cyberutopian libertarianism

Henry C.K. Liu hliu at
Tue Dec 15 11:32:28 PST 1998

Tom and Enzo:

Adam Smith published the Wealth of Nations in 1776, the year of American Independence. By the time the constitution was framed 11 years later, the founding fathers were deeply influenced by Smith's ideas, which constituted a reasoned abhorrence of trade monopoly and government policy in restricting trade. What Smith abhorred most was a policy known as Mercantilism which was practiced by all major powers a the time. Its necessary to bear in mind Smith's notion of the limitation of government action was exclusively related to Mercantilist issues of trade restraint. Smith never advocated the tolerance of government to trade restraint whether by other governments or by big business monopolies.

A central aim of Mercantilism was to insure that a nation's export remained higher in value than its imports, the surplus in that era being paid only in specie money (gold backed as opposed to fiat money). This trade surplus in gold permitted the surplus country, such as England, to invest in more factories to manufacture more for export, thus bringing home more gold. The importing regions, such as the American colonies, not only found the gold reserves backing their currency depleted, causing free fall devaluation (not unlike that faced by current Asian currencies), but also wanting in surplus capital

for building factories for export. So despite plentiful iron ore in America, only pig iron was exported to England in return for English finished iron goods. In 1795, when the Americans began finally to wake up to their disadvantaged trade relationship and began to raise European (mostly French and Dutch) capital to start a manufacturing industry, England decreed the Iron Act, forbidding the manufacture of iron goods in America, which caused great dissatisfaction among the prospering colonials. Smith favored an opposite government policy toward economic production and trade, a policy that came to be known as "laissez faire" (because the English, having nothing to do with such heretical ideas, refuse to give it an English name.) Laissez faire, notwithstanding its literal meaning of leave alone, meant nothing of the sort. It meant an activist government policy to counteract Mercantilism. Right wing economists are just bad historians, among their other defective characteristics, when they propagandize "laissez faire" as no government in trade affairs. Another interesting item about Adam Smith was that he advocated, in 1776, a graduated income tax, "the time of payment, the manner of payment, and the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person." Reaganites should put that in their hats and eat it.

After the ratification of the Constitution, among the first acts of Congress was to adopt, on September 2, 1789, a motion by James Madison, to establish a Treasury Department, and to instruct the future Secretary to "digest and prepare plans for the improvement of the revenue and for the support of the public credit." This instruction led Hamilton to establish the first Bank of the United States in 1791, which after many transformations, ended up as the Federal Reserve system of today. Hamilton also engineered the first government bail-out of private investors in American history by making the government buy from investors/speculators, at face value, all the market discounted debt instruments and paper money various state governments as well as the federal government had issued during the War of Independence. Since one of the causes for independence had been the right to manufacture, Hamilton launched a national plan to develop manufacturing that included government subsidies (called bounties). He also instituted protective tariffs on imports, and committed massive public investment in infrastructure. It was the first industrial policy in American history, a classic national planning measure.

Under present conditions, "dumping" is a form of restraint of trade, except the direction is reversed. The domestic steel industry is in fact pursuing a "laissez faire" posture to oppose Third World mercantilism. Enzo's point that the logic of globalization demands letting "low-end industries go where they are more efficient" is an argument of sub-optimization. Tom is correct, we need to look at the total picture and maintain a balance of complex elements. The sociopolitical realities of the world lag far behind globalization economics. Sub-optimization, such as temporarily pushing down prices to ruin a highly efficient US domestic production process in favor of inefficient and polluting Third World processes in fact drags down the global economy and increases total cost, not to mention fueling highly counterproductive protectionist backlash. That is why certain minimum modern standards of production in terms of universal minimum wages and safety standard and environmental protection standard are necessary before globalization can be allowed to go further. Even according to the gospel of liberal economics, this approach should make sense. DeLong is wrong on this point. There is enough economic surpluses from increased efficiency to forbid the current abuses. There is no need for Hong Kong entrepreneurs to reap such obscene profits from such uncivilized exploitation for both workers and environment. They can settle for 2 Rolls Royces instead of 4. Also, in the developed economies, relocation of low skilled jobs offshore should be permitted only if a vigorous job retraining program is attached to every shift of production facilities. US steel companies should also be encouraged by tax incentives to acquire high-tech companies in automation, control and command, management and consulting, IT, environmental protection, etc. The US domestic "sunset" industries should be the leaders of the world's move toward clean, modern and high productivity production, rather than just moving their 19th century processes overseas.


