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New Ideal - Reason | Individualism | Capitalism

‘Buy American’ Is Un-American

The “buy American” doctrine is doubly un-American: in its goals and its premises.

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Initially a speech delivered at George Washington University, this article’s first iteration in written form was in 1987 in the Objectivist Forum, Harry Binswanger’s bimonthly journal of ideas. The editors of New Ideal are pleased to republish the most recent version, with the author’s kind permission, based on a chapter in A New Textbook of Americanism: The Politics of Ayn Rand, edited by Jonathan Hoenig and published in 2018.

Here is Dr. Binswanger’s recollection of the article’s genesis:

I wrote it first as a speech and delivered it before an Objectivist group at George Washington University in Washington, DC, in 1987. At that time, the phrase “Buy American” was everywhere (Reagan was president) and there was widespread fear of . . . Japan! The Japanese economy was booming, and Japanese were buying up U.S. assets, including even that New York City icon: Rockefeller Center.

In fact, it was in Rockefeller Center that I did some of my research for the talk. I interviewed an official for the Japanese Ministry of International Trade and Industry (MITI). From him I learned what I realized was the cause of Japan’s rapid economic growth: they had barely any Social Security program. As a share of GDP, their equivalent to Social Security was one-twentieth of ours! No one talks about the effects of social security programs, but they represent a staggering sacrifice of future growth to present consumption — and consumption not by those who earned the money, but by those favored groups having enough pull or making the loudest claims of victimhood status.

Ironically, Japan, at this very time, was ramping up its social security program, and was seeing its economic growth stopped. They entered a decades-long period of stagnation, and what I wrote in 1987 now sounds quaint, or even evokes a “Huh?” Over the following six years, I gave this material as a talk at many universities: Stanford, Connecticut, Michigan, Boston, Chicago, Minnesota, and Texas. I updated it frequently and repurposed it, as an op-ed and as an interview topic on Leonard Peikoff’s radio show in 1996. I also published it as a chapter in several pro-capitalist anthologies, including Why Businessmen Need Philosophy and A New Textbook of Americanism.

Despite decades of hearing from our intellectuals that we are an evil and sick society, America has been swept by a resurgence of patriotism. That is the good news. The bad news is that one group is seeking to exploit the pro-American sentiment for anti-American ends. That group includes President Trump and most of the voters who put him in office.

The campaign is “Buy American.”

The campaign sounds like an appeal to patriotism, but it is not. While “Buy French” might be pro-French or “Buy Muslim” pro-Islam, by the very nature of America, “Buy American” is an un-American idea.

If you prefer American-made goods because you believe they are better made, or, in a given case, represent a better buy, you may be correct or mistaken, but I have no quarrel with your standard: the basis of your choice is still value, not country of origin. What does concern me is the false notion that by subscribing to the “Buy American” campaign, you are somehow performing an act of patriotism or are helping America. Both ideas are false.

The “Buy American” campaign offers no arguments in support of its economic nationalism. Instead, it makes only assertions (“Our economy is being strangled by job-outsourcing”) and attempts to manipulate your emotions (“We’re going to make America great again”). And the Trump administration is acting to negate your mind directly by forcing you to buy American through issuing directives, by punishing companies that move factories abroad, and by imposing new tariffs, import quotas, and sundry other trade barriers in the name of “protecting” American workers and businesses from foreign competition.

Economic nationalism, I will show, is doubly un-American — un-American in its goal and in the coercive means employed to achieve it.

There is such a thing as “Americanism,” and it’s most certainly not a chauvinistic term. If we look at what Americanism actually is, we will see that it finds proper expression in such acts as rooting for American teams in the Olympics, honoring the flag, being proud of our history, and supporting America’s defense against enemy nations — but not in the economic nationalism of “Buy American.”

What is America? America is the nation of individualism. Ayn Rand wrote, “Individualism regards man — every man — as an independent, sovereign entity who possesses an inalienable right to his own life, a right derived from his nature as a rational being.”1

Individualism holds that each individual is an end in himself, not the means to the ends of others. It holds that no group can claim any part of his life as its own to dispose of — not the society, the state, the race, or the nation. Your personal identity, moral worth, and political rights pertain to you as an individual, not as a member of any collective.

But collectivism is the premise of “Buy American.” We are to think of ourselves not as individuals, but as members of a group: the nation.

