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Foreign Policy

by Bettina Bien Greaves for the Foundation For Economic Education

Almost everybody wants peace and prosperity. Certainly government officials profess a desire to promote peaceful cooperation among peoples and they devote much time and energy to "international relations." Yet almost daily the press, radio and TV report international tensions—in southeast Asia, southern Africa, the Middle East, Latin America or the Orient. As human beings are not perfect, possibilities will always exist for mistakes, misunderstandings, disagreements and disputes that could grow into widespread conflicts. So the task of those concerned with foreign policy is two‑fold—(1) to contain local quarrels and (2) to minimize the possibility of such conflicts in the future.

It is natural for people to trade with one another. No doubt men came to understand the advantages of voluntary transactions long before the dawn of written history. Persuading others to part voluntarily with some good or service, by offering them something in exchange, was usually easier than doing battle for it. Certainly it was far less dangerous. Barring force, fraud or human error, both parties to any transaction expect to gain something they value more than what they are giving in exchange. Otherwise they would not trade. This is equally true of trades among friends or strangers, fellow countrymen or foreigners, small enterprises or large—whether located next door to one another or separated by many miles or national borders. Trades may be complex, if intermediate transactions or different national currencies are involved, but the principle remains the same. Both parties expect to gain from a voluntary transaction. So people who trade with one another have both good reason to remain friendly and just cause to resent interferences that hamper or prohibit their trading.

Most consumers care more about the availability, quality and price of what they buy than they do about who makes it or where it comes from. If a particular gasoline works well in their cars, they don’t care whether the oil came from Arabia, Alaska, Venezuela or Algeria. Consumers will buy Taiwanese shirts, Hong Kong sweaters, Brazilian shoes, German cars, Japanese radios, or any other foreign good, if price and quality suit them. And satisfied customers promote good will.

Economic Nationalism

It is governments, not consumers, that make national boundaries important. It is governments, not consumers, that create national distinctions and promote economic nationalism, often without intending to do so. A tax on U.S. citizens, not required for protecting lives and property or defending the country, increases production costs unnecessarily. Regulations and controls to "protect" consumers, workers, manufacturers, farmers, miners, truckers, the environment, or any other special interest also raise domestic production costs. Benefits to special groups—the unemployed, elderly, handicapped, minority enterprisers, or those awarded lucrative government contracts—must be paid for by others, in taxes or through increases in the quantity of money which in time hurt everyone. All these programs increase costs and make voluntary transactions more difficult and expensive.

As production costs increase, some producers find their sales dropping so they must curtail production and reduce their work force. Many persons then believe it even more important to enact special legislation, erect trade barriers or grant government subsidies, to support the injured firms and protect them and their workers from foreign competition. But such programs only increase domestic production costs still more. This further hampers the ability of would-be traders to carry out voluntary transactions.

The goal of economic nationalism is to protect domestic producers from foreign competition. Its proponents want to preserve a specific pattern of production. They do not understand the mutuality of trade. They do not realize that both parties gain from a successful voluntary transaction. Nor do they recognize the inevitability of change.

Nothing in this world stands still. People move. The wishes of consumers change. Their knowledge is continually shifting. Changes also take place in stocks of available resources and the most economical places in which to produce particular items. Producers, investors and workers should be free to move about and adjust to these many changes as best they can.

Any attempt to maintain, for political reasons, some rigid pattern of production is bound to fail. Insofar as production is guided by political, rather than economic, motives, it becomes more expensive and wasteful. When government seeks to reduce dependence on imports and increase national self-sufficiency, consumers must get along with fewer goods and services of lower quality; and their standards of living will decline.

Foreign Policy Repercussions

Restricting imports by government fiat reduces exports also. How can foreigners continue to buy as much from us, if our government restricts their opportunities to earn dollars by selling goods in this country? The mutual gains that come from trading turn traders into friends. But when trading is hindered, ill will has a chance to develop. Frustrated would-be traders look for someone or something to blame. Officials of foreign governments become antagonistic to the U.S. government, for they realize their producers’ sales to this country are hampered by our government’s interference. However, few U.S.citizens blame their government for imposing trade restrictions. Many even consider the federal government a benefactor. For when imports and exports decline the federal government often tries to make up for lost trading opportunities by offering those who are hurt direct or indirect assistance—subsidies, relief, new protective regulations, and so on. But such government programs can never compensate would-be traders fully for opportunities forgone, reduced production, and the loss of individual self-respect.

