A Tale of Trade

A farmer in rural Iowa says to his wife, “My love: I will take our corn to market, and from the proceeds I will buy our daughter a dress!”  So, he loads up his truck with his corn (which was grown with the sweat of his brow) and takes it to Iowa City.  He enters the market and a Frenchman says:

“Sir!  How fine it is to see you!  I have just what you are looking for.  I have this collection of fine dresses from Paris.  If you give me your corn, I can sell you four dresses for your lovely daughter.”

A Bostonian then approaches the farmer and says: “I will give you two dresses for your corn.”

The farmer considers both offers and decides to deal with the Frenchman.

“Wait!” says the custom officer.  “Do not buy those four dresses from Europe.  My orders are to keep you from buying French goods.  Rather, for the same price, you can buy these two dresses from Boston.  You, and our nation, will be better for it.  Surely you can see America will be worse if you get the four dresses rather than the two.”

“Two dresses for the same price as the four?  How will such a deal make me wealthier?”

“Oh, I can’t answer that question!” says the customs official.  “But it is a fact;  for all our secretaries and department heads and legislators and journalists agree that the more a nation receives for its goods, the poorer it becomes.”

And so the farmer deals with the Bostonian, but he (and everyone else) is left wondering why a person is ruined receiving four dresses instead of two.

(With special thanks to Frederic Bastiat for inspiring this modern retelling of his Tale of the Winemaker)

24 thoughts on “A Tale of Trade

  1. If government can interfere with my right to freely trade with citizens of other countries, then what can keep government from interfering with my right to freely trade with other US citizens.

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  2. I think this might have been the same Bostonian who said, “I have a brilliant idea. We’ll take a trillion dollars out of the private sector and have the government spend it. Then they economy will be stimulated and we’ll all be better off.”

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  3. If only Alexander Hamilton and George Washington had taken your advice back then, we’d be like Argentina right now. Back then, Argentina actually had a bigger economy than the USA–I know that’s hard to believe, but it’s true. However, instead of thinking for themselves, they took foreign free traders advice that it’s best for a country to specialize in whatever they are least bad at, and then use the proceeds from that to buy all other needed goods. At the time, for both the USA and Argentina, their least bad sector was agriculture. Argentina chose to specialize; the USA chose to diversify and instituted tariffs to protect its infant manufacturing sector. And of course, since it’s impossible for the free trade theory to be false (because it’s a logical tautology), history has judged the Argentina success story to be …. Uh wait. Historical evidence doesn’t matter. What counts is ethics.

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    • Actually, both history and ethics matter. Your use of inaccurate history is unethical.

      Argentina was one of the biggest economies in the world in the early part of the 20th century. Then, it turned to the Perons and socialism. Now, the government actively manages the economy, which has turned once prosperous Argentina into a economic backwater. The Index for Economic Freedom lists Argentina as #156, which is considered “mostly unfree” and it just barely above the level for a “repressed” economy. Thus, government intervention, which you are advocating for, is the cause of Argentina’s poor economy.

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      • I’m surprised you didn’t throw Venezuela into the mix. I am unsurprised, however, that you did not mention, say, South Korea, Japan, China, Germany, not to mention pre-Reagan United States. The last one is a tough one to explain on the free trade theory.

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        • You were the one who brought up Argentina. I presented history accurately and smashed your silly argument against comparative advantage. You did not bring up any of those other countries so there was no reason to correct your “history” and prove you wrong about them as well.

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  4. And so the farmer deals with the Bostonian, but he (and everyone else) is left wondering why a person is ruined receiving four dresses instead of two[?]

    I’ll take a crack at directly answering the question (it’s the same answer Hamilton gave to the same question): the farmer is better off living in a nation that supports both a vibrant agricultural and manufacturing sector. The farmer benefits from a stronger national defense as a result, and American manufacturers next to American farms will improve agricultural productivity in the long run. Cf. John Deere.

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    • Wow! I can see that your grasp of reality is very poor.

      Here is reality: The farmer gets screwed out of two dresses by corrupt politicians using force to steal from the farmer to give to the political crony from Boston.

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      • All right Watson, I get it that you hate the government. I don’t like it much either. So I will stipulate for the sake of the argument that we’d all be better off if we lived in a utopian paradise where the only role of the federal government was national defense. I know it’s a paradox that libertarians believe in national defense even if they don’t believe in borders, but leaving that aside, the US pays $600B+ for our military. So assuming ALL other government spending was cut to zero, that still leaves us with a not inconsiderable bill, since it is 3-4% of the GDP.

