One would think that businessmen should easily understand the importance of trade. Some certainly do who are trying to lobby President-elect Donald Trump not to follow through on his protectionist threats (“CEOs Want Trump to Change Course on Tariffs. He Isn’t Budging,” Wall Street Journal, December 15, 2024). They seem to be defending their freedom to trade, to buy and to sell goods (and services) as they want.
I take “businessman” to mean roughly what “supplier” means in economics: anybody whose main occupation is to make some good or service available to its market demanders (consumers or other businesses). They include owners of business enterprises, corporate executives, and intermediaries like merchants or traders. Laborers are suppliers, but only of the services of human capital on labor markets, and would not generally be included among businessmen. (It goes without saying that the “men” in “businessmen” includes the two sexes of mankind.) According to Nobel economist John Hicks, the rise of the merchant or trader as a specialized middleman, buying goods only to resell them, marks the first stage in the rise of the market economy.
Merchants governed city-states and largely autonomous medieval cities. These cities were not only wealthier than the rest of the country but also far freer. A legal maxim circulating in Europe was that “the city air makes you free.” A serf could be liberated from his landlord if he could “make it to a city and reside there for a year and a day” (see Alexander William Salter and Andrew T. Young, The Medieval Constitution of Liberty, which I recently reviewed in Regulation). Merchants understood that for them to be (relatively) free to trade, a general institutional climate of freedom was necessary.
Many analysts, however, have noted that businessmen, especially perhaps corporate executives, have become bad defenders of trade and markets. Samuel Brittan, the late Financial Times columnist, wrote in his 1973 book Capitalism and the Permissive Society:
A further difficulty is that the type of intellectual professionally qualified to explain the case for capitalism is the economist. Businessmen can usually be relied upon to defend the indefensible aspects of their activities while giving in to their collectivist opponents on all essentials. Nor is it a criticism: businessmen are paid to operate the system rather than to understand or expound it, and nothing is more pathetic than to see politicians of either party coming cap in hand to industrialists or bankers for advice that the latter are not qualified to give.
A contrarian may note that Brittan’s expression “running the system” belittles the liberal idea of an autoregulated order that doesn’t need to be “run” and naturally resists authority from above. This slip of the tongue is of course nothing compared to the collectivist preaching of naïve business associations, of which the World Economic Forum is a paragon.
Juan Perón, a former army officer, ruled the Argentine government as a left-wing populist politician from 1946 to 1955 and 1973 to 1974. His economic knowledge was nonexistent, a phenomenon not rare among politicians, especially populist ones. He seemed to believe that businessmen who had become rich understood economics ipso facto. Economist Roberto Cortés Conde notes (The Political Economy of Argentina in the Twentieth Century [Cambridge University Press, 2009]):
Perón did not have a very well developed or sophisticated economic ideas [sic]. During both of his administrations he put the treasury in the hands of men who knew how to get rich, demonstrating his exaggeratedly simplistic view of economic phenomena.
Merchants, the ancestors of all businessmen, were pushers of trade, if we may use the expression. Today’s businessmen often seem to be the clients and courtiers of those in power. How is it that businessmen have become so estranged from economics and laissez-faire? One reason might be that the economy has become more complex and difficult to understand.
Another hypothesis—formalized by public choice theory—is that when the state has reached a certain size or a certain level of what it has become fashionable to call “state capacity,” the name of the game becomes rent-seeking. The opportunity to put their hands in the public treasury through government contracts and subsidies grows more valuable. To obtain privileges from the good graces of the rulers, they have to align with, and obey, the state. When the rule of law fades before the government of men, businessmen come to fear that these men can ruin their businesses. To survive, they must kiss the ring of the state. As the Wall Street Journal puts it after observing how CEOs of large tech companies felt obliged to contribute to the inauguration of the new US president, it was “The Week CEOs Bent the Knee to Trump.”
Yet, isn’t it still better to allow businessmen to bribe politicians or bureaucrats, directly or indirectly, legally or illegally, as opposed to silencing their customers’ demand intensity? Perhaps, but the cost of this crony capitalism is high. Pareto-enhancing corruption encourages politicians and bureaucrats to finance their activities through this sort of extorsion. It amounts to a tax that will carry a deadweight loss like any other tax. It also undermines the rule of law and the ethics of reciprocity on which a free and prosperous society rests. As James Buchanan suggests, the corruption of public morality can lead to the debasement of private morality (see Buchanan’s Why I, Too, Am Not a Conservative), which will further weaken the social institutions on which efficient cooperation depends.
