Smith, Wong, Borders, and Badges

Gary North - August 30, 2010

Two men want to make a voluntary exchange. Let's call them Smith and Wong. There is nothing immoral about what they want to trade. Smith lives on America Blvd. Wong lives on China Ave. They are in different counties. They are chatting in a market on Trade Street.

Wong wants to sell Smith a flat-screen TV. Smith wants to buy one.

A man walks up to them. He says, "Are you contemplating a trade?"

Smith says, "What's it to you?" Wong, being polite, let's Smith do the talking.

The man pulls out a badge. "I'm with the government. I don't answer to you."

Smith says, "What right have you got to ask us any questions?"

The guy opens his coat. There is a gun. "This gives me the right."

Smith says: "What business is it of yours whether this man and I want to trade?"

The man says, "Congress has made it my business. Congress controls the terms of trade."

"Not here," says Smith. "We have not crossed any national border. We live in the same state."

The man with the badge says: "Congress says it has jurisdiction over what a farmer plants in his back yard for his own use. Congress says, and the courts have decided, that this food might otherwise have been traded across a border. So, Congress has jurisdiction."

Smith: "But there is no threat here. We just want to make a trade. He wants to sell me a flat-screen TV."

Badge: "Sorry, but Congress sees it otherwise. I am here to tell you that Congress has passed a sales tax on buying anything from a foreigner with slanty eyes."

Smith: "But that's racial profiling."

Badge: "It's not. I have been tailing this guy for days."

Smith: "But this man is an American."

Badge: "No, he isn't. Although he dresses like an American, he in fact comes from China. He lives on China Avenue, but he only rents. His citizenship is in China. His cousin's factory made the TV. His cousin lives in China."

Smith: "But he is here now. We may want to make a trade."

Badge: "You can, but only if you pay the U.S. government a sales tax."

Smith: "I never heard of a federal sales tax."

Badge: "That's because it's called a tariff."

Smith: "What is the difference between a tariff and a sales tax on imported goods?"

Badge: "Voters won't re-elect Congressmen who vote for tax increases. So, it's called a tariff."

Smith: "You mean that voters will accept a tax if it's not called a tax."

Badge: "As surely as they will accept a welfare check if it's not called welfare."

Smith: "Is this prohibition on trade only about taxes?"

Badge: "It's not just about taxes. It's also about true freedom of trade."

Smith: "What is true freedom of trade?"

Badge: "Free trade plus sales taxes."

Smith: "Does it take badges and guns to enforce Congress's definition of freedom of trade?"

Badge: "It always has."

Smith then concedes that, in this case, the government is right. He should not have to pay a tax to the U.S. government for items bought from slanty-eyed men with pieces of paper that say "Born in the U.S.A.," but he admits that he owes the tax on purchases from a slanty-eyed man with no piece of paper and with a cousin who lives on the other side of an invisible line called a national border.

Freedom of trade depends on invisible lines called borders, he thinks. Not all borders, of course. The county border between America Blvd. and China Avenue is not a real border. The national border between America and China is.

According to the United States Congress, Badge explains,

When border #1 is a county border, freedom of trade means freedom of trade. It means no sales tax on just one seller's good. If either party pays money, he owes a sales tax to a local government or a state government. It does not matter where he lives.

When border #2 is a national border, freedom of trade means paying a sales tax to the the U.S. government, but only when the buyer is on the American side of the border.

This makes sense to Smith. He is a graduate of a public high school. He knows that Congress is on his side. He decides to pay more for that flat-screen TV. He hands the money to Wong, and Wong pays Badge the sales tax.

FINAL EXAMS

Let's assume that you are taking a final exam in a university economics course.

Part 1 of your final exam question is this: "Define free trade."

Part 2 is this: "Comment on this statement: 'All borders are equal, but some are more equal than others.'"

Hint:

http://www.lewrockwell.com/north/north238.html

http://www.thefreemanonline.org/columns/growing-toyotas-manufacturing-soybeans

http://fee.org/the_freeman/detail/tariff-war-libertarian-style

Now let's assume that you are taking a political science course at the same university. Answer the same questions.

Can you get an A in both courses with the same answers? Probably not.

So, let's assume you are taking a course in philosophy. Here are your final exam questions:

1. Why do the two other courses have different answers?

2. Is there any way logically to justify this?

I hope you get an A in all three courses . . . and also do not surrender your intellectual integrity.

Good luck. You'll need it.