Globalize and Prosper

The following is an essay I wrote as an entry to a writing contest held by Foundation for Economic Education. While the essay itself may not have been of winning caliber, the content and principals laid out by those before me is of the true importance; Free market economics and free trade.

Globalize and Prosper: Cooperative Exchange, the Occurrence Necessary for the Division of Labor

Expanding the extent of the market gives way to a greater magnitude for occurrence of exchange and thus is the incentive necessary to drive the division of labor. Civilized societies cooperate through specialization which is precisely what Adam Smith had explained as being the “greatest improvement in productive powers of labour”. This improvement, undoubtedly, is attributed to the division of labor; however, it is the cooperation on a large scale that creates increasing productivity as a result from the necessity to exchange. We produce in order to consume.

While we are often inclined to be self-reliant (Ayau, Not a Zero-Sum Game), the incentive to specialize is derived directly from the increasing benefits of cooperative exchange. This incentive we have come to recognize and even welcome as a necessary trade-off in a market economy. In isolation our needs are fulfilled only in limitation to our own abilities whereas in association more needs are met and, in turn creating more products to be simultaneously produced – thus further labor to be divided. This process of exchange and the degree of cooperation is why the effects of the division of labor are only as great as the extent of the market (Smith, The Wealth of Nations).

The Market

A market economy is anywhere and everywhere productive surpluses are brought together for voluntary exchange. It is precisely the market that facilitates a society’s on going cooperation. Additionally, since it is the process of exchange that gives purpose to the division of labor, a market must maintain a significant amount of cooperation to support an increasing level of divided tasks.

There exists little if any incentive for both cooperation and specialization within the smallest of communities as the productive surplus will have a limited value among a smaller, less diverse (taste and demand) population. In order for exchange in the market to occur we must produce a market of differencing goods and services, therefore creating a vast diversity of productive value. This is how the market, through cooperation, serves as the mechanism to induce the desire to specialize (Rothbard, Man, Economy, & State). Small markets yield smaller division of labor potential.

“Producing lots of output is not productive unless it ends up in the hands of those who value it. So the advantage of specialization can be realized only to the degree that people can cooperate, with each specializing in the production of something that others want in order to be able to acquire what he wants from the specialized production of others.” (Lee, Specialization and Wealth).

Through the process of specialized cooperation it is “praxeological”, from the incentives all market actors become responsive to, that we are composed to trade with multiple peoples, societies, etc. in order to meet our own needs and varying levels of satisfaction. Expanding the limitations of the market additionally creates more readily available products than otherwise would have existed in isolation, a result from our desire to improve the processes and products in which we choose to specialize in.

This cooperative exchange is what makes up the market. And while each market maintains its own value of exchange from the number of cooperative entities and available resources, it has become evident, empirically, that combining or thus allowing for market expansion that we will in turn create a far greater abundance of specialization, tasks specialist, and mutual benefits as a derivative from the yielding technological improvements. As the market grows and voluntary exchange ensues, so does the division of labor become progressive, and even in many instances becomes aggressive (“creative destruction”). The division of labor, as Smith explained in The Wealth of Nations, is the prerequisite for innovative methods and technological advancements.

Furthermore, through our ingenuity and improvements in communication we have thus expanded the allowance for cooperative exchange. Therefore, this continuing movement forward in productive ability appears to be inevitable that the international division of labor becomes the end result. “In myriad ways, specialization fosters continuous innovation in time-saving methods and better utilization of resources.” (Ayau, Not a Zero-Sum Game).

Globalization of the Free Market

“Globalization is the process of bringing the entire world into the system of division of labor and thus into the system of social cooperation, of which the division of labor is essence.” (Reisman, Globalization: The Long-Run Big Picture).

