The free market tells us what ought to be built and what ought not to be built.
The free market's profit-and-loss system would tell Chinese oligarchs not to build railroads from China through poverty-stricken Asia into poverty-stricken Eastern Europe.
The Chinese government is creating a railway line that stretches from China across Asia into Eastern Europe. It is called the Belt and Road Initiative (BRI). When completed, it will be a gigantic government subsidy for exported Chinese goods.
RON PAUL VS. EXPORT SUBSIDIES AND TARIFFS
Ron Paul talked about this kind of government subsidy in 1981. Substitute "China" for "France," and you will understand what the Chinese government is doing.
Exports are only useful economically when they are profitable. Otherwise they represent a net loss.But don't we need our own subsidies because other countries have theirs? If the government of France wishes to help impoverish their own citizens to send us cheap products, why should we impoverish ours as well?
This means that government-subsidized exports of Chinese-produced goods out of the country necessarily reduce the range of choices for Chinese consumers. The Chinese Communists who run China do not understand this. Or perhaps they do understand it. They are using the BRI to establish political influence in foreign nations. They don't care that their policies reduce the wealth of Chinese citizens. "Not our problem."
PRESIDENT XI
President Xi announced this initiative in 2013. It is still mostly on paper. We don't yet know what the railway map looks like. It is mainly political rhetoric. An article published on the Council on Foreign Relations' website summarizes:
President Xi announced the initiative during official visits to Kazakhstan and Indonesia in 2013. The plan was two-pronged: the overland Silk Road Economic Belt and the Maritime Silk Road. The two were collectively referred to first as the One Belt, One Road initiative but eventually became the Belt and Road Initiative.Xi’s vision included creating a vast network of railways, energy pipelines, highways, and streamlined border crossings, both westward—through the mountainous former Soviet republics—and southward, to Pakistan, India, and the rest of Southeast Asia.
Supposedly, the government has spent $200 billion over the last seven years. This is chump change. The Chinese economy is estimated at $14 trillion a year. So, this is mostly political rhetoric. There is little of economic substance here. Whatever substance there is, it is wasted money.
The BRI is not the way to prosperity. This is the way to reduced wealth for China's citizens. This is one more example of mercantilism. It is one more example of money confiscated from the public that is used to subsidize the export sector of an economy. Adam Smith wrote against it in 1776 in The Wealth of Nations. His economic analysis was accurate then. It is equally accurate today.
MATTHEW EHRET
There is a Canadian non-economist named Matthew J. L. Ehret. He is an advocate of "the American system," the mercantilistic program of Alexander Hamilton, Henry Clay, and Abraham Lincoln. He is a greenbacker. He praises Lincoln's abolition of the gold-backed dollar by the issuing of hundreds of millions of dollars in fiat paper money: greenbacks. (For my critique of greenback economics, read my book, Gertrude Coogan's Bluff, published by the Mises Institute.)
He is among the most enthusiastic cheerleaders in the West for the Belt and Road Initiative. He thinks it is a magnificent idea. He is convinced that subsidies by Chinese taxpayers to impoverished governments in Asia and Africa will lead to tremendous wealth for China. In other words, he is a run-of-the-mill mercantilist. He doesn't believe Adam Smith, Ludwig von Mises, or any other defender of free trade and limited civil government. He believes in big government, big subsidies, and big, visible projects. In other words, he has adopted what Frederic Bastiat called the fallacy of the things not seen. This error is the essence of bad economics, as Henry Hazlitt wrote in 1946 in his classic book, Economics in One Lesson.
In an article published on Strategic Culture, he begins with an analytical error. He describes the modern international trade as a zero-sum game. This is a game designed so that winners profit at the expense of losers. Ludwig von Mises described this analytical error as the Montaigne dogma, named after the sixteenth-century French essayist Michele de Montaigne. At the beginning of Chapter XXIV of Human Action (Yale University Press, 1949), Mises wrote:
Among modern writers Montaigne was the first to restate it; we may fairly call it the Montaigne dogma. It was the quintessence of the doctrines of Mercantilism, old and new. It is at the bottom of all modern doctrines teaching that there prevails, within the frame of the market economy, an irreconcilable conflict among the interests of various social classes within a nation and furthermore between the interests of any nation and those of all other nations.
