garynorth.com / By Gary North / February 06, 2013
Reality Check
Certain economic ideas that are both logically wrong and unsupported by historical facts, and which have been known to be wrong for 250 years, are still widely held. This annoys economists.
There is something that seems inherent in men’s approach to thinking about their own wealth that persuades them that what they have seen, over and over, in nation after nation, either did not happen, or, if it clearly did happen, will not continue.
One of these ideas is that sales taxes on imported goods increase the wealth of most people in society. This is the doctrine that tariffs and quotas imposed by the government somehow make people richer. This error was refuted definitively by one of the greatest philosophers of all time, David Hume, in 1752. About 25 years later, it was refuted in detail by Adam Smith, David Hume’s friend, in his classic book, The Wealth of Nations. Nevertheless, despite almost universal agreement among economists, and despite repeated political successes in lowering tariffs and quotas, which have led to increasing prosperity everywhere, there is still a hard core of anti-economics thinking that says that the federal government — but never state and local governments — needs to increase sales taxes on imported goods, or else we will all be made poor.
I have written many times about this over the last 45 years, and I intend to write a lot more, but I have no illusion that the anti-economists among us will never figure out that national sales taxes on imports do not make us richer. Some people simply do not have the intellectual capability of following a line of economic reasoning. This includes people who believe that sales taxes on imported goods make most people wealthier.
THE LUDDITE MENTALITY
There is another error, comparable to the error of the pro-sales tax non-economists, which is also widely held. This is the belief that machinery makes workers poorer. It is usually described as the Luddite philosophy. A man named Ned Ludd (or Lud) supposedly broke knitting machines in a fit of rage in 1779. In 1811, an article on Ludd was published in a newspaper. When people then began destroying machinery, they were called Luddites.
Who were the attackers? They were people who had been employed as relatively high paid producers of goods in narrow markets that catered to better-off clients. They found that they had fewer customers when other producers began to use machinery to mass produce these goods, thereby increasing the supply of goods. This forced down prices. Those guild members who had for centuries used political power in urban areas to gain a monopoly in specific markets found that price competition from these new goods was reducing their income. In response, they destroyed machinery. In other words, they used violence against property owners in order to maintain their monopoly. Before, they used political power to achieve this.
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