Market globalization, in both process and theory, occurs just the same as does any market confined within a single region. Although, a global market sustains a much greater ability to create significant cooperation and wealth as a result of the entire world’s producers and population working in tandem, than compared with such a single region separated from the rest of the world (Reisman, Globalization: The Long-Run Big Picture). For example, within the states of America each state has available their own resources, both naturally occurring and those attributed from the ability of the given population, whether in greater scarcity or relative abundance; however, cooperating as a whole, the U.S. is much more productive and efficient with her resources then if each state was to produce in isolation. The Framers of the Constitution recognized free trade among the states as being a necessary part of our economic system, which is why it was mandated in Article I, Section 9 of the Constitution (Batemarco, Why Managed Trade Is Not Free Trade).Through the law of association, all resources within each given region are thus most efficiently allocated and the market as a whole is made that much better off
compared with the alternative, each state cooperating and producing in isolation.

In conjunction with increasing the amount of cooperation within a market economy, international division of labor offers additional compelling motives. A global market decreases the opportunity cost through specialization in productive outputs. Thus, when the opportunity cost is lowered the focus of human efforts and resource allocation is optimized. The cost of production is lowered and the shared benefits are elevated.

Additionally, some production can only efficiently exist in certain regions due to access to naturally available resources, thus further illustrating the benefits made available through comparative costs. The nations who possess a greater abundance of a given resources and can, in turn, produce an output at a lesser comparative costs should be more inclined to do so and trade for other productive outputs that they so desire.

On a global perspective, it is not simply the additional amount of cooperation, although this adds significantly to the level of value-oriented exchange which is a necessity for the division of labor, that yields far greater productivity and incentive but rather the considerable lowering of cost across the board. This lowering of costs is an affect of comparative cost. In a competitive trade environment, each participating nation will find within their best interest to focus their available capital on the production of goods and services in which there are most efficient at - maintain a comparative advantage.

Country A will thus specialize in producing products W and X for which they maintain a comparative advantage in, and Country B will thus specialize in producing Y and Z. These two nations will then trade their available surpluses for one another, all the while doing so in the most cost efficient way possible. The process of comparative advantage is thus increased as a result of a global market – a win-win outcome from international division of labor. Of course, in the real world most nations maintain a varying number of productive sectors in which they maintain a relative comparative cost in, thus, again, a result of allowing specialization to focus capital in new areas of expertise.

As David Ricardo outlined in his explanation for the law of association, the case for international division of labor is made best when nations are allowed to specialize in what they can do best – that is producing products in which their comparative cost is lowest and trading with other nations who maintain a comparative cost in other valuable productive outputs. It is within this movement of the international division of labor that we are all made better off.

Of course, a necessary framework of laws must be present for the division of labor to transform into international cooperation. This framework of laws is the respect for contractual agreements and rights to private property. The respect for contractual agreements and private property is the cornerstone for mutual exchange. Additionally, a currency exchange market is needed to allow for each nation, during trade, to effectively allow for price mechanism to dictate the value of productive outputs. Albeit a bit more complicated than the simplistic mention here, it is important that these factors exists in an international market economy as without them international cooperation would not take place. “The only function of money is, ultimately, to facilitate the division of labor”. (Ayau, Not a Zero-Sum Game).

Government Facilitation of the Market

A global free market is the catalyst for the international division of labor. However, a free market must be free from outside coercion and facilitation. Market actors should be free to cooperate and exchange with others as they see fit; their knowledge to speculate in rapidly changing market environments and the incentives made available as a result of their self-interest serve as their guiding motive. Adam Smith had described this affect as the market’s “invisible hand”.

The unintended consequence from both producers and consumers acting freely in a market economy is that everyone is made better off. This outcome occurs from the motivation to trade. Free trade stimulates competition, lowers prices and efficiently directs the flow of capital resources. Government facilitation of the market, on the other hand almost always results in an unintended consequence of making the majority worse off for the betterment of only a few. The reason being is that government officials are likely to be influenced by special interest groups lobbying for special treatment to help protect their industries. The Smoot-Hawley tariff passed by the U.S. government in 1930 is a primary example of a destructive protectionist policy. The protection, of course is either the complete elimination of foreign competition or the implementation of policies to make competitor cost unattractive to local consumers. The end result being the same; consumers are made worse off and failing industries are artificially kept alive.

