The Nationalization of Commerce

To have production goods in the economic sense, ie, to make them serve one’s own economic purposes, it is not necessary to have them physically in the way that one must have consumption goods if one is to use them up or use them lastingly. To drink coffee I do not need to own a coffee plantation in Brazil, an ocean steamer, and a coffee roasting plant, though all these means of production must be used to bring a cup of coffee to my table. Sufficient that others own these means of production and employ them for me. In the society which divides labor no one is exclusive owner of the means of production, either of the material things or of the personal element, capacity to work. All means of production render services to everyone who buys and sells on the market.

~Ludwig von Mises, [amazon text=Socialism&asin=0913966630] [PDF], pg. 41

We often hear international events described in an economic context, such as a “war for oil.” So I often used to wonder why people thought it was important which country’s government controlled various resources around the globe. As the quote from Mises above demonstrates, one need not own or control a resource for one’s self to make economic benefit of it. Just like I can make beneficial use of the capital of Amazon by purchasing goods and services from it without owning Amazon’s capital myself, a country of people, like the US, can benefit from the oil “belonging” to another country, Iraq, without militarily dominating or conquering them.

In fact, the oil in Iraq isn’t of much value to the people in Iraq if they don’t sell it to other people outside of Iraq.  A place like Iraq is so rich in oil resources that there is far more oil there than the people of Iraq will ever conceivably need or use. Meanwhile, they’re relatively poor in other valuable goods, such as foodstuffs which can’t be grown in their arid landscapes, or manufactured computer electronics, which they might lack the local expertise or even capital structure to produce on their own. By trading their oil for these goods, they’re better off, their trading partners are better off, and each gets the benefit of the other’s “means of production” without politically controlling them.

So how can we make sense of things like a “war for oil”? If not the economics of the market, where do these claims for the need for national governments to control resources and commercial transactions stem from?

I can think of three related phenomena:

  • the need for tax revenues by States
  • the need for war material by States
  • the need for direct revenues by States

The first idea is probably the primary driver of the argument for control. Except in special cases, most States at most times are only capable of levying taxes on the assets and incomes of their own citizens. For example, the government of Spain can not tax the citizens of France. Now, they may attempt to enforce laws which allow them to tax the citizens or companies of France operating within their own political boundaries, ie, a French citizen working in Madrid, or a French company operating a factory in Valencia. But the Spanish government is unable to tax a French citizen working in Paris, or a French company operating in Singapore.

But all governments, all the time, desire more tax revenues rather than less. So how to generate tax revenue on economic activity occurring outside a State’s political boundaries? By affecting a change of control of the assets or income streams of “foreign” entities, either by treaty or by war, a State can come to mulct a greater sphere of economic activity than simply that which exists within its outstanding political boundaries.

An Iraqi oil company operating wells in Iraq does not generate tax revenues for the US Treasury. But a US oil company operating wells in Iraq does generate tax revenues for the US Treasury. While in a broad economic sense it doesn’t matter to a US citizen (or an Iraqi citizen) which company controls the oil well, in a political sense it matters a great deal because it means a difference in where the tax revenues go (we’re simplifying our analysis here by assuming a similar level of technical competence, reinvestment rate, tax rate, corruption/wastage rate, etc., regardless of which national operates the well). The need for greater tax revenues incentivizes all states to prefer economic assets and trade flows to be controlled by their own citizenry and companies.

The second idea is reserved for the specific instance of war and highlights the strategic value of the national identity of an entity exploiting a resource. For example, most civil aeronautics legislation in most countries of the world contains a clause which restricts the foreign ownership of “local” commercial airlines operating large passenger aircraft inside the country. An airline like Virgin America, whose routes are primarily between locations in the US, might be restricted from being majority owned by a foreign national entity. The reason for this is that in the event of war, it is of strategic value to the United States government to be able to “mobilize” commercial passenger aircraft and commandeer them for transporting troops, supplies, etc. If these aircraft were majority owned by a foreign national, they might be able to legally escape them from the United States, or bring suit by their government for an act of theft. It could even lead to a declaration of war by the foreign national government. The need for war material, then, means it is extremely important for a State to have these assets owned by their own nationals to avoid strategic complications during a war. Otherwise, what would it matter what percent of an aircraft is owned by a foreigner?

The final idea is simply a reframing of the first. In some countries, the tradition or institution of direct taxation is weak or non-existent, and the State funds itself by actively controlling economic assets and using the revenues to fund its general budget. For example, Venezuela has a national oil company, as does Saudi Arabia– a large part of the State’s budget comes from the oil revenues generated by direct control of these companies. In that case, the State has a strong incentive to try to directly control economic assets to fund its operations; instead of being concerned about its national companies exploring and operating oil wells in “foreign” jurisdictions, then, it itself is concerned with such activity.

I call these ideas the “nationalization of commerce”, because it helps to explain the political reasons why the national identity of various commercial entities is important, when clearly there is no economic reason. I believe the nationalization of commerce also helps us understand why it is so rare for a State to participate in a true free trade arrangement– agreeing to free trade means letting the market dictate which national commercial entities are most successful at owning and operating assets and determining trade flows, which means the States involved have to adjust to accepting whatever tax revenue might come of such patterns which might develop within their political boundaries, and nothing more.

Against Equality

From “Remarks on the Stoics” by Allen Thornton (link):

Suppose that you were the only person in the universe. You could exist in the most perfect paradise without reflecting on your good fortune. You could suffer hunger, thirst, and pain and not complain about the “unfairness” of existence. Notions of good and evil, just and unjust, cannot exist unless there are other people and other lives. When we judge these matters, we usually look no further than our neighbors. Americans call people poor whose standard of living would be considered quite high in China. They take for granted luxuries that were unimaginable 200 years ago. A time may come when our descendants will consider our lives horribly brutal and short, but we do not complain so long as we live about as well as those we see frequently or know about.

It would be simple to understand the Stoics’ view of reality if we didn’t have to deal with other people. But people can steal from us, make demands on us, depend on us, and interact with us in thousands of ways. The question of our relations with other people is the most complicated one in any religion or philosophy. Epictetus explains how a Stoic can maintain his serenity in the face of obviously predatory people. He cites the case of a thief who steals your clothes. “Do not admire your clothes and then you will not be angry with the thief. Do not admire the beauty of your wife, and you will not be angry with the adulterer.” He reasons that the thief “does not know wherein man’s good consists, but he thinks that it consists in having fine clothes, the very thing which you also think.” The Stoic knows that a man’s good is in his will and character and not in anything external to him.

His logic is an example of a greater truth: Inequality leads to harmony; equality leads to conflict. We are constantly told that the opposite is true, but we should consider the relations between people. Trade and commerce depend on the fact that individuals place a different value on money. If the grocer didn’t value the bag of flour less than the customer, he wouldn’t sell it. Suppose the bag were worth a dollar to the grocer and a dollar to the customer; then the grocer would have no incentive to sell it. But the grocer values the bag at less than a dollar and so both the grocer and the customer can increase their wealth by the trade of one dollar for one bag of flour. Or suppose a rich man wants to hire a person for a job and two qualified applicants apply. The applicants are not in conflict with the rich man but with each other. Or suppose a man is in love with a beautiful woman. He is in harmony with other women and with homosexuals because they do not value the woman the way he does. Their feelings toward her are completely different from his. He feels the most hatred and ill-will toward another man who also loves the woman. Conflict is in direct proportion to equality. Of course, politics turns everything on its head. Groups of similar people with similar values combine to exert pressure to achieve political ends. But even in this case, the group is simply trying to obtain something from the government at the expense of other groups who want the same thing.