Wednesday, April 02, 2008

Free trade is a moral stance

Brookesnews has a great piece that sums up why free and voluntary exchanges are so much more moral and peaceful than government involvement.

This paragraph summarises a strong point for free trade:

Under free market conditions everyone benefits who is party to an exchange. It ought to be remembered that it cannot be any other way when all transactions are voluntary. Of course, there have been many occasions when all of us have regretted a particular exchange, either because we had insufficient foresight, acted on impulse, or an unexpected change to our finances altered our preferences, etc. But markets exist because of human imperfections, not despite them. If humans had perfect foresight markets would literally disappear.

This is indeed an excellent point to consider. It is precisely because of imperfections in human knowledge, the fact that we cannot predict the future perfectly and will be prone to error, that shows why a small elite group of humans (government) are not at all well equipped to make decisions and plan industries for the entire economy.

Human's need flexibility and dynamics, not a rigid and centralised economy. Ludwig von Mises was ahead of his time in describing why communism as a system was totally screwed and would inevitably collapse. If individuals can't control their own labor, their property, and they can't communicate information about supply and demand to each other by setting prices, then they are going to have problems.

Further into the article, more justification is given:

People often complain of retrenchments caused by changes in demand or improvements in technology. Understandable as this feeling is, any government that yielded to it would severely damage living standards. Unfortunately the impression is frequently given that everyone immediately benefits from changed market conditions because exchange is voluntary. That holds true for those engaged in the exchange. It is equally true that the changed conditions might immediately worsen someone else’s condition by rendering him unemployed.

What has to be stressed is that nearly everyone benefits in the longer term. Obviously, for example, candlestick makers were not that happy with the advent of gas and kerosene lighting. But even they benefited in the longer run. The process by which this happens is rarely self-evident. If the demand for cars, for example, rose to the extent to that car companies needed to purchase additional factors of production this would mean that some factors are now under priced while others are overpriced in relation to the value of their products.

This is another way of saying that the car companies are now making profits while some other companies are making losses. These companies now use their profits to attract factors, including labour and land, away from those lines of production in which they are under priced. Now profits and losses are vital signals that help direct resource to where they are most valued by consumers.

Clearly everybody benefits: the factor owners are paid more and the consumers get more cars. And it was the shift in consumer demand that brought about this situation. It is possible that the goods that were produced by the loss-making companies might rise in price if production is curtailed because the complementary factors used in their production have been bidden away.