Wednesday, December 29, 2021
The Welfare and Peace Myths of Free Trade Jeffrey Harrod
Extract from “Nationism” blog-essay (forthcoming)
Explanation Part of my forthcoming blog essay which launches the concept of “Nationism” concerns the manner in which contemporary discourses seek to marginalize the nation-state, reduce its powers for organizing and managing life for its citizens and reduce respect for the differences in religion, ethnicity, race and culture which are at the base of the differences between the nearly 200 nation-states of the world.
In the main essay I examine many practices and policies which attempt to effectively constrain the nation-state in important areas of democratic governance. One of these is the ideology of free trade which is libertarian in essence and favours those with power over international trade which was, in the past merchants, and is now multinational corporations both private and state. Multinational corporations now control directly and indirectly at least 75 percent of world trade.
The material relationship of trade in goods produces national and international inequalities and, in many cases, degrades environments. This extract traces how these negative effects have been justified by claiming that trade benefits all and is necessary for peace.
This is not intended as complete critique of international trade theory and practice. I have already published such a critique in Lecture 10: The Ricardian Myth and Lecture 11: Trade as Power in my 16-lecture online course: Global Political Economy: How the World Works at http://www.jeffreyharrod.eu/avcourse.html
The slides for these lectures are available on Google Slides at https://docs.google.com/presentation/u/0/?authuser
The ideology of International Trade as a source of Anti-Nationism
In the past development writing on trade there were two sets of scholars, thinkers and writers who were concerned to justify the inequities produced by international trade.
Trade-benefits-all scholars: The first group of writers observed in general the wealth that could be generated by international trade.
So, for example, Ibd Khaldun an Arab Muslim writer in the 1400s said “Through foreign trade, people's satisfaction, merchants’ profit and countries wealth are all increased" and argued from thought and logic rather than observation that international merchants would always buy goods which would serve both the rich and the poor. In this way all benefited from international trade. That he had to say this raises the suspicion that already there were persons who were opposed to the wealth of the merchant traders.
Khaldun can be seen as a typical proponent of international trade, he was internationally travelled, his family had colonial property in Spain and he believed he could speak universally as he wrote a “History of the World”. Maybe he set the scene for economists some 400 years later such as Ricardo and Smith when they started their promotion of free trade. They claimed that the benefits from international trade accrued to “nations”. Ricardo, who was born into a Jewish banking family and was a very rich and successful London stock-broker, devised a theory which proposed that whole populations in trading nations would benefit from specialization in trade. This was a sophisticated justification of Khaldun’s observations and as it was perhaps the most important step in the process by which international trade became sacrosanct and opposers to it heretics.
Ricardo’s theory has been revealed as fundamentally flawed when applied to the real world but in this essay the major flaw to be signaled is that, with Khaldun, it was proposed that the whole population of a nation secured benefits from trade. In fact, there were always wide disparities between winners and losers in international trade and those who benefited disproportionally and on a massive scale were the merchants.
With no theory or local knowledge of value merchants were able to charge what they wanted for goods secured abroad. In two massive trading nations — the Netherlands and England — the merchant class prospered and the rest of the population continued in abject poverty unless they were servants of the merchants.
Merchants were effective controllers of international trade whether individual, or united into corporations. eventually converted any real “exchange of goods” into a devastating colonialism. The colonialism then became a worldwide system of forced or coerced extraction from people, in the case of slaves, and goods in the case of tropical agricultural products which were mainly of an addictive nature and feed to the citizens of importing nations.
This category of scholars, however, at least made material gains for the whole nation their main focus. They did permit themselves musing on the effects of commerce – Smith said that it “ought naturally” to create friendship amongst nations and Ricardo that “perfectly free” commerce would create a “universal society of nations throughout the civilized world”. They did not, however, move much beyond the proposition that trade was to be promoted as it benefited all. Marx, a contemporary economist at the time of Ricardo, also supported free trade but cynically because he believed it would help cause the pauperization of the mass which in turn would hasten the communist revolution. He may have been right about the former but wrong on the latter. The trading system did indeed create dramatic dislocations, poverty and conflict and increased the gap between the rich (merchants) and the poor. The simple declaration that trade was beneficial to all was apparently not enough to sustain its political popularity. Then, as now, the poor and lower incomes protested about the dislocations and the dramatic loss of income that trade created.
