My "Occupy Monterey" Talk, Part III
By David Henderson
“One big advantage of free markets,” I said, “is that they make wars less likely. When there is a lot of trade between countries, both sides have more to lose by going to war. Many scholars who study war and trade have been aware of this connection. This was recognized as early as 1750, when Baron de Montesquieu stated that ‘peace is the natural effect of trade.’ This was confirmed in a 2006 study, “An Analysis of Dyadic Dispute,” by Solomon W. Polachek of the State University of New York at Binghamton and Carlos Seiglie of Rutgers University. Polachek and Seiglie show that the higher the gains from trade between two trading partners, the lower the level of conflict between them. A doubling of trade leads to a 20 percent decrease in belligerence. In short, trading nations cooperate more and fight less.”
“Or think about what mortal enemies India and Pakistan have been. And yet as trade between those two countries has increased, they have been able to calm down the various disputes about borders and territory. Also, remember the first few months of the Bush II administration when the Chinese government forced down the U.S. Navy plane and held the Navy people? (One of them was later a student of mine, by the way.) Why didn’t Bush get belligerent? Part of the reason is that various big businesses with investments in China and trade with China went to Bush and said, ‘Don’t mess this up.'”
“But don’t we need to invade other countries to get resources? No. How is Switzerland doing? How many countries has it invaded? Trade promotes peace.”
“There’s a common view that when markets are free, the rich get richer and the poor get poorer. It’s not a total myth: it’s half true. The rich get richer, the poor get richer, and pretty much everyone else gets richer. The early 20th-century economist Joseph Schumpeter said it best:
Queen Elizabeth [the first] owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.
“With economic growth, which is caused mainly by free markets and the increasing division of labor that it gives rise to, what was a luxury for the few becomes a necessity for the many. When economic historians want to measure British standards of living in the late 18th century and early 19th century, do you know what luxury item they look at?”, I asked the audience. Someone yelled out, “Tea.” “Wow!” I said, “that’s right. I owe you.”
“Or how about home heating without a fireplace? That was non-existent in most of the 19th century. Now pretty much everyone has it. Or take refrigeration. What did some of your parents or grandparents call a fridge?” “An ice box,” said someone. “Right,” I said, “and do you know why.” Someone explained that it’s because you put in ice at the top and cold air sinks.
“Or consider this,” I said, “Who was the wealthiest man in America early in the 20th century?” “John D. Rockefeller,” said someone. “Right,” I said, “and at its peak, John D. Rockefeller’s net worth was, in today’s $, about $200 billion, which would make him richer than Bill Gates and Warren Buffett combined.”
“But think what you have that he didn’t. He couldn’t watch TV, play video games, surf the Internet, or send e-mail. During the summer, he didn’t have air conditioning. For most of his life, he couldn’t travel by airplane. He didn’t even have [and here I picked up my cell phone] a 1G. And here’s the big one: If he got sick, he couldn’t use many medicines, including penicillin. Calvin Coolidge’s son, after playing tennis on the White House lawn and getting a blister, died. He didn’t have antibiotics.”
“So you could say that you’re richer than Rockefeller. Isn’t there a song about that?Here’s the test. Who here would trade places with Rockefeller?” I asked. About 5 people stuck up their hands. “Then you’re not,” I said. “Who wouldn’t trade places with Rockefeller?” I asked. About 15 people stuck up their hands. “You are,” I said.
“Another virtue of free markets is that they help break down racism,” I said. The opposite idea, that free markets promote racism, ignores some basic economics and a whole lot of history. Let me quote the French philosopher Voltaire who, by the way, has the same birthday as me:
Go into the London Stock Exchange–a more respectable place than many a court–and you will see representatives from all nations gathered together for the utility of men. Here Jew, Mohammedan [Muslim] and Christian deal with each other as though they were all of the same faith, and only apply the word infidel to people who (pause) go bankrupt.
“Gary Becker, a University of Chicago economist who won the Nobel prize in economics, pointed out why free markets create tolerance. It’s because of the profit motive. People in business would like to make more money rather than less money and they see that they’ll make less money if they refuse to hire a competent employee of another race or refuse to sell to willing buyers of another race. In other words, free markets make people bear a cost for discriminating. That doesn’t mean that they won’t discriminate. Those employers with the most-racist attitudes will still find that cost worth bearing. But they’ll also find their market share shrinking. The most-tolerant employers and the most open-minded retailers will be the ones who do the best.”
“That’s why,” I said, “the clearest cases we have of discrimination are those that are enforced by government. Take the case of street cars in the South before the 1960s. Most streetcar companies in the South voluntarily segregated: into smokers and non-smokers. Streetcar companies refused, however, to discriminate against black people because separate cars would have reduced their profits. They resisted even after the passage of laws requiring the segregation of black people. As pressure from the government grew, however, the streetcar companies succumbed.”
“Consider one of the most extreme forms of government-enforced racism in the 20th century: South Africa’s Apartheid. Apartheid, which means ‘separateness,’ officially began in 1948, but it followed earlier laws, called the Color Bar, which were passed in the 1920s.”
“Before these laws were passed, white mine owners wanted to hire black workers to work in the mines. Black workers were productive and were willing to work for less. Mine owners, seeing that they would pay a price for discriminating, chose to be color-blind. But the Mine Workers Union, composed solely of whites, protested and seized the mines. And here was their haunting slogan: ‘Workers of the world unite, and fight for a white South Africa.’ Karl Marx, meet David Duke.”
I paused and noted the reaction. There was some laughter and, it seemed to me, a whole lot of pensiveness.
“While I’m on Apartheid, let me mention a South African friend of mine, Leon Luow, who was an early outspoken opponent of Apartheid and who helped write South Africa’s new constitution. Leon was a Communist before he was a libertarian. In a recent speech, he said that people often say, ‘That’s a big shift.’ He answered, ‘Not really. I was in favor of the withering away of the state. I still am.'”
I ended by saying that because this is a political season, I had one presidential candidate to recommend, who, on the issues of civil liberties, war and peace, and economic freedom, stands head and shoulders above all the other candidates. Someone in the audience yelled out his name. I’ll leave you to figure out who I meant. I’ll call him X.
That upset an audience member who yelled out that this was supposed to be a non-partisan event. “You don’t have to be partisan,” I answered, “I am.” I later learned that they had announced at the start of the talks, well before I had arrived, that the event was non-partisan. No one had told me.
“Even if I can’t persuade you to support X,” I said, “I hope I can persuade you to be antiwar. There was a vibrant antiwar movement when Bush was president, but now that Obama is president and is actually worse on war than Bush, the antiwar movement has gotten much quieter. I would leave you with this thought: a bad way to judge a policy is by whether the person advocating it is a Republican, a Democrat, or a Libertarian. Judge the policy on its merits.”
I think some people applauded at that.
Next: Part IV: Q&A and the aftermath.