Smuggling is a Good Thing

Is smuggling immoral? Reading J.B. Say, he argues that smuggling is a good thing. Governments impose barriers to trade under the ruse of public interest but really they only serve private interests. Is not smuggling, then, the circumvention of institutional and artificial trade barriers, a good thing for consumers?


Smugglers are speculators engaged in the carrying trade

“Self-interest is the best of all instructors” – J.B. Say

If you can purchase fish in the United States for $3, but that same fish only costs $1 in Mexico, what will happen? Speculators will calculate the cost of transportation between Mexico and the United States. If the cost of transportation is less than $3 – $1 = $2, it will be profitable to buy fish in Mexico and transport them to the U.S. to sell them slightly less than $3. This is known as the carrying trade.

Merchants buy cheap in one market, carrying them to another locality, and sell them where they dearer, for a profit. Suppose Mexican fish can be purchased for $1, and transported to the U.S. for $1. American consumers are better off as they can pay less, $2 instead of $3, for the same good. The efficient producers force the inefficient producers to either lower their price by increasing productivity or leave the industry. This is known as competition, the dynamic, rivalrous process of discovery.

No one directs this process; it arises spontaneously by self-interest. The merchant engaged in the carrying trade has the self-interest for profiting from carrying goods to other localities as he can earn profits for doing so. The American consumer has the self-interest to buy identical goods at a lower price. The inefficient producers are driven out of business while the most efficient producers expand their efficiency. This system of profit and loss that guides the economy is known as the price system.

But suppose the U.S. wishes to “protect” American fisheries, and imposes a $2 tariff on Mexican fish. This is known as mercantilism, protectionism, or the American System of the defunct Whigs. The previous carrying trade is no longer viable. Importing Mexican fish would cost: $1 (for the fish) + $1 (for transport) + $2 (for the tariff) = $4. This places Mexican fisheries out of competition with American fisheries. American producers can raise the price to $4, which leaves no incentive for the carrying trade. The American consumers must buy from American fisheries, and have lost $2 that they can no longer spend on other things.

The point of this exposition is that tariff laws in place to “protect” American industries are themselves immoral. The effect of a tariff on fish does protect American fisheries, but it does so at the expense of American consumers that must shell out an additional $2 for fish. What American fisheries gain is lost commensurately by other American producers.


Smugglers are disobeying immoral laws

“The true market never can be suppressed. Even the ruthless Soviet commissars cannot do it.” – F. Chodorov

The tariff attempts to suppress the true market by imposing impediments to trade that only serve a privileged group at the expense of everyone else. But humans are instilled with perpetual ingenuity. Every attempt to suppress the market only drives the market underground, known as the black market. In this case, the tariff creates a new class of speculators: smugglers!

Smuggling has a negative connotation, but the reality is quite the opposite. Tariffs attempt to suppress the process of competition; smuggling is a profession that circumvents this suppression. Smugglers are working towards the general welfare by allowing the carrying trade to continue operating.

Suppose we have the same situation, the $2 tariff on Mexican fish. But this time, suppose smugglers come in to continue the carrying trade. The smugglers can purchase Mexican fish for $1, transport them to the U.S. for $1, and sell the fish for $2. Americans no longer have to pay $4 for fish, but can now procure fish again for $2.

Of course, the price may be a little higher (due to risk of getting caught and punished), for example $2.50 or $3, but the price will still be better than what American fisheries are selling it for, that is, $4. At the very least, smuggling will force protected fisheries to sell at more competitive prices, rather than at monopoly prices.

The existence of smugglers, then, reduces the cost of goods in protected industries for American consumers. Competition can function to a fuller extent, and our workers will leave unproductive industries and undertake industries that they can be more efficient in. The capital invested is also freed up to produce more urgently needed goods. There is no injury caused to anyone, except to privileged American producers, who themselves were injuring all American consumers.


What does Say say?

“The property a man has in his own industry, is violated, whenever he is forbidden the free exercise of his faculties and talents, except insomuch as they would interfere with the rights of third parties” – J.B. Say

Everything producers make is a reflection of consumer demand. They are simply fulfilling the demands that consumers express to them via the price system. Smugglers allow at least some of the true market to function. It’s not goods that need to be regulated or protected. The price system of the free market already takes care of that. The government need not get involved in tariffs or trade barriers; they can only do harm by imposing unnecessary barriers.

Smugglers, then, prevent the government from infringing on our property rights. If one is not free to exercise his faculties and talents, then he is not free and therefore his property rights are only in name rather than matter. This isn’t some radical notion; it’s over 200 years old from a prominent Classical Liberal. Make sure to thank a smuggler on Say’s behalf for keeping the true market functioning.

 

 

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