An individualist defines his identity according to the values he has chosen. He is a philosopher, or a computer programmer, or a welder. He has a whole constellation of personal values — perhaps he likes to travel, for instance, so he spends part of his income on that. As an individualist, he knows that it is his income, his choice, and his life.

The collectivist defines his identity in terms of the group to which he belongs. The Soviet Union provided the arch-example: “I am a Russian. Because the Soviet state needs welders, it has assigned me to be a welder.” Maybe he also would have liked to travel, but the state did not approve, so he spent his meager wages at the government store, buying whatever goods the state had deigned to make available to him. As a collectivist, he regarded the money he possessed as his allotment, not his income, and his life as not his own, but an asset of “Mother Russia.”

Likewise, the “Buy American” idea tells you to define yourself as an American, not as an individual, and to act by the standard of what is good for America. This is textbook collectivism.

Clearly contained in the “Buy American” attitude is a deep-seated feeling of animosity to “them,” the outsiders. This attitude is the natural corollary of collectivism. An individualist feels benevolence and good will toward other individuals; a collectivist feels hatred and fear toward anyone who is not “one of us.” Foreigners with their “different ways” upset him, for what is right, to him, has always meant: what the group does. But foreigners are not of the tribe; they are, in the deepest sense, alien.

Xenophobia, the fear of foreigners, is a thoroughly collectivist and un-American attitude. Xenophobia is nothing but bigotry. In principle, the idea of giving preference to American-made products over foreign made products is the same as the idea of giving preference to products made by whites over those made by blacks. Economic nationalism is, like racism, a form of collectivism because it means judging people or their products by the group to which they belong, not by their own individual, objective attributes.

Individualism, as the quote from Ayn Rand indicates, regards man as a rational being. This implies that the interests of men are in harmony. As a rational being, man survives and achieves his well-being by using his mind to produce material values.

Collectivism regards men as irrational brutes whose interests conflict. It’s a dog-eat-dog world in the collectivist view. Wealth is viewed as a static, given quantity to be divided up. The best chance a brute has is to cling to his group and fight all the other groups for the biggest share of the loot.

The conflicts-of-interest metaphysics has rarely been stated as bluntly as by that arch-collectivist Adolf Hitler:

If men wish to live, then they are forced to kill others. The entire struggle for survival is a conquest of the means of existence which in turn results in the elimination of others from these same sources of subsistence. . . . One is either the hammer or the anvil. We confess that it is our purpose to prepare the German people again for the role of the hammer.2

This ugly metaphysics, in a more polite form, is exactly the premise of the “Buy American” campaign. “It’s China or us,” we hear. “We used to have a ‘favorable’ balance of trade with China, now we have an ‘unfavorable’ one. This must be stopped.” But notice that for us to have a favorable balance of trade, China must have an unfavorable one. This nonsense about the balance of trade is referred to in economics as the policy of “beggar your neighbor,” a collectivist doctrine holding that you would profit by making your neighbor into a beggar.

Observe that this doctrine actually makes international trade of any kind impossible. For it means that every country should seek only to export and never to import. If we should buy American, then logically the Japanese should buy Japanese, the English should buy English, the Venezuelans should buy Venezuelan. The consistent result of the collectivist approach to men’s interests would be universal hermitry — one should seek to avoid all contact with one’s natural enemies — i.e., other men.

Where the collectivist holds that one man’s gain is another man’s loss, the individualist holds that one man’s gain is another man’s gain. What’s good for General Motors is good for America. But more than that, what’s good for Toyota is good for America — that’s individualism and that’s Americanism.

The individualist holds that one man’s ability is a value to all other men. The following fantasy example will illustrate the validity of this principle.

You rub a magic lamp, and a genie appears. He informs you that you must choose between living on either of two entirely separate worlds. In World A, everyone is stupid, clumsy, ugly, ignorant, lazy; in that world, you would be, by far, the smartest, most talented, attractive, knowledgeable, ambitious, etc. But you would not change; you would have no more of these values than you do now — only the others you are compared to would be different. In World B, you would also remain just as you are now, but everyone around you would be much smarter, more talented, etc.

In World A, you would be a superstar — in a pool of clods, wimps, fools, and ignoramuses. In World B, you would be on the bottom of all the scales, a relative nobody — in a world of gods and goddesses.

