The Corner

Economy & Business

A Case for Economic Nationalism

Over at Law and Liberty, Daniel McCarthy makes a case for economic nationalism to libertarians and classical liberals. Essentially, his argument is that the theorized free market does not match the real-world existence of governments, banks, central banks, containerized shipping, and so on. He argues that in fact libertarians ought to support the use of some tools in the economic nationalist’s toolkit just to keep markets operating lawfully and fairly. Here’s a sample:

The problem with this [free market] line of thinking is laid bare by a simple conceptual experiment. Consider two firms in competition in a given time and place. Both are retailers. One is an exemplary honest business—call it LawMart. The other is MafiaMart, which successfully undercuts LawMart’s prices every time because the goods sold at MarfiaMart “fell off the back of a truck.”

There’s nothing in economic theory that says the time horizon for LawMart’s survival has to be longer than the horizon for MafiaMart’s viability. The mafia might run out of goods to steal and sell at a discount eventually. But LawMart can be put of business long before then. And when LawMart goes under, if the managers of MafiaMart wish, they can raise their prices and scale back their dependence on looting—even to the point of accepting a “market price” in the context of a now established regional monopoly.

Consumers benefit from the cheap goods they can buy at MafiaMart while those goods are criminally discounted, but few market liberals would say that this benefit to consumers outweighs the harm done to LawMart and the victims of the mafia’s thefts. Indeed, if MafiaMart’s behavior is tolerated in the name of cheap consumer goods, perverse incentives are established for future LawMarts and MafiaMarts alike: the law-abiding will be discouraged from entering such markets in the first place, while criminals will be taught that crime does pay. It’s a formula for getting more crime and fewer honest businesses.

A market liberal who wants to prevent this scenario has to be prepared to support the policies necessary to stop the abuses, and in China’s case those include retaliatory tariffs and potentially other components of economic nationalism. Where markets have already been distorted, spontaneous order and the knowledge problem do not preclude defensive actions. No firm or nation can reasonably be expected to be indifferent to its fate in the understanding that come the Kingdom the righteous will be rewarded and the sinner punished by the gods of the market. Time matters, and firms, nations, and individuals within time are not interchangeable in the way that the actors in pure, timeless theory are.

Read the rest, which is a tour de force.

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