Dr. Friedman will speak this morning on “Free
Trade: Producer vs. Consumer” (applause) There’s a standard cliché which I am sure
you have all heard, that if you have two economists in one room you are bound to have at least
three opinions. (laughter) The subject I am going to talk about today,
however, is one subject with respect to which that is not true. With respect to the area
of international trade, with respect to the question of whether it is desirable for a
country to have free trade or to have tariffs and other restrictions on imports and exports,
in that particular area economists have spoken with almost one voice for some two hundred
years. Ever since the father of modern economics, Adam Smith, published his great book, The
Wealth of Nations, in 1776, the same year in which the Declaration of Independence was
issued in this country; ever since then the economics profession has been almost unanimous
on the subject of the desirability of free trade. Of course, complete unanimity is hardly
ever possible, and every once in a while there have been some deviations from the straight
and narrow path. Almost always those deviations have reflected not a disagreement with the
fundamental message of Adam Smith, not a disagreement that in the good world free trade would be
the best of all possible courses, but they have tended to reflect special circumstances
of the time. Perhaps the most famous such deviation was
by the most noted and some would say notorious of the modern economists, John Maynard Keynes,
the English economist who gave his name to the Keynesian Revolution. In 1931 in the course
of the depression, John Maynard Keynes who had been a free trader all his life came out
in some articles in Britain in favor departing from free trade and of introducing tariffs.
He did so not because he thought that was in and of itself the best policy, but because
he thought that the best policy was politically unfeasible. In his view, the right policy
for Britain at that time was to go off the gold standard, end a fixed exchange rate,
allow the pound sterling to be a free market currency whose price would be determined in
the market, as it now is, of course, in a world of floating exchange rates today. But
Keynes, an economist, made the political judgment that it was not politically feasible for Britain
to go off the gold standard. Tariffs are a step…are an alternative to devaluation.
After all, it comes roughly to the same thing. If, on the one hand, the price of the pound
sterling was changed from the four dollars and eighty some cents, which then was the
price, to let’s say four dollars, that would make British goods cheaper to foreigners;
it would make foreign goods more expensive to Britain. And in that way, it would redress
the problem of the balance of payments they were facing. That’s one way to do it and
the best way. But he thought that was politically infeasible
and it comes to the same thing, to introduce a tariff on imports and a subsidy to exports.
That’s an indirect and concealed form of devaluation. And so Keynes came out for that
concealed form. His political judgment was like that of many
economists, flawed. And about three weeks after he came out for a tariff on these grounds,
Britain went off the gold standard. I may say that this is not an isolated story. Time
and again, economists in my opinion have erred when they have proposed second best solutions
in the area where they are experts, namely economics, because of predictions they make
about political feasibility in an area where they are not experts. At any rate, Keynes
had a very flexible mind, and one week after Britain went off the gold standard- he retracted
his support for tariffs. He published an article saying, now that we have gone off the gold
standard, there’s no longer any point to tariffs; I return to my free trade principles. But later, when he retracted…when he reprinted
that retraction in a book of essays, he appended a footnote, which is a very revealing footnote
because it shows how much damage can be done by the tendency for people to preach the second-best
solutions. He said in his footnote, and I quote, “Not all my free trade friends proved
to be as prejudiced as I had thought, for after a tariff was no longer necessary many
of them were found voting for it.” In other words, it’s often easier to turn people
in the wrong direction- than it is to reverse that and get them back on the right line. Now, it’s often argued that the reason we
have bad economic policy is because the experts disagree; that if only the experts would agree,
if only all economists were of the same mind, then we would have an excellent and fine economic
policy. The case of free trade and the tariff is a clear counter-example. Here is one case
where economists have all agreed, or essentially so. As I say, you have the very minor deviations
like Keynes, but very few others. And yet, except for the case of Great Britain from
the repeal of the Corn Laws in 1846 to the First World War when, for nearly a century,
Britain had complete free trade with no tariffs whatsoever on anything, except for that case
tariffs have been widespread. The United States had tariffs throughout the nineteenth century.
