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Market Liberalism, International Order, and World Peace, Part 2

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In 1952 ,free-market economist Michael A. Heilperin delivered a lecture entitled “An Economist’s Views on International Organization.” He told his audience,

It is an elementary, but often forgotten, knowledge that policies of national governments have always been the principle obstacle to economic relations between people living in various countries, and that whenever these relations were free from government restrictions, equilibrium and balanced growth would follow by virtue of the spontaneous and anonymous mechanism of the market.

Heilperin was doubtful that the proposals for and implementation of international organizations for economic coordination and prosperity would solve the problems of the world as long as the mentality and ideology of interventionism and planning continued to dominate the arena of public policy. He concluded,

In the economic sphere it is government policies which have erected the greatest barriers on the path of international relations between human individuals. It is the market mechanism which creates world unity out of a multitude of business transactions. Let this market mechanism be revived, let economic forces regain the freedom to function, and a decisive step will have been made toward world organization, economic and otherwise.

A few years earlier, in 1947, Heilperin had delivered a lecture in which he explained what such a freer world meant in terms of economic policy. The “kind of world envisaged by the [classical] liberal thinkers of the nineteenth and twentieth centuries,” he said, was “a world in which political boundaries would gradually become mere administrative divisions; a world of free trade, free capital movements, and free migration; a world in which peace as well as prosperity would be indivisible and sought by common action of all mankind.”

The vision of economic liberty

This is the vision, the alternative, both to political and economic nationalism and to international organization for regulation and planning, that needs to be restored for the 21st century. The great insight of the classical economists and classical liberals of the 18th and 19th centuries was that both freedom and prosperity were possible without government control or direction. Beginning with Adam Smith, they offered a “system of natural liberty,” in which government would be limited to a handful of functions related mostly to the securing and protecting of people’s individual rights to life, liberty, and property. Beyond this, all human relations and interactions would be based on voluntary agreement and peaceful mutual benefit.

Even earlier than Adam Smith’s Wealth of Nations, Smith’s Scottish colleague and friend David Hume had demonstrated that international division of labor and trade benefited all participants. Hume showed that the mercantilist idea — that nation-states were rivals in the sense that if one country gained another had to lose — was fundamentally wrong.

The very nature of peaceful trade is that each trader enters into the exchange precisely because he considers that which he will receive worth more to him than what he has to give up to acquire it. Furthermore, the more prosperous one’s trading partners, the better the market for one’s own goods, since this widens the selection of opportunities for all nations to acquire things that would be more costly or impossible to make at home and, at the same time, to have the means to pay for them in trade.

It increasingly came to be seen that wars between nations are both harmful and counterproductive. What was desired was an international arena of peace, in which rights and property were secure and where the citizens of the various nations of the world could go about their private business of improving their own personal circumstances through market exchanges that cumulatively enhanced the prosperity of all in the society.

The Austrian economist Joseph Schumpeter summarized this spirit in the following way in a lecture delivered in 1941. He said that during the second half of the 19th century “the world was rapidly internationalizing itself.” The goal and general-policy direction was:

Free movement of commodities, restricted if at all only by custom tariffs; freedom, unquestioned in principle, of migration of people and of capital; all this facilitated by unrestricted gold currencies and protected by a growing body of international law that on principle disapproved of force and compulsion of any kind and favored peaceful settlement of international conflicts — that fairly embodies not only what was or was becoming approved practice but also what a majority of people approved.

It was a civilization “not favorable to cults of national glory, victory, and so on.” Central to the success of this classical-liberal conception of international order was the depoliticization of human relationships. By restricting government involvement in social and economic life mostly to guarding and guaranteeing individual rights and property, politics could not — and for the most part did not — interfere in processes and outcomes of market competition and association.

It was not a “matter of state” whether the citizens or subjects of a particular country purchased more or fewer of the goods they desired from domestic manufacturers or suppliers in a different land. It was not an “affair of national honor” whether the resources or raw materials in a particular country were owned by the citizens of that land or by others who happened to reside in another nation in a different part of the world.

Whether people chose to leave the land in which they had been born to find more attractive and profitable places to live and work was not an issue of “national policy” either for the country of origin or for the recipient country.