In World A, your superior ability would raise you to the top of the economic pyramid. You could have the best of everything — the best that the other producers could offer: the biggest mud hut and the largest array of animal skins. In World B, your inferior ability would leave you on the bottom of the economic pyramid. You would have to settle for a secondhand, dented matter-transporter, you would have to stop your education at the Ph.D. level and get a job as a mere assistant scientist, working a full 25-hour week just to be able to afford a month’s vacation on one of the less-fashionable planets.

In World A, since medical science is unknown, your childhood would be wracked by disease, and you would die in a plague at age 25. In World B, you would live to age 350 and do so not only in perfect health, but also in a body tailored to your desires by genetic engineering.

So much for the idea that you are better off when others are worse off.

Productive strength is a value to everyone. Weakness and self-defeat is not in anyone’s interest, neither the weakened one’s, nor that of anyone who is trading with him.

It is in your interest that other men be smart, healthy, productive, and free — not stupid, sick, lazy, and enslaved. To take a non-fantasy example, would you be better off if Thomas Edison had been stupid, sick, lazy, or enslaved? Would you be better off if the corner news dealer were? Nothing is changed if we substitute a Japanese inventor for Thomas Edison.

Now consider the moral meaning of America. Individualism prescribes that all relations among men must be voluntary, that men must deal with each other as independent equals who cooperate for mutual benefit, neither party sacrificing the interests of the other. The moral basis of individualism is the ethics of egoism — rational selfishness. It holds that each person’s life belongs to him to live as he chooses, respecting the equal right of all others to do likewise.

But “Buy American” represents the altruistic ethics of self-sacrifice. It is the demand that you buy not the product that is best for you, but one that is more expensive, lower quality, or less reliable, in the name of benefitting inefficient American businessmen and workers. The ethics of self-sacrifice depends upon and reinforces the idea that men are brutes whose interests are in conflict. As Howard Roark states in The Fountainhead, “Man was forced to accept masochism as his ideal — under the threat that sadism was his only alternative.”3

Men’s cravings, rationalizations, and dogmas often conflict, but their rational interests do not. There is a brotherhood of men — if the men are independent, productive individuals. Man the producer is a brother to man the producer.

Individualism upholds individual justice: treating each man as he objectively deserves in the light of a rational judgment of his character and actions. There is no such thing, the individualist holds, as “social justice.” There is only individual justice, which requires dealing with men on the basis of what they have made of themselves, not on the basis of accidents of birth which divide them into certain racial groups, economic classes, or nationalities. Justice, for the individualist, is a matter of loyalty to the facts.

Let me interject, in this regard, the following statement by an American advertising executive, several decades ago, which nicely captures the flavor of loyalty to the facts in regard to the issue at hand: buying American versus buying the best. He is speaking, here, about the illicit use of patriotic appeals in advertising:

The fact that Miller Beer is “Made the American Way — born and bred in the U.S.A.” is neither a legitimate nor persuasive reason to drink it. The fact that Kodak is “setting out to find America” (in film, by the way) — even the fact that they assure me, at the end of the song, that they are “so glad to be in America” — is not a sufficient or plausible reason for me to take snapshots with Kodak film. It’s nice of Wrangler to assure me that their jeans are made in the U. S. A. but it does not convince me to tear off my Sassons in tribute to Uncle Sam. If I wanted to dress for my country I’d join the Marines.4

Can an individualist be patriotic? Yes, if the country concerned is one meriting his allegiance. An individualist can and does value the institutions, history, and laws of an individualist country. But an individualist could not be patriotic in Nazi Germany, Soviet Russia, or Khomeini’s Iran. This is the difference between rational patriotism and chauvinism. The chauvinist is the man who says, “My country, right or wrong”; the rational patriot is the man who says, “It’s my country because it’s right — I live here by choice.” The individualist attitude is expressed in a familiar taunt once associated with patriotic New York taxi drivers: “If you don’t like it here, why don’t you move to Russia?” The line may not be elegant, but when addressed to collectivists, it is truly unanswerable.

The political-economic expression of individualism is capitalism — the system of private property and free trade for private profit. If Americanism means anything, it means capitalism.

Capitalism does not stop at the borders of a nation. Free trade is what capitalism means, internationally.

According to individualism, man’s proper relationship to man stems not from his citizenship in this or that country, but from his nature as a human being. The same principles of moral behavior apply to an American whether he is dealing with another American or a Japanese. In particular, the right of free trade applies not only within our borders, but also in our trade with foreign nations.