In 1929, one of these measures, the infamous Smoot-Hawley Tariff Bill, which raised tariffs
sharply, has been given some of the responsibility for the subsequent difficulties in the United
States and the world. Today, we have a widespread move for protection:
pressures from the steel industry, I am sorry to say successful, to have the government
take measures to restrict the imports of steel; so-called voluntary agreements to restrict
the imports of TV sets from Japan, and of textiles from Hong Kong and Korea, and I know
not where else…and of shoes from Italy. We have a growing pressure for quotas on imports
of oil and of other products. We have widespread concern that somehow or other a weakening
dollar, the decline in the price of the dollar in terms of the mark or in terms of the Swiss
franc or the yen, that a weakening dollar in that respect, requires the government to
impose restrictions on imports or to subsidize exports. And the interesting question, and the question
I want to explore with you today, is why is it that protection... interference with international
trade has been so widespread, despite the almost uniform condemnation of such measures
by economists? Why is it that you have the professional agreement on the one side, and
observe practice on the other, which departs so sharply from that agreement? The political
reason is fairly straightforward. The political reason is that the interests that press for
protection are concentrated. The people who are harmed by protection are spread and diffused.
Indeed the very language shows the political pressure. We call a tariff a protective measure.
It does protect; it protects the consumer very well against one thing. It protects the
consumer against low prices. And yet we call it protection. Each of us tends to produce a single product.
We tend to buy a thousand and one products. If we impose a tariff on steel, or restrict
imports of steel in other ways, the people who benefit are visible and clear and available
and apparent. They have a very strong interest to press for restraints in that respect. The
interests of the rest of us is very diffuse. Each of us will pay a few pennies more. We
don’t have the same interest to oppose it. If I may take a much more extreme case which
you may think does not come under the heading of protection, but yet it does. We have a
program of subsidizing the merchant marine, the maritime industry. That is really protection
because what we are doing is taking measures to prevent the use of foreign ships, that
is, of importing the services of transporting goods. Those measures to benefit the merchant
marine through shipbuilding subsidies, through operating subsidies and so on, involve a total
expenditure each year of roughly $600 million. That amounts to about $15,000 per year for
each of the 25,000 people who is affected. You may be sure that they have every incentive
to spend a lot of money on lobbying, on giving contributions to political candidates, and
so on to see that continued. But $600 million with a population of two hundred million people,
that’s three dollars apiece for each of us. Which one of us is going to go to Washington
and lobby our congressman to avoid that extra three dollars of taxes? However, while on a superficial level, it’s
very easy to see why we have had tariffs and other restrictive measures such as the maritime
subsidies, such as the recent import quotas, because producer interest is concentrated
and consumer interest is diffused, that alone is not really a fully satisfactory answer.
Let me take another example of exactly the same thing. Why have we had price supports
of farm products--to take up a subject of special interest here, and where there are
special interests here concerned with that. We’re all of us special interests; it’s
only the other fellow who’s a special interest. Why have we had farm price supports? It’s
exactly the same argument. Farm price supports are again a measure that you will find it
very, very hard to find any economists, except a small number of agricultural economists,
schools in farm belt you will find it very hard to find any economist who will support
farm price supports. They are another case in which the consumer is simply being protected
against low prices. Why do we have them? Because the agricultural interest has been concentrated
and the consumer interest diffused and widespread. Because you have a relatively small group
of people who regard themselves as having much at stake and therefore they are able
to be more effective politically than the diffused consumer interest. We often think that this is a country in which
we have majority rule. That’s true, it is a democracy. We do elect people to congress.
We do have majority rule. But it is a very special kind of majority. It’s a majority
that is formed by a coalition of minorities. If you want to get elected to congress the
way to do it is to find 3 percent of the people who will say to you, “If you vote for this,
we’ll vote for you whatever else you do.” Then you find another 3 percent and another
3 percent, and you build up a 51 percent majority consisting of a coalition of special interests.
