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(This item originally appeared at Forbes.com on October 8, 2024.) The Great Depression got started with the passage of the Smoot Hawley Tariff in the United States, by the Republican Party, which immediately set off a cascade of retaliatory tariffs worldwide. This alone did not cause the Great Depression, but it did cause the initial downturn. This was followed by a long string of bad decisions in reaction to that downturn, such as Republican Herbert Hoover’s 1932 tax increase which took the top income tax rate from 25% to 63%. After World War Two, the whole world came to recognize that the Trade War of 1930 was a major contributor to the Great Depression. At the 1944 meeting in Bretton Woods, New Hampshire, they began a long postwar movement toward Free Trade, with a proposal for an International Trade Organization, to go along with the International Monetary Fund and World Bank also established at the same time. The ITO was not passed, but evolved into the General Agreement on Tariffs and Trade, which then became the World Trade Organization in 1995. Conservatives thus have some trepidation when they see presidential candidate Donald Trump, representing the Economic Nationalist wing that includes Patrick Buchanan, move again toward tariffs and restrictions on trade. The reasons for this are well known, and include the corrosive effects on the US’s middle class since China entered the WTO in 2001; or arguments that the US, as a continental superpower, needs to retain a large measure of self-sufficiency in key industries including electronics. Tariffs are taxes; basically, they are a variant of sales taxes. Trump’s proposals, mirroring those of Patrick Buchanan, are for a single-rate across-the-board universal tariff of 10% or perhaps later 20%, instead of the troublesome item-by-item and country-by-country approach of the past. This is

In the past, “Economic Nationalism” sometimes had a monetary component. Basically, this was a currency devaluation. “Easy money” and devaluation has been part of the Keynesian macro-manipulator handbook since the Ancient era, and more recently, since the Great Depression significantly undermined the Stable Money consensus of the 19th century. In the 1930s, devaluations were undertaken basically to “relieve debtors,” and also, reduce effective wages through the devaluation of the currency in which wages are paid. This would presumably allow greater employment. Also, exporters would get a direct advantage. Domestic industries would get an effective advantage since, from their perspectives, products from foreign competitors would become “more expensive” in terms of the devalued currency. October 2, 2016: The Interwar Period, 1914-1944 (contains extensive forex information) “You can’t devalue yourself to prosperity” has been a timeless adage in economics. It makes sense that you don’t make people wealthier by devaluing their wages. But, during a time of recession or crisis, it has been a stopgap that governments have grasped for over and over again, over the centuries. These effects seem to provide an “advantage” to the “nation” (illusory of course), while also creating an artificial “disadvantage” to the rest of the world, who has to deal with artificial competitive issues, plus huge losses on investments in the devalued currency. “Relieving debt loads” just means a partial default to creditors, and this is particularly apparent to foreign creditors, who take immediate losses on their devalued assets. People today don’t sense what a catastrophe the devaluations of Britain (and many others) in 1931, and the US in 1933, were to the rest of the world. The Rest of the World (which included the US in 1931), took mammoth losses on what was then considered the “risk free asset,” British and US government bonds. This

We were listing some good reasons for significant tariffs. September 22, 2024: Good Reasons for Tariffs Mostly, this was on the topic of a certain amount of Economic Independence, often agricultural, but for the US perhaps chip manufacturing is at the top of the list today. Also, we discussed the difference between moving an auto factory from Detroit to Georgia, and moving it from Detroit to Mexico. Today, we will talk about the fact that we live in an environment of floating fiat currencies, where “unfair advantages” and “unfair disadvantages” can easily come about due to foreign exchange swings. On January 1, 1994, the North American Free Trade Agreement came into effect, dramatically liberalizing trade between the US and Mexico. Wikipedia on NAFTA. In the 1980s, Mexico had hyperinflation. Like other Latin American countries, this settled down in the early 1990s, and in 1993 Mexico had what appeared to be a reliable dollar peg, at 3.1 pesos per dollar. NAFTA was signed. In the middle of 1994, this peg broke and the peso began to slide lower. At the end of 1994, there was a collapse, which ended up taking the peso to about 7.5/dollar in 1996. What a coincidence! Many think it was not such a coincidence, but planned. Many US businesses were demolished by the combination of free trade with low-labor-cost Mexico, and also, the unexpected devaluation of the peso (and, in effect, Mexican wages). In the 1992 election, in opposition to NAFTA, independent candidate Ross Perot called this the “giant sucking sound” of capital moving to Mexico to take advantage of low-cost labor. So imagine the sucking when the peso’s value was cut in half. This was, I think, a major episode in the long deindustrialization of America, and the decline of the lower middle class. The