The degradation of public and private morality and the transformation of the businessman from a pusher of consumer satisfaction to a client and courtier of the state is illustrated by automobile manufacturers threatened with arbitrary and disruptive tariffs on their imports from Mexico and Canada. They are vying to wheedle the politician who has the power to interfere with their trading (“Hyundai Goes All In on Effort to Woo Trump as Tariffs Loom,” Wall Street Journal, January 11, 2025):
Hyundai in particular has launched an aggressive campaign to build relationships with Trump advisers. The company has told the president-elect’s aides that it is working to be a U.S. job creator and a supporter of the American auto industry.
Hyundai executives, including Muñoz and Hyundai Motor Group Vice Chair Jaehoon Chang, may attend inauguration events, the people said. A $1 million donation provides six tickets to a private candlelight dinner with Trump and his wife Melania Trump on Jan. 19, one day before Trump is sworn in as president, according to a benefits package reviewed by The Wall Street Journal. The contribution also allows for six tickets to a private reception on Jan. 18. with Trump’s cabinet picks, as well as other exclusive events.
Hyundai, of course, is only one example among many of the perverse incentives created by bully politics.
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A caravan on the Silk Road around 200 A.D. according to DALL-E
READER COMMENTS
Craig
Jan 13 2025 at 11:39am
“Hyundai in particular has launched an aggressive campaign to build relationships with Trump advisers. The company has told the president-elect’s aides that it is working to be a U.S. job creator and a supporter of the American auto industry.”
There are Hyundai and Kia plants right now in AL and GA. I habe owned two Kias, fine cars for sure. It is however somewhat unseemly that Americans per capita defense expenditures far exceed those of South Korea, among others, desoite being much closer to the danger. Meanwhile there’s somebody in PA wondering why they’re paying taxes to defense a country that sonehow can’t seem to spend as much proportionately but can find room in its budget to subsidize his economic conpetitor. I mean, seruously, who’s running this empire? They’re doing it wrong 😉
Thomas L Hutcheson
Jan 15 2025 at 11:44am
Giving us automobiles at a reduced price is their way of saying “thank you” for the military protection. 🙂
steve
Jan 13 2025 at 12:11pm
I have never understood the assumption that a businessman would understand economics. They might have some intuitive understanding of things that affect them but I dont see why they would have a grasp on broader issues unless they had a specific interest. I had been in health care for 15 years before I developed an interest in health care economics and found out how little I understood about the broader issues. I ran businesses (2) for years and that didnt lead me to some special knowledge. If you run a very large business I think you out of necessity have to cope with larger economic issues but I dont think it means you develop general expertise.
Steve
Craig
Jan 13 2025 at 12:16pm
One of my worst conceits was my belief that my relative success evinced a general competence. But one of your greatest strengths can be having insight on your own shortcomings, recognizing your own weakness in light of your stremgths and seeking more competent assistance accordingly. It seems you have this humility, Steve, and I am sure it has served you well.
Pierre Lemieux
Jan 13 2025 at 2:50pm
Craig: I concur.
steve
Jan 14 2025 at 12:09pm
Thanks! I have occasional delusions of grandeur but I have a wife who is dedicated to reminding me how often I am wrong which helps keep me in line.
Steve
Roger McKinney
Jan 13 2025 at 1:10pm
Mises wrote that businessmen fixate on the short-term. The economist’s job is to try to get them to look up once in a while and consider the long-term. Schumpeter wrote that for similar reasons businessmen are enemies of capitalism. Adam Smith wrote something similar, saying businessmen never get together except to determine how to defraud the public.
Richard A.
Jan 14 2025 at 1:29am
I have said many times, most businessmen cannot see the forest for the trees. Economic positions in government should be filled by economists, not by businessmen, nor lawyers.
David Seltzer
Jan 14 2025 at 2:48pm
“I have said many times, most businessmen cannot see the forest for the trees. Economic positions in government should be filled by economists, not by businessmen, nor lawyers.” Thomas Piketty or Tyler Cowen? Joe Stiglitz or Scott Sumner? Paul Krugman or John Cochrane? Just asking.
Jose Pablo
Jan 14 2025 at 7:30pm
Good one, David!
Sometines economist look like old couples: they seldom agree on anything.
Richard A.
Jan 14 2025 at 9:34pm
“Thomas Piketty or Tyler Cowen? Joe Stiglitz or Scott Sumner? Paul Krugman or John Cochrane? Just asking.”
How do you think this group of politically diverse economists would vote on free trade?
