Consumption or Production?

Here’s something else I’ve been meaning to pass along.

Last week Don Boudreaux, at Cafe Hayek wrote a post with a brilliant thought experiment to show how foolish the mercantilist ideas on trade are:

The poisonous core of mercantilism, you see, features the silly belief that a nation’s wealth lies in what its people produce rather than in what its people consume.

Mercantilism also includes the myth that protecting domestic producers of high-value consumption items makes the domestic economy thrive. Again I ask: suppose a generous Namibian scientist discovers a very inexpensive way to combine table salt, tap water, and ordinary bread crumbs into a medicine that cures — and inoculates against — cancer, tuberculosis, and erectile disfunction. This generous scientist gives his knowledge away for free, publishing it on the web so that ordinary men and women throughout the world can, at virtually zero cost, protect themselves from these diseases.

Would Americans be made worse off as a result? Treating these diseases today is big business. People pay lots of money for treatment by highly skilled specialists, as well as lots of money for medicines made by other highly skilled specialists. Does America’s wealth lie in the production of these high-valued outputs? Or does America’s wealth lie in Americans’ ability to consume these high-valued outputs — in our ability to take steps to cure ourselves of these ailments?

It’s true that, given the current scarcity of resources and knowledge that enable us to cure ourselves of these awful diseases, the prices that we willingly pay for access to high-quality treatments are high. Hence, the remuneration of the specialists who provide these treatments is generally high. But it is a mistake to assume that we are made wealthy by the existence of such high-paying jobs — for such an
assumption implies that the greater the number of obstacles that we face, the wealthier we become.

If Prof. Morici’s mercantilist logic were correct, then America would become a poorer place if an inexpensive sure-cure for cancer, tuberculosis, and erectile dysfunction were discovered and information about it widely distributed. But clearly we would be wealthier, not poorer, if such a wonderful discovery were made — just as we are wealthier the greater is our access to low-cost goods and services produced wherever, even abroad.

So, what do we want? Do we want to deny ourselves more cost-effective solutions to problems that are produced abroad in order to protect less cost-effective domestic solution-providers?

To me, the question answers itself. We should avail ourselves of the best value that we can get to solve our problems. Yes, some people will have to adjust when foreign competition makes their jobs unnecessary, or less valuable. But, we’ll all be better off in the aggregate, and even those who have to change will also benefit from all of the better options they have because of free-trade in other industries.

I know that there are people who take the other position, but I really want to believe that they are just unfamiliar with the arguments for free-trade, rather than incredibly stupid or evil.

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