Liberalism and the Relationship Between Prosperity, Peace, and the Love of Mankind

I got back from a very fun IHS conference at Duke University, at which I had the pleasure of explaining the benefits of global trade to an audience of very sharp students. I especially enjoy seeing (figurative) light bulbs go off when they understand the difference between absolute advantage and comparative advantage (thanks to a simple but startling mathematical proof that I owe to Don Boudreaux), the difference between “labor costs” and “wages” (the U.S. has both low labor costs and high wages, due to the the immense productivity of labor made possible by the enormous amount of capital with which we work), and so on. What I didn’t have a chance to discuss, but which is of central importance to the classical liberal understanding of international relations, is why the prosperity of others is of benefit to us.

It’s such a commonplace to hear the uninformed (from Ross Perot to Lou Dobbs) complain that other nations are prospering, as if that would be bad for us. Quite the contrary, as Jean-Baptiste Say explained in his pathbreaking (and still very readable) Treatise of Political Economy:

[E]ach individual is interested in the general prosperity of all, and that the success of one branch of industry promotes that of all the others. In fact, whatever profession or line of business a man may devote himself to, he is the better paid and the more readily finds employment, in proportion as he sees others thriving equally around him. A man of talent, that scarcely vegetates in a retrograde state of society, would find a thousand ways of turning his faculties to account in a thriving community that could afford to employ and reward his ability. A merchant established in a rich and populous town, sells to a much larger amount than one who sets up in a poor district, with a population sunk in indolence and apathy. What could an active manufacturer, or an intelligent merchant, do in a small deserted and semi-barbarous town in a remote corner of Poland or Westphalia? Though in no fear of a competitor, he could sell but little, because little was produced; whilst at Paris, Amsterdam, or London, in spite of the competition of a hundred dealers in his own line, he might do business on the largest scale. The reason is obvious: he is surrounded with people who produce largely in an infinity of ways, and who make purchases, each with his respective products, that is to say, with the money arising from the sale of what he may have produced.

This is the true source of the gains made by the towns’ people out of the country people, and again by the latter out of the former; both of them have wherewith to buy more largely, the more amply they themselves produce. A city, standing in the centre of a rich surrounding country, feels no want of rich and numerous customers; and, on the other hand, the vicinity of an opulent city gives additional value to the produce of the country. The division of nations into agricultural, manufacturing, and commercial, is idle enough. For the success of a people in agriculture is a stimulus to its manufacturing and commercial prosperity; and the flourishing condition of its manufacture and commerce reflects a benefit upon its agriculture also.

The position of a nation, in respect of its neighbours, 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.

(That excerpt is from Book I, Chapter XV, Of the Demand or Market for Products; the work is available in its entirety online, as part of a huge library of important books, by www.econlib.org.)

As Say explained in his Letters to Mr. Malthus (English edition; trans. by John Richter, London: Sherwood, Neely, and Jones, Paternoster Row, 1821; unfortunately, out of print and not available online),

When I advance that produce opens a vent for produce, that the means of industry, whatever they may be, when unshackled, always apply themselves to the objects most necessary to nations, and that these necessary objects create at once new populations and new enjoyments for those populations, all appearances are not against me. Let us only look back two hundred years, and suppose that a trader had carried a rich cargo to the places where New York and Philadelphia now stand; could he have sold it? Let us suppose even, that he had succeeded in founding there an agricultural or manufacturing establishment; could he have there sold a single article of his produce? No, undoubtedly. He must have consumed them himself. Why do we now see the contrary? Why is the merchandize carried to, or made at Philadelphia or New York, sure to be sold at the current price? It seems to me evident that it is because the cultivators, the traders, and now even the manufacturers of New York, Philadelphia, and the adjacent provinces, create, or send there, some productions, by means of which they purchse what is brought to them from other quarters. (pp. 3-4)

The prosperity of other nations (China, for example) is not “good for them but bad for us.” It’s good for us, too. They have more stuff with which to exchange for our stuff, making us richer. And when we enrich each other through exchange, we also create interests in the continuation of that mutual benefit that diminish (even if they may not eliminate) occasions for violent conflict.

Thus, true liberalism not only eschews the small mindedness and spitefulness that underlies protectionism, but embraces both the wish for and the conditions for peaceful relations among peoples, in the spirit of true amity and love of mankind. If only I had had more time!

ADDENDUM: I have been asked to provide the arithmetical demonstration of the gains from trade based on comparative advantage. Here it is: Download file