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Why Does Free Trade Need Defending?

Specialization underpins humanity's growth and prosperity. Why does it still need arguing...?

I GAVE the following presentation at a fringe event during the Conservative conference in Birmingham, writes entrepreneur Toby Baxendale of the Cobden Centre...

Human Co-operation and the Universal Division of Labour

Adam Smith showed us, and it is not disputed internally within the
nation, that specialisation in tasks has led to the explosion of the
population and material prosperity.  One person the farmer, one the
hunter, one the gatherer, one the home maker, etc., with the
specialisation always geared to who is best at doing the task.

This is accepted by all rational people.

Ricardo showed us that what applies to the individuals in the nation
should also apply to the free trade between the nations of the world. 
It is always advantageous for each nation to concentrate all its efforts
to produce things it is best at, even if it could produce some other
lesser goods better than the next best producer.

So why does this idea meet such resistance? Why do we allow crony
capitalists and other vested interests to get a privileged, protected
position — such as the European Union farmers when they argue for the
Common Agriculture Policy (CAP) — that allows them to push up the prices
of their goods and services at the expense of you and me, the consumer?

The Irrefutable Case for Free Trade

David Beckham is a super star football player, who also learned the skills of his father the gas fitter.

His father, Beckham senior is a gas fitter who wanted to be a superstar football player

Let’s say that David can hire a gas fitter for £20 per hour. With a
little practice, he could be twice as efficient as his father. We will
imagine that he could market his own gas fitting services for £40 per
hour.

By playing football, we will suppose that Beckham  can earn £10,000
per hour. Meanwhile, his father the gas fitter couldn’t make more than
£1 an hour playing football.

Beckham Jnr has a 2-to-1 advantage as a gas fitter, but a 10,000-to-1 advantage football star.

If he divides his time equally between gas fitting his own house and
playing football, his total output for the week can be valued at:

10 hours gas fitting  x £40 per hour = £400

10 hours football x £10,000 per hour = £100,000

Total output: £100,400

If David’s father divides his time the same way we could value his production as follows:

10 hours gas fitting  x £20 per hour = £200

10 hours football x £1 per hour = £10

Total output: £210

Between them, David and father have produced £100,610 worth of output.

The Law of Association (Mises) or the Law of Comparative Advantage (Ricardo)

Now let’s examine the situation if, as we expect, David hires his father. David’s production can now be valued at:

20 hours football x £10,000 per hour = £200,000

Total output: £200,000

And his father’s at:

20 hours gas fitting x £20 per hour = £400

Total output: £400

Their total output has risen to £200,400.

The Greatest Protectionist Block in European History: The European Union

With this case proven, our politicians should use the irrefutable law
of association to call for the dismantling of fortress Europe as it
price gouges its hapless taxpayers.

The Taxpayers Alliance report “Food for Thought
by Dr Lee Rotherham shows us that the EU protectionist food policies
costs the UK £10.3 bn per year or £400 of net disposable income per
household.

CAP is one aspect of the protectionism sponsored by the EU depriving
us of a higher living standard; the real cost of all their interventions
is many thousands of pounds per year for the EU taxpayer.

Cobden and Peel

For those interested in free trade, one of Cobden’s finest orations
was delivered in the House of Commons on March 13, 1845, and described
by John Morley as “probably the most powerful speech he ever made:

Men on the Tory benches whispered to one another, “Peel
must answer this.” But Peel crushed in his hand the notes he had made
and remarked, “Those may answer him who can.”

The Corn Laws were abolished by persuasive, clear, rational and
logical argument. I hope some of the politicians here today will be able
to do the same with the protectionist EU, and have that abolished.

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Built on anti-Corn Law radical Richard Cobden's vision that "Peace will come to earth when the people have more to do with each other and governments less," the Cobden Centre promotes sound scholarship on honest money and free trade. Chaired by Toby Baxendale, founder of the Hayek Visiting Teaching Fellowship Program at the London School of Economics, the Cobden Centre brings together economists, businesspeople and finance professionals to better help these ideas influence policy.

Cobden Centre articles

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