We’ve been talking about Economic Nationalism; in particular, tariffs. July 27, 2024: Economic Nationalism #2: Good and Bad Economic NationalismSeptember 8, 2024: Economic Nationalism #3: Bad Economic Nationalism The basic concept of Economic Nationalism is that a policy is good if it benefits members of the Nation, which basically means the members of commonwealth, or State. If it doesn’t benefit the members of the Nation, then what makes it good? For example: Let’s say that there’s an automobile factory in Detroit. But, Ford decides that it would like to build its newest factory in Georgia, not Detroit, for whatever reason. This might be bad for workers in Detroit. But, it would be good for workers in Georgia. We calculate that, since both Georgia and Detroit are part of the Nation, then it is something of a zero-sum, at worst. Workers in Detroit can even just move to Georgia and work in the new factory. But, competition between Michigan and Georgia is also good, because it tends to lead to better outcomes overall. More factories is good, overall, because it means more productive workers, and more employment, at better wages. The Capital/Labor ratio improves. In terms of Economic Nationalism, it is a positive. But, let’s say that Ford wants to build a factory in Mexico. Now Mexicans benefit, from more good-paying jobs, and Americans do not benefit, although you could argue that they benefit a little bit from perhaps lower selling prices of Ford automobiles. Unemployed factory workers in Michigan cannot easily migrate to Mexico; nor would they want to, given the low wages in Mexico. However, all economists agree that wealth comes from Production and Productivity, and we have just made Americans less productive, because they no longer have a factory to make cars, and are instead standing around unemployed.

We’ve been talking about Economic Nationalism. July 27, 2024: Economic Nationalism #2: Good and Bad Economic Nationalism Let’s get into some aspects of Bad Economic Nationalism. Mostly, this has to do with Tariffs. Tariffs were a core component of tax systems in the past, whether the Federal Government of the 19th century, or the British government of centuries prior to that. Their important revenue role was largely surpassed by the development of alternative taxes, in particular the Income Tax (1842 in Britain), the Retail Sales Tax, and the VAT. You might also include the Payroll Tax, although that is typically conceived as a direct funding mechanism for socialistic programs such as Social Security, rather than as some funding alternative to Tariffs. June 16, 2020: The Evolution of Tax Technology Tariffs have been part of some pretty big disasters over the years, so let’s look at what they were. In US History, the biggest disasters were the Civil War and Great Depression, both of which had Tariffs as a core component. These days, there is a certain group of Southern intellectuals that perhaps want to overstate the importance of Tariffs in the outbreak of the Civil War. Let’s be clear: I think the main reason for the Secession of the Southern States, and consequently the Civil War, was not Tariffs, but of course Slavery, in particular the question of the expansion of slavery in new States beyond the original 13 Colonies, that took place in 1789-1860. In the original Constitution, a compromise was enacted where importation of new slaves would be eliminated in twenty years, or 1808. At the time of the signing of the Constitution, it was thought that this would lead to the eventual elimination of slavery entirely. However, it didn’t work out that way. Slavery continued after 1808,