        So even in a libertarian paradise, there is still a need to fund an expensive military. Money must be collected somehow. I know you hate coercion–it would be best if everyone voluntarily ponied up the amount of cash they felt the national defense was worth. But there’s that pesky free rider problem. So you’re reduced to some sort of tax. Thus, what I can’t for the life of me understand is why raising at least some of that tax through tariffs is so unethical compared to income taxes, or general sales taxes, or property or wealth or inheritance taxes? Could you explain that please?

        (Predicted answer: Well uh American soldiers and sailors are way overpaid, so we’d be better of hiring commercial imported mercenaries because they and blah blah blah….)

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        • “I get it that you hate the government.”

          Wrong again, old boy. Hating things is a waste of time. Government has its uses. Allowing politicians to reward political cronies by reducing competition is not one of them.

          “I know it’s a paradox that libertarians believe in national defense even if they don’t believe in borders”

          You do not know much about libertarianism. Perhaps you ought to read “Libertarianism” A Primer” by David Boaz.

          “what I can’t for the life of me understand is why raising at least some of that tax through tariffs is so unethical compared to income taxes, or general sales taxes, or property or wealth or inheritance taxes? Could you explain that please?”

          Because the tariffs and protectionist legislation that you propose is designed to limit competition to benefit political cronies at the expense of American consumers.

          “(Predicted answer: Well uh American soldiers and sailors are way overpaid, so we’d be better of hiring commercial imported mercenaries because they and blah blah blah….)”

          And, you would be wrong again. My question to you is do you don’t really know or are you being disingenuous? (Predicted answer: Both.)

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  5. Tariffs and protectionist legislation that you propose is designed to limit competition to benefit political cronies at the expense of American consumers.”

    Wow! We’re finally getting somewhere! OK: here are a list of possible means for a government to raise funds maintain a strong Navy to ensure all that free trade happens unmolested:

    1. Personal income taxes
    2. Corporate income taxes
    3. Payroll taxes
    4. Sales taxes
    5. Property taxes
    6. Land taxes
    7. Wealth taxes
    8. Carbon taxes
    9. State owned enterprises
    10. Sovereign wealth endowment funds
    11. Lotteries
    12. Print money
    13. Imperialism
    14. Sale of national parks
    15. Severance taxes
    16. Import tariffs

    I’m sure I left out a few options. Maybe there’s something I left out that you think could solve all our problems. If that’s the case I’d love to hear it.

    But to get to the nitty gritty, you’re against import tariffs because they “limit competition to benefit political cronies at the expense of American consumers,” and that’s a dealbreaker for you. But what about all the others? Don’t they also suffer from the same defects?

    If you’re against import tariffs, you must be against all consumption-sales-excise taxes. OK fair enough. And you’ve already agreed that corporate income taxes are stealth sales taxes. And against carbon taxes because consumers could choose not to have global warming if they wanted to.

    But what about income taxes? In that case you’re taxing productivity–which is what I thought we all want. If you tax something you get less of it. And the structure of the tax code is going to help some people and screw over others. Cronyism. And the money people pay in income taxes is money people could have spent on consumption or savings, so consumers get screwed no matter what.

    So what else is there? We could nationalize our major industries, and let the government fund itself off the profits. Yeah. Non-starter I know.

    Lotteries? Tax on the stupid, and there’s not enough stupid people.

    A sovereign wealth fund is interesting. In a libertarian utopia, the only government bill would be the $650B for the Navy to keep those sea lanes open. The interest rate is what, 2% these days? Thus, a big fat endowment fund of $32.5T could almost do it. And who’s got a spare 32.5 trillion lying around? Ah yes: the 1%. I kind of like this idea! And no obvious hit to the divine consumer. But I’m sure there’s an argument against that, as it’d be a huge wealth tax on the rich.

    Henry George thought there should just be a big fat land tax. But that would turn us all into a nation of renters, which in effect would be a stealth sales tax.

    That doesn’t leave much else. We could do what Trump suggested: go into Iraq and “take the oil.” Sound good?

    We could just print money, but that’s blasphemy to libertarian gold bugs.

    We could sell off what’s left of our federal land, but there’s not a whole lot of it left, and it would run out eventually.

    But severance taxes! Taxes on exports are interesting. It’s a sales tax on foreign consumers, so it wouldn’t affect American consumers one iota. Yeah, sure it would balloon the trade deficit–but free traders have written entire blog posts on how that’s not a problem–and it would cause job losses in the export manufacturing sector. But the latter shouldn’t be a problem because consumers and workers are two entirely different things that don’t intersect. Right? But if all we had to worry about is the military a 43% tax on exports would almost do it. And here’s the beauty part: according to free trade theory, severance taxes LOWER the price of goods for consumers! 🙂

    So I guess that’s got to be your answer: massive export taxes would be (barely) sufficient to support a libertarian paradise, AND it would lower prices for the all important consumer, since, as we know, Kant and Mill both said the summum bonum of all ethics is to produce the cheapest possible widgets for consumers! What’s not to love?

