Anyone who’s taken a class in economics or read about the subject for the last few decades at least has probably encountered David Ricardo’s ideal of “Free Trade,” which is, that tariffs and trade barriers make everyone poorer, and that nations should pursue their “comparative advantage,” that is, produce what they produce best.
But this theory was rejected for most of America’s history, right up to the middle of last Century. Henry Carey (1793 -1879), a prominent American economist, was among the most eloquent and influential opponents of what he saw as the “British System” of “free trade,” proposing instead what he called the “American system” of economic development. Carey was a follower of Alexander Hamilton’s views on foreign trade, supporting protectionism and high tariffs, among other policies.
In fact, Carey went so far as to denounce “trade” altogether. For Carey, “trade” meant a simple quid pro quo exchange; something is exchanged for something else. Rather than merely increasing trade, according to Carey, the proper aim of economic activity is the increase of ‘commerce,’ which Carey defined as economic development.
To use an individual example, a ditch digger who digs ditches in exchange for a wage could be said to be involved in what Carey would call “trade;” he trades 8 hours of labor a day for eight hours of wages a day. If the digger were to expand his working hours to 12 hours a day, all other things being equal, he obviously would be increasing the amount of ‘trade’ he is conducting. He would receive some additional benefits, such as more wages.
If the digger, on the other hand, kept his work level at 8 hours a day, and used his remaining time to become qualified to use a backhoe, then he may not have increased the amount of hours he trades for wages, but he has increased his commercially valuable skills.
For Carey, this is what real economic freedom is all about; not the freedom simply to trade with others*, freedom is being able to advance and improve and develop what is traded.* The freedom simply to trade, without the opportunity to advance, he did not consider to be real freedom. Carey saw ‘trade’ and commercial development as potentially antagonistic towards each other. Why? He simply agreed with David Ricardo on his theory of “comparative advantage.”
According to Ricardo’s theory, If Portugal is good at producing wine but poor at producing cloth, while England is good at producing cloth but poor at producing wine, then tariffs to protect British wine producers and Portuguese cloth producers make both nations poorer. This is all innocuous enough, but lets change the example to ‘England is good at producing cloth, while India or America are good at producing the cotton for the cloth.’ Far more value lies in producing finished cloth than in cotton farming.
According to Ricardo’s theory, India or America should simply produce cotton for export, while freely allowing imports of finished clothing from Britain. In other words, Britain’s colonies should remain agricultural or raw material exporters, because that is ‘what they were good at,’ and leave the Industrial Revolution to Europe. To apply Ricardo’s theory to an individual, it would seem to suggest that the ditch digger remain a ditch digger. This is why Carey opposed Ricardo’s “free trade;” as we can remember, what was important to Carey was not trade per se, but economic development. What was important to Carey is the question of how does the ditch digger develop skills to move beyond simple ditch digging, or how does a cotton exporter develop its economy beyond simple cotton plantations.
Carey’s proposed solution was to limit foreign competition in American markets through tariffs, which would (and did) allow American enterprises to grow and eventually compete internationally with the best of European products. Nothing is more heretical than proposing this today, but consider again the case of the individual; how does the individual advance from his ‘current comparative’ advantage to a new and more productive one? He does so by entering, for a period, a place where there is no market competition; a school. While in a school, students may compete for better grades amongst each other, but they are not expelled for not being as efficient as the current market. They are not expected to be; the entire idea is that they will develop their economic skills they become competitive on the market.
Carey’s national policy was basically similar; protect fledgling American industries from foreign competition until they can compete internationally, because just like almost no one can enter the marketplace directly without a period of protected development in school, likewise almost no new domestic industry can develop in an established field without a period of protectionism. Carey saw “free trade” as propaganda cover used by nations (or corporations) with the most advanced industries to keep their advantages at the expense of less advanced nations; in other words, simple economic imperialism.
Carey’s policies of high tariffs were abandoned after World War II, in part because America didn’t need them, most other developed economies lying in ruins after the war. Since the 1970’s and the introduction of GATT, NAFTA, the WTO etc, Carey’s ideas have been totally abandoned, with the result that America has lost most of its manufacturing to the third world and only maintains its standard of living through borrowing and military aggression to prop up the dollar. In my mind, this lends strong support to his theories, whatever hypothetical or theoretical objections might be posed.
The fact that we never even hear the argument for protectionism is disturbing, and might point to the total domination multinational corporations have over our information flows. Multinational corporations, of course, are today the biggest beneficiaries of “free trade,” and would be the biggest losers of a revival of traditional American economic thought. Before I started reading him, I’d certainly never heard of any economist saying ‘no to trade, yes to development.’