The very nature and requirements of the market economy are that every participant in the social system of division of labor searches out that niche and activity in which he hopes to earn the greatest net gain in his income and return from any investments he undertakes. The labor services a person offers for hire, the resources and raw materials he employs, and the capital that he invests must be directed to producing those goods and services that others in the society value most highly. From each sale the producer hopes to earn the financial wherewithal to reenter the market as a consumer and demand what others have for sale in exchange.

A world-encompassing community

A global network of interdependent exchange emerges out of this process, in which the origin and location of employment, resources, and capital are of no importance, other than that they tend to be used where they offer the most economically cost-efficient and profitable application for satisfying the demands of the consumers of the world. The entire planet becomes a world-encompassing community of commerce and trade. The motto of this social order becomes: free trade, peace, and goodwill among nations, the very motto adopted by the British opponents of protectionism and mercantilism in the early 19th century.

Such a world of freedom, peace, and prosperity needs neither the termination of nation-states and their administrative sovereignty nor their replacement by international organizations asserting superstate powers of control. What is needed is the successful rebirth and triumph of the ideal and practice of freedom as proposed by the classical liberals of earlier times and now. This was explained by the Austrian economist Ludwig von Mises:

[Classical] liberalism did not and does not build its hopes upon abolition of the sovereignty of the various national governments, a venture which would result in endless wars. It aims at a general recognition of the idea of economic freedom. If all peoples become liberal and conceive that economic freedom best serves their own interests, national sovereignty will no longer engender conflict and war. What is needed to make peace durable is neither international treaties and covenants nor international tribunals and organizations like the defunct League of Nations or its successor, the United Nations. If the principle of the market economy is universally accepted, such makeshifts are unnecessary; if it is not accepted, they are futile. Durable peace can only be the outgrowth of a change in ideologies.

The interventionist-welfare state

The ideology of today is that of the interventionist-welfare state. Governments talk of market-oriented reforms, privatization of state enterprises, revamping the welfare state, reducing spending, and trying to balance the government’s budget or even managing a budgetary surplus. The rhetoric rings with the sound of economic freedom and greater individual autonomy and responsibility. Unfortunately, what is meant is greater freedom relative to the now-defunct idea of comprehensive Soviet-style socialist central planning. And, indeed, by that standard, the world has been moving in the direction of greater liberty.

But the benchmark from which economic freedom and the role of government are judged and evaluated is not one that uses the standard of Adam Smith’s system of natural liberty for its point of comparison. Whether in the United States or in Western Europe, the domain of the market economy is confined and considered appropriate only within a straitjacket of government regulations, controls, and rules specifying methods of production, ranges in which prices and wages are considered fair, a safety net of welfare provisions, and redistributive schemes to ensure “social justice,” as well as prohibitions on various types of personal conduct and private choices.

The networks of intergovernmental international organizations that have been established since the Second World War reflect the interventionist ideologies of the member governments. And if these organizations, and new ones that have been proposed, were given even greater regulatory and controlling authority, they would merely extend this ideology in a more uniform and globally encompassing manner. Degrees of freedom still retained, for example, in the United States would be threatened in the process of member governments’ establishing the rules and standards behind the controls of international organizations that would be given increased political power and authority. And since some people construe international treaties as taking precedence even over the Constitution of the United States, those liberties guaranteed and still respected under the Bill of Rights might be weakened and possibly lost.

In his 1952 lecture, Heilperin argued, “The necessary conditions for a return to economic liberalism on an international scale can be achieved within the various nations only through internal political developments.” In other words, international organizations cannot bring the world freedom, peace, and prosperity. Freedom and prosperity begin at home, within each country, with the peoples of those countries discovering and accepting the principles of political, personal, and economic liberty.

Global prosperity

When the government of each country begins to practice the principles of freedom at home, a network of free peoples encompassing more and more of the world will emerge and develop on its own, without the guiding and planning hand of the state. Each nation practicing the principles of the free market at home and free trade towards its global neighbors will provide the political setting in which individuals will spontaneously generate the private relationships of international association, order, and peace that will bring about the prosperity that people all over the world desire.

At the same time, in not relying upon international organizations or being limited by their rules and regulations, any country that wishes to go further and faster along the path to economic freedom than some of its global neighbors will not be held back or prevented from doing so. True internationalism and world peace will come through individual freedom, the free market, and the peaceful and voluntary associations of civil society. This should be our ideal for the 21st century.

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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).