Specialization and Exchange; G. Smiley

When we wanted an automobile, a lawn mower, and a snow thrower we also purchased these. Like almost everyone else, I have found that I can be better off if I specialize in a few activi ties-such as college teaching-and let other people specialize in producing other services or products, and then trade with them. The advan tages of this market process are so obvious that most of us simply take them for granted. The metropolitan Milwaukee area where we live produces a multitude of products, most of which are shipped to other areas of the country or sent abroad. Much of that production requires machines and tools produced in other parts of the world. Elsewhere in our state many products, such as automobiles, motorcycles, tractors, paper goods, and magazines, are shipped to other states and countries. The gains that arise from such specialization in production and market exchanges are the same whether we consider two individuals, the citizens of two cities, the citizens of two states, or, just as important,the citizens of two nations. For some reason, however, many people deny that intemaDr. Smiley is Associate Professorof Economics at Mar quette University.

tional specialization in production and the conse quent exchange of products are beneficial. Recently such thinking led American officials to "convince" Japanese leaders to restrict auto exports to the United States. The U.S. govern ment has continued to prohibit the importation of inexpensive sugar and cheese products. Be cause some Japanese computer chip makers re fused to go along with a world cartel set up by the United States government to raise chip prices, U.S. officials imposed large tariffs on selected Japanese computer imports. For some years now American steel firms have received protection from imported steel through "voluntary restraint agreements." The list of U.S. trade restrictions goes on and on. Congress is preparing a number of trade bills designed to "protect" American firms and labor even further. Michigan Senator Donald Riegle has said that these moves "will strengthen our na tionand begin to restore our international fi nancial standing."

If the citizens of the United States can be made better off by reducing international exchanges and thus specialization, then the same logic must apply to individual states. The citizens of Wiscon sin, Michigan, New York, California, or any other state should be made better off if their state gov ernments reduce or eliminate trade with other states. Why stop there? Why not give the citizens of Los Angeles, San Francisco, Chicago, Milwau kee, Detroit, or New York an improved quality of life by having their city governments reduce or eliminate trade with other cities? It would be even better if, say, the residents of the Sherman Park neighborhood of Milwaukee were prevented from trading with all outsiders. Finally,if this restriction of trade is so beneficial, then let us have the gov ernment stop the members of each household from trading with any other household. Let each household become self-sufficient.

The logical conclusion is that if specialization and trade are harmful at the international level, then surely they must be harmful all the way down to the level of each individual. We recog nize that this is absurd because it would impover ish us all. Voluntary specialization and trade at any level simply are not harmful. If the government imposes quotas or tariffs on, say, imported steel, then reduced supplies and higher prices for imported steel allow domestic steel producers to sell more steel and raise their prices. That, in fact, is what has recently hap pened. Firms that purchase steel, such as the pro ducers of stainless steel kitchenware, are facing rising prices. Rexworks, a small industrial firm in Milwaukee, found that even though it had an ex cellent year in production and sales, unanticipat ed increases in steel prices wiped out $2 million in profits. Meanwhile the steel producers are reaping huge gains.

These harmful effects extend far beyond the direct purchasers of the protect~d products. The reduced sales of foreign steel decrease the num ber of American dollars foreign countries re ceive. Because foreigners have fewer dollars, their demand for American exports must fall. 395 American exporters find that there is less foreign demand for their products, and their sales and prices and incomes fall. While the measures designed to protect select ed U.S. firms raise their incomes, they reduce the incomes of American firms and individuals that serve foreign markets. Consumers who buy pro tected products must pay higher prices and face a reduced range of choices.The benefit for the pro tected firms and industries, then, comes at the ex pense of consumers in general and firms that ex port. Unfortunately, the losses incurred by those who are harmed by the protective measures will be greater than the gains of those who are helped. In free markets, specialization and ex change encourage people to engage in those ac tivities for which they are the most productive.

Trade protection stifles this process, so that total output falls. And, when this occurs, we begin the long trek down the road to the general impover ishment of our society-in the name of "protect ing" those firms whose owners and employees are enriched at everyone else's expense. We have gone through this before. In June 1930,during the early stages of the Great Depres sion, Congress tried to protect Americans by en acting huge tariff increases. Such intervention served only to lengthen and worsen the depres sion. Current proposals are inviting another Great Depression. The freedom to choose our special ization and to exchange with whomever we wish is the only way to guarantee prosperity. D Free Trade I•.... .. f a person advocates free trade domestically, he cannot logically advocate • protective tariffs and other similar measures that prevent goods and ser vices from moving freely across national boundaries. It is simply not true that a nation and a people are made more prosperous by compelling themselves to pay two and three times as much as they need to pay for the goods and ser vices they want. It just does not make sense to improve the means of moving goods from one nation to another, and then to cancel out the savings in trans portation costs by passing laws to hamper the resulting trade. I am convinced that such contradictions arise more from lack of understanding than from evil in tentions.

DEAN RUSSELL IDEAS ON LIBERTY 396 The Minimum Wage: An Unfair Advantage for Employers by Donald J. Boudreaux S uppose you want to help the sellers of a specific product. One thing you might want to do is try to ensure that a buyers' market for that good or service isn't created. A buyers' market is an economic situation that favors buyers over sellers. For example, everyone hopes that the real-estate market in his home town will be a sellers' market when the time comes to sell his house. No one wants to have to sell a house when real estate is in a buyers' mar ket. Nevertheless, people who advocate mini mum-wage legislation to improve the lot of un skilled workers in effect support government creation of a buyers' market as a way to help sell ers of unskilled labor. Freely Moving Prices: The Great Equalizer Economics and common sense teach us that, other things being equal, as the price of a product rises, more units will be offered for sale but fewer units willbe demanded by consumers.