And in the case of America, free international trade has a special, historical meaning: America was founded for the purpose of international trade. The first permanent English settlement in America was at Jamestown, Virginia.

Jamestown was founded by a multinational corporation, the London Company, for the purpose of private profit. Unlike the later Puritans, the Jamestown colonists came not for religious but for economic reasons. By 1624, when King James I dissolved it, the London Company had invested 200,000 pounds sterling and had sent over 14,000 colonists to Virginia.

Not only was foreign trade the motive for America’s first settlement, the desire for freedom of foreign trade was also one of the motives behind the establishment of American independence. Through the Sugar Act, the Townshend Acts, the Tea Act, and the like, the English Parliament had forced the colonists to pay a tariff on imports and had even forbidden the colonists to buy certain goods from countries other than England. The Boston Tea Party epitomized the Americans’ defiant response to these barriers to free trade.

The American Revolution was a magnificent expression of individualism. Instead of meek loyalty to the “mother country,” the Founding Fathers demanded justice — and, not finding it, they renounced their allegiance to England (“What signifies it to me, whether he who invades my rights is a king or a common man; my countryman or not my countryman?” asked Thomas Paine).5

The Declaration of Independence and the Constitution established a system based on the rights of the individual, a system in which the government existed to protect individual freedom, not to “protect” inefficient businesses from the people’s exercise of that freedom.

In his first inaugural address as President, Thomas Jefferson stated: “a wise and frugal government . . . shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.”6 He did not add: “unless the wheat for that bread was imported.” In one letter, he states, “The mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred ready to ride them.” He did not add: “unless the favored few might otherwise be undersold by foreign competitors.”

It is the freedom of capitalism that made America rich and led to a flood of immigrants to whom the streets seemed paved with gold. The American system was not fully capitalist — the connection between political freedom and economic freedom was just being grasped at the time of America’s independence (Adam Smith’s Wealth of Nations was published in 1776). But from its founding to the late nineteenth century, the United States was as close to a perfect laissez-faire society as the world has yet seen. The spirit of capitalism animated America. America meant the self-made man and the rags-to-riches stories of Horatio Alger.

American economic freedom unleashed the productive power of men’s minds. “Yankee ingenuity” it was called. A man could rise as far as his ability would take him. No class barriers, no “old wealth” could stand in the way of an Andrew Carnegie, a Henry Ford, or a Thomas Edison. What was most efficient was free to win in the open marketplace.

This was not Social Darwinism (a European doctrine). The less fit competitors did not die; they adopted the methods pioneered by the innovators. It was the natural selection of the fittest method of production. By letting the less fit businesses die, all prospered. We did not protect the businesses making whale oil lamps from Edison’s electric light, nor did the owners of the displaced businesses starve to death. We rushed to embrace the automobile, rather than clamoring, “Buy the good old horse to save the stable owners.” And the stable owners became gas station owners — which was better for them as well as for the general public. The popular slogan “adapt or die” meant: produce what people want to buy, using the most efficient methods, or lose your market.

The capitalists are the men who assume the risk of deciding what to produce and how, and they are the ones who go bankrupt when surpassed by an abler competitor or left behind by the sweep of progress. It was the buggy makers, not the stable boys, who had the most to lose, in the short run, when the automobile was invented. The stable boys went to work in Ford’s factories at higher wages. The buggy manufacturers adapted, painfully in some cases, or went bankrupt.

American capitalism began to recede as the individualist philosophy that had sustained it began to be supplanted by the altruism and collectivism of the Progressive movement and then the New Deal. Still, we remained the most capitalist nation in the world until sometime after World War II. For example, as late as 1940, 80 percent of American wage-earners had no income tax to pay.

Today, capitalism has been replaced by the “mixed economy,” and in certain respects we are now less capitalist than other free-world nations. For instance, our antitrust laws are the world’s harshest. Our regulatory agencies (such as the SEC, EPA and OSHA) interfere with business to a far greater extent than do those of other nations, and the growth of our federal spending has been far faster than that of many European and Asian nations.

This is the explanation of the faster growth rate of countries like China, India, Ireland, Germany, Taiwan, Singapore, and South Korea. China and India are the arch examples. The cause of their greater growth rate is their dramatic movement away from communism and socialism, respectively, toward economic freedom — at the very time we have been moving away from it (Sarbanes-Oxley, Dodd-Frank, Obamacare, drastic Federal Reserve interventions).