Tom Lehman wrote:

> Dear Enzo,
> What you are advocating is a return to 19th century laissez faire capitalism on
> a global scale. You maybe couching your arguement in libertarian/anarchist
> rhetoric, but, the end result would be misery coupled with modern technological
> control.
> Reading this list. I think very few of the Left Business Observers would
> discourage an entrepreneur, and, from reading this list many of the LBOers are
> entrepreneurs. Some of whom have had a degree of success.
> The question is do we go forward to improve the human condition in a reasoned,
> rational manner, or, do we go backward to a false utopia that never existed.
> Sincerely,
> Tom Lehman
> Enzo Michelangeli wrote:
> > Two replies in one message, to reduce the libertarian pollution of
> > the list ;-)
> >
> > -----Original Message-----
> > From: Tom Lehman <uswa12 at>
> > To: lbo-talk at <lbo-talk at>
> > Date: Monday, December 14, 1998 10:40 PM
> > Subject: Re: cyberutopian libertarianism
> >
> > >Dear Enzo,
> > >
> > >The basic problem in the steel industry is that finished and semi-finished
> > steel
> > >products are being "dumped" into our domestic market at less than the cost
> > of
> > >production in the country of origin. It is impossible for the US steel
> > industry
> > >to compete in this type of situation. Other American industries are also
> > faced
> > >with this type of 19th century predatory price competition.
> >
> > Tom,
> >
> > Allegations of dumping are always quite difficult to ascertain, but that's
> > not the issue I was discussing with my question, which instead is: does the
> > first world really need low-end industries, instead of letting them go where
> > they are more efficient? I understand that there is a personal element in
> > your views, and I respect your feelings, but special interests, sooner or
> > later, always give in to economic considerations.
> >
> > Enzo
> >
> > -----Original Message-----
> > From: Carl Remick <cremick at>
> > Date: Monday, December 14, 1998 11:05 PM
> >
> > >Re Enzo's: "Yeah, OK, but can't we just import the stuff from where it
> > >costs less to
> > >make?"
> > >
> > >No, because the "natural advantage" of the exporters is based on
> > >exploitative wages and the lack of environmental safeguards. Next
> > >question, please.
> >
> > "Natural advantage" is new to me: I knew "comparative advantage" as in
> > Ricardo, and "competitive advantage" in some pseudo-economists such as
> > Robert Reich. But anyway: the foreign workers accept low wages for exactly
> > one reason: lack of alternatives. Not buying from their employers is hardly
> > helpful, because that converts low-wage employment straight into
> > unemployment. So: thirld-world workers lose their job; other consumers pay
> > for the same commodity more than they could; and the better educated
> > workforce in the first world keep low-end jobs instead of better paid and
> > more satisfying occupations that, for the time being, would not be
> > accessible by their thirld-world colleagues. Is this a progressive and
> > solidaristic solution? Hardly, methinks.
> >
> > Cheers --
> >
> > Enzo
> >
> > P.S. I anticipate some follow-ups claiming that no "just" policy will be
> > ever put in place without a comprehensive political change worldwide. The
> > fact is, however, that all the countries that have attempted a socialist
> > revolution are now more than willing to join the fray of international trade
> > as low-wage producers: and those who are not doing it, like Cuba or, until a
> > few years ago, Vietnam, are cut off only by to some incredibly stupid
> > American embargo. That must mean something.

More information about the lbo-talk mailing list