Free Trade Ideology And The Constitution

by Michael Doliner

October 4, 2004


"Tyranny is the rule of one man to the advantage of the ruler, oligarchy to the advantage of the rich, democracy to the advantage of the poor. Whether the few or the many rule is accidental to oligarchy and democracy -- the rich are few everywhere, the poor many. The real difference between democracy and oligarchy is poverty and wealth."

—Aristotle, Politics (1279b6-40)

(Swans - October 4, 2004)   Aristotle thought all three of these kinds of state were perversions of corresponding good types in which the goal was the common interest. These differ from the good types of government in the quality of the rulers: good men will create and rule good states. Aristotle had an idea of what human virtue was and believed that states not ruled by such excellence would be ruled for the sake of one class or another. When this happens the form of the government is unimportant -- the real difference is between poverty and wealth, that is, which class interest is favored. Virtue could be taught through education and habit, but if it was not, class warfare would be the result.

We no longer know what such virtue is, let alone how to teach it. Indeed we would be suspicious of any attempt to do so. By the time our founders sat down to write the Constitution of the United States they took it for granted that human beings were essentially self-interested and could not be trusted to act for the common good. Instead of hoping for rule by good men they hoped to set up the famous checks and balances so that various interests could contend without any one ruling over the others. They hoped to set up an arena in which the class struggle could continue in a perpetual stalemate. "Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature that such devices should be necessary to control the abuses of government. But what is government itself but the greatest of all reflections on human nature? If men were angels, no government would be necessary." (1)

There can be no doubt that the founders recognized and planned for contention of different economic interests within the government itself. They understood this as necessary. But such an understanding has had a strange history in the twentieth century. In 1913, Charles Beard published his book, An Economic Interpretation of the Constitution, in which he offers the thesis that economics rather than high ideals inspired the framers of the Constitution. He was accused of offering a Marxist interpretation. Beard's book was attacked early as Marxist, then was accepted and became the standard historical interpretation until, in the nineteen-fifties, it came under attack again so that it fell into professional disfavor. Now a new book by Robert A. McGuire, To Form a More Perfect Union: A New Economic Interpretation of the United States Constitution, supports, to a large extent, Beard's thesis. The fortunes of Beard's book rose and fell with the political tone of the time. Patriotic scholars during the Cold War wanted to refute what they saw as a Marxist tract. Some argued that higher things inspired the founders; others admitted that there might have been economic motives but that they were impossible to trace. What is surprising is that the founders made no pretense that those in government would be moved by higher motives. "The regulation of these various and interfering interests forms the principal task of modern legislation, and involves the spirit of party and faction in the necessary and ordinary operations of the government." (2)

The Cold War was partly a war of ideas, and in that war "class struggle" was a dangerous Marxist idea. The history of Beard's book shows how American ideologues took up that fight. Beginning in the late fifties, right wing intellectuals began to appear. Foremost among them, and an inspiration for all the others, was Milton Friedman, a Nobel Prize winning economist. His central idea is "the fecundity of freedom." It is freedom, Friedman claims, that has produced the great wealth of the United States. If people are simply allowed to exchange freely, wealth will follow. The enemy is government, big government and government regulation.

Instead of social classes, free exchangers now inhabited the economic landscape. Production all but disappears and with it the Marxist idea of one's "relationship to the means of production." Marxist revolution was a struggle for the "means of production" between those who owned them and those who didn't; that is, between social classes. According to Marx, labor and its productive capacity was the source of wealth so anyone who owned anything but had not created it had stolen it. Marx did see capitalists as useful accumulators of surplus value in a transition phase, but his labor theory of value is the underlying justification for proletarian revolution.