Note also that the American industries that are losing out most markedly to the foreign producers — steel and automobiles — are the very ones in which the unions, backed by government, are the most powerful: the United Steel Workers and the United Auto Workers.

The American businesses that have been losing ground to foreign businesses should have been calling for more freedom — and occasionally some of them have. But in the main their response has been: “Shackle the Chinese, as we are shackled.” They have been calling for tariffs, import quotas, and every form of protectionist legislation as the answer to foreign competition. Instead of saying, “Free us up so that we can compete,” many have been running to Washington, crying, “Make it illegal for Americans to buy foreign goods.”

One propaganda device of these businessmen is the claim that they are all in favor of free trade — so long as it is “fair.”

Let me put my answer in the strongest possible terms: in this context, there is no such thing as “unfair” trade. The so-called unfairness here is not to the buyer or to the seller but to a third party who objects. This is an act of extreme presumptuousness. A third party has no right to intervene in a transaction between a willing buyer and a willing seller — especially not when the third party’s complaint is that it is unfair to him that you, the buyer, are being offered such a bargain. What is he saying, if not that he has a right to your trade, your money, your time and effort, your life? It is an approach we might expect of a medieval baron upset at someone trading with his serfs. That sort of feudalism is what the economic nationalists are trying to pass off as Americanism.

“It is unfair to us at Amalgamated Widget when you buy from the Chinese.” The proper answer to such complaints is a venerable and very American retort: “Mind your own business!”

Another catchphrase in constant circulation is the need to “level the playing field.” But business is not a game. Economic competition is fundamentally different from an athletic competition. In sports, the goals achieved — the touchdowns, baskets, home runs — have no utilitarian value. Sports are activities whose meaning lies in the pleasure that participants and spectators derive from the process of goal-attainment itself and from the displays of excellence the challenges call forth. [See, “In Praise of Spectator Sports,” by
Thomas A. Bowden, The Objectivist Forum, August 1983.]

In business competition, the goal is not entertainment but the production of material values that serve human life. In such a competition, all parties are winners in the long run. When a foreign firm can out-produce an American one, it is to America’s interest that the foreign firm “win” their competition.

The metaphor of “‘a level playing field” has no meaning in business — unless it means an open marketplace without force or fraud, where all compete under conditions of free trade by voluntary consent. But open competition is precisely what the level-fielders are against. They want to hobble the foreign runners in the race, to hobble them by force (tariffs) and fraud (conning Americans into believing that buying foreign products damages our economy).

Note the power of the connotation of words. The Chinese are engaging in “dumping,” we are told. But what is being “dumped” on us is not garbage but inexpensive, good quality products. Their “dumping” consists of discounting the price below what you would have to pay for American products. This is the source of “Everyday low prices” at Walmart.

This is also known as “underselling” and is considered a big plus when done domestically by American businesses. How many commercials have you heard that say “we will beat any offer,” “guaranteed lowest price,” etc.? They are “dumping” savings on us. The “dumping” actually consists of showering us with wealth.

In theory, “dumping” implies selling below cost, with the “dumper’s” government making up the loss by subsidies. China’s government is frequently charged with doing that. But when and if it happens, it means that Chinese citizens are being taxed to give us a gift. Is gift-giving to be declared a threat? It is true that this gift is disadvantageous to American firms selling the product in competition with foreign subsidized companies, and this is hard on them. But so what? By what right do they seek to pass laws to keep us from accepting this gift? By what right would they force us to buy from them?

Ending Chinese subsidies to their businesses would in fact be in the interest of both China and America. If a foreign government adopts such an irrational policy, we should not bar Americans from taking the gift, but the policy is irrational, and in the long run it is not in either country’s self-interest. It is obviously not in a foreign country’s self-interest to tax themselves for the benefit of Americans. But it is also not in America’s interest that our trading partners weaken themselves by acts of economic self-sacrifice.

I have argued that the “Buy American” campaign reflects a false and very un-American philosophy: collectivism. Now let us turn to the basic economic fallacy in that campaign.

Economics teaches that international trade is a form of cooperation, a means of expanding worldwide production, and that the benefits of trade accrue to both countries, even if one country is more efficient in production than the other across the board. This is the lesson of the economic principle known as the law of comparative advantage.

