[Music] there is a standard cliche which I'm sure you have all heard that if you have two economists in one room you are bound to have at least three opinions the subject I'm 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
200 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 a 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 economist John Maynard KES the English Economist who gave his name to the Kian revolution in 19 31 in the course of the depression John Maynard kees who had been a free Trader all his life came out in some articles in Britain in favor of 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 and 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 KES 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 in if on the one hand the price of the pound sterling was changed from the $48 some cents which then was a price to let's say 4 that would make British goods cheaper to foreigners it would make foreign Goods more expensive to Britains and in that way would redress the problem of the balance of payments they were facing that's one way to do it in the best way but he thought that was politically unfeasible 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 KES came out for that concealed form his political judgment was like that of many economists flawed and about 3 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 Ed 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 now as you will 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 can's but very few others
and ye 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 why is it that you have the professional agreement on the one side and observed 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 forward 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 price and yet we call it protection each of us tends to produce a single product we tend to buy a,1 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
interest 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 does we have a program of subsidizing the Merchant Marine the mar the maritime industry that is really protection because what we're doing is pre 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 ship building subsidies through operating subsidies and so on involve a total expenditure each year of roughly $600 million that amounts to about $115,000 per year for each of the 25,000 people who is affected you may be sure that they have every incentive SP to every incentive to spend a lot of money on lobbying on giving contributions to political candidates and so on to see that continue but $600 million a population of$ 200 million million people that's $3 a piece for each of us which one of us is going to go to washingon and
Lobby our Congressman to avoid that extra $3 of taxes 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 are all of us special interests it's only the other fellow was a special interest why have we had Farm price supports that's exactly the same argument the farm price supports are again a measure that you will find it hard very very hard to find any Economist except a small
number of agricultural economists and schools of in the farm belt you will find it very hard to find any Economist who will support Farm price supports they are another case in 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 in 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 [Music] rule but it's a very special kind of majority it's a majority that is formed by a coalition of [Music] minorities if you want to get elected to congress the way to do it is to find 3% of the people who will say to you if you vote for this we'll vote for you whatever else to do and then you find another 3% and another 3% and you build up a 51% majority consisting of
a coalition of special interest 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 the country as a whole to promotee 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 l 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 free trade policy after all the argument for free trade is basically a very very simple argument
let me give you a the argument which Adam Smith made 200 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 200 years ago and there is very little that needs to be added to
