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Market Liberalism, International Order, and World Peace, Part 1

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In this Post–Cold War epoch the world is desperately searching for international order, global peace, and general economic prosperity. The great debate going on around the world is whether these desired goals can be attained through the existing system of national sovereignty or whether they require the establishment of international political organizations with the delegated power to impose order and peace and to plan and regulate for global material prosperity. The nation-state and world-governing authorities are seen as the two alternatives confronting the human race.

The 20th century was a horrible nightmare, the consequence of political and economic nationalism run wild. Human beings in the tens of millions have been crushed on the altar of the nation-state. Wars and civil wars have brought in their wake mass destruction on a scale that is difficult to really comprehend, as nation-states have fought each other for land, resources, and power and as groups within nation-states have battled for control of the levers of political power within their own borders.

National governments have used their “right” of coercion to restrict trade, prohibit freedom of movement, control the use of capital and resources, and regulate and manipulate money, exchange rates, production, and prices. These same governments have used their monopoly power of force within geographical areas to brainwash the populations under their political jurisdiction through state education, regulated or restricted mass media, and general indoctrination and propaganda that make the multitudes love their paternalistic national Big Brother.

The essence of the nation-state as it has developed over the centuries is that it is the master over all men, all material things, and all the ideas and beliefs within its territorial domain. The state is sovereign.

But who is the state? As the classical-liberal Italian historian Guglielmo Ferrero argued, many of the conflicts within nation-states for the past 250 years have been over whether legitimate sovereignty resided in hereditary kings and princes who derived their power from ancient conquest that was then maintained by custom, tradition, and theological sanctification.

Or whether that political legitimacy arose from the will of the people and the consent of the governed, maintained and reinforced through regularly practiced democratic processes.

Or whether the right to rule the state and its subjects was determined by the seizure of power by a self-chosen elect claiming to know the destiny of a nation or a race or the laws of class relationships and inevitable historical development.

Regardless of whether it has been a monarch, democratically elected representatives, or bands of duces, führers, and people’s commissars, all interests have been made subordinate to the interest of the nation-state. Nothing has stood above the state; not individuals, not various groups, not humanity as a whole. All have been sacrificed to the sovereign nation.

It has been pointed out by historians of nationalism, such as Carleton Hayes and Walter Sulzbach, that the modern notion of the nation and nationality is relatively new, something that has emerged on the world stage only over the last three or four centuries. Before that, people’s allegiances, loyalties, and senses of identity and connection with others were based on religious faith or service to a nobleman, lord of the manor, or one’s family, trade guild, or region and community. The idea that a common language or ethnic heritage necessarily defined people as a “nation” or a “nationality” did not really exist in the sense that is today more or less taken for granted in most parts of the world.

Because of this, it is argued that regardless of their linguistic, ethnic, or religious background and upbringing, people must now transcend national identity, interest, and power. The concerns of all men, regardless of who they are or where they are, are now global. International organization, power, and political authority must replace the nation-state or, if they are not replaced, such national political entities must be subordinate to a higher world regime of institutions of legitimate control, regulation, and planning.

The new world order

The foundation stones for such a new world order were laid in the years after the Second World War with the establishment of the United Nations, the International Monetary Fund, the World Bank, the International Labor Organization, the World Health Organization, the General Agreement on Tariffs and Trade (which has now become the World Trade Organization), and numerous others that form a spider’s web of international institutions having power and authority over billions of lives around our planet. And other, new organizations have been proposed, such as an International Environmental Agency, that would be responsible for regulating industry and population in the name of “saving the earth,” as well as enforce labor standards and work conditions in countries around the world to ensure that they are both “just” and consistent with a planet properly balanced between man and nature.

In Europe a political process has begun in which the nation-states of that continent are being slowly transformed into what will be lower-level administrative elements in an all-encompassing European state. That is the primary political purpose behind the establishment of a single currency, the Euro. As the Spanish free-market economist Pedro Schwartz has warned, the European Union threatens to become “a mirror image on a larger scale of our interventionist welfare states, awash with rules and regulations, riddled with subsidized agriculturists, tax cheats, black marketeers, feigned unemployed, and imaginary maladies.”

In July 2000, U.S. Sen. Phil Gramm said at the Centre for Policy Studies in London that Great Britain should apply for membership into the North American Free Trade Agreement (NAFTA) and that such an application would be greeted with serious and positive consideration. But for those who are responsible for the political and policy control of NAFTA, free trade is not the only thing on their mind. The recently elected president of Mexico, Vincente Fox, said in August 2000 that Mexico needed to catch up and be an equal economic partner with the United States and Canada. But for this to happen, Fox argued, “I don’t think the market, by itself, will do the job. This job has to be done by the intelligence of people, by the intelligence of governments, by the talent of our nations.”