Market regulations, tariffs, quotas, and anti-dumping laws all serve one common purpose – to restrict international free trade. National governments, as witnessed even in recent history, tend to prefer to decide which producers and manufactures they should keep operating within their boarders at all cost. To do so, of course, means that these industries must be protected from global competition. Thus, governments cannot facilitate globalization when their policies serve the interest of the protectionist.

These restrictive policies on international trade also result in negative impacts that hamper the local economy. Government involvement in a market economy, as a result from their interventionism, removes the market mechanisms (price) necessary to foster efficient allocation of resources. Thus, governments are inefficient and create waste. Additionally, market economies are primed on the basis of a profit loss system. And since governments do not own the factors of production and capital resources in a free market, when they attempt to take facilitate these processes the outcome is always disastrous. That is, government actors are neither responsive to market signals nor responsible for the costs from their failures.

Conclusion

International division of labor will bring with it the greatest available level of productivity and standard of living; however, this magnificent cooperation will not be possibly without the precondition of economic freedom and the rights to private property. When nations around the globe complete the necessary transition from government control of the market to a laissez faire market approach, only then will we bear witness to the “greatest improvement in productive powers of labour” on a global stage.

Additionally, it is not just the cooperation for exchange but also for production that leads us to globalization. For we must, through the most efficient methods possible, employ all the available resources – man and commodity – for the utmost productive ends. Thus, leading to the wealth of nations, the incentive to produce in quantity for other’s consumption is the quintessential reason we trade. “The main cause of prosperity, Smith argued, was increasing the division of labor” (www.econlib.org). And, only through government facilitation of the market shall the extent of this market be limited, artificially and unnecessarily, from what otherwise will occur under free-market conditions.

Reference

Ayau, M. F. (2007). Not a Zero-Sum Game, The Paradox of Exchange.

Batemarco, R. (1997). Why Managed Trade Is Not Free Trade, The Freeman: Ideas on
Liberty – August 1997, http://www.fee.org/.

Lee, D. R. (1998). Specialization and Wealth, The Freeman: Ideas on Liberty – August
1998, http://www.fee.org/.

Reisman, G. (2006). Globalization: The Long-Run Big Picture, http://www.mises.org/.

Rothbard, M. (1962). Man, Economy, & State, Chapter 3: Exchange and the Division of
Labor, http://www.mises.org/.

Smith, A. (2003). The Wealth of Nations. Biography of Adam Smith (1723-1790). The Concise Encyclopedia of Economics, http://www.econlib.org/.

Economic Freedom VS. Protectionism

We often hear that free trade policies bring with it negative consequences for American jobs. In fact, Barrack Obama recently continued the myth that "not all free trade is good trade". And, why not? It is true that in some instances Americans will face increased competition when trade barriers are relaxed, however, the negatives consequences are merely short-term. The long-term benefits outweigh the short-term negative impacts - market specific job losses - by a very wide margin. A prime example is that when the majority of Americans are enabled to purchase products at a much cheaper costs, more of their earnings are available for the purchase of other products and services. Thus, making a win win outcome for the global economy.

Furthermore, Obama declares a presidential platform for enhancing education to compete with global economies. Why do we need to compete globally if, at the same time, their objective is to protect less efficient jobs and continue the misallocation of resources? I do, however, believe that Obama has part of this equation correct; education. We should start right away promoting education in free markets and the principals laid out by the classical economist (i.e. Ricardo and Smith).

Let us not continue the myths and fallacies of protectionism. Let us not continue the misalloaction of resources through government subsidies and job assistance programs that only continue the reduction of economic freedom and make us all worse off. "Trade creates wealth - and trade also conserves scarce resources. The unintended consequences of policies designed to obstruct trade exacerbate the problems they are intended to solve."

We hurt the entire nation when our leaders stifle free trade and competition.