The advocates of free trade pointed out more than a century ago that "if goods do not cross borders, soldiers will." As fewer exchanges take place across national borders, individuals have fewer opportunities to know and respect one another. Antagonism, animosity and enmity among nationals may arise. We have seen this happen in recent years—in India and Pakistan, Southeast Asia, the Middle East, southern Africa, and elsewhere. Obstacles to the path of trade made transactions across national boundaries more and more difficult, expensive and infrequent. The common bond which could have turned their international traders into friends was weakened. Those who could have helped each other through voluntary transactions had no cause to come together. They remained strangers and, in time, were even led to consider one another enemies.

Government intervention, which begins by distinguishing between domestic and foreign goods and producers, leads in time to a policy of economic nationalism which actively discriminates in favor of domestic products to the disadvantage of imported goods. This hurts not only foreign producers, whose goods are excluded from the domestic market. It also harms domestic consumers and producers. Production costs rise so that fewer goods can be produced and sold. With fewer goods and services available for everyone, living standards decline.

Localizing Conflicts

The sure way to turn local disputes into widespread conflicts is for outsiders to interfere. The first step in that direction often springs from a sincere sympathy on the part of the strong for the weak, the "rich" for the "poor," the "haves" for the "have pots." Officials of one nation offer to help defend a weaker country against the threats of stronger neighboring states. But by taking sides in this way, neutrality is abandoned. No matter how well-intentioned, such government-to-government economic aid and mutual defense agreements show favoritism which can lead in time to military actions and wars. Through U.S. commitments such as NATO, SEATO and SALT, as well as various treaties, pacts and executive agreements—relating to the Middle East, China, Russia, Panama, Japan, various African nations, and more—we could well become embroiled in local violence or border disputes, at almost any instant, almost anywhere in the world.

U.S. involvement in the Middle East undoubtedly began with a sincere sympathy for Jewish refugees who wanted to establish a homeland in Israel. Our involvement in Vietnam has been traced by some to a desire to help relieve France, when she was economically and financially strained by military operations in her colonial Indochinese territories, so as to persuade her to join NATO. "We do not plan our wars; we blunder into them" as history professor Henry Steele Commager has pointed out.

George Washington’s advice in his Farewell Address (September 17, 1796) is still sound: ". . . nothing is more essential than that permanent inveterate antipathies against particular nations, and passionate attachments for others should be excluded, and that in place of them just and amicable feelings toward all should be cultivated . . . The great rule of conduct for us in regard to foreign nations is, in extending our commercial relations, to have with them as little political connection as possible." And similarly, Thomas Jefferson urged "peace, commerce, and honest friendship with all nations, entangling alliances with none" (First Inaugural Address, March 4, 1801).

U.S. involvement in this century in two World Wars as well as Korea and Vietnam is due to the fact that U.S. foreign policy has been guided by precisely the opposite ideas from those Washington and Jefferson advocated. To contain local violence, a nation should avoid taking the first step toward abandoning neutrality and playing favorites. Thus, we should refuse to add to the many international commitments our country is now duty bound to honor. Then we should move toward the foreign policy recommended by our third President—"peace, commerce, and honest friendship with all nations, entangling alliances with none."

Minimizing Future Conflicts Through Free Trade

To minimize conflicts in the future we should aim to create a world in which people are free to buy what they want, live and work where they choose, and invest and produce where conditions seem most propitious. There should be unlimited freedom for individuals to trade within and across national borders, widespread international division of labor, and worldwide economic interdependence. Would-be traders should encounter no restrictions or barriers to trade, enacted out of a misguided belief in economic nationalism and the supposed advantages of economic self-sufficiency. Friendships among individuals living in different parts of the world would then be reinforced daily through the benefits they reap from buying and selling with one another. Thus a sound basis for peaceful international relations be encouraged.

WHEN the baker provides the dentist with bread and the dentist relieves the baker’s toothache, neither the baker nor the dentist is harmed. It is wrong to consider such an exchange of services and the pillage of the baker’s shop by armed gangsters as two manifestations of the same thing. Foreign trade differs from domestic trade only in so far as goods and services are exchanged beyond the borderlines separating the territories of two sovereign nations.



