Benefits of Freedom of Trade and Travel

1. Benefits of Freedom of Trade and Travel Dr. Tom G. Palmer INESS Seminar on “Austrian Economics” Brusno, Slovakia 18.March.2011

2. The Benefits of Freedom of Travel are not a New Discovery….. • “To a wise man, the whole earth is open; for the native land of a good soul is the whole earth.” • Democritus of Abdera Circa 420 BC

3. Nor is Trade Only European • “Profits from maritime commerce are very great. If properly managed, they can amount to millions [of strings of coins]. Is this not better than taxing the people?“ • Emperor Zao Gong Southern Song Dynasty, 1127-1162

4. “Globalization” Is Neither New Nor Unique to “the West” • “Vegetables from the east, water from the west, wood from the south, and rice from the north.” • Saying of the people of Hangzhou, center of the Song Empire

5. A Working Definition of Globalization: Liberalization + Cooperation • “The diminution or elimination of state-enforced restrictions on exchange across political borders and the increasingly integrated and complex global system of exchange, commerce, and production that is emerging as a result.”

6. Free Exchange Based on Comparative Advantage is the Foundation of Beneficial Exchange and Society • Through Specialization and Trade, We Can Consume More Than We Can Produce • An Example • Two Randomly Chosen Names… • “Martin” and “Tom”

7. Consider an Economy of Apples and Fish • Martin has an absolute advantage in production of both: If Tom specializes only in apples, he can gather 50 and if he specializes only in fish, he can catch 50; in the same time, Martin can gather 100 fish or 200 apples. Martin is better at both….How could he benefit from trading with inefficient Tom?

8. Production in Isolation (No Trade)

9. Martin (who is also smarter) proposes a trade…37 apples for 25 fish

10. Trade Takes Place

11. It’s not a mystery…it’s comparative advantage • Despite being less productive in absolute terms than Martin, Tom is the lowest cost producer of fish: • Producing one fish costs Tom one apple, but for Martin to produce one fish costs him two apples; • By specializing in his comparative advantage -- fish production, Tom allows Martin to exploit his comparative advantage, for producing one apple costs him one half of a fish, whereas it costs one whole fish to Tom.

12. What About Opportunity Costs: A Simple Story about a Woman and a Corté • A Guatemalan Corté

13. Does Globalization Make Her Better Off? • From her perspective, not from mine…

14. Some Issues • The Issue of Cultural Identity • The Issue of Personal Identity • Kinds of Diversity • The Issue of Globalization and Peace among Nations and Cultures

15. Cultural Identity • Does Poverty + Isolation = Cultural Identity? • Are there any “Pure” Cultures?

16. Culture ≠ Poverty: The Case of Iceland Iceland, with 310,000 inhabitants, has maintained its unique culture, language, and identity… because it is globalized….and wealthy! From To

17. Are there any “pure” cultures? Consider the case of spaghetti: • Italian? Or • Chinese? Marco Polo

18. Personal Identity • Does Immersion of the Person in the Collective = Personal Identity? • Is Identity a Product of Our Choices, or Something Imposed on Us?

19. Giving Primacy to Collective Identity is Dangerous • “The notion of ‘cultural identity’ is dangerous. From a social point of view, it represents merely a doubtful, artificial concept, but from a political perspective it threatens humanity’s most precious achievement: freedom. I do not deny that people who speak the same language, face the same problems, and practice the same religions and customs have common characteristics. But that collective denomination can never fully define each one of them, and it only abolishes or relegates to a disdainful secondary plane the sum of unique attributes and traits that differentiates one member of the group from the others.” • Mario Vargas Llosa, “The Culture of Liberty, Foreign Policy, January/February, 2001

20. Identity Is Not Circumscribed in the Great Society… • “No modern association of fellows encompasses the totality of a human being, even in economic terms: the aspect of their economic personality which forms part of the association is strictly defined.” • Otto von Gierke, Das Deutsche Genossenschaftsrecht

21. We Can Create Unique Identities through Multiple Affiliations • “The groups with which the individual is affiliated constitute a system of coordinates, as it were, such that each new group with which he becomes affiliated circumscribes him more exactly and more unambiguously. To belong to any one of these groups leaves the individual considerable leeway. But the larger number of groups to which an individual belongs, the more improbable it is that other persons will exhibit the same combination of group-affiliations, that these particular groups will ‘intersect’ once again [in a second individual].” • Georg Simmel, “The Web of Group Affiliations”

22. Globalization Increases Opportunities to Develop Unique Personal Identities We can create connections with wider circles of people, thus enriching ourselves personally and giving us greater scope to become the people we want to become.

23. Kinds of Diversity • Across Cultures • Within Cultures

24. Globalization and Peace among Nations and Cultures • Is the Prosperity of One Nation Bad for the Others? • What Impact Does Trade Have on the Impulse for War?

25. Global Prosperity and International Relations • “Each individual is interested in the general prosperity of all, and the success of one branch of industry promotes that of all the others….The position of a nation, in respect of its neighbors, is analogous to the relation of one of its provinces to the others, or of the country to the town; it has an interest in their prosperity, being sure to profit by their opulence.” • Jean-Baptiste Say

26. Trade and Peace • Where goods cannot cross borders, armies surely will. • Trade creates parties on both sides of a border with an interest in maintaining peace; it creates pro-peace parties.

27. Freedom of Trade Creates Interests for Peace….. • “The international interconnection of the interests resulting from freedom of trade is the most effective means for the prevention of war. Had we advanced so far as to see a good customer in every foreigner, there would be much less inclination to shoot at him….” • John Prince Smith, member of the German Reichstag • 1860

28. Trade Creates Peace • “Cross sectional evidence using various data on political interactions confirms that trading nations cooperate more and fight less. A doubling of trade leads to a 20% diminution of belligerence.” • “Trade, Peace and Democracy: An Analysis of Dyadic Dispute,” Solomon W. Polachek and Carlos Seiglie, Forschungsinstitut zur Zukunft der Arbeit (June 2006)

29. The Capitalist Trading Peace • As Erik Gartzke has shown, the well studied “democratic peace” is really the “capitalist peace.” Nations that trade are less likely to go to war. • Erik Gartzke • American Journal of Political Science, Vol. 51, No. 1, January 2007, Pp. 166–191

30. Evidence: Economic Freedom and Peace

31. Evidence: Democracy and Peace

32. Peaceful Exchange Civilizes Humans “For the Cyclops have no ships with crimson prows No shipwrights there to build them good strong craft That could sail them out to foreign ports of call As most men risk the seas to trade with other men.” Homer, The Odyssey