America Cannot Afford Another 1932

I have certainly not had the time to read or follow all commentary surrounding the presidential debates, however, from what I have read and followed I am surprised that I have not seen or heard more concern about the comment made by Senator Joe Biden during the VP debate. Senator Biden, more than once, mentioned that this election will be the most important since 1932. Now why would that be?

This mention by Biden as this year’s election being the most important since 1932 leads me to believe that there are one or two specific tactics in play here – although more likely a combination of the two.

The first of the two tactics in play here is that more government intervention is the answer to a struggling economy. Is Senator Biden suggesting that he and a President Obama will usher in more government programs similar to the FDR era that will “save America”? Programs like Fannie Mae, WPA (Work Projects Administration), Social Security System, and other dependency inducing Welfare programs; does America really need more of this?

Quite the contrary to Senator Biden and Obama’s position, these programs only distort the situation and make matters much worse in the long-run. As a few authors here have explained (Rothbard’s America's Great Depression, Amity Shlaes’ The Forgotten Man: A New History of the Great Depression, Robert Higgs’ Crisis and Leviathan) that these very “solutions” are only a means to an end that results in greater government control and power. Myth of the Solution

The current economic situation is not too much different. We don’t need government interventionism to solve the supposed free market failures. The free market has not been allowed to fully operate since Cool Cal. The current problems are a result of what Mises referred to as government interventionism leading to still further government interventionism. More government is not the solution; let’s try more free market mechanisms.

The second tactic on display here is one that has been going on for quite some time as well. That is that economic problems are the fault of Republicans, and Democrats are the ones who solve economic failures. While George W. Bush is not escape from some fault in the current economic situation – similar to some of Hoover’s anti-competition policies – much of the blame can be placed on the progressive policies and corrupt behaviors of the Democrats (i.e. Fannie Mae, Freddie Mac, Community Reinvestment Act and it’s revisions in the mid 90’s, corrupt democratic congressional leaders who are in charge of the banking and finance committee, and ACORN).

What we need now is someone with the ability to point out the culprits and their policies which has allowed economic problems such as the current one to happen, and a reform of big government. Again, more government is not a solution it’s the very entity that is the problem. Let us try the free market and allow this prosperity inducing machine to again work for the American people.

We cannot afford more socialization of America!

Why Not an Achievement of Civilization Day?

The following was written earlier this year, however, I decided to attach this as part of my new blog site.

Yet another Earth Day is upon us and it still seems that we are not yet able to fulfill the environmentalist agenda for saving the Earth in Peril. In reality we should see more reason to celebrate man’s creativity and intellectual evolution – that of which is empirically evident – instead of crack-pot schemes as a means for central control.

What is clear about any form of debate that is over is the environmentalist strong desire to curb civilization. Their statement to the world is simple - It’s time to give up and pack it in, mankind’s tireless efforts to make life better for all has been a farce all along, and rather a negative impact on us all.

What are we, as a civilization to, do that will one day benefit ourselves and the Earth? Is this idea even a potential reality or merely Utopian? Well, currently our air is cleaner, bodies of water are cleaner, people are living longer and healthier lives, more people have access to drinkable water and food, and much if not all of these improvements are a direct result of man’s ingenuity and prosperity. This result is not because man is destroying Mother Nature for his own benefit, but rather man is getting better at living – and a pretty good steward of the land when allowed to capitalize on private property.

What’s more, oftentimes those who claim that man is detrimental to the earth hold the view that evolution is the only answer for man’s mere existence. Well, if we were to hold true any claim of that of evolution, it seems the strongest evidence is man’s evolving intellect and abilities. How can these evolving characteristics be wrong if they are what has allowed us to thrive?
Furthermore, if advancing civilization is to be curbed, we most certainly will go back to the time when the environment was in much poorer condition, which stemmed from a poor standard of living – higher concentrations of waste and disease.

My suggestion is for promoting a civilization day or a day to recognize man’s achievement in technology. Why not designate a day each year to recognize that we are where we are today because of advancing human societies – and we are better for it. In the environment of Liberty, Private Property, and Prosperity is where life is well and land and nature are cherished. Besides, when did climate change become a war anyway? The Times describes our current situation as a War on Global Warming. Well, if it were even possible to be truly at war with Mother Nature, I know what weapon I want at my disposal, technology not environmentalism.

