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Free Trade: Who Decides?

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01/12/2004

Mr. Roberts also criticizes Professor Salerno: "Mr. Salerno also confuses the mobility of factors of production within a country with the international mobility of factors of production. The two things are entirely different. The flow of factors of production within the US from North to South or East to West is not comparable in the effects to international flows. To learn the difference, Mr. Salerno need only consult an international trade text."

However, there is no confusion. Basically there is no difference between mobility of factors of production inside or outside a "country". "Free trade" is always free trade i.e. allocating means to most valuable ends. "Competition" is a system which works on the local, national and international level (and probably some time in the future will work between planets). Although sometimes differences are more "detectable" (between African and American worker), the process still is simply increasing production and consumer welfare.

Of course, workers might lose their high wage jobs, but why does it happen? Simply because consumers wish to buy products, which are in their opinion most valuable. They can buy American products, if American industry is able to persuade them to, e.g. "buy American steel, because you're American!". Anyway, consumers do not see an info "made in America" a good in itself, and prefer to choose subjectively the highest quality goods. That is what free trade is about. Some American workers will lose high wage jobs, because consumers choose (free trade) to buy some goods, while ignoring other. But, since needs are unlimited, laborers are always free to engage in other production processes and find employment there (it really doesn't matter that there are emigrants, although it will have tangible effects on the price system). From subjectivist point of view, it is impossible to interpersonally compare gains and losses. However, it is possible to accept Pareto's rule: contract means benefits for both sides, so we shall accept that; regulations benefit one side (e.g. steel industry) at the expense of the rest of society.

On economic grounds, one has to concentrate on the counterfactual analysis – if not free trade (private property), then what? Which system should be better? Once the theoretician starts talking about intervention, duties, tariffs and other ways to discourage free exchange, it is easy to show that this brings unfavorable results.

 

 

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