Friedman paid little attention to production. Freedom produces value. People met in open and free markets and exchanged what they had for what they wanted. Entrepreneurs, as opposed to workers, produced things through their clever use of capital. Capital, the medium of exchange, and not labor, was productive. The poor, who had nothing but their labor, exchanged it for money. The poor and the rich were distinguishable only by what they happened to have to exchange at the moment. They met freely and exchanged what they had. Everyone was on an equal footing and there were no social classes since anyone is free to rise or fall. There are really no different economic interests competing within government. Everybody had the same interest, completely free markets. In the Cold War of ideologies Friedman was our champion and Marx was theirs. Social classes, even though their existence was thought an obvious fact long before Marx, were the most powerful Marxist weapon. After Friedman they were gone. Without social classes no class struggle.

Naturally, Friedman opposed unions -- tools of the working class that restricted freedom. Friedman accepted the right of workers to unionize but objected to any of the tools they might use in negotiation. He objected to strikes and closed shops because they limited freedom. He also claimed that unions hadn't helped labor at all. "Union leaders always talk about getting higher wages at the expense of profits. That is impossible: profits simply aren't big enough." (3) Friedman insisted that wages can only be kept high through union actions at the expense of the number of jobs. Of course, he also objected to labor-instigated government regulation such as minimum wage laws. Unions, in Friedman's view, were acceptable as social clubs. They were useless for improving worker's lives. "But when workers get higher wages and better working conditions through the free market, that's the secret of the enormous improvement in the conditions of the working person over the past two centuries." (4)

Friedman also argued against government regulation elsewhere, even of dangerous drugs. The Thalidomide disaster, Friedman argued, does not justify government regulation. "After all, the manufacturer of thalidomide ended up paying many tens of millions of dollars in damages -- surely a strong incentive to avoid any similar episodes." (5) He admits of no exceptions. Friedman does not believe in government regulation even for the sake of national security. The government should not regulate for the sake of any "outcome." The market will handle it.

Friedman was an extremely important influence on the Libertarian Party founded in 1971. In a Liberty poll done in 1998, Friedman trailed only Thomas Jefferson and Ayn Rand as an influence on the thought of Libertarians who responded. But his ideas resonated much more widely. Friedman was close to Ronald Reagan and there is now a Milton Friedman seminar at the Reagan ranch. Friedman's ideas gained dominance with the Reagan administration and have become a virtual ideology since then. Although Unions had already been declining steadily, Reagan's busting of PATCO, the air traffic controllers' union, signaled far more virulent attacks. "By carrying out his threat to fire the controllers if they did not return to work Reagan not only set limits for public employee unions, but also signaled that it was OK for businesses to play hardball with private sector unions." (6)

On May 9, 2002, President George W. Bush delivered a tribute to Milton Friedman. His ideas have become accepted doctrine. The attack on government regulation, or "big government," is now standard procedure in Republican administrations, and carried out somewhat more surreptitiously in Democratic ones. The epithet "tax and spend" attached to Democrats and "activist" attached to judges are Friedmanian attacks upon them that now need no further explanation. Democrats tax and spend, taking our justly earned dollars away from us to support big government that regulates everything to the harm of us all. Big government is bad government, as everybody now knows. "Activist" judges are judges that try to institute governmental regulation. Of course, Democrats are now also free traders. NAFTA and the Uruguay Round of GATT, both Clinton accomplishments, are major pieces of international law enacted for the purpose of promoting free trade. In the name of free trade governmental regulation is weakened across the board. In particular, environmental and labor laws are undermined. It is now common to hear the word "democracy" identified with free trade. The implication is that anything that hampers free trade, including government regulation, labor unions, and even public financing of public schools, is Un-American.

The identification of Friedman's ideas with what is American is the hallmark of the rise of a new ideology -- a set of ideas that inspires passionate action. Of course, this has been developing for some time. Daniel Bell noted in The End of Ideology that by the fifties all earlier ideologies were spent. Both Communism and Nazism had run their courses and neither could any longer inspire passion. The New Left in the sixties characterized itself as without ideology and never developed a coherent set of ideas or, for that matter, a strategy. Friedman's ideas came along just when these other ideologies were exhausted, and did inflame a new passion that now seemed to sweep all before it. No doubt Friedman's use of the word "freedom" inspired many Americans to embrace his ideas, for the word has a powerful talismanic effect.

