The line from both left and right is that Paul O’Neill’s falling out with the Bush administration was over tax cuts. The truth is far more complicated, as  Ilana Mercer documented after he was dismissed. It might be that he simply told the truth too often. He famously raised the prospect that aid to Brazil could end up in a Swiss bank account. Of Enron, he dismissed the failure as part of the market process.

Some distinguished theorists have lately entered into a debate over the merits of free trade after two of them had suggested that “free trade has necessary conditions” and “today these conditions are not met”1 .

I have written a  critical response to Paul Craig Roberts on my blog that is likely of interest to mises.org readers: Roberts is correct in his complaints that his responders haven’t understood his argument.  He is arguing that the movement of factors of production to the location of absolute advantage will reduce the volume of trade with their former location.  It’s the reduction in trade that he’s unhappy about.  (At least, that’s how I read him, and that’s what I responde

Many seem to have forgot that free trade rests on a case and is not an absolute virtue in itself.  The case for free trade is that it results in shared gains to the countries involved.  For this to be true, free trade must be based on comparative advantage.  For comparative advantage to hold, factors of production cannot be internationally mobile or as I would put it today, factors of production must not be as mobile as traded goods.  This is the known case for free trade.

Nonetheless, the article by  Postrel on Hayek  in the Boston Globe does include some interesting information. For example: “Citing the ‘proof of time,’ Encyclopedia Britannica recently commissioned Caldwell to replace its formulaic 250-word Hayek profile with a nuanced discussion more than 10 times as long.

Re: Roberts’ response, free trade is rarely ‘between countries’ as such. Yes, the U S Government buys 9mm Beretta pistols from a firm in Italy, but not from Italy as a country. As I see it, free trade consists in letting individual exporters and importers buy from whomever they wish without government intervention of any sort.

Mr. Roberts offers a very interesting definition of a “free trade”. In his opinion free trade rests on the condition of immobility of factors of production – if factors of production are free to move from one place to another, then this is no longer free trade. The argument is fallacious from the very beginning and is similar to economic concept of monopoly (”perfect competition”, “monopolistic competition” and so on).

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.”

Economists observing the American labor market are saddened especially by two sets of Federal policies which subject highly productive American labor to competitive disadvantage. One springs from monetary policy that generates huge trade deficits, that is, that causes imports to exceed exports by half a billion dollars a year. With interest rates at extreme lows, last seen in World War II, American capital eagerly goes abroad in search of market returns. And American consumers joyfully welcome the products made by American capital and know-how abroad.

I find the argument that Ricardo’s great principle doesn’t hold because money or persons move around more easily than goods strange. Although logistics is important in actual trade, I can’t see what logistics has to do with the principle. Moreover, saying that Ricardo’s law only is applicable without production factor mobility, amounts to something like locking Joe and George into their rooms as a condition for them to be allowed to trade freely (via a hole in the door).