What to Choose

Since I am fairly new to the blogesphere, I decided to post here the question I have asked myself and others. Why to even bother? It seems to me that this is why one - me included - would even bother posting their ideas for others to read and, at times, criticize.

When faced with the choice between learning the hard truths of economic thoughts and ideas and fighting for those truths vs. living willfully blind to the realities of liberty and freedom; what do you choose?

How the Progressives Thrive

We are all certainly capable of being in a state of ignorance about one subject or another, at one time or another; however, it seems that the key phrase that separates the willing from those who just "get by" is - willful ignorance. This concept is a bit different and certainly seems more destructive than simply lacking proper knowledge for a given subject, while at the same time containing the desire to educate oneself at least enough to have an idea so as to not be easily fooled. Intellectual humility, or as characterized by Lao Tzu - "To know that you do not know is the best. To pretend to know when you do not know is a disease" - is a positive character trait. On the other hand, the mindset of an individual who does not take the necessary time to learn important aspects of life will find themselves making statements and agreeing with positions that they themselves really have no common sense in.

These individuals of a society, including myself at one time (although never a proclaimed democrat), appear to be the primary targets for the Democratic Party. Although, it maybe merely correlation and not causation. This concept has inspired me to use the term – demnorance (democrats + ignorance). Demnorants are individuals who have a high level of ignorance - willful ignorance - for the (important) world around them. They are often attracted to progressive positions. The reason, oftentimes, is that these progressive positions attack the hearts of individuals - that is citizens that otherwise maintain no better understanding. Thinking with one's heart in stead of one's brain is unfounded logical. You will find little to no logical reason in the heart, only emotional guidance - thinking with one's heart as opposed to one's mind, one can easily be mislead.

This statement, of course, is not to suggest that people should ignore their own hearts in fear that they will be mislead, but rather measuring what’s found in the heart against logical concepts – outside of love. We all certainly need love, but love is different from emotional, feel good propositions that subject the aggregate to one’s selfish whimsical ways – appealing to pity.
Additionally, not only do demnorants tend to think with their hearts more than their minds, they are also victim to the short-term mind set. Such propositions put forth by the progressives only deal with short-term issues. For example, economic policies that involve big government only seem to be concerned with short-term resolutions while completely ignoring the long-term consequences. Just like the economic positions that were put forth by John Maynard Keynes; progressives (Keynesians) believe that any temporary short fall in the economic cycle can only be solved by government intervention (free healthcare). Demnorants actually, from what I have witnessed, believe that government controlled healthcare will be provided FREE of charge to all of a nation's citizens. First off, as anyone quaintly knowledgeable in economics knows that "there ain't no such thing as free lunch" - someone of willful ignorance would not take the time to gain even an inkling of an understand for what such a concept means. Lastly, only a short-term, demnorant mind set could believe that health care cost could be resolved with government's involvement. Another example is individual savings versus government reliance.

I would, in fact take this one step further to suggest that the media make such doom and gloom statements only to push further the idea - to demnorants, or anyone paying attention - that additional government policies and programs need to be in place, immediately. Central control is the true desire of the progressive party and their ploy is to continue to mislead the demnorants in order to eventually accomplish their goal.

While it seems attractive and "thoughtful" to base rational from the heart, it's better to understand true concepts and causation. Ask a demnorant how they plan to survive during retirement, or for that matter whether or not they even think to plan that far out.

Government Can't Win: Open and Free Competition is the Soltuon

Government cannot win in a competitive environment; government's only method for survival is to eliminate both competition (all free market forces) and any and all incentives for society to become compelled to compete (against one another and against state bureaucracies). Their preemptive tactics are to create - artificially - a need for dependency by the society on the state's illusory benevolence. Altruism over rational self-interest. As Milton Friedman stated; their goal is to transform self-interest an equality of opportunity into equality of outcome and altruism.