To illustrate the law of comparative advantage, consider the production of two goods, computers and clothing, here and in India. Suppose, for the sake of argument, that the worst fears of the “Buy American” crowd are true in this case: India can make both computers and clothing far more cheaply than we can. Let us say that India has a two-to-one advantage over us in clothing manufacturing (it costs them half what it costs us to make the same item of clothing); and suppose that India enjoys a three-to-one advantage in computer manufacturing (their costs are one-third ours).

Although the Indians would have an absolute advantage in the production of both computers and clothing, we would have a comparative advantage in the production of clothing.

The law of comparative advantage holds that both countries benefit when each specializes in the production of the goods in which it has a comparative advantage. Here, both countries would benefit if India specialized in making computers and we specialized in clothing and then traded some of our clothing for their computers.

The benefits gained do not depend upon the fact that specialization tends to reduce costs (e.g., through economies of scale). Rather, the gains follow from the fact that worldwide production is expanded when each country devotes its resources to those activities in which it is relatively more productive. In my example, even though I assumed that the Indian firms can make clothing more cheaply than we can, by leaving the clothing manufacturing to us they free up resources to expand their computer production, where their relative efficiency is greater. Then they trade some of the extra computers the specialization has enabled them to produce for some of our similarly expanded clothing production.

The law of comparative advantage can be demonstrated mathematically (see any economics text), but it is often illustrated more simply by the following example. Suppose a certain executive knows that he can type and file faster than his secretary. Nonetheless, it pays him to leave the secretarial work to her. Why? Because her work gives him extra time to devote to his area of comparative advantage: running the company. As an executive, his time is worth, say, $1,000 an hour; it is too valuable to waste in doing secretarial work worth only $20 an hour, even though he could do that work more efficiently than his secretary. In the same way, in the preceding example, India’s computer producing time is worth too much to waste in manufacturing clothing, even though the Indians can manufacture clothing more cheaply than we can.

The law of comparative advantage is hardly a recent discovery. It was identified in 1817 by David Ricardo and is accepted by virtually all economists today. One of the classic textbooks in economics is Paul Samuelson’s Economics. Samuelson, a Kennedy-style liberal, states the principle thus:

“Whether or not one of two regions is absolutely more efficient in the production of every good than is the other, if each specializes in the products in which it has a comparative advantage (greatest relative efficiency), trade will be mutually profitable to both regions.”7 He goes on to note that such specialization is beneficial to workers, leading to a rise in real wages in both regions.

Samuelson also enters a significant qualification to the law’s applicability:

The theory disregards all stickiness of prices and wages, all transitional inflationary and deflationary gaps, and all balance-of-payments problems. It pretends that when workers go out of one industry they always go into another more efficient industry — never into chronic unemployment.8

Though Samuelson does not say so, what this means is that the advantages of international trade depend upon domestic freedom. For what causes “stickiness of prices and wages,” “inflation,” and “chronic unemployment”? Government interference in the free market. Prices only “stick” when government controls, such as price controls, prevent businesses from adjusting prices to market conditions. Wages in an industry “stick” only when labor unions, backed by government power, prevent them from falling (for example, the wages in the American auto industry are not just “sticky,” they are riveted to uneconomic levels, courtesy of the political power of the United Auto Workers union). Inflation and deflation are caused by the government’s control of the money supply. And chronic unemployment is due to union power plus the minimum wage law.

When the “Buy American” crowd demands that you pay more for your products, lowering your standard of living or making you work harder to maintain it, there are profiteers: your sacrifices support the parasitism of the unions. Having extorted wage rates higher than a free market would support, having caused the products in their industries to be priced out of the international market, the unions respond with the demand that the market be closed. Even less appetizing are the Solyndra-type mixed-economy businesses that attempt to profit from government subsidies and favors.

Professor Samuelson concludes his discussion of the law of comparative advantage, despite his demurrals, with this verdict:

Political economy has found few more pregnant principles.

A nation that neglects comparative advantage may have to pay a heavy price in terms of living standards and potential rates of growth. . . . From the standpoint of pure economic welfare, the slogan “Buy American” is as foolish as would be “Buy Wisconsin,” or “Buy Oshkosh, Wisconsin,” or “Buy South Oshkosh, Wisconsin.” Part of our great prosperity has come from the fortunate fact that there have been no restrictive customs duties within our 50 states, and we have formed a great free-trade area.

