Free Trade vs. Laissez-Faire: Markets and Republicanism

I am not a proponent of laissez-faire, but I do advocate free trade. Effective and beneficial market systems require a certain amount of government intervention. I believe, like F. A. Hayek and Hernando de Soto Polar, that government intervention should be non-arbitrary and designed to create rules and order that allow for rational economic planning. Markets only work if there is a system of law governing property and contracts and a system of courts, judges, or tribunals for arbitration and dispute resolution. De Soto has made the observation that “property rights is the precursor to addresses.” Enforcement of contracts is very difficult, if not impossible, without addresses. If you want to file a civil suit against someone that ripped you off, how are they going to summon the other party to court without an address to deliver the summons to? And how would you send the police after someone that robbed you without an address? So, government creates this framework for property and addresses that makes law-enforcement and adjudication possible. Furthermore, government creates the legal framework that allows corporations to issue shares, which allows businesses to get money to do what they do. All of these things that are basically necessary components of market systems are products of government. For markets to work efficiently, government must intervene but it must not intervene arbitrarily—that is, government intervention must follow predetermined rules that allow individuals to plan accordingly. The government must not have the authority to arbitrarily interfere in economic affairs.

The government must create money and regulate its value, as well as establish rules regarding property rights and legal standards for determining the validity of contracts. This is the bare minimum necessary for markets to function at all. Proponents of laissez-faire generally see this as the only function government ought to have. However, it must be remembered that there are such things as market failures. While markets are very efficient and the price mechanism does lead to the most efficient allocation of resources in most instances, sometimes market forces lead to results that are less than ideal. These market failures can usually be rectified by Pigouvian taxes or by other solutions that are analogous to Pigouvian taxes. A Pigouvian tax is a tax meant to disincentivize harmful behaviors.

The owners of industry under capitalism are motivated by profits. Their goal is to minimize their own costs and maximize their profits. Let's consider a company that produces aluminum. The process of producing aluminum creates several toxic byproducts. A company that produces aluminum can pay to properly dispose of those byproducts or it can save money by dumping them into a nearby river. Dumping it into the river is the cheapest option, so they do that. In this case, the government can simply lay out rules for proper disposal and ban them from dumping waste into the river. On the other hand, let's assume that the company in question also burns coal as part of their manufacturing process. The burning of coal creates sulfur dioxide, which creates acid rain when released into the air. As a result, increased acid rain destroys entire fields full of crops and damages forests. The company in question could use other energy sources instead of coal, but the profit motive encourages them to continue burning coal and creating acid rain. It is more expensive to do the environmentally-friendly alternative, which happens to be better for the community as a whole. The solution is to implement a Pigouvian tax, which penalizes the company for their environmentally-destructive behavior, thereby incentivizing them to change their ways. The company will then find that it is cheaper to use more eco-friendly means to produce their product. This is, by the way, essentially how the acid rain problem was solved in the United States. Sulfur dioxide emissions were reduced via a cap-and-trade system, which is analogous to, or functionally identical to, a Pigouvian tax on emissions.

All taxes create a disincentive to do the activity that results in being taxed. An income tax on wage-earners punishes workers. An income tax on the wealthy punishes excessive accumulation. A sales tax punishes exchange and creates a disincentive to trade. If you have a sales tax on gas, it increases the price and encourages people to drive less. If you tax tobacco, it encourages people to buy less of it. A tariff, a tax on imports or exports, creates a disincentive to international trade. You impose tariffs on nations that you don't want your people to trade with. Tariffs are generally regarded as acts of aggression. You impose tariffs on enemies, not allies. Allies have free trade agreements, whereas enemies and their allies are charged tariffs. There is also some truth in the saying attributed to Bastiat, “When goods do not cross borders, soldiers will.” If trade with another country comprises a large part of a nation's economic activities, a tariff penalizing trade with that country tends to make relations between the two nations worse and can lead to international conflict.

Free trade is generally in the best interest of all people. The more free trade there is, the more competition. Competition tends to force prices down, which is good for consumers. America buys products from China. America benefits because of the low prices. China benefits because they get U.S. dollars, a valuable commodity, in return for their products. It's a win-win scenario. In free trade, there does not necessarily have to be winners and losers. Trade takes place because both parties subjectively feel that they are better off after the transaction than before. If it did not benefit both sides, the trade wouldn't occur. Since free trade benefits both sides, a tariff that punishes free trade necessarily makes both sides worse off. Furthermore, tariffs that are imposed arbitrarily (against certain agents) rather than uniformly (against certain acts) are discriminatory and incompatible with the republican ideal of free trade.

My way of looking at markets is deeply informed by a republican conception of liberty, particularly as espoused by Philip Pettit. Liberty, to the republican, does not mean lack of interference but rather lack of domination. Freedom is not a lack of rules and social order. Lack of rules and social order is chaos. Freedom is simply the lack of arbitrary rules. Are the rules standard and uniform, such that people can plan around them, and are the people that are subject to those rules capable of contesting them through democratic means? If so, the rules are not necessarily an infringement on liberty. If a group of friends get together to play ball and reach consensus on the rules of the game, the imposition of rules does not infringe on anyone's liberty. This is the republican conception of liberty. No one is imposing arbitrary rules on anyone else. No one has the capacity to arbitrarily control another person. No one is dominated by anybody else, so everyone is still free in spite of the existence of rules. The liberal conception of liberty, on the other hand, says that freedom is a lack of interference. Consequently, any interference is an infringement upon liberty. Every law, every tax, and every rule restricts a person’s freedom according to the doctrine of liberalism. Thus, the logical extension of classical liberalism is American libertarianism, with its exaltation of laissez-faire. The libertarian says that government ought never to intervene in markets, whereas the republican says it ought to never arbitrarily intervene.

Absolute laissez-faire is an unattainable ideal and its proponents advocate an internally self-contradictory ideology. Markets always entail government interference. The government must intervene to create and enforce legal tender laws, contract law, property law, etc. This is why anarcho-capitalists, instead of actually pushing for the total abolition of government, have pushed for privatization of governmental functions (private money, private law, private courts, private police, etc.). According to the liberal advocates of laissez-faire, any interference or intervention constitutes an infringement upon liberty. Logically, then, even those acts which are necessary for establishing and preserving markets are incompatible with laissez-faire. Markets are incompatible with laissez-faire. Laissez-faire, as a free-market ideology, is logically self-defeating. True free trade or a truly free market, on the other hand, entails a government that does intervene but that does not do so arbitrarily. The government must create a whole system of rules and institutions within which, and around which, markets can freely organize.

Commenting on this Story will be automatically closed on September 26, 2018.