Individuals should have the right of national self-determination and even to shift national political boundaries, if they so voted in a plebiscite. For practical and economic reasons, a single administrative unit would be sovereign within the political borders so established. But this administrative unit would have to be responsive to the wishes of the people or face being ousted in the next election. It would have to do its best to protect equally the private property of every inhabitant and to respect the rights of all individuals within its borders, irrespective of race, religion or language. In such a world, members of racial, religious or linguistic minorities need have no fear of political oppression for being different. Any nation which adopted these policies at home and in its relations with other nations would help to reduce international tensions and so contribute to minimizing future conflicts. But once it began to play favorites again—to grant privileges to some to the disadvantage of others, to introduce restrictive controls and regulations—it would be reembarking on the path that leads to friction and conflicts among individuals, groups and nations.

World Peace

To maintain peace throughout the world, the grounds for conflict should be reduced as much as possible. The first step in this direction must be to respect and protect private property throughout the world. The ideal would also include complete freedom of trade and freedom of movement. Political boundaries would no longer be determined under threat of military conquest or aggressive economic nationalism, but rather by legal plebiscite, i.e., by vote of the individuals concerned.

War is never a handy remedy, which can be taken up and applied by routine rule. No war which can be avoided is just to the people who have to carry it on, to say nothing of the enemy. . . . In the forum of reason and deliberation war never can be anything but a makeshift, to be regretted; it is the task of the statesman to find rational means to the same end.

WILLIAM GRAHAM SUMNER, an essay on "War" from The Conquest of the United States by Spain and other Essays

In such a world, the national sovereignty under which one lived or worked would be relatively immaterial.

Daily news reports certainly indicate that we are a long, long way from approaching this ideal. Programs intended to promote world peace often lead in the opposite direction. The various intergovernmental institutions—the United Nations and the several regional political and economic communities—do little or nothing to reject economic nationalism. The debates and proposals of their representatives reveal little understanding of the mutual advantages private traders gain from voluntary transactions. They do not even appear to consider the possibility of leaving trade to private individuals and enterprises to arrange as they see fit. Rather they continue to delegate important powers to various governmental authorities to regulate and control quantities and qualities of imports and/or exports, sometimes even to set minimum or maximum prices at which certain commodities may be traded. In their desire to protect various fields of production within their newly erected borders, they foster economic nationalism over geographical areas larger than a single nation. Thus, although the spokesmen for these multinational organizations sometimes talk of "freer trade," their actions lead to less free trade.

The foreign policy that would minimize future conflicts would promote an economic climate in which voluntary trades among private individuals would flourish because private property was protected worldwide. To create such a climate calls for widespread economic understanding. To maintain it would require eternal vigilance.

This article was originally published by the Foundation for Economic Education (FEE) in The Freeman on September 1979 , Volume 29, Issue 9.


Bastiat, Frederic. Economic Sophisms. Translated from the French (1851) and edited by Arthur Goddard. Irvington-on-Hudson, New York 10533: Foundation for Economic Education, Inc., 1964.

Bauer, P. T. Dissent on Development: Studies and Debates in Development Economics. Cambridge, Massachusetts: Harvard University Press, 1972.

Curtiss, W. M. The Tariff Idea. Irvington-onHudson, New York: Foundation for Economic Education, Inc., 1953.

Fleming, Harold M. States, Contracts and Progress: Dynamics of International Wealth. Dobbs Ferry, New York 10522: Oceana Publications, Inc., 1960.

Krauss, Melvyn B. The New Protectionism: The Welfare State and International Trade. New York, N.Y. 10003: New York University Press, 1978.

Mises, Ludwig von. The Free and Prosperous Commonwealth: An Exposition of the Ideas of Classical Liberalism. Translated from the German (1927) by Ralph Raico. Edited by Arthur Goddard. Princeton, New Jersey: D. Van Nostrand Co., Inc., 1962. Reprinted 1978 as Liberalism: A Socio-economic Exposition. Kansas City, Missouri: Sheed Andrews & McMeel, Inc.  

About The Author

Bettina Bien Greaves is a Contributing editor and was a longtime FEE staff member, resident scholar, and trustee. She attended Ludwig von Misesís New York University seminar for many years and is a translator, editor, and bibliographer of his works. The Foundation for Economic Education (FEE), one of the oldest free-market organizations in the United States, was founded in 1946 by Leonard E. Read to study and advance the freedom philosophy. FEE's mission is to offer the most consistent case for the "first principles" of freedom: the sanctity of private property, individual liberty, the rule of law, the free market, and the moral superiority of individual choice and responsibility over coercion.

The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.