What exactly did this mean? According to the Washington Post, Fox went on to say that “he would like to see the creation of a development fund through the North American Free Trade Agreement, similar to the $35-billion-a-year European Union development fund, which helps to create jobs and increases income in poorer countries” of the European Union, such as Portugal and Greece.

Transfer of sovereignty

And here is the heart of the matter. The existing and proposed international authorities for political control and economic planning are not designed to replace the existing network of nation-states with a new and liberating regime of individual freedom and economic liberty. Instead, they are designed to manage the personal, social, and economic affairs of billions of people the same way that nation-states have been managing them on a territorially smaller scale for several centuries already.

It is the transfer of sovereignty — the legitimized right to politically rule and command obedience over a geographical area — to a more globally encompassing plane. Some, such as NAFTA and the European Union, are directed to a wider regional arena of control extending only over some existing nation-states. Others, such as the International Monetary Fund, the World Bank, and the World Trade Organization, are truly global in their purpose and functions.

But each of these involves a continuation and often an intensification of the politicization of society. It would be an absurd exaggeration to suggest that these international organizations have had no positive effects. Under the more recent rules of the European Union, for example, citizens of member nation-states have a greater degree of freedom of movement to live and work where they desire, with fewer residency restrictions than previously prevailed in many of these countries.

There is a flexibility in capital movement among European Union members, which creates an economic environment conducive to a more rational (i.e., more profit-driven) pattern of investments. And the more petty and extreme regulations and controls that have been in place in some of these European countries have been reduced or repealed to match the regulatory norms of the consensus of the member nations.

Nonetheless, behind these intergovernmental political organizations is the same planning and social-engineering mentality that has guided the governments of the individual nation-states. The methods and types of production are to be strictly regulated, prices and wages must conform to standards of “fairness” and “social justice,” and huge welfare-state “safety nets” are not only internationalized but imposed and expanded in those member countries that up to that point had been less interventionist in their domestic policies. And there is no way out for any of the member countries other than leaving the regional or international political order to which they belong.

Mexican President Fox’s remarks quoted above demonstrate the mentality dominating these organizations: markets cannot do the job, and member governments must participate in a further internationalization of the redistribution of wealth. The NAFTA bureaucracy is to be provided with a “development fund” paid for, obviously, by U.S. and Canadian taxpayers. That bureaucracy will then allocate these funds to various sectors of the Mexican economy, to assist selected industries and employment opportunities that the NAFTA bureaucrats decide are the most worthy after, one can be sure, consultation with various ministries of the Mexican government. The decisions, one can be confident, will be impartial, unbiased, and not in the least tainted by the sick aroma of Mexican special-interest politics.

It was Laura Tyson, former head of President Clinton’s Council of Economic Advisors, who suggested the establishment of an International Environmental Agency (IEA) in the January-February 2000 issue of Foreign Affairs. This agency would have the delegated power to evaluate and enforce global environmental rules that would be binding on the citizens of the member countries. The IEA would have the authority to dictate the directions and form of global production, investment, and resource use and allocation in the name of saving the planet. Furthermore, it would have power to dictate workplace standards and influence wage scales in Third World countries to prevent supposed labor and environment exploitation.

Back in 1945, the German free-market economist Moritz J. Bonn, then an exile in the United States from war-torn Europe, made the succinct observation,

International economic relations can be carried out in three different ways: exclusively by private individuals and corporations; exclusively by governments; or by private persons and corporations on the one side and by governments and government institutions on the other side.

Economic or market liberalism

Bonn also pointed out 11 years earlier, in 1934,

that whenever the spirit of [economic] liberalism has prevailed in the economic sphere, international cooperation has worked fairly well notwithstanding political nationalist frictions…. Whenever international economic exchange was operated in its spirit, international economic interdependence made for peace in the political field and for the reduction of friction in the economic field…. International interdependence of this sort was real cooperation. It raised the standard of living in all the countries concerned.

Yet it is the case for economic or market liberalism that is not heard at all in this ongoing debate about an international order for the 21st century. It is the alternative both to political and economic nationalism and to international political authority. And it is the only alternative that is consistent with individual freedom, economic liberty, international peace, and global prosperity.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).