

are long-term borrowings, short-term borrowings. There's the movement of  money, and the same way we can lend right long-term, short-term, and then the  movement of money, and so everything-the the sum of these always has to  balance for every for any two trading partners or any two groups of people that  are trading between themselves, you know, let alone any particular group of  people and everybody else in the world. They're just again ledger accounts.  Now, what they do-the one thing that these balance of payments accounts do  tell us that we might not know otherwise-is-is the kind of pattern of people's  preferences. We sort of see in the aggregate what people's preferences are. We can see in this example, for to take this case, that the foreigner, whoever this is  against, the foreign trading partners value the goods produced by these people  more highly than these people value the goods produced by the foreigners.  That's why they export, you know, less than they import, right? And and the  same thing about the capital account. These people have higher time  preferences, right? Because the foreigners are lending to them. Okay, so we can see that in the balance of payment. We could see that, by the way, with other  statistics. We don't need balance of payments to know this. We could just look  directly at lending and borrowing, or directly at you know purchases of goods  and so on, but but okay. So the balance of payments are useful in that limited  sense. Okay, now let's go on to the to the argument about the merchandise  trade imbalance that protectionists offer, and this is that the protectionism can  boost domestic employment, and it works again by subsidizing exports. So, if  the if the government subsidizes exports, then it'll stimulate production of the  exports, and we'll sell more to the foreigners, and then we can tax the imports,  and that that also has the benefit of stimulating domestic production because  now domestic consumers will have to turn to domestic producers. So we tax the  import. You know, we tax the importation of Japanese automobiles, and that  would provide employment in Detroit. That's the idea. And notice again, we're  running a big budget surplus. When we do this. We're increasing the budget  surplus, the merchandise trade imbalance, and the argument here is not. It's not the the mercantilist argument that we want money flowing in. The argument here is this helps employment. So it's a different goal that the protectionist has in this  in this line of argument. Okay. So what does economics say about this? Again,  the classical economists were up to the task of debunking this claim. Adam  Smith, in his law of absolute advantage, pointed out that you know if we do this,  if we if we if we have a free trade, then the division of labor will arrange an  efficient use of all the different workers, and so any interference of the state in  this would mean that we we're replacing an an efficient foreign producer with an  inefficient domestic producer, and this is not socially beneficial, right? So, so  Adam Smith was up to the task of showing the basic error here. Ricardo went  one step beyond. Remember, in the idea of comparative advantage, he said, he  said this would would always be the case for any two countries trading. It would 

always be the case, in other words, that one is efficient in one thing, that they're  selling to the other country, and then the the first country is more efficient in  something else, and that's why they're selling it to the to the second country. And therefore, it couldn't be the case, in other words, that one country is more  efficient in everything, and therefore, it would be a good thing to you know keep  out the inefficient producers from foreign lands. He said he can't. That can't be  the case. One must be efficient in one thing, and the other efficient in something  else. And if they're already engaged in a free voluntary trade of these goods,  then that's evidence of who's efficient in what. And so, if we interfere with this,  again, we're all we're really doing is replacing efficient producers with inefficient  ones, we're replacing efficient foreign producers with inefficient domestic  producers. We're sheltering consumers from the efficiency of the Japanese auto  manufacturers in order to subsidize the inefficient Detroit manufacturers. And  then finally, Mises comes in with the law of association, also on this point, saying that in a market economy, everyone can be employed. It's just a matter of the  wage, right? The less productive will have to accept lower wages, but they can  be employed precisely because they're willing to accept lower wages. They can  out compete other people who are more productive, who command higher  wages to do the same job, and therefore protectionism doesn't change the total  amount of employment. It can't. All it does is shift employment again from  efficient to inefficient producers. Just the opposite of what the market is doing.  Shifting market is always shifting employment from inefficient to efficient. So, so  again, there's no there's no social justification for this. It's obviously just special  interests at work. Okay, so now let's go on to the infant industry argument. This  was famously offered by Alexander Hamilton. You can boo and hiss if you like at  this point, but here the argument is that there could be you know comparative  advantage. All well and good. This is great, and so on and so forth. But there  might it might just be the case that there's a kind of dynamic that the market  wouldn't account for, there might be industry that's just getting started in the U.S. and maybe if it had a little bit of help, subsidized help, it could grow into a  comparative advantage, right? But if we we don't give it this artificial help, the  the foreign the evil foreign competitor, you know, will kind of strangle it in its in  the crib. That's the you know the infant industry, right? That's kind of the polemic picture that Hamilton's trying to paint. Okay. Well, the economist's response to  this, of course, is first of all that only entrepreneurs are in a position to ascertain  the future with respect to different production processes, they're the best at  determining which industries will, in fact, develop and which won't. So the infant  industry argument, remember, requires it assumes that after a period of  nurturing the infant through subsidies, that the infant will in fact grow into a  mature adult industry. Well, how does the how do government officials know  this? Why do why would we think that they're good at predicting this, right? So  so since the argument relies on anticipating the future, the one proper response 

