Von Mises in Mexico (1): Trade is Peace
"Evil men will always exist; however, it is important to create an economic order in which their power to do harm is reduced to a minimum." – Ludwig von Mises
In 1942, Ludwig von Mises published a visionary article in the Mexican journal Cuadernos Americanos, whose lessons, unfortunately, are ignored by most of today’s governing politicians.
At the height of World War II, the world witnessed the most formidable power of destruction that human beings are capable of. In his essay, Mises expressed his wish that "one day, this terrible war will end and people will once again be able to dedicate themselves to the tasks of peace. Then, the production of arms and other criminal instruments will be replaced by goods for the consumption of men, women, and children.”
In his writing, Mises explained that the main reason for this terrible conflict was the economic nationalism practiced with great enthusiasm by the governments of various nations during the 1930s, as a false solution to the Great Depression that was triggered by the 1929 stock market crash.
In that decade, many governments felt that the interests of their respective nations would be served by pursuing all or some of the following policies: (1) prohibiting imports of foreign products; (2) restricting immigration; or, (3) expropriating, in whole or in part, the capital of foreigners living within that country. Unfortunately, Mexico was no exception.
In the end, these policies turned out to be a great fraud. Mises reminded us that restrictions on international trade eventually lead to a weakening in labor productivity and, therefore, in the population’s living conditions. Furthermore, it must be emphatically stressed that all trade is conducted between individuals— people who freely choose what suits them— and any interference by governments is an attack on individual freedom.
Restrictions on international trade eventually lead to a weakening in labor productivity and, therefore, in the population’s living conditions.
The irrational economic antagonism of protectionism gradually pushed the world into World War II because trade restrictions eliminated the incentive for cooperation that nations and individuals who trade with each other naturally adhere to. Moreover, when this fallacious thinking spreads throughout the world, industrialized countries are unable to export their value-added products, which in turn prevents them from accessing the foreign exchange needed to acquire the raw materials they need. This pushes nations toward the militarily invasion of countries that have basic resources and, lacking an industrial base, will be unable to defend themselves.
In a world where protectionism prevails, any small but resource-rich nation is exposed to a serious danger of invasion and industrialized countries will seek to "arm themselves to the teeth" to ensure "their natural right" to obtain basic production inputs.
In contrast, in a world where free trade prevails, raw materials can be freely obtained on international markets, eliminating the need to use military force to acquire them. Therefore, as citizens we have a moral duty to denounce protectionism and economic nationalism in all its forms.
In a world where free trade prevails, raw materials can be freely obtained on international markets, eliminating the need to use military force to acquire them.
A few months ago, at the Alamos Alliance forum, Deirdre McCloskey commented that people think the economy is a zero-sum game, if you get better, I get worse. Populism incorporates this way of thinking. Populists, who do not understand how the economy works, take measures that always show results that are the opposite of what they pretend to offer.
McCloskey argues that “liberalism is the opposite of populism. It led to innovation and a dramatic expansion of the economy and a reduction in poverty... Instead of policy based on envy, which is the basic instrument of populism, we have begun to admire progress. This is the result of free societies.”
After the end of World War II, the European nations understood this lesson, and in 1957 signed the Treaty of Rome, which was the precursor of what is today the European Union, and led to a surge in support for free trade.
Experts now believe that the conflicts between India and Pakistan, or between China and Japan, or China and Taiwan, will be resolved to the extent that these nations ensure their well-being through free trade. In Europe, it is quite clear that maintaining peace in Northern Ireland requires a free flow of goods and people across its border with the Republic of Ireland.
However, with the 21st century well underway, we see that the lessons of World War II were forgotten by many populist politicians on both the left and right wings of the political spectrum. Instead, they push for some combination of the three policies that led the world to war. They forget that trade is peace.