Free Trade: An Introduction

Trade has always been part of human nature from prehistoric societies to the vast civilizations of the modern world. People have always exchanged their own property for others’ property, in the hopes of satisfying their needs. We can say, then, that the free exchange of things we deem valuable is part of human nature. Free trade is a key part of humanity.

Welcome to Lib​er​tar​i​an​ism​.org’s Learning Hub: An Introduction to the Concept of Free Trade

Definition 

We can define trade as the exchange of goods and services, and free trade implies that this exchange is voluntary and unhindered by restrictions, like government regulations or taxation. 

It is voluntary because nobody is forcing us to make the transaction. We exchange because we think what we receive is more valuable than what we give up. In other words, trade is not a zero-​sum game in which someone’s gain is equal to their counterpart’s loss. Both parties gain something, also known as a positive sum exchange. Because they seek each other for mutual benefit, free trade can be understood as a form of cooperation. 

Context

Trade has historically flourished: from the Mediterranean basin before the Roman Empire, to the voyages of discovery in the 15th and 16th centuries, when new routes connected Europe to the New World.

But, as trade grew, so did attempts at government intervention. For example, exports were preferred to imports because they enabled those in power to charge and accumulate more gold. In this context, Adam Smith published his masterpiece: The Wealth of Nations (1776), making the case for free trade.

Adam Smith, The Wealth of Nations, 1776 

Smith’s premise was that a nation’s wealth is not measured by its stockpile of gold, but by the ability of its people to produce goods and services of value to others, which they then can trade for other goods, or for gold/​money.

Because of this, trade is equivalent to wealth growth. It expands the size of the market and allows for finer division of labor and specialization, both within and among nations.

“It is a maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy… what is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.” 

Frédéric Bastiat

A few decades later, the French economist Frédéric Bastiat wrote a series of brilliant essays criticizing protectionist arguments and defending free trade. Author of the phrase “When goods cannot cross borders, armies will,” Bastiat also argued that international commerce promoted peace among nations, and that free trade was an essential element to human liberty.

The ideas of Smith and other economists of the time fueled a movement in Great Britain to repeal trade barriers and government controls and embrace free trade.

Contemporary

Free trade’s benefits were well-​known and generally accepted, but various factors prevented free trade even during the rapid opening of global markets in the 19th and 20th century. Trade barriers have historically been implemented either in the name of a “greater good” –like protecting a country in the name of national security, or an industry to preserve local jobs– or to make a profit from the very restrictions that have been put in place –like tariffs on imports to discourage foreign competition–. 

Even in the face of these protectionist measures, trade liberalized dramatically in the 19th century, and both caused and benefited from rapid industrialization, falling transport costs and political stability. However, the two World Wars, the Great Depression, and the interventionist political and economic programs of the 1930s dramatically interfered with free trade and slowed economic development. 

After two centuries of hard evidence in support of free trade, people today generally enjoy greater freedom to trade across international borders, but government controls are still significant. 

Relation to Liberty

Free trade is widely accepted as the best policy for promoting a nation’s prosperity. But increasing wealth is not the only reason to defend free trade. Having the liberty to create, produce, buy, and sell, is an elemental part of individual choice and action. It is as essential as the liberty to speak our minds or protect our lives and property. It is the freedom to satisfy our own needs through voluntary exchange and cooperation. 

Summary

In sum, free trade is the voluntary exchange of goods and services, free of unnecessary and arbitrary restrictions, and has historically been the engine for more liberty and greater wealth.

Want to know more? We invite you to read through our resources, and stay tuned for future videos for answers to these questions, and more! If you enjoyed this video, don’t forget to like, share, and subscribe to our content.