Free trade seems to make so much sense. Of course liberating people to use their creativity and energy will create wealth. But problems seem to be developing. Workers, in particular, do not seem to be benefiting as they once did. Jobs are moving "off shore," and wages are stagnating or actually declining. Even the middle class seems to be suffering. Computer programming used to be a good job, but is now being outsourced to India. The market has created a healthcare system in which doctors are drowning in insurance company paperwork and cowering in fear of malpractice suits, and health care costs for the ordinary American are soaring. Yesterday's skilled worker is today's retrainee. Deregulation of utilities has caused electrical rates to increase while infrastructure is neglected. But these are all outcomes, and therefore beyond our ability to address except by more free trade.

Friedman insisted, even though it was not essential to his argument, that everyone would benefit from free trade. "It preserves the opportunity for today's disadvantaged to become tomorrow's privileged and, in the process, enables almost everyone, from top to bottom, to enjoy a fuller and richer life." (7) Friedman believed that the worker's lot would improve as his skills improved and demand for them grew. It hasn't worked out that way. Workers' conditions have declined since the 1970s with a sharp decline since the mid-'90s. Unfortunately, much of modern production needs no extensive skills and can be done easily by third world people who will accept much less than we pay here. Even in work requiring skills, Third World people as skilled as us will work for much less. The supply of skilled and unskilled labor is so much larger than the demand that labor is almost worthless. Friedman's claim that free trade would "lift all boats" was part of his argument against Marxism. Free trade is just and right because it allows everyone to use his own talents to benefit himself, but it also has the extra bonus, Friedman claimed, that it did what Marxism tried to do better than Marxism itself -- improve the lot of the poor. This second claim certainly added to the sense of justice free trade ideas inspired, but they are independent of it. For central to free trade ideology is "equality of opportunity" as opposes to "equality of outcome." Since free traders refuse to judge outcomes, the worsening condition of the poor does not trouble them much. Freedom is just, regardless of the consequences.

Many would describe free trade ideology as social Darwinism. Within the markets it is survival of the fittest. If someone doesn't succeed, too bad. That's the way it is in a jungle. Of course, free trade does not produce a real jungle. There must be rules against force and fraud. But other than these there are no rules. If people choose something that harms them, too bad. If a factory relocates leaving a whole town destitute, too bad. Friedman insists that we must insure equality of opportunity and make no effort to devise equality of outcomes. (8) Just as Darwinism gives us no way to judge "fitness" other than survival, free trade ideology gives us no way to evaluate outcomes other than that they happened through free trade.

Friedman refuses to judge outcomes. His argument against regulation of dangerous drugs is a good example. The market, he believes, will take care of it. If not the courts will punish those who make bad drugs. But what if this were not the case? Nothing within the markets guarantees that redress through the courts is possible. It seems now that laws are being passed against the right to bring class action lawsuits. Free trade cannot evaluate outcomes and nothing within the ideology allows us to assume that the courts will be able to do so. Indeed, free trade ideologues attack the courts for being "activist" and this is entirely consistent with free trade ideology. There are also many outcomes that someone might consider quite bad that the courts cannot handle. What happens to a town when a factory abandons it and leaves its workers unemployed? Certainly there is no redress in the courts. Friedman must argue that this outcome is, if bad at all, beyond the scope of anything we can do something about.