by economists is well, that's the job of the entrepreneur-that's what  entrepreneurs do. Now, on this other point, some retort to this argument by  saying, "Well, well, that's all well and good, but but part of the problem is, or the  remaining problem is, that the the entrepreneurs will be too reticent to funnel  capital funding. They won't capitalize the infant just because it's too risky or  whatever it is. And so the government doesn't have to be concerned about risk,  right? Not be concerned about earning return on their investment, so they can  just tax us and provide the capital funding. So there, so there's a problem of  capital funding. The argument shifts to capital funding, but here again, just  standard economics has the answer to this. It's just not true that capital funding  is inadequate in the market. The capital markets are enormous. The latest figure that I I could find for the size of world capital markets comes from 2011, so it's a  little bit dated, but the total size of all all financial markets, all capital markets,  bond markets, stock markets, and so on, 212 trillion dollars in 2011. Now, the  whole U.S. economy is only 17 trillion, so so you could easily right 10 times  over. You can fund the entire U.S. economy from the world capital markets. Of  course, you could fund some industry then, right? And that's just so. It's just a  silly, silly example, that or argument that people give because they they. Rely on our ignorance about the size of world capital markets. It's just a question of  whether your idea for the investable project is appealing to the capitalists or not,  right? Whether you can persuade them to back you or not. There's plenty of  funding, so we again, this is not a barrier. That's the job of the capitalists and the entrepreneurs to allocate this funding. So if you have a good idea for you know  a startup, then you can get the funding. By the way, I'm I'm glad to say that this  argument was a lot harder to make for people to accept, say 10 or 20 years ago. But today, you guys, right? You have no problem with this, right? Crowdfunding  and all this. You know, we're so as as we as society becomes wealthier and  wealthier. These arguments for protectionism become less and less persuasive,  right? It just really, you know, we can't get funding. That just seems like you're  living in a different world. You know, hope you know most people, most young  people, recognize right away that no, no, that's not that's really not a problem.  And we can we can point to numerous examples of you know infant industries  who obtained funding. One of my thing favorite examples is Honda. So the  Honda company started as a little motorcycle company, you know, in the 1950  after the war, and they the Japanese economy was of course heavily cartelized.  Right, so the Japanese didn't favor Honda as an auto producer; they favored  Toyota and you know connected the cartelized industry. And Honda fought all  that and became you know the company they are today, right? A very prominent  auto company. They got the funding, even though the government was against  them doing this. So it's certainly possible for other companies to do that. You  may remember that Apple Inc. was just was a dying company until Steve Jobs  came back the second time, right? They got plenty of funding. It's just a matter 

of do you have good ideas that that people will fund? Okay, so that's not again  too too difficult. Well, how about the level playing field? This argument is often  Brought up, the protection can level the playing field, and that's what we need,  you know, in order to provide good good economic outcomes. And despite what  

