Chapter 8
Who’s Protected by Protectionism?
Free trade is essential to the gold standard. Without it there would be no mechanism by which money could flow between nations. Further, protectionism is as dangerous a policy as there is. It has often led to trade wars. No one wins a trade war—everyone loses.
The case for free trade has never been refuted. Since the days of Adam Smith, most economists have understood and documented its virtues. Yet, the world has never known unrestricted free trade. Why?
One reason is the popular acceptance of the mythical virtues of mercantilism. Mercantilism is a government policy aimed at preventing individuals from purchasing goods abroad while encouraging them to sell goods abroad.
Mercantilism holds that a nation that exports (loses goods) is better off than one that imports (gains goods). It has been proven a hundred times over that it is detrimental for a nation to continuously export more than it imports. When government prevents or discourages individuals from purchasing goods abroad and encourages chronic exports, it limits a nation’s supply of goods and encourages a decline in its citizens’ standard of living.
Government control and regulation of international trade inevitably causes major economic distortions both domestically and internationally. The idea that we can all be, and should all be, sellers is preposterous. There must be consumers as well as sellers. Equilibrium is the state where both come together. The goal of mercantilism ...