The law of comparative advantage applies not only to international trade but to all trade. It is a concretization, in the realm of economics, of the philosophic principle that the rational interests of all men are in harmony. Trade is the exchange of values, and it occurs when each party judges that he will benefit from the exchange. In trade, one man’s gain is another man’s gain.

A trade is not a gift or an act of self-sacrifice; the premise of trade is mutual self-interest. And it is not trade but theft or extortion if one party gains possession of another’s goods without his free consent. When do traders give their free consent? When each prefers what he is being offered to what he has to give in exchange — i.e., when each judges that he will gain by the transaction.

The fundamental error in economic nationalism is that it is blind to the life-and-death difference between economic competition and physical conflict. Economic competition is a rivalry in producing and offering values; it is ultimately a form of cooperation, under the division of labor. Physical conflict is a destructive form of opposition in which at least one party must lose. It is the difference between economic power and the power of physical force.

The equivocation between these two, between the dollar and the gun, is the main weapon of the Marxists. Marx claimed that economic power, the offering of values in trade, is “capitalist exploitation.” Lenin called it “imperialism.” Are we to fall into the Marxist-Leninist trap of regarding the products of our allies as “economic imperialism” that “exploits” us? Are we to buy Marxism in the name of buying American?

And it is not true that America, as a nation, competes with other nations. Some American firm competes with some South Korean firms. GM competes with Kia, but GM does not compete with South Korean computer-chip makers, like Samsung — in fact, GM probably buys Samsung’s chips for its cars. Exxon Mobil does not compete with Kia — in fact, when Americans buy Kias instead of more expensive American cars, some of the money we save can be spent on buying Exxon Mobil gasoline.

Every improvement in South Korean production is good for some U.S. firms and bad (in the short run) for others. But it is impossible for South Korea’s growth to be bad on net balance for America, even if South Korea grows faster than we do across the board in every industry. What counts is the progress in production that is made, not which country makes it faster.

If the South Koreans improve across the board, that means that Americans can get all South Korean products more cheaply. The money saved on these purchases is then available to buy more American goods and to invest in expanding American production.

The value another man produces is what he has to offer you in exchange. Money is just the medium of exchange. Ignoring this simple fact is what gives rise to the popular worries about our so-called “balance of trade” problem.

For at least forty years the headlines have been blaring alarms about the dire consequence of our “trade deficit” and the “unfavorable balance of trade” which we supposedly have with countries like China and Japan. What is this all about? The dollar value of our imports exceeds the dollar value of our exports. So what? The United States had this kind of “trade deficit” practically every year of the nineteenth century — the period of our fastest economic growth. And, according to one website, we’ve had the world’s largest trade deficit over the period from 1975 to the present.

Worry about “trade deficits” reflects a bias in favor of exports over imports, an attitude harking back to mercantilist fallacies of the sixteenth and seventeenth centuries. This import-phobia represents a perverse confusion of wealth and money. Imports are actual goods coming into the country. What goes to foreigners is the money, which in today’s context means pieces of paper. Thus, the fear of the “trade deficit” represented by “excessive” imports amounts to a fear of too many goods coming into the country and too few being taken out by foreigners.

That’s the issue from the side of goods. Now consider it from the side of money. When we buy foreign goods, such as a Samsung phone, we pay in U.S. dollars. Why does Samsung accept dollars in payment for their phones? Because the dollars can be spent here. Samsung’s dollar-receipts represent a demand for American exports. Even if Samsung exchanges its dollars for Korean currency, rather than spending them here, the provider of the Korean currency accepts U.S. dollars only because they can be spent here.

Ultimately, then, the trade is Korean phones for American cars, or American apps — or American real estate, stocks, bonds, or just American bank accounts. This last set of alternatives — investment in America — is what shows up in the accounting as “a trade deficit.”

A trade “deficit” means: we have imported more than we have exported. But how did we accomplish that? How did we get more than we gave? We didn’t — some of what we gave was not consumer goods but capital goods. But foreigners’ purchase of our capital goods doesn’t get entered under “exports” in the accountant’s ledger.

America’s “trade deficit” is actually a sign of our economic health: it reflects foreigners’ decisions to invest in our economy rather than taking immediate payment.

And if foreigners with money invested here were to start buying American products instead, though that would make the “deficit” go away, it would mean that foreigners would be bidding against us for the purchase of our output.

