What is trade?

Trade is the act of voluntarily exchanging one value for another. (Theft is when the value is exchanged involuntarily).

Under Capitalism — the social system based on individual rights — one may obtain property from others only by their voluntary consent. By banning the initiation of physical force from all relationships (compulsion), capitalism leaves only one way for people to deal with each other: through the peaceful means of persuasion, by appealing to another’s self-interest. This form of dealing with others is the highest form of voluntary social cooperation: trade.

A trade is a voluntary exchange of values between two (or more) parties for their mutual benefit. In a free-market, trade only takes place only when the seller and the buyer agree to the same terms of exchange free from the threat of physical violence and fraud.

Voluntary means that either party initiates no force; that both parties enter the trade of their free-will. That is with no guns, knives, or fists pointed at their heads, hearts, or backs.

Mutual benefit means that both parties benefit since they think they both think are will be better off by trading then if they did not.

For the buyer, trade means that one is free to buy on whatever terms the buyer finds agreeable. If the buyer does not like the seller’s offer, the buyer is free to refuse, and is free to go somewhere else, or is free to produce the good himself, if so able. No one is morally allowed to physically force the buyer to change his terms of buying, by threatening to expropriate the holdings of the buyer’s bank account, or by threatening to imprison the buyer, if the buyer does not voluntarily agree to the terms.

For the seller, trade means that one is free to sell on whatever terms others voluntarily agree to. If the seller does not like the buyer’s offer, the seller is free not to accept them and is free to find another buyer. No one is morally allowed to physically force the seller to change his selling terms, by pointing a gun to his head, or by threatening to fine him a million dollars a day, or by threatening to imprison the seller, if the seller does wish to change his terms of sale for his property.

What is a free-market?

“Intellectual freedom cannot exist without political freedom; political freedom cannot exist without economic freedom; a free mind and a free market are corollaries.” — Ayn Rand

A free-market is a market, where individuals (or groups of individuals) compete against each other to trade goods and services with other individuals (groups), under a legal system based on the protection of individual rights (capitalism), free from the coercive effects of the initiation of physical force (and its corollary, fraud).

Observe that the competition among buyers and the competition among sellers leads to cooperation between buyers and sellers, as the buyer and seller exchange values for mutual gain and mutual benefit (else no trade would take place).

[1] Ayn Rand “For the New Intellectual” 25

What was the Smoot-Hawley Tariff Act of 1930?

The Tariff Act of 1930 signed into law by U.S. President Herbert Hoover on 17 June 1930 were duties (taxes) placed on over 20,000 imported goods. Its political intent was to preserve American jobs, particularly in the agricultural sector, by discouraging imports. Quoting the US Department of State on the origin of the Act:

“During the 1928 election campaign, Republican presidential candidate Herbert Hoover pledged to help the beleaguered farmer by, among other things, raising tariff levels on agricultural products. But once the tariff schedule revision process got started, it proved impossible to stop. Calls for increased protection flooded in from industrial sector special interest groups, and soon a bill meant to provide relief for farmers became a means to raise tariffs in all sectors of the economy.  When the dust had settled, Congress had agreed to tariff levels that exceeded the already high rates established by the 1922 Fordney-McCumber Act and represented among the most protectionist tariffs in U.S. history. Smoot-Hawley did nothing to foster trust and cooperation among nations in either the political or economic realm during a perilous era in international relations.”

What was the end-result of the Smoot-Hawley Tariff Act? As other countries placed tariffs on American exports in retaliation, these tariffs led to the reduction of American exports and thus jobs:

U.S. imports from Europe declined from a 1929 high of $1334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2341 million in 1929 to $784 million in 1932. Overall, world trade declined by 66% between 1929 and 1934. [US Dept. of State]

With the reduction of American exports also came the destruction of American jobs, as unemployment levels which were 6.3% (June 1930) jumped to 11.6% a few months later (November 1930). As farmers were unable to pay back their loans to banks, their loan defaults led to increasing bank crashes, particularly in the West and Mid-West.