Thursday, 14 April 2016

Consumption is the goal

One of the many things Adam Smith taught us is that the ultimate goal of economic activity is consumption and not as many people, most famously perhaps the mercantilists, seem to think, production. Adam Smith pointed out more than 240 years ago that "Consumption is the sole end and purpose of all production". We value production as a means of getting to the goal of consumption.

Trade helps consumers while protection helps producers and thus if production is the ultimate goal then we should support protection. If on the other hand we see consumption as the ultimate economic goal then we should oppose protection. While this point may be well appreciated among economists its not as well understood by non economists. Don Boudreaux has been trying to correct this situation with an opinion piece in the Pittsburgh Tribune-Review. He writes,
Suppose [...] that we accept an opinion held by many advocates of tariffs and other import restrictions — that opinion being that economic policy should be judged not by how well it enables people to consume but, instead, by how well it keeps current producers doing what they do.

“People take pride in their work,” these protectionists observe. “If trade causes them to lose their jobs, they'll lose their dignity. And preventing honest, hardworking people from losing their dignity is reason enough to restrict trade.”

No one doubts that excelling at a job is a source of self-respect and dignity for workers. But what's the root source of this self-respect and dignity? It's not just the worker's knowledge that she is providing well for herself and her family. If providing well for oneself and one's family were sufficient to create self-respect and dignity, then the successful armed robber and arsonist-for-hire would have self-respect and dignity.

Essential to a producer's self-respect and dignity is the belief that he earns his living honestly. The producer takes justified pride in his work not merely because that work pays him well but because that work is socially useful.

Protectionism, however, destroys this source of pride — or, it would destroy this source of pride if protected producers understood the nature of protectionism. Protectionism allows a handful of producers to earn incomes not by serving consumers but, instead, by being served by consumers. Protectionism is a policy, enforced with threats of violence, that prevents consumers from spending their incomes in ways that promote their own best interests; protectionism is a policy of forcing consumers to spend their incomes in ways that promote the interests of current producers.

Protectionism treats production as the ultimate goal of economic activity — a goal that consumption must be made to serve.

Unlike workers and producers who succeed when trade is free, workers and producers who remain in their current jobs only because of trade barriers do not serve their fellow human beings as well as they possibly can. They do not truly earn their incomes. And there is no dignity in that.

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