And yet, that overstates the case. Because it’s also true that special concentrated
groups of that kind have never been able to get their way, unless they could make a plausible
case that it was in the general interest of the country as a whole to promote their special
interest. The mercantile interest could not have gotten their way unless they had been
able to persuade at least a large fraction of the public that there was a genuine national
security reason for maintaining a merchant marine. The agricultural interest, the farm
price support proponents could never have gotten their way unless they had been able
to establish a case that appeared plausible to a large fraction of the people that there
was a national interest in preserving a family farm, or in some other aspect of agriculture. So the question in some ways- if we go below
this superficial level to a deeper level, the question is: why is it that the economists
have not been able to persuade the public of the virtues of a free trade policy? After
all, the argument for free trade is basically a very, very simple argument. Let me give
you the argument which Adam Smith made two hundred years ago. It’s as persuasive now
as it was then. And I quote, “In every country it always is and must be in the interest of
the great body of the people to buy whatever they want of those who sell it cheapest. The
proposition is so very manifest that it seems ridiculous to take any pains to prove it.
Nor could it ever have been called in question had not the interested sophistry of merchants
and manufacturers confounded the common sense of mankind. Their interest is in this respect,
directly opposite to that of the great body of the people.” That was the argument as
he put it two hundred years ago. And there is very little that needs to be added to it. The basic reason I believe why economists
have not been able to persuade the public is the one that I have already alluded to.
It is suggested by the title of a famous essay, which was written many years ago by a great
economist, Wesley Mitchell. The title of his essay was “The Backward Art of Spending
Money.” And he asked, “Why is it that we are all of us so sophisticated about the
activities in which we earn our living and tend to be so unsophisticated and backwards
in the ways in which we spend our money?” And his answer was the one I have already
mentioned: that each of us tends to be involved generally in only one kind of productive activity.
We spend our working life, forty hours a week or sixty hours a week, whatever it may be,
as a worker producing a product, as a merchant distributing a good, as a professor--well,
forty hours a week teaching is a little long, but we’re supposed to be putting in some
time on related ancillary activities…and most of us do. On the other hand, we each
of us buy a thousand and one things, and it’s perfectly understandable therefore that we
devote far more attention and far more interest to the way we get our income than to the measures
that affect how we spend it. But unfortunately, this backward art of spending
money leads to erroneous views in many directions and not only in the area of the tariff and
of protection. For example, public discourse tends to be carried out in terms of jobs as
if a great objective was to create jobs. Now that’s not our objective at all. There’s
no problem about creating jobs. You can create any number of jobs in having people dig holes
and fill them up again. Do we want jobs like that? No. Jobs are a price; we have to work
to live, whereas if you listen to the terminology you would think that we live to work. Now
some of us do. There are workaholics, as there are alcoholics, and some of us do live to
work. But in the main what we want are not jobs; we want productive jobs. We want jobs
which will enable us to produce the goods and services we consume at a minimum expenditure
of effort. In a way, the appropriate national objective is to have the fewest possible jobs,
that is to say, the least amount of work for the greatest amount of product. In the international trade area, the language
is almost always about how we must export and what’s really good is an industry that
produces exports. If we buy from abroad and import, that’s bad. But surely that’s
just upside down as well. What we send abroad we can’t eat, we can’t wear, we can’t
use for our houses. The goods and services we send abroad are goods and services not
available to us. On the other hand, the goods and services we import, they provide us with
TV sets we can watch, with automobiles we can drive, with all sorts of nice things for
us to use. The gain from foreign trade is what we import. What we export is the cost
of getting those imports. And the proper objective for a nation, as Adam Smith put it, is to
arrange things so we get as large a volume of imports as possible for as small a volume
of exports as possible. This carries over to the terminology we use.