In contrast, Ehret writes:
It is a tragedy of our age that society has been locked in a zero-sum operating system for so long that many people living in the west cannot even imagine a world order designed in any other way… even if that zero sum system can ultimately do nothing but kill everyone holding onto it.Is this statement too cynical?
Not only is it too cynical, it is analytically wrong.
It gets worse.
You see, this world of tension which game masters require in today’s world are generated by increasing rates of scarcity (food, fuel, resources, space, etc). As this scarcity increases due to population increases tied to heavy doses of arson, it naturally follows that war, famine, and other conflict will rise across all categories of divisions (ethnic, religious, linguistic, gender, racial etc).
There are no supreme game masters. There are merely New World Order spokesmen with pretensions.
There is no international civil government. In contrast, there is a growing free market economy. Over the last four decades, it has produced massive wealth increases on a scale unprecedented in the Third World. If you want evidence of this, watch either of the wonderful TED talks by Hans Rosling. The one was delivered in 2006 is here. Then watch this.
Ehret then quotes Prince Philip. The date? 1981. This is supposed to persuade us.
Showcasing this ugly misanthropic philosophy during a December 21, 1981 People Magazine Interview, Prince Philip described the necessity of reducing the world population stating:“We’re in for a major disaster if it isn’t curbed-not just for the natural world, but for the human world. The more people there are, the more resources they’ll consume, the more pollution they’ll create, the more fighting they will do. We have no option. If it isn’t controlled voluntarily, it will be controlled involuntarily by an increase in disease, starvation, and war.”
This indicates how little evidence Ehret has for his supposedly provable thesis. Relying on Prince Philip as an economic analyst is a mistake. Prince Philip was wrong. But he was wrong 39 years ago. Ehret is wrong this month.
Ehret is a great devotee of Franklin Delano Roosevelt and his socialist Vice President, Henry A. Wallace.
When such a system is imposed upon a world possessing atomic weapons, as occurred in the wake of FDR’s death and the sabotage of the great president’s anti-colonial vision, the predictably increased rates of conflict, starvation and ignorance can only spill over into a global war if nuclear superpowers chose to disobey the limits and “norms” of this game at any time.
I clicked on the highlighted link. It is a one-hour lecture by Ehret praising the postcolonial vision of Roosevelt and Wallace. Wallace really was a socialist. Ehret's lecture has had a total of 2000 views. He had about six people in the audience, who kept interrupting. We are not told onscreen who the author is. The video was produced by the Rising Tide Foundation, which is run by Mr. Ehret. This is not what I call persuasive documentation.
Wallace was so far to the Left that when he ran for President as a fourth party candidate in 1948, the Communist Party endorsed him. That year, the Communist Party ran no one for President. It didn't have to.
Ehret in his speech praised the joint BRI alliance between Xi and Putin (37:30). He said that the revolution of the "Republic of China" (Communist China) was modeled after Lincoln's revolution (41:18). He said that Xi's BRI is modeled after Lincoln's "American system" (41:22). "It's all Lincoln." Indeed, it is.
THE BRI
Ehret is a great supporter of China's BRI. In 2019, he wrote "How the ‘Real’ America Is in Harmony With the Belt and Road Initiative":
These new rules proposed by Xi Jinping and expressed by the BRI’s political economic practices are exactly what the best American patriots fought for, and so the question becomes: will America finalize the intention of the American Revolution by work by joining the New Silk Road or fail to recognize its own destiny?
I have a Ph.D. in American history. My specialty was colonial America. I can say with confidence that President Xi's BRI has nothing to do with the American Revolution. (Alexander Hamilton might have approved. Ehret's organization is pro-Hamilton.)
