A Historical Perspective on the Fallacy of Free Trade

Gus R Stelzer>>>>>>>>>>>>>>>>>>>>>///\\\<<<<<<<<<<<<<<<<<<<<<<10/16/98

President Clinton and Treasury Secretary Rubin have said "we are confronted with the worst global financial crisis in a half century". Financial analysts say, " we haven't seen the worst of it yet".

Financial markets are in turmoil, causing trillions of dollars in losses. Currencies have collapsed. Social unrest in many countries is at its highest level in decades. Here in America investors have lost over $3 trillion in just two months, causing many to declare bankruptcy while others see their retirement nest-eggs quashed. All of which prompted one observer to say "it challenges the integrity of the global economy and free trade"

Having written and spoken on this subject, like a voice in the wilderness, for 25 years, I could say, "I told you so", but I won't. Instead, I suggest we figure out why we got where we are today.

In doing so, we must first realize that the concept of free trade has never been successfully implemented. The fall o the Roman, Spanish and British empires are classic examples. Export-oriented Japan is a more recent example.

The free trade model is founded on a false premise that it is beneficial to al nations, so we must "export" to achieve a better economic and social order. Thus virtually all comments on what to do to eliminate U.S. trade deficits, which threaten to exceed $250 billion in 1998, rest on a notion that "other countries must open their markets" so we can export more goods. Followed to its logical conclusion, when all nations seek to improve their own economies by selling their goods to other nations, it is tantamount to global cannibalism.

For every export by a nation there is always a corresponding import in another nation. Thus, free trade among nations is a zero sum game. Imports cancel out exports. When a nation accepts more imports than it exports, thereby causing a trade deficit, that nation diminishes its own wealth. When all nations adopt programs to increase exports without regard for the damage created by imports it is inevitable that such policies will create a crisis. It is makes no more sense that for a corporation to gear its operations solely to the sale of its products without regard for expenses and operating losses.

The first event leading to where were are now occurred over 200 years ago. On July 4th 1776, our forefathers pledged their lives and fortunes in a Declaration of Independence, not INTER-dependence. Many gave their lives in the War of Independence. After Cornwallis surrendered bo George Washington the thirteen colonies became autonomous states subject only to a loose compact called the Articles of Confederation.

In the euphoria of freedom from the rule of Britain they pursued free trade between the colonies and with foreign nations. Each state issued their own currency and established their own banking system. Seven had their own Navy. Due to lack of tariffs, Britain flooded the colonies with imports that undermined their fledgling industries. Cutthroat competition nearly brought six states to blows.

By early 1787 this arrangement was falling apart. Economic chaos prevailed. Foreclosures were rampant. Capt. Daniel Shays threatened an armed rebellion to overthrow the Continental Congress, forcing a meeting of 55 men in Philadelphia.

Shortly after the meeting was convened James Madison, and others, saw the futility of trying to "revise" the Articles if each state retained its autonomy, with diverse laws, currencies and no restrictions on imports. And so, in that summer of 1787, a Constitution of the United States was drafted. A new nation, with sovereign borders, was born!

There is no a word in that Constitution suggesting pursuit of free trade. The Preamble says its purpose is "to form a more perfect union" not a global economy. Article I, Section 8, Clause 3 stipulates that "Congress shall REGULATE commerce with foreign nations, and the several states", thereby declaring null and void free trade theories espoused by Adam Smith eleven years earlier. Members of the new Congress verified that intent by passing tariff laws in its very first session, and continued to do so for the next 123 years during which America achieved the world's highest living standards under the "tariff system".

But in 1913 globalists conned President Wilson into taking the first step toward a "global economy" by placing tariffs on U.S. products instead of imports. They called it an income tax. But we must realize that all domestic taxes ultimately land in the price of our own products, and that consumers pay those taxes a second time at consumer counters just like they pay tariffs o imports. Those who argue against tariffs on imports because "they cause consumers to pay more" are blowing smoke at us.

In the next 32 years America suffered the horrors of World War I, the economic crash of 1929, the great Depression, and World War II. A strong case can be made that these tragedies were born in the one-world strategy of 1913, promoted by international financial mandarins, that also spawned the Federal Reserve Bank which was never ratified by the states per Article V of the U.S. Constitution.

In 1944, during a meeting at Bretton Woods, we entered into an economic alliance with our allied, and subsequently with Japan and West Germany. The U.S. dollar became the international currency and we agreed to part with one ounce of gold from our reserves for every $35 that foreign holders wished to cash in.

As a result of the rising volume of imports from Europe and Japan, and the related high volume of dollars flowing into other countries, foreigners cashed them in in such great quantities that it threatened to wipe out our gold reserves. To avoid that debacle, on August 15, 1971, President Nixon announced we would no longer honor our Breton Woods commitment, and that, henceforth, the dollar would "float" at what ever value central banks and currency speculators would set. America declared bankruptcy!

In the ensuing 25 years America experienced an economic and social holocaust. The lives of millions of American men, women and children were ravaged. Urban industrial areas were decimated. We suffered over $2 trillion in trade deficits, thereby sabotaging our industrial tax base which, In turn, played a major role in the rise of federal debt from just $408 billion to $5.4 trillion by 1997. The polarization between "the haves and the have-nots" increased to its widest margin since the Great depression, and America fell from the largest creditor nation to biggest debtor.

Now, after a few years in which our national gambling casino, euphemistically called "the market", generated inflated stock values constructed out of quick-sand and blue sky, reminiscent of a Paeans-pyramid scheme beyond all fundamentals of net worth and dividend returns, we are confronted with the inevitable financial crisis that Clinton and Rubin called the "worst crisis in a half century". Financial leaders of G-7 nations meet to restore order but have no clue as to what caused the crises. So they push for increased funding by the International Monetary Fund (IMF) and the World Bank which are largely responsible for creating the crises in the first place.

America surrendered its ability to control its own destinies to a free trade fraud that has never been successfully implemented....

In his book, "Wealth of Nations", Adam Smith wrote that nations should pay for imports with some produce of domestic industry so as not to diminish their own wealth. He would be appalled by our horrendous trade deficits and would have harsh words for his modern-day would be disciples.

Smith also wrote that when a nation imposes a tax on its own industries (as we do to the extent of $2.7 billion a year) it would be proper to impose an equal tax on imports. Likewise, in my 375-page, "The Nightmare of Camelot", I documented the need for "equalizing tariffs" to make up the difference between costs imposed on our industries by tax and regulatory laws which now constitute over 80% of average U.S. product costs, so as to create a level playing field.

That is not protectionism. That is simply being honest. And that is what the U.S. Constitution, notably the "equal protection" clause of the 14th Amendment, is all about.

Gus Stelzer 1836 - 163rd Pl SE Mill Creek WA 98012
Retired Senior Executive-General Motors Corp.
Author: "The Nightmare of Camelot..An Expose of the Free Trade"