I have already referred to the misleading terminology of protection. But when people
talk about a favorable balance of trade, what is that term taken to mean? It’s taken to
mean that we export more than we import. But from the point of view of our well-being that’s
an unfavorable balance. That means we are sending out more goods and getting fewer in.
Each of you in your private household would know better than that. You don’t regard
it as a favorable balance when you have to send out more goods to get less coming in.
It’s favorable when you can get more by sending out less. This tendency to concentrate on the productive
side of our lives and to neglect the side of consumption is reinforced by the fact that
even for the productive side of our lives the visible effects of tariffs are good; the
invisible effects of tariffs are bad, even on the productive side. I have already referred
to the steel case. It’s perfectly clear that if you restrict the imports of steel,
there are some workers in the steel industry who will have jobs they otherwise would not
have. The beneficial effect for them of a tariff is perfectly clear. But if we import
less steel, foreigners earn fewer dollars. They have fewer dollars to spend in this country.
There are people around the country who will not have jobs, not have productive jobs because
exports do not develop. I should not have to spell this out in great
detail here in Kansas. This is a great agricultural state. Agricultural products are one of our
major exports. The harmful effects of steel imports are to reduce jobs in agriculture.
But that’s invisible. The people who might have been producing goods to sell abroad don’t
know they might have had that job, so out of sight, out of mind. And as a result, on
both the side of consumption and the side of producers you have the concentrated special
interests versus the diffused general interests. But then you will say to me, what’s wrong
with all these fine arguments I hear? What’s wrong with the arguments by George Meany at
the AFL-CIO convention: that the high-wage American workers are being unfairly competed
against by the low-wage foreign workers; that we have to protect our American workers and
their standard of living from the competition of foreigners in Japan, or Korea, or somewhere
else who are willing to work for much less than the American worker? What’s wrong with
that argument? Well in the first place, what does a high wage and a low wage mean? The
Japanese worker is paid in yen; the American worker is paid in dollars. How do I know how
many dollars equal how many yen? Let me go at this a little more indirectly.
You can see the fallacy in this argument I think most clearly by taking a very, very
extreme case. Let’s take the most extreme case of all. Let’s suppose that at the existing
exchange rate, whatever it is, Japan, to take the example which is a favorite “whipping
boy,” could undersell us in everything, that the Japanese can produce whatever you
name across the board- from wheat and soybeans, to television sets and automobiles more cheaply
than we can. And let’s see what would happen. We’d rush to buy them. The Japanese sellers
would be paid for them in dollars. What would they do with the dollars? Nothing for them
to buy in the United States, because by assumption everything is cheaper in Japan. What then
would they do with the dollars? If they would be willing to burn them up or
to bury them in the Pacific Ocean, ah, that would be wonderful. After all, there is no
product we can produce more cheaply than green pieces of paper. (laughter and applause) But of course, the Japanese are not going
to do that. They are not going to work and produce goods and send them over here in order
to get pieces of paper which they are going to burn up. They want to get goods and services
and when they discover that there are no American goods and services that are cheaper than those
in Japan, they will say, “Well, gee, I had better convert these dollars back into yen.”
But who is going to sell them yen? Why would anybody sell them yen? Because if I have yen
I can buy the Japanese goods, by assumption, more cheaply, so nobody would be willing to
sell yen. Let’s suppose, to begin with, that the rate
of exchange between the dollar and the yen was, as it was for a long time, 360 yen to
the dollar or one dollar would buy 360 yen. Well then these people who had all these dollars
that were useless to them would say, “If you’ll sell me some yen, I’ll give you
a dollar for 300 yen.” “No,” says the owner of the yen, “even at 300 yen to the
dollar American goods are too expensive. They’re not worth it.” “Okay, I’ll give you
a dollar for 200 yen.” And you can see what would happen. The price of the yen would be
bid up until what? Well, the fewer yen you get for a dollar, the more expensive Japanese
goods are to Americans. The more dollars you get for a yen, the cheaper American goods
are to Japanese. And so the effect would be that the yen would rise in price until it
was no longer true that all U.S. goods were more expensive than all Japanese goods. Because
as the yen became more expensive, Japanese goods would become more expensive to U.S.
