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Quote of the Day: Do Free Markets Bring Peace Between Countries?

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One of the most enduring ideas in economics is that free markets bring peace between countries. It comes from the notion that commerce drives humans to follow their mutual material interests rather than make destructive war due to passions.

This was the animating force behind the U.S. granting China its “most-favored-nation” trade status in 2000, which allows for free trade and economic cooperation. Republicans and Democrats alike assured the public that the deal would bring “constructive engagement” and expose communist China to America’s “ideals” of democracy. Where are we today? Beijing has moved closer to authoritarianism, economic competition is fiercer than ever, and American and Chinese diplomatic relations are near a crisis point, with both countries brandishing threats of war. Free trade has brought some peace, but it has not brought lasting friendship between the world’s two superpowers.

The same point could be made for Russia. Germans clearly thought that free trade for Russian oil would bind Vladimir Putin’s kleptocracy to democratic Europe and lead it toward a more prosperous and open society. Instead, it weakened democratic Europe’s capacity to respond to Putin’s dictatorship and his bloody invasion of Ukraine.

Does this mean that the old idea of a “gentle commerce” of free markets, famously espoused in the French Enlightenment, is dead? Perhaps it never really existed. History shows that free markets can be a basis for friendship between powerful nations, but they are far less successful at securing peace and democracy than many have hoped. In fact, the noble talk of the free market was sometimes simply an excuse to engage in the kind of “great power” competition that too often leads to war and plunder.

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When British free marketeers managed to liberalize their own markets with the repeal of the Corn Laws in 1846, it heralded a laissez faire era in Britain but did not bring international peace. Richard Cobden, the famed free market leader of the Anti-Corn Law League, believed that free markets, pacifism, industrial know-how, Christianity and good work ethics would lead Britain to home-grown prosperity for the working man. Indeed, the very confidence and wealth that buoyed so many British to believe in the superiority of free markets was grounded in colonial ideals and wealth. The British colonial leader John Bowring used evangelical terms, claiming that imperial force and laissez faire economics could only bring good: “Jesus Christ is free trade,” he exclaimed, “and Free trade is Jesus Christ.” But the Pax Britannica of the Empire was based on gunboats, violent coercion and the pillaging of riches from colonialized nations. It is now estimated that Britain stole more than $40 trillion from India alone during the hundred-year rule of the Raj.

And while empire created a free trade zone for the British, it also sparked an almost constant series of colonial wars — from the more than 100 years of war with France in the eighteenth century, to another century of overseas wars with peoples and states in the Caribbean, China, India, Burma, New Zealand, Persia and Africa. Indeed, to gain free market agreements with Latin American countries, Turkey and China, the British relied on military threats. Free trade remained based on naval might. While some British free marketeers called for an end to the reliance on colonialism, confident that free trade agreements with other industrial powers brought peace and advantage to industrially superior Britain, Britain’s competitors began to see that if they wanted the free trade and imperial advantages enjoyed by Britain, they too would need to arm.

In 1905, the Cambridge critic of free market economics William Cunningham prophetically warned that the militarization of Japan, Russia and Germany was in direct response to Britain’s one-sided imperial free market and that it could lead to world wars. These countries could not compete with Britain, so from the 1870s to the 1890s, Russia, Italy, Germany, France and America were putting up tariffs against what they considered Britain’s domination of world commerce. Hungry for Britain’s empire and markets, Europe moved toward world war.

When World War I arrived, it could be seen as either a product of protectionism and trade war, or, as Cunningham said, a reaction to imperial free market Britain’s dominance. In any case, with rising nationalism and communism, hope for universal free trade faded. The most famous of the Austrian free market thinkers, Ludwig von Mises and Friedrich Hayek, formed their free market thought in response to rising socialism, but also in reaction to the Nazi regime which forced them to flee Austria to the United States. Both thought that the state was the ultimate danger to peace, but in the end, when World War II was over, the American state bankrolled the rebuilding of Britain, France, Germany and Japan, using the Marshall Plan to rebuild, but also to dictate democracy to, former foes, and, in doing so, to create the most successful economies of the modern age. Paradoxically, the United States provided well over $150 billion in today’s dollars to European countries, and more than $20 billion to Japan, as well as backing government intervention into these economies, to lay the groundwork for a future democratic free trade zone.

During the Cold War, America’s massive military kept the peace among its industrialized, democratic partners, while waging a cold and hot war against communism around the globe. U.S. government support, peace, prosperity and free trade were the dividends for America’s allies. But the global conflict with communism again meant that it took war and government support to establish democracy and, potentially, free markets through the GATT agreements that began in 1947 and expanded throughout the 20th century.