Jose Pablo
Jan 15 2025 at 7:29am
If tariffs are the issue then use Keynes
Pierre Lemieux
Jan 17 2025 at 11:19am
Jose: I think that Richard A. still has a point. When we say “economists,” we mean economists who take the economic tradition seriously. Alternatively, we distinguish between two kinds of economists. My post “Keeping a Safe Distance From Policymakers” raises these issues. The bottom line, I think: under an unlimited government, many economists will renounce their basic framework of analysis, but economists will still be less malleable than other professions. When you have once met the theory of self-regulating social order, you will never be the same.
Jose Pablo
Jan 14 2025 at 7:10pm
Economic positions in government should be filled by economists, not by businessmen
I don’t know. Since economist has been plainly rejected by businessmen (Warren Buffett once said “If you have one economist in your payroll you have one too many“) wouldn’t be they seeking revenge?
Wouldn’t be that like ornitologist try to teach birds how to fly?
john hare
Jan 14 2025 at 2:51am
In 2005-2008 I saw large concrete companies investing heavily in new concrete plants. Doing concrete work, I assumed they had it “figured out” and I expanded my company buying equipment and workshop area. When the recession hit, the payments didn’t stop like the work did. Some of those large companies i was following didn’t make it either.
Jose Pablo
Jan 15 2025 at 11:38am
the transformation of the businessman from a pusher of consumer satisfaction to a client and courtier of the state
What other output could be expected from governments growing to the point or expending or redistributing 40% of all goods and services produced by the individuals living in the country (and up to 50%+ in Europe)?
Particularly so if the leader of the free world reasons for not banning Tik Tok is that the platform helped him to win the young vote by 34%, or that his son has introduced him to some popular names in Tik Tok and they were “kind of cute”.
The power that can not be arbitrary degrades itself. So power will always manage to be arbitrary, one way or the other.
Laurentian
Jan 15 2025 at 2:04pm
The US has a long history of protectionism and South Korea isn’t exactly free from government intervention in business either. So claiming that willingness to kowtow to politicians is not new.
A cynic might argue that the businessmen of the past supported economics and laissez-faire as a useful way to undermine the power of the Aristocracy and Church that they despised (many businessmen were religious dissidents after all; the fact that John Bright came from Quaker clothing manufacturer family is probably not a coincidence) and enrich themselves too. Once the businessmen found themselves in power limits on government power seemed not very useful.
Oh and plenty of merchant families were not supporters of laissez faire even then. John Ruskin was a well-traveled son of a wine importer yet Mises called him one of the gravediggers of English liberty.
In fact 19th century classical liberals tended to parochial fellows and the illiberals of the time tended to be very cosmopolitan fellows. The protectionist leader Lord Derby was university educated unlike Bright, Cobden and Spencer. Or compare Bismarck to Eugen Richter.
Has anyone had a good explanation for why the current urban political class is terrible? Los Angeles, New York, Chicago, San Francisco, DC, city councils aren’t exactly bastions of classical liberalism.
The classical liberals also thought public schools and universities would be bastions of support for them too so perhaps the belief that “city air will set us free” and businessmen being supporters of laissez faire are just another outdated 19th century assumption.
MarkW
Jan 18 2025 at 10:42am
Yes, but what was going on before Trump was much, much worse — namely, the active coerced participation of Facebook, Twitter, et al in the Biden administration’s censorship by proxy program. Compared to such serious constitutional breaches, some cash for the inauguration is relatively small potatoes. And what the tech CEOs seem to hope for from Trump are not special favors, subsidies, or tax breaks, but that, unlike Biden’s FTC, they hope that the Trump administration will leave them alone to run their businesses.
Likewise, it seems unlikely (and now, with the current level of debt, impossible) that the Trump administration is going repeat the Biden administration’s unprecedented trillion dollar spending bills which, of course, provided countless billions in subsidies to favored interest groups and industries.
These complaints in the post are legitimate, but it feels very strange to me to see that the level of concern among libertarians seemed to be lower under Biden than in anticipation of Trump 2.0. Neither one is to my liking, but Trump would have to work hard, indeed to outdo in the race for worst president of my adult lifetime (at this point, Biden seems to have an almost insurmountable lead).
Richard W. Fulmer
Jan 18 2025 at 2:32pm
All of which underscores the importance of the rule of law in which people are treated equally regardless of wealth or circumstance.
As soon as the government starts doling out favors, people line up to collect. Unsurprisingly, it is the rich and powerful who are best positioned to gain from the government’s beneficence – something that those who want to use government coercion to help the poor seem unable to understand.
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