citizens in dollars and American goods would become cheaper to Japanese in yen. And that
would continue until roughly on the average the dollar value of the goods that the Japanese
would buy in the United States would be roughly equal to the dollar value of the goods that
the U.S. would sell. And at that point, the price of the yen in terms of the dollar would
be at an appropriate level. Now, I’ve simplified the story because over
and above these bilateral transactions between the United States and Japan, of course, these
flows of trade will take roundabout directions. The Japanese will spend some of their dollars
in Brazil, and the Brazilians in turn will spend their dollars in the U.S., and the dollars
may flow in very roundabout circles. But the principle is the same. People want dollars
not in order to have pieces of paper but in order to have U.S. or other goods. And again,
the actual situation is complicated by the fact that in addition to the flows of goods
and services, there are also capital flows, also investments abroad. The United States
throughout the nineteenth century, throughout the period when we were building up and getting
to be the economically most developed country in the world, the United States had a balance
of payments trade deficit every single year almost. Why? Because the U.S. was a country
in which foreigners wanted to invest capital. The British were producing goods and sending
them over to us in return for pieces of paper, not those green pieces of paper but different
pieces of paper, bonds, promising to pay back a sum of money at a later time plus interest
on it. And the British regarded that as a good investment, and they regarded it therefore
as worth their while to send us goods in order to get those pieces of paper. There was nothing wrong with that. On the
contrary, we benefited by having foreign investment here that enabled us to develop more rapidly,
and the British benefited by getting a higher yield on their savings than they could have
gotten any other way. In the twentieth century that was reversed. We had what was called
a favorable balance of trade because the U.S. citizens were finding that they could get
a higher return for their money by investing abroad than they could at home, and as a result
we were sending goods abroad in return for those pieces of paper. Again, in the post-World War II world under
American foreign aid and Marshall Plan programs we were making gifts abroad. We were sending
goods and services abroad as an expression…our belief that that was a contribution to a peaceful
world. So the situation is more complicated, but
the fundamental point is the same. So long as you have a free exchange rate, which is
free to determine in the market the price of the dollar in terms of the yen, there is
no balance of payments problem. There is no sense in which American industry is in danger
of being undercut by foreign industries and destroyed. Let me put the matter to you a little differently.
Suppose on the average an American worker is roughly twice as productive as the average
Japanese worker. That’s roughly what the situation is. On the average the American
worker takes home from his work as pay for his activities a sum of money which will buy
about twice as large a basket of goods as his Japanese counterpart can buy. If that’s
the case, we cannot afford--well that’s a little exaggeration, we should not afford--we
should not use any American worker in an activity in which he is less than twice as efficient.
This is what was dubbed 150 years ago, in the jargon of economics, the principle of
comparative advantage. We may be more efficient in everything than the Japanese. That doesn’t
mean it pays us to produce everything at home. We should concentrate our efforts on those
activities in which we are the most efficient. Let me put it to you in a simple way. In a
domestic illustration, I have a lawyer who is a very good typist. Does that mean he should
dispense with his secretary and type his own letters? He may be a better typist than his
secretary but if he’s only one and one-half times as good a typist but five times as good
a lawyer, both he and his secretary are better off if he concentrates on doing the law and
she concentrates on typing the letters -- or in this day and age I should say she concentrates
on doing the law and he concentrates on typing the letters. (applause) As it happens, I have a daughter who is an
attorney, so that’s personal as well as general. In the light of all this analysis, let us
consider some current issues. Take the case of steel. What about the argument of steel
that we need a steel industry for our national defense? Well, you know there was a famous
statement by- I think it was Emerson, that patriotism is the last resort of the scoundrel.