The Trade-is-necessary-for-Peace Scholars: This situation of the unpopularity of trade and social and income disparity it created could be observed most clearly in the United Kingdom and the Netherlands both trading and imperial nations. The opposition to international trade meant that something more was needed to justify the continuation of the established trading system and its rich beneficiaries. The answer was to attach to the material arguments that trade had some more vague and mystical benefits such as peace and freedom. The idea of trade as a base of internationalism and as a solution to peace was derived from an unproven assumption that trade brought different cultures and races into contact with each other and that would mean they would have greater understanding and respect. It was an idea, or musing, which occurred to those who were usually rich, traveled and colonialists.
This idea emerged around 1600 in the so-called enlightenment which corresponded with European trade and extraction from the rest of the world and which required a rationale and excuse. It maybe also that the aristocracies of Europe were under pressure from the decline of feudalism and could already see that their future wealth and status would arise from international merchant activities. Such perhaps was the case of Montesquieu considered by some to be one of the first to propose trade as benign internationalism,. Montesquieu was a French aristocrat able to spend his life in travel and writing and one of the first writers on comparative political regimes. Montesquieu then opined in 1748 that “commerce is a cure for the most destructive prejudices” and “peace is the natural effect of trade…two nations who traffic with each other become reciprocally dependent for, if one has an interest in buying, the other has an interest in selling and thus their union is founded on their mutual necessities”. He went further "wherever the ways of man are gentle, there is commerce; and wherever there is commerce, there the ways of men are gentle". These remarks set the scene for viewing nations as people as in one nation “has an interest” and that there were “gentle ways” for the subsequent history of the discussion of trade. At the time of the publication of Montesquieu’s book the British and French East India companies were in the first of vicious battles over the potential trade from India while in Europe a war over the resources of Silesia was developing between Prussia and Austria which eventually lasted seven years. Throughout the world the colonial battles and wars were continuing so it is difficult to see where Montesquieu got his “mutually dependent nations” from let alone the “gentle” ways of men.
The reality of trade wars and conflicts including the slave colonial trade wars and the resistance to trade by the Chines and Japanese did not, however, prevent the idea of what became known as “gentle commerce” to be taken up by a string of philosophers and writers.
Typical of these was Emanual Kant who believed that “gentle commerce” would create peace among nations.
John Stuart Mill writing two years before Ricardo’s economic justification of trade, pulled out all the stops to praise the internationalist benefits of trade. He wrote in his book of 1848
But the economical advantages of commerce are surpassed in importance by those of its effects which are intellectual and moral…… Commercial adventurers from more advanced countries have generally been the first civilizers of barbarians. …. . It is commerce which is rapidly rendering war obsolete, by strengthening and multiplying the personal interests which are in natural opposition to it. And it may be said without exaggeration that the great extent and rapid increase of international trade, in being the principal guarantee of the peace of the world, is the great permanent security for the uninterrupted progress of the ideas, the institutions, and the character of the human race.
This has been the mantra of the supporter of free trade from the British Imperial Government in 1848 through to the creation of the World Trade Organisation in 1994. When Mill wrote his accolade to trade he was serving in India House and in charge of the relations between the British East India Company and the disparate Indian Rulers. It was a time of enormous and bloody conflicts in Asia in order to protect the East India Company, of financing the tea trade with opium exports to China of widespread child labour in the British export industry. In short, a time of the complete opposite to Mill’s “principal guarantee” of peace in the world. The conclusion must be that he defended the hand that directly or indirectly feed him with resort to quasi-religious postulates that the exchange of goods was a necessity for the peaceful future of humankind.
Despite the weakness of this idea and argument it has prevailed to the current day and is promoted by major trading nations and in particular European and USA multinational corporations as the successors to the state-owned companies. As before it is still popularly suspect and opposed. In 2008 the Director General of the World Trade Organisation (WTO), the international organisation devoted to free trade, admitted that citizens had no confidence in international trade when he said "I would only say that restoring citizens' confidence in trade requires governments to ensure that sound domestic policies are in place”.
There were others at the time who questioned this assumption and indeed of the material value of trade but their voices were drowned out by the power and wealth of those who were able to extract from the rest of the world. But as before this extraction has been based upon financial and sometimes military coercion and bolstered by claims of bonds of “friendship”. When the trading state’s power is unequal the dominate trading partners still, as in colonial times, oppose nationalist movements. When the trade relations are between more equal partners a more subtle anti-nationism is brought into play under the slogans that “protectionism has no place in a globalized world”, or the free movement of goods and finance is an essential for democracy and freedom. These ideas and demands were inherent in the liberalising policies of the World Bank and International Monetary Fund— the two organisations charged with preventing restraints on trade and finance.
The Mill belief that trade cements internationalism and peace between nations has been discredited but it is still promoted in its anti-nationist disguise through major powers, corporations and regional organisations.
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