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    • Nice rant! It was filled with disingenuous comments, logical fallacies, and disparaging, false statements. That seems to be your “normal” where you answer a hypothetical question with the decision that it is better for a farmer to get two dresses from a Bostonian for his crop than to get four dresses from a foreign citizen. SMH.

      We have too many types of taxes and collect too much in taxes. The federal government should not collect more than 10% of GDP in taxes, and the taxes should be designed just to obtain the necessary revenue to operate legitimate functions of the federal government. Thus, taxes should be neutral and not be designed to favor one citizen over another or disadvantage one citizen versus another. And the US government should not be giving subsidies to or limiting the competition of any American business. That is political cronyism. It is corruption. And, no one loves corruption.

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  6. “taxes should be neutral and not be designed to favor one citizen over another or disadvantage one citizen versus another. And the US government should not be … limiting the competition of any American business.”

    Well, then, looks like we gotta go for severance taxes. Except that for 10% GDP it would require 133% taxes on exports. That would probably kill the golden goose, not to mention that it would limit the competition of American businesses in the international arena.

    So we agree it’s a mess no matter what. What I don’t understand is this moral outrage over a simple, practical proposal to replace the 35% corporate income tax with a 20% import tax. What’s the difference? They are both sales taxes, only the former taxes domestic consumption of domestic production (and exports) leaving imports tax-free, whereas the latter taxes only domestic consumption of imports.

    Honest question for anybody: Why is this a bad idea?

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    • “Well, then, looks like we gotta go for severance taxes.”

      No. Do you not understand the tax code? And how could you possibly comet to that conclusion from my statement that: “taxes should be neutral and not be designed to favor one citizen over another or disadvantage one citizen versus another. And the US government should not be … limiting the competition of any American business.”

      Oh, I see how you could come to that conclusion. You are the same guy how said it is better to get 2 dresses from a Bostonian than 4 dresses from a foreigner. SMH.

      “So we agree it’s a mess no matter what.”

      No. But we all seem to agree that you do not know what you are talking about.

      “What’s the difference?”

      Import taxes are being used by corrupt politicians to reward American producers who are unable to satisfy consumer demand for quality goods at lower prices by stealing from consumers.

      “Honest question for anybody: Why is this a bad idea?”

      Tariffs are always a bad idea. So endith the lesson, Warren.

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  7. Let’s simplify the issue Warren.

    Warren Platts is for government using force to impose tariffs (taxes) and limit foreign competition so that inefficient and ineffective American producers (the 1%) can steal from American consumers (the 99%) by charging them higher prices for lower quality goods. Warren believes that American consumers should be happy with fewer goods for more money.

    Greg is for letting each individual decide what is best for him or her in their decisions to buy goods. Greg opposes government corruption and political cronyism to prevent the individual’s right to choose and the producer’s responsibility to serve the consumer.

    In short, Warren is a crony capitalist while Greg is a true capitalist.

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  8. I had posted this in the other thread not realizing which one I was in, but it’s more appropriate here, since it directly addresses Jon’s OP:

    According to Ricardo, how the farmer reacts will depend on whether he’s the landlord or the tenant. If he’s the landlord, on the one hand, he feels screwed over: because of the clothing tariff, he can’t lower the wages he pays to his tenant farmer, so he’s missing out on a potential windfall profit. (On the other hand, he recognizes that the price of his corn is propped up by government subsidies, so in reality, he shrugs his shoulders and is satisfied with the two dresses.)

    If the farmer is a sharecropper, he’s going to mad at first because of the propaganda that free traders spew everywhere–that the government is stealing from him–but at the end of the day, he’s going to shrug his shoulders because he got the same two dresses last year, and that’s all he needs.

    The thing is, if the tariff was lifted, the tenant farmer would get those four dresses. What he doesn’t realize is that when he goes back the next year, the Bostonian guy is going to be out of business, whereas the Frenchman is still going to be there, but since other workers have bid down the money price of the natural wage he’s only able to afford two dresses. The consumer surplus has dried up, but that’s all he needs.

    The only way there would be a permanent benefit for the farm laborer from a lifting of the cloth tariff would be if the natural wage itself went up. This would require a change in the “habits and customs” (or “opinions” in your language) of “the people” which is the same as “the nation”. In other words, 4 dresses instead of 2 dresses would become the new “necessity of life”; all workers would have to refuse to take jobs that did not pay enough to afford 4 dresses.