the Donald says, you know, the economy is not a game. You know, it's not it's  not a game show or a game where you know one one person is you know  negotiating and then better than another person. I'm not saying there's no  negotiating in economic life, but the economy itself is not a game. Right? It's  social cooperation. It's not a game, and and so it has none of the characteristics  of a game in that in that respect. Right? We're not playing a game. We're not out competing. You know, it's not that Donald Trump can can be a better negotiator  against the Germans or whatever and get the better deals, or the Chinese or  whatever he's saying. That's not really the nature of of the economy, and so we  don't really have to worry about the. I mean, the the whole notion of a level  playing field in playing a game sort of dissolves. It's just not applicable to to  economic activity itself. And then again, we would point out this other this other  main point that we made before-that even if, even if one you know dispenses  with the game metaphor and just says, "Well, but they're still engaged in helping  their own industries, then we're just back to the original argument we talked  about before. Yeah, it's true that if if other governments engage in protectionism  to help their domestic industries, and they injure then people in both political  territories. It's not a good policy to follow that up by injuring our people even  more by setting up additional protectionist policies. Right? That that just doesn't  even make sense. The the the whole argument rests upon the claim that the  protectionist policies are helping us domestically. But you know, okay. So if  they're not, then this argument again sort of washes away. By the way, let me  also deal with an ancillary point. I don't have it on the slide, but some people  say, kind of the ultimate expression of this unfairness in trade, you know, not  playing the game fairly, is dumping. So, what happens if foreigners dump  products on our economy? Isn't that bad? Shouldn't we be wary of this, right?  You know, so if the Japanese just gave us their cars for $1,000 or something,  then you know shouldn't that concern us? Wouldn't we want to you know stop  that? Or and aside from the obvious point that at least in the short run this would be a good thing, right, for for our consumers, the the more general point really is this one, that it's really. The job, once again, of entrepreneurs to anticipate  exactly what the future configuration of production and consumption will look like in any market situation, in any situation whatsoever, no matter how the states  are interfering with it. So, in other words, it would be entrepreneurs producing  automobiles in the U.S. who would say, hmm, you know, here we've got these  competitors, and they're they're they're dumping these products, and I think  they're just going to do this temporarily, and then they're going to raise their  prices. You know, if we all go out of the industry, you know, in the later, it's up to 

the entrepreneurs to to decide that, and then they would say, okay, if I think  they're going to do this in five years, I'm just going to hold on to my factory. I'll  just mothball it, and and when they stop dumping, I'll I'll be in a position then to  take the market. We we don't need the state right to to sort of counteract  pernicious dumping. This is just one other entrepreneurial problem that the  entrepreneurs solve. This happens all the time in markets, right? People are  competing in various ways, and the entrepreneurs are adjusting. It's no big deal. It's it's not theoretically different than the regular problem of entrepreneurship.  Okay, how about insulation from booms and busts? What about that? You know,  again, if we have a world where other countries are have monetary inflation and  credit expansion, then don't we need protectionism, capital controls, and so on  to keep that from spreading to our country? Wouldn't that be a justification for  protection? But here again, we can see, hopefully, fairly readily that if we had a  complete market economy in one country, we had a gold standard or some  commodity money, and 100% reserve banking. Then that country would be, in  fact, insulated from fiat inflation of other countries. What would happen, of  course, is the economic calculation within this country that has hard money  would be unimpaired. They would just continue to engage in economic  calculation with the sound money, and the foreign money would would devalue.  So, so it isn't obvious that there would be any transmission of this of this boom  process to the sound money country. There'd be no lowering of the interest rate  or credit expansion. You could have 100% reserve banking, right? So, you know, there could. I'm not saying that there would be no interconnectedness that might lead to certain malinvestments, but there's no systematic boom, bust process.  Again, it's an entrepreneurial question as to whether or not. Let's say we had a  mining operation in the sound money country, and mining prices, you know,  commodity prices go way up because of the boom and the bust, and the  adjustment isn't fully accounted for in the movement of exchange rates.  Presumably, it would be, but let's just assume, for the sake of argument, it's not.  And so, the the commodity price is elevated above the cost of production. Then  again, it's just an entrepreneurial question as to whether or not the  entrepreneurs who are mining in the sound money country expand, you know,  over expand or not. It's just it's just it reduces down to the same old  entrepreneurial question, because the interest rates are not being affected in the in the sound money country. They're not involved in a boom and a bust. They're  just involved in judging whether or not this this temporary increase in the price of the commodity is sustainable, and and that they can do. They're not being sort  of misled into the malinvestment process. Okay, so that's that's the argument  about booms and busts. How about national security? Don't we need  protectionism to keep us safe? In you know, to make sure we have trading  partners, reliable trading partners, to keep us safe from you know, again, a  country say Japan would sell to us certain components for military use, and then