The trade “deficit” marks the extent to which foreigners supply us with goods while deferring their reward for doing so, investing their reward in our capital markets, to finance the expansion of our economy.

Not only do we get foreign cars, phones, shirts and chips without having to part immediately with some of our wheat, oil, software, and airplanes, but we get the use of those dollars in the meantime.

For these reasons, a trade “deficit” is something to be celebrated, not bemoaned.

A very significant repatriation of our dollars, and one that is also not included in the trade accounts, is foreign purchases of our government bonds. If you have wondered why our huge budget deficits have not wreaked more visible damage upon our economy, this is a major part of the answer: foreigners have long been purchasing U.S. Treasury bills — i.e., they have been loaning us the money to finance our budget deficits.

The fear of foreign competition is as irrational as the fear of domestic competition, and the proper attitude for all concerned, even the “losers” of the competition, is “let the better man win.” That way, all actually win because the rational interests of men are in harmony.

Competition in the creation of material values is of immense long-run benefit to everyone. And it doesn’t matter whether the competition comes from importing foreign goods or “importing” the foreigners themselves: immigration is and always has been good for America.

Whether foreigners send products here or immigrate to make them here, they do not “take jobs away from Americans.” That demagogic claim flies in the face of the Law of Comparative Advantage, contradicts the entire history of the United States — “a nation of immigrants” — and violates the moral principles of individualism. Ayn Rand, the great defender of rational self-interest, once faced a question that assumed that open immigration would adversely affect the self-interest of Americans. She answered: “You want to forbid immigration on the grounds that it lowers your standard of living — which isn’t true. [But] if it were true, you would still have no right to close the borders. You are not entitled to any ‘self-interest’ that injures others.”9

Supporting less-efficient producers merely because they were born here means sacrificing your economic self-interest to theirs and sacrificing the interests of those who could have profited from the money you should have saved by buying a cheaper import. It means, in short, acting unjustly: protecting incompetence at the expense of competence.

Government interference with free trade is un-American. Sacrificing one’s own standard of living to subsidize inefficient producers is un-American. The tribal fear of foreigners is un-American.

And for all these reasons, “Buy American” is un-American. A patriotic American acts as a capitalist and an individualist: he buys the best. America will again lead the world in economic growth when we re-institute its cause: freedom.

This article originally appeared in the April and August 1987 issues of the Objectivist Forum, a bimonthly journal of ideas edited and published by Harry Binswanger. Copyright © 1987 by TOF Publications, Inc.; republished by permission.

Image credit: Avigator Fortuner/Shutterstock.com.


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  1. Ayn Rand, “Racism,” in The Virtue of Selfishness: A New Concept of Egoism (New York: Signet, 1964 Centennial edition), 150.
  2. Quoted by Carl Cohen, ed., Communism, Fascism, and Democracy: The Theoretical Foundations (New York: McGraw-Hill, 1997 3d ed.), 339.
  3. Ayn Rand, The Fountainhead (New York: Signet, 1993 mass market paperback [1943]), 681.
  4. Malcolm MacDougall, Adweek, July 28, 1986.
  5. “The Crisis, No. 1,” in The American Crisis, 1776–1783, in The Writings of Thomas Paine vol. 1 of 4: 1774–1779, ed. Daniel Conway (New York: G. P. Putnam’s Sons, 1894), republished online by WikiSource, <https://en.wikisource.org/wiki/The_Crisis_No._I>, accessed March 10, 2017.
  6. Thomas Jefferson’s First Inaugural Address as President of the United States, March 4, 1801, published online by the Avalon Project at Yale Law School, (New Haven, CT: Yale University, 2008), <http://avalon.law.yale.edu/19th_century/jefinau1.asp>, accessed March 10, 2017.
  7. Paul A. Samuelson and Anthony Scott, Economics (New York: McGraw-Hill Ryerson, 1975 [1948]), 611.
  8. Ibid., 616.
  9. Robert Mayhew, ed., Ayn Rand Answers: The Best of Her Q&A (New York: New American Library, 2005 Centennial edition), 25.
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Harry Binswanger

Harry Binswanger, PhD in philosophy and formerly an associate of Ayn Rand, is the author of How We Know: Epistemology on an Objectivist Foundation. He is a member of the board of directors of the Ayn Rand Institute.

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