It seems just that people should benefit from their own free activity even if it causes bad outcomes such as extreme poverty. As I mentioned above, Friedman does not want to abolish government entirely. Government is necessary to prevent the use of force and fraud and so guarantee a "level playing field." Free trade does not produce a real jungle, only a social one. But why not a real jungle? Why the prohibition against force and fraud? Why should the rich and clever be given an advantage against the strong and larcenous? It certainly cannot be because force and fraud produce bad outcomes. Free trade also does that, and anyway, free trade ideology does not judge outcomes. The prohibition against force and fraud are civilized inhibitions that do not really apply to the jungle we have posited. If freedom is to be the absolute virtue why not embrace it fully? From the point of view of the strong they are being unfairly treated with all this government regulation against violence. Friedman opposes violence, but has no real grounds for doing so. Since he has no desire or ability to restrict outcomes he really has no argument against the use of force except, perhaps, the argument that it does not produce wealth. However, this is judging an outcome to be good, and his claim is questionable, for good arguments can be made that imperialism, for example, has produced wealth. Also what is this wealth to the strong man who has no share in the wealth produced?

Although this conclusion may seem repugnant, it is a logical outcome of the free trade doctrine, for that doctrine strips away all judgment about outcomes and insists that only freedom is good. It is freedom that people believe in. Trade is just tacked on. Why not embrace freedom, period? This is not an idle conclusion. Those who are left out in the social jungle have no real reason to refrain from violence, and the arguments against it must seem ever weaker to them. Only despair and government regulation prevents the hopeless from committing crimes.

Further, free trade ideology undermines national unity. The Constitution grew out of a conference on trade at Annapolis called in an attempt to institute tariffs to protect fledgling American industry from English competition. Hamilton and Madison thought that the weakness of the union under the Articles of Confederation would make such protection impossible, and so called the Constitutional Convention to create "a more perfect union," and, very importantly, regulate commerce. If anything, Hamilton wanted the Constitution to limit free trade and so nurture American manufacturing. His goal was to produce a great nation rather than a number of minor ones and he knew that such a nation had to protect its manufacturing if it was to grow and grow strong.

American patriots must applaud his foresight. Without it the North American Continent would have been the home of a number of small contentious nations rather than the United States. But here especially we can see that to create a desired outcome Hamilton had to restrict free trade, for free trade has no need to stop at national borders. As Aristotle put it: "But a state exists for the sake of a good life, and not for the sake of life only. Nor does a state exist for the sake of alliance and security for injustice, nor for the sake of exchange and mutual intercourse; for then the Tyrrhenians and the Carthaginians and all who have commercial treaties with one another, would be the citizens of one state." (9) As Hamilton saw, free trade can work against national interests. To protect young industries from free trade was one of the primary purposes of the Constitution. A good argument can be made that America would have remained a source of supply for raw materials for European manufacturing if it hadn't protected its young manufacturing from English competition. That outcome wouldn't have troubled a consistent free trader. Indeed, Friedman does argue against Hamilton about this. He argued that fledgling industries should be able to survive on their own or, if they are not economical, should be let die. If that left the United States as a permanently rural backwater, so be it. We might not have thought that a good outcome, but free traders do not concern themselves with outcomes. The problem is not just protection of fragile industries, for trade, as Aristotle points out, is an interest that is essentially international. And so multinational corporations with loyalty to no state practice it.

Free traders have no justification for protecting their jungle against violence and fraud, and their elevation of free trade above all else makes an interest that is essentially international primary, but there is also a third, even more important problem. Friedman's ideas are at their weakest when applied to environmental problems. He clearly knew this himself and actually admitted that "the preservation of the environment and the avoidance of undue pollution are real problems and they are problems concerning which the government has an important part to play." (10) He knows that the market won't solve these problems directly and suggests that the government tax polluters and use the revenues to clean up the mess. He argues further that we cannot expect zero pollution, yet have to limit it. However, he knows that there is no good way for the market to determine just how much pollution is the right amount. "The tax rate itself could be varied as experience yielded information on costs and gains." (11) He is describing a government agency determining the level of taxation by evaluating the level of pollution and judging what would be optimal. In other words, it is judging an outcome and trying to correct it with a non-market mechanism. Therefore, what is too much of one and not enough of the other must be decided not by the market but by some other calculus of good and bad. But free market ideology prevents the formation of any other calculus.