Even when the Berlin Wall fell in 1989, a real possibility for peace emerged with the normalization of relations between America, Russia, Europe, India and eventually China. During this period, free markets expanded — but even in peacetime, military budgets have exploded under presidents of both parties. And still, with much of the world embracing free trade, the United States again went to war in Iraq and Afghanistan, spending trillions of dollars, and, one might argue, squandering its own free market peace dividend.

Now we arrive at a more perilous moment. Democracy is in retreat around the world. The global economy seems poised for a recession. And war has broken out in Europe, while tensions rise between the U.S. and China. Meanwhile, public skepticism about free trade is surging in this populist moment. Can free markets keep the peace? We must hope they can. However, history shows that free trade is often in the eye of the beholder, anyway. Ultimately, a military based pax or deeper common interest might be necessary to keep commerce and the world on gentle terms.

— Jacob Soll, Politico, One of the Most Famous Ideas in Economics Is Wrong, October 5, 2022

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Bruce Gerencser, 65, lives in rural Northwest Ohio with his wife of 44 years. He and his wife have six grown children and thirteen grandchildren. Bruce pastored Evangelical churches for twenty-five years in Ohio, Texas, and Michigan. Bruce left the ministry in 2005, and in 2008 he left Christianity. Bruce is now a humanist and an atheist.

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6 Comments

  1. Avatar
    GeoffT

    The reality is that there’s no such thing as a completely free market, and that it’s one of the roles of government to ensure that markets operate fairly, in recognition of the fact that freedom is illusory. The problem of freedom begins with the confusion as to who is being served by any given actor in a market. The reality is that companies invariably place the interests of shareholders and executive remuneration packages above all else, including customers, the environment, and civic duty. So rules and regulations have to be introduced to ensure all those things that companies cannot be trusted to do, with consumer rights, employee rights, environmental damage protection, and so on. Trouble is, conservatives have been ideologically attuned to seeing these things as bad (hence the insane lobbyist industry) as interference with the market, whereas actually they offer markets greater freedom as they create opportunities for innovation and better efficiency.

  2. Avatar
    ObstacleChick

    It can be difficult not to lose your soul to the bottom line when you are one of the leaders of a company. It’s up to the humans involved to prioritize employee well-being, environmental impact, and basic ethics instead of merely prioritizing profits. Unfortunately, greed often wins out, especially as the company grows and ownership are no longer in personal touch with employees. I don’t know how we get to the point where worldwide humans become more than just hairless primates fighting over shit.

  3. Avatar
    Scott Lohman

    There is a reason that economics is called the “dismal science”. It’s not a science when those doing the theorizing can each pick their own set of facts to draw their conclusions from.

  4. Avatar
    MJ Lisbeth

    GeoffT–Your point about rules and regulations reminds me of a conversation I had with a French friend. I asked about their health care system and the other services their state provides its citizens that the US doesn’t. She said that she didn’t mind paying the taxes because not having to worry about the quality or length of her children’s education, the cost of healthcare or any number of things left her free to devote her energies to other things. A Dutchman I once met–and who, I assume, never met my friend–all but echoed what she said.

  5. Avatar
    Troy

    I don’t think Jacob has proved his thesis. My first criticism would be that no economic, social, or political policy will usher in a utopia. The way for human tribes and later nation states to get ahead was to plunder their neighbors stuff and females. Wouldn’t Jacob prefer trade to war? The issue with China and Russia isn’t the free market, it is authoritarian governments. Putin is very much the quintessential dictator who wages war on his neighbors. Thankfully, it is usually the last chapter in a strong man’s biography.
    I’d also point out that British colonialism was a product of war, with the difference that rather than plunder the colonies were subdued because of superior technology and weaponry.

  6. Avatar
    Davie from Glasgow

    The West definitely did think that by inviting Putin to trade freely and treating him like a trusted trade partner that this would bring him round to actually being one. When in reality that was never going to happen. He does not want to trade freely as part of a peaceful global capitalist economy because to him the promotion of a global capitalist economy is part of the Western culture that he is so implacably opposed to. To Putin, peacefully trading with the West would be giving in to Western hegemony requiring the ‘humiliation’ of Russian/Ex-Soviet Sphere culture. So while one might argue that ordinary Russians COULD have a vested interest in peace with the West if it meant that they could materially benefit from trading with them, in reality they do not get that opportunity because on the global stage Russia IS Putin – not it’s people. So part of the problem is indeed that Russia (and China too) does not consist of lots of individuals who can trade with the rest of the world – it consists in that context of just one ‘strong man’ leader. But in any case – like all good ideas (including communism), free market capitalism has never really worked – or arguably even truly been put into practice – because powerful people pervert all such systems to their own ends and protect themselves from their consequences. There is probably no economic or political system that can make all human beings play nice!

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Bruce Gerencser