Ehret praises half a dozen of the BRI projects. Then he concludes:
Overall, the spirit of the growing New Silk Road is fast moving from a simple east-south trade route towards a global program stretching across all of Africa, to the Middle East, to the High Arctic and Latin America. While this program is driven by a longer view of the past and future than most westerners realize, it is quickly becoming evident that it is the only game in town with a future worth living in.
In May 2019, I did my best to take apart the utter nonsense of the BRI. I was specifically responding to an article by Ehret. You can read my analysis here: https://www.garynorth.com/public/19473.cfm.
He ends his article with this cheerleading for the Communist oligarchs of China.
While China has committed to the enlightened idea that human society is more than a “sum of parts”, the Cold Warriors of the west have chosen to hold onto obsolete notions of human nature that suppose we live in a world of “each vs. all”. These obsolete notions are premised on the bestial idea that our species is destined to do little more than fight for diminishing returns of scraps in a closed-system struggle for survival where only a small technocratic elite of game masters calling themselves “alphas” control the levers of production and consumption from above.
So, the visionary Communists who run China are enlightened. There is no free market in the West. The world of the West is dominated by the evil philosophy of "each vs. all." It is obsolete. Therefore, "All hail President Xi, master of enlightenment."
Last month, the Communist oligarchs announced a re-structuring of the economy. They will clamp down on market forces.
Chinese President Xi Jinping and the Communist Party’s Central Committee have laid out a plan for a ‘new era’ in which the party has better control over private business in China.The plan was detailed in a 5,000-word statement – and all regions and departments in the country have been told to follow the new guidelines.
This was the top story on Wednesday’s CCTV Evening News – how the president had issued “important instructions”.
It had a long-winded title: “Opinion on Strengthening the United Front Work of the Private Economy in the New Era”.
The ultimate goal is for the party to have ideological leadership of private enterprise.
The statement seeks to improve CCP control over private enterprise and entrepreneurs through United Front Work “to better focus the wisdom and strengthen of the private businesspeople on the goal and mission to realise the great rejuvenation of the Chinese nation.”
Xi is gaining control over the nation as never before, reports The Los Angeles Times.
No Chinese leader since has held as much authority — until Xi. But he is not Mao 2.0. A disciplinarian, not a revolutionary, Xi is driven by a need for control. He is a legalist in the tradition of Han Feizi, the philosopher who taught China’s first emperor, Qin Shi Huang, that people are fickle and selfish and must be kept in line through law and punishment. An ethnic nationalist, Xi holds a vision of Chinese revival that draws on allusions to past empires. He speaks in Marxist terms of class struggle and uses Maoist tactics such as self-criticism and rectification, but his brand of communism also promotes Confucius and e-commerce.The Chinese president sees himself as a savior, anointed to lead the country into a “new era” of greatness propelled by rising prosperity and political devotion.
As you might imagine, I would not give Mr. Ehret the time of day, let alone access to my website. Getting two sentences critical of American foreign policy is not worth getting three pages of cheerleading for Chinese mercantilism as superior to Western free trade.
CONCLUSION
Mercantilism is bad economics. It was bad economics in the 16th century, the 17th century, the 18th century, and the 19th century. It is bad economics today. It is the economics of Montaigne, Hamilton, Clay, Lincoln, and Sen. Smoot and Congressman Hawley.
China's Belt and Road initiative is a money-losing, economically wasteful boondoggle. It is one more example of bureaucratic blindness. It subsidizes exports at the expense of Chinese consumers. He calls the Chinese economy win-win. It is in fact win-lose. The BRI is a classic zero-sum game. The oligarchs win (power). The subsidized foreigners win. The Chinese people lose.
It's great for consumers along the rail lines and ports. They get the subsidies at the expense of Chinese consumers.
Mercantilism is a zero-sum arrangement. The free market isn't.
Ron Paul was right in 1981. The answer is not tariffs on Chinese goods. The answer is free trade. The answer is economic liberty.
I have written a book on this: Protectionism and Poverty (2020). You can download it for free here:
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