Free trade ideology's inability to address natural limits could be catastrophic. Coming peak oil is a species-threatening challenge wholly beyond the ability of free markets to meet. We are in the position of an anthill surviving on a discarded lollypop. We have given up the old ways and adapted our way of life to the existence of this bonanza. What do we do when it begins to diminish and we can no longer support the huge civilization we have built based upon its presence? Oil has been abundant for more than one hundred years and we have built our civilization upon this cheap energy. Free traders bought and sold oil. Their interests were to make money and much of the oil was wasted in frivolous but profitable amusements. In the meantime, our way of life changed as we exploited easy living and amused ourselves. Nothing in the market encouraged any great foresight. Now cheap energy is beginning to disappear, without our having prepared for it. Suddenly, the "fecundity of freedom" is no longer possible. What Friedman admits above in his caveats about pollution is the inevitable short-sightedness of free markets. Free markets cannot address problems that are long to develop, such as this one, especially when intervention would require a reduction of present pleasures. For such intervention, Friedman admits would require judgment of outcomes and government interventions. But these contradict free trade doctrine. It is not surprising that Friedman's later disciples, including the present administration, have ignored these caveats about pollution and other natural problems, for these caveats contradict his fundamental doctrine of free trade without concern for outcomes. There are some free traders who try to argue that free trade can address problems that are slow to develop. Here is M.A. Adelman: "Minerals are inexhaustible and will never be depleted. A stream of investment creates additions to proved reserves from a very large in-ground inventory. The reserves are constantly being renewed as they are extracted...... How much was in the ground at the start and how much will be left at the end are unknown and irrelevant." (12) Adelman is an economist with no geological training. This is an example of ideology overcoming facts for there is no justification for this sanguine assessment. True, the spur of self-interest will inspire effort where it is obvious that profit can be made, but nothing guarantees that the earth will reward such effort. Adelman's optimism is completely baseless, but it reveals a necessary assumption of free trade ideology-that resources are infinite.

So here are three problems with free-trade ideology. First, free-trade ideology cuts the ground from our prohibition against force and fraud and turns the police into merely another gang. Second, free-trade ideology dissolves national cohesion and undermines national purpose for which the founders wrote the Constitution. Finally, free-trade ideology provides no mechanism for handling slowly developing (but foreseeable) natural catastrophes.

As free-trade ideology has come to dominate the thinking of American leaders, these problems have become apparent. Americans now accept The Sopranos as an ordinary American family. Corporate fraud is common, and when caught corporate criminals use every legal trick to avoid punishment. The idea that someone might want to confess his crimes to relieve his conscience is laughable. No one is particularly upset when even the government defrauds the public. With a smirk and a nod we acknowledge that it is all part of the game. Corporations have become multi-national and have no concern how "offshore" manufacturing affects the United States. To increase profits we have gutted our manufacturing base and turned our cities into hulks. Finally, our government hides from peak oil and other ecological problems and has no real plan for solving them.

Ideologies sometimes deflate like balloons with small holes in them. Khrushchev's revelation of Stalin's crimes in 1956 deflated communism as those of its adherents who didn't already know realized that enormous atrocity could not justify some imaginary future better world. Even though the Soviet Union went on until 1991 it lost its legitimacy and its revolutionary fervor. By the end no one believed in the ideology, and finally the regime collapsed. Even though many thought and still think that a more equitable distribution of wealth would be just, such an ideology can no longer inspire passionate political action. Free-trade ideology has now also suffered such a pinprick. The demonstrations in Seattle in 1999 at the WTO meeting exposed free trade ideology as essentially destructive.

It is interesting to compare the two situations. Communism was an ideology in which present means were thought to justify an end -- the creation of an earthly paradise. That these means were atrocities did not affect the ideologues immediately for within the ideology the ends justified them. But gradually the blunt fact of the awful means deflated the ideology itself. Once someone admitted that they mattered, the ideology lost its force for him. Free trade ideology denies that we should worry about outcomes -- only the freedom to trade is our concern. In other words, it is the means that are important. The ends will take care of themselves. Free market ideologues are often impervious to awful ends, often acting heartlessly in their attacks on government regulation that protects nature or aids the poor. Seattle revealed that many of the outcomes were quite awful. Once free market ideologues admit that this is a problem the ideology will lose its force for them. Ideologies lose air when something forces the adherent to acknowledge the importance of facts the ideology had required him to overlook.