    And that can only happen in a tight labor market.

    We can continue this analysis: since the tariff is lifted and 97% of all textile worker is eliminated, the demand for labor is less; meanwhile, of course, the Davos crowd are not content to let American workers decide how much labor to provide through their chosen birth rates, and so they open the immigration floodgates, so that the supply of labor is artificially inflated. So the tenant farmer gets his four dresses in year 1, but in year two, because of the double whammy of lost factory jobs, plus mass immigration of people who are used to potatoes and mud cabins, the market price of labor is now below the natural price, and when he goes back to the Frenchman, he finds he can only afford one dress.

    Now life sucks. The tenant farmer now realizes his standard of living is less than his grandfather’s. Ordinarily, in such a situation, the market wage would eventually restore the equilibrium back to the natural wage. But because of misguided government policies informed by economists in thrall to Davos globalists, enough people pour across the border to fill up the cities of Pittsburgh, Cleveland, and St. Louis every single year, and meanwhile, rampant outsourcing continues, AND the government continues to levy tariffs on domestic products (through the corporate income tax) while imports continue to pour in tariff free.

    A perfect storm. Now the cognitive dissonance sets in: on the one hand, he’s been told all his life that in America, life always tends to improve, but now he’s being told by crazymaking libertarian free traders that he’s only worth one dress a year, and so he should either simply be satisfied with the new state of affairs, or else he should get off his lazy ass, move away from his family on the farm and become a doctor or lawyer or such.

    So what finally happens is the tenant farmer now sees the reality as it is: that he’s being screwed over by the monied elites so they can extract higher rents. And so he exercises what little political power he has in the voting booth, and he and 80% of his fellows vote to throw the bums out and install economic nationalists.

    And then he thanks the crazymaking libertarians for their continued ability to suck just enough votes from the Democrats to ensure that the economic nationalists can rule for the next 50 years….

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    • ” . . . but at the end of the day, he’s going to shrug his shoulders because he got the same two dresses last year, and that’s all he needs.”

      Lol! Your grasp on “reality” is as bad as your grasp of Ricardo. A farmer is not going to take two dresses from a Bostonian when he can get four from a foreigner. Duh.

      The rest of your “analysis” was even more hilarious than the first. Don’t give up your day job. Economics is not your thing. Are you even employable given your level of cognitive dissonance? Probably not. And, that is why you were fired. Not because of foreign competition.

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  9. Greg, I can forgive your inability to comprehend dense 19th century prose. But what Jon wrote above was crystal clear:

    And so the farmer deals with the Bostonian, but he (and everyone else) is left wondering why a person is ruined receiving four dresses instead of two.

    That was Jon’s setup: the farmer took two dresses from the Bostonian. So call Jon an idiot. Or better yet, call yourself an idiot for not understanding what he wrote….

    #headdesk #headdesk #headdesk #headdesk #headdesk

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    • This is what I mean about taking quotes out of context:

      ““And so the farmer deals with the Bostonian”

      Because he was required to. See the part about ““Wait!” says the custom officer. “Do not buy those four dresses from Europe. My orders are to keep you from buying French goods.”

      ” . . . but he (and everyone else) is left wondering why a person is ruined receiving four dresses instead of two.”

      Here Jon is making fun of those who agreed with the Customs Official: “Oh, I can’t answer that question!” says the customs official. “But it is a fact; for all our secretaries and department heads and legislators and journalists agree that the more a nation receives for its goods, the poorer it becomes.”

      So, by the standard that you set, you are an idiot for not understanding what Jon wrote. And, that was par for the course as you did not understand what Ricardo wrote either.

      #WarrenIsAnIdiot #WarrenIsAnIdiot #WarrenIsAnIdiot #WarrenIsAnIdiot #WarrenIsAnIdiot

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    • Okay, Warren. I am done. Up till now, I thought you were just a political partisan intentionally taking quotes out of context and making stuff up to advance your bigger government ideology. Now, I am convinced that you just do not understand. Your interpretation of Jon’s OP convinced me of that. I am sorry.

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      • That’s swell Greg! It’s just too bad you were never able to get admitted to the University of Chicago. They would have instilled an ability to critically think for yourself. Oh well. Be safe Bot!
        🙂

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        • Warren, no. It is just too bad that you have to make up that you went to a fine university like the University of Chicago, then prove that you never attended. After all, if you had, you would have learned to critically think AND to comprehend what you are reading. Your inability to understand Jon’s OP proves that. Oh well, back to your safe space. Later, SJW!

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  10. You know, I really thought mercantilism was dead. Well, Warren Platts is keeping such idiocy alive . . . at least in his mom’s basement.

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