they would be-it would be this sneaky policy that they have of getting us to  depend upon them, and then they would cut us off, and the next day they  declare war, and we'd be cut short, right, with no no means of, you know,  repairing our equipment or whatever because we become dependent upon  them. Well, again, the standard response to this, the first bullet point, of course,  standard response to this is free trade means that we have open trade with all  trading partners, right? So we can find another trading partner. That's the  advantage of free trade. We don't we don't become completely dependent on  one supplier. We we could we could have a supplier in Norway or a supplier in  you know wherever China, who would sell us the same or a compatible product.  But beyond that, again, this is an entrepreneurial question. It seems to me. In  other words, in in a perfectly free economy, if entrepreneurs judge, they're the  ones who have to judge whether or not they become too dependent on one  particular supplier. They do this all the time. It's just a normal business activity of theirs, right? So it wouldn't be any different if they if this was a war, you know,  potential war situation. It would be exactly the same conceptually. It's exactly the same, right? They would just have to say, "Do I think that this producer is  reliable or unreliable? Should I produce this good myself? You know, what would the cost structure be like? Should I find another trading partner in another  country to sell me this good, and so on and so forth? So again, this doesn't  seem to present any particular problem. By the way, this last point I just want to  make as a kind of ancillary, you know. If the if the government were really, really, really concerned about national security, do you think they would waste all of the money that and resources that they waste on national defense? I mean, if if the  Huns were really at the door, do you think that they would have all these  boondoggle projects? You probably read about the F 35 fighter jet that doesn't  fight. You know, they can't doesn't fly right or whatever. It's the most expensive  weapon system ever in history. You think they would do this if the like the you  know the Soviet hordes were pouring down from Canada upon us? No, this is  just a gigantic scam, right? Of course, they're not interested in national defense.  I mean, sort of vaguely interested in national defense, but they're they're really  interested in pork because that's what they're producing is pork, so so yeah,  really we should be concerned about this, about the free market not providing us with this. Okay, well let's do this. This well I'm sort of running out of time. Let me  skip this one and go to the one that's more common. This one is the idea that  free trade, you know, makes some people better off, but not everybody. Free  trade wouldn't leave everybody better off. That would be the claim. You know,  let's say if we have a configuration of protection and we remove the barriers,  then some people would wind up with lower incomes and so on. But remember,  laissez-faire means that each person benefits to the extent that they benefit  others. That's what the principle is. We we earn income to the extent that we  serve others' satisfactions. That's the principle behind it. And over time, of 

course, laissez-faire does raise the material standards of living of everyone. And again, think of this in comparison to the state. Protectionism also harms some  people and benefits others, right? So, so it's not. So, so, so why is that better?  You see the logical problem. And then, in the long run, of course, protectionism  actually injures everyone's standard of living in the long run. If it's extended far  enough, right? It it would suppress our standards of living in the long run, all  around, and so that doesn't seem like a better option than than laissez-faire. And then finally, let me end with this one. You hear this sometimes, right? That the  the free trade or the free market would not obtain for us our non-material goals,  but once again, we have to do a comparative analysis, don't we? If we have  non-material goals to attain, let's say, for example, we we have a group of  Christians and they want to evangelize people. Do they have this like a spiritual  goal, or they want to give charity to the poor, or whatever it is? Can't we just  organize in voluntary associations to provide these non-material goals? Do we  really need the state to coerce us in order to provide this non-material goal?  Again, it doesn't seem like that's a very correct general principle. It seems that  again, if the state coerces us to provide non-material goals. What they're really  doing is just forcing certain people who don't agree with those goals to fund  them, which doesn't happen in in the free society. Here we fund these voluntary  associations voluntarily. So so again, it doesn't seem like the state's intervention  here is very justifiable. All right. At this point, I'll I'll stop. Thanks. 



Last modified: Wednesday, September 2, 2026, 8:31 AM