After Seattle free trade ideology looked like a tool of one class in an ongoing class struggle. To be sure the failure of Reagan's "trickle down" economics and the Asian currency crisis in the mid-nineties exposed weaknesses, but Seattle really first punctured the ideology itself. From that time on, the WTO and IMF, both of which had been proclaiming the universal benefits of their policies, have had to hold their meetings in secret, in inaccessible locations, and with elaborate security. Much of the world now views IMF and WTO policies -- policies based on free-trade ideology -- as destructive. Indeed, the WTO now has pages on its website defending itself against these charges. (13) Instead of accepting free trade dictates East Asia now openly embraces the Japanese model in which certain industries are protected and fostered. Most countries accept free market reforms only under the greatest duress and consider them imperial impositions. Even in the United States, where a giant propaganda machine has flogged free-market ideology, opposition is growing. Friedman's claim that free markets would benefit everyone has now proved false and has been discarded even as a claim. With the exception of a few diehards such as existed even in the Soviet Union at the end, the free market ideologues themselves can hardly avoid seeing that their advocacy is from self-interest and no longer from a belief in the justice of their cause. Too many "bad outcomes" are showing up. It is harder and harder to keep hiding them all. The ideologues may continue to pursue their advocacy, but they cannot maintain the same passion, which can only come from a sense of justice. They are like the Soviet commissars who continued to mouth Marxist ideology while looking out for themselves.

In spite of Seattle, free-trade ideology is very strong. Although those who embrace it will have to do so more and more cynically, they will still have the powerful motive of self-interest. Thus they can carry on for quite some time using ever more force to do so. When an ideology has gained political power but then looses its force as an ideology, rule can continue through inertia but the empty ideology produces empty talk and everything drifts along until some sharp blow brings down the eggshell state. Behind the veil of empty talk that keeps us from seeing them are huge problems we need to address now. Eventually, free trade ideology will deflate, but perhaps not before our problems become unsolvable. Unfortunately, free trade ideologues have identified free trade with "democracy" and with the United States' Constitution. Even though, as we have seen, this identification is illegitimate, it may be that deflation of the ideology will discredit the Constitution, too. Fortunately, unlike the Soviet Union, we have no essential tie between ideology and the state except that made by free market ideologues.

Free markets are good things. A free economy is more lively and creative than a stagnant planned one, and it is right that people should benefit from their own efforts and talents. Governmental bureaucracies can be sources of inefficiency and injustice although Friedman really caricatures them. But these are not reasons to turn free trade into a fetish and an ideology. To prevent the disastrous outcomes that are apparent with free trade there must be limits and preferred "outcomes." There must be a way to do this that is compatible with real American ideals.

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Notes and Resources

1.  Federalist 51.  (back)

2.  Federalist 10.  (back)

3.  Milton and Rose Friedman, Free to Choose, Harcourt Brace Jovanovich, 1980. p. 234  (back)

4.  ibid p. 247  (back)

5.  ibid p. 207  (back)

6.  http://www.baltimoresun.com/business/bal-bz.unions08jun08  (back)

7.  Milton and Rose Friedman p. 149  (back)

8.  ibid pp 134-49  (back)

9.  Aristotle, Politics 1280a  (back)

10.  Milton and Rose Friedman, p. 214  (back)

11.  ibid, p. 217  (back)

12.  M.A. Adelman, The Economics of Petroleum Supply, MIT, 1993. p. xi  (back)

13.  http://www.wto.org/english/thewto_e/minist_e/min99_e/english/misinf_e/00list_e.htm  (back)

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Published October 4, 2004