I don’t want to call the steel people scoundrels, they’re not. They’re perfectly decent
human beings. They’re like you and me and like you and me they know very well that what’s
good for them is good for the country. (laughter) And we’re all sincere about that. The greatest
human capacity we have is not to reason but to rationalize. (laughter) But what of the validity of that argument?
Well, there are two things to be said about it. Have complete free trade in steel, there
is not the slightest chance in the world that the U.S. steel industry would disappear. The
advantages of being close to sources of supply, to sources of fuel, to market- would certainly
guarantee that we would have a very large steel industry. It might be that foreign imports
would amount to 15, 20, 30 percent of the total. But so far as our national defense
needs are concerned, insofar as we cannot satisfy them by importing steel from abroad,
we would always have a domestic steel industry. But second, ask a steel man whether before
he builds a factory he gets estimates of the cost of building it. He’ll look at you as
if you’re mad and say, “Of course, of course I get estimates.” And I will say
to him, well now tell me do you get estimates of building it just one way? “Oh no, we
get estimates of building it in a variety of alternative ways and then pick the best.”
And my standard answer to the steel man who gives the national defense argument is to
say that when the steel industry presents to this country cost estimates of alternative
ways of providing for our national security I will believe that your argument is sincere
and not simply an excuse for self-interest. Because there are many ways. If the problem
is of steel, you can stockpile steel. It’s the easiest thing in the world to stockpile.
Some of it may rust but that’s not a very serious problem. Aside from stockpiling it,
you can maintain some steel plants in mothballs the way we maintain ships in mothballs, and
so on. There are lots of alternatives. Have you ever seen a cost estimate by the steel
industry of how much it would cost to protect our national security one way or the other? The same thing has been true over the years
of the continuous argument by the oil interests that we ought to have, at one point, it was
an oil import quota, or percentage depletion, or all sorts of other things on national security
grounds. I believe it is an excuse and not a reason. What about this argument of unfair competition?
What about the argument that the Japanese dump their goods below cost? Well as a consumer,
all I can say is the more dumping the better. (laughter and applause) If the Japanese government is so ill-advised
as to tax its taxpayers in order to send us, at below cost, TV sets and other things, why
should we as a nation refuse reverse foreign aid? (laughter) What about the problem of the price of the
U.S. dollar, the weakening of the dollar abroad? It is an artificial problem to which we should
pay no attention. The market will set a price, let it. So far as we as a nation are concerned,
the important thing is to get our internal house in order. If we followed policies at
home which would eliminate inflation, and provide the basis for sound and healthy economic
growth, the price of the dollar in foreign exchange markets would take care of itself.
And if we follow policies as we have been of steadily rising inflation, or unsteadily
rising inflation, I should say, ups and downs, well then, of course, the dollar is going
to become worth less at home and it will be worth less abroad than it otherwise would
be. It is not a problem. I come again to the problem of farm policy
here, agricultural policy. That is an area which has been very intimately related to
foreign trade. You will remember some years back when there was a great scandal about
the extent to which the American taxpayers subsidized the Soviet Union by selling agricultural
products at a price below the domestic price. But take the problem of farm policy. I have
already expressed the view that there is no national interest whatsoever in farm price
supports, or in government attempts to manipulate the price of farm products- any more than
there is in government attempts to manipulate the price of steel, or of any other product.
But it’s much more fundamental than that; agriculture is one of our major export industries.
It is an area in which we have been incredibly efficient, in which we can produce goods and
out-compete almost everybody in the rest of the world. There is nothing that would be
in the greater self-interest of the agricultural producer than for the U.S. to have complete
free trade. That would generate a greater supply of dollars abroad to produce a better
market for U.S. products. I submit to you that the movement toward having
farm price supports is a very shortsighted movement. What will be its results? It can
only have the effect of either destroying export markets or requiring the government
once again to subsidize exports. If we have a high artificial price at home, which is
above the world price, nobody in the world is going to buy American products unless somebody
or other sells these to them at the world price. Hence, a system of artificially high
domestic agricultural prices necessarily requires a system of government subsidies for the export
of wheat abroad. I submit to you that that’s not in the interest of the American consumer,
it’s not in the interest of the American taxpayer, and in the longer run it is not
in the interest of the American farmer. What do we do from here? What’s the answer?
Suppose we could be as successful as the British were in the 1820s and ‘30s, and get a national
crusade going to move toward free trade. What should we do? Many people say that what we
should do is to try to engage in reciprocal tariff reductions. True enough, they will
say, our tariffs hurt us. But look at what those foreign countries are doing. Japan has
tariffs on imports. How can we compete without tariffs, while they restrict trade with tariffs?
The answer to that is very straightforward. The Japanese by imposing tariffs and other
restraints on their international trade hurt themselves; but they hurt us, too. No doubt…they
diminish the efficiency of the international division of labor--they hurt us and themselves.
But if we impose tariffs in return we only hurt them and ourselves still further. It’s hard for me to see any justification
in harming ourselves in order to harm somebody else. That’s not a very sensible policy.
Moreover it doesn’t work. We have been trying for many years to engage in reciprocal tariff
reductions. Every now and then one comes through. But on the whole, it has been a very unsuccessful
policy. I believe that we should- the right policy
for us, I’m not saying we’ll do it, but the right policy for us would be to act like
the great nation we are, to say we are not going to determine what we do on the basis
of what Hong Kong and Korea and Japan do. We are a great nation and we are unilaterally
and on our own going to move to remove every barrier to international trade. We’re not
going to do it overnight. People have made plans on the basis of existing tariffs. Let’s
take a five-year period, or a ten-year period, that’s less important. But let’s each
year reduce by one-fifth every tariff barrier, eliminate every subsidy to exports by one-fifth,
and over a five-year period get to a period at which we have no tariffs and no subsidies
to exports. We should do that and we should also completely stay out of the market of
foreign exchange. Your government on your behalf has been speculating in the foreign
exchange markets for the last seven years and has cost you, up until last year and not
counting the speculation of this year, $550 million of losses on those transactions. Money
down the drain. Let’s stop that. What is the chance that we shall follow these
measures? Well…candidly, I think the chance is zero… (laughter) …and yet hope springs eternal. If we know
the ultimate direction we want to go in, then that will improve the chances that the separate
steps we take will move in that direction rather than away from it. Moreover I go back
to my mentor, Adam Smith. In 1776, when he wrote his great book, The Wealth of Nations,
he wrote and I quote, “To expect, indeed, that the freedom of trade should ever be restored
in Great Britain, is as absurd as to expect that an Oceania or Utopia should ever be established
in it. Not only the prejudices of the public, but what is even more unconquerable, the private
interests of many individuals, irresistibly oppose it.” He wrote that in 1776, seventy years later
Britain had complete free trade. What he had said was impossible and absurd had been accomplished,
one of the few places in which he was wrong. That move toward complete free trade ushered
in the great period of Britain’s prosperity and glory. And ever since Britain has departed
from free trade she has been declining in prosperity and glory. I don’t mean to say
that that’s the only source of her decline; it certainly is not. But it is not an unimportant
source. In the same way, the U.S. has been a great
nation and we have prospered despite the tariffs and despite the restrictions on trade. But
we could set a great example to the world and benefit the world as a whole, contribute
not only to prosperity but to peace around the world, by moving in the direction of free
trade. Because once again, go back to the British experience, the century of free trade
was also the century of the greatest international peace. Why? Because if you eliminate government
from these matters you enable individuals to deal with one another. If you introduce
protection, tariffs, restrictions on trade, they become matters for government to government
wrangling and they are an enormous source of division. So in the name of both prosperity
and world peace, there are few steps that we could take which would contribute more
than a complete move toward free trade. Thank you.