In the past, I began discussing the topic of Economic Nationalism. Then, mostly, I avoided it, because I think I would become unpopular among my friends as tariff supporter. Nevertheless, I think we can make some arguments in favor of Economic Nationalism; so let’s see what those arguments are. With Trump and JD Vance likely to become president and VP, we have the risk now of bad economic nationalism. We should have good economic nationalism. How are they different? January 10, 2021: Economic NationalismMarch 18, 2018: Economic NationalismOctober 24, 2021: Rationalizing TariffsAugust 1, 2021: Stagnant WagesMay 16, 2021: The Current Account DeficitFebruary 7, 2021: The Bottom 30%January 24, 2021: Adam Smith On The Capital/Labor Ratio I was thinking of writing a book about this. I would spend some time accumulating information and doing research on all the related topics, and reading all the most common existing arguments on both sides, so I could make an informed presentation. But, things are progressing faster than I can write books. So, let’s continue with discussing the topic, in the typical website mode of collecting interesting bits along the way, as a process of discovery and ongoing discussion. The Free Traders tend to talk about “general economic principles.” Free Trade (no taxes on trade) is obviously better, at least in some ways, because, as a “general economic principle,” business goes more smoothly when the government doesn’t step in to take people’s money. As a general economic principle, if people make a voluntary decision to trade something, that is a good thing and both are better off, because otherwise why would they do it? Plus, there are a lot of historic problems with tariffs, as we’ve discussed in the past. This is the nature of “general economic principles.” They are a distillation of insight for

There are wealthy people, and very wealthy people, and people who have so much money they don’t know what to do with it. Literally, they don’t know. I don’t mean business — these people are often good at business and investing. But, that just makes more money. I mean spending it, just on fun stuff. Like people in every age, I am a little appalled at what wealthy people spend their money on. It’s OK with me if they have a little fun for their money, but they seem to have so little fun for so much money. It was this very wealthy class that made possible the art of the Renaissance, or the music of Mozart. Often, this was royalty — and their support of artists was not only a personal interest, but also a kind of national ambition. The Vanderbilt family, which was the wealthiest family of the late 19th century (due to their control of the railroad business), felt a real obligation to use that wealth for something like National Artistic Ambition. The Vanderbilts built Grand Central and the original Penn Station in New York, among their many ambitious undertakings. The Breakers in Newport, RI was a rather absurd project for a summer beach house that only got used 10 weeks a year. But, it stands today as an extraordinary and wonderful accomplishment, somewhat ridiculous as personal lifestyle adornment but actually in line with royalty in Europe at the time. (Today, you can rent nearby Rosecliff and Marble House for your weddings and events.) Andrew Mellon, one of the wealthiest men of the 1920s, built the National Portrait Gallery in Washington DC, with his own money, even as Franklin Roosevelt was trying to take it from him. If the very wealthy of the late 19th century were

Today we have a well-known documentary by Bill Still. Still wants to get us out from under the slavery of The Bankers. His solution is basically Government Money. But, government money is not much of a solution either. Government Money resulted in the hyperinflation of the 1780s, which is why one of the principles of the Constitution was that government would be out of the money business. I admit that it is not an easy problem to solve. For us today, I concur with the Free Banking people that a distributed system would be best, including numerous competing issuers of gold-based currency. We actually have something very much like this today, with many gold-based payment platforms including Lode, Kinesis, Glint, the United Precious Metals Association, and others. Monopoly Money — either private central banks, or governments — tends to work out badly.

Hillsdale College now has a Laffer Center. Maybe Art Laffer himself endowed it. This is splendid good news. They put together a whole eight-episode lesson series, with Art Laffer, to describe “supply side economics,” the branch of economics we practice here. I haven’t watched it yet. But, the books that Laffer, Steve Moore, Larry Kudlow and Brian Domitrovic have done over the years have been very good, so there is no reason to expect otherwise here. Watch the eight-episode series on Supply-Side Economics, with Art Laffer. I still hope that Hillsdale College will branch out and start some new colleges, in the Hillsdale Model — at least, the curriculum. They should make an effort to slim down their operational model, more in line with Thales College. September 6, 2020: Build Your Own College #14: Hillsdale College Hillsdale has now become quite competitive. I think that only about 20% of applicants are accepted. This means that they have enough applicants to fill four other Hillsdale Colleges. They could just do a joint application. Students would apply, and then Hillsdale would tell them which of five colleges, in descending order of competitiveness, they qualify for — a little like General Motors’ car model lineup of the 1950s. The most qualified students would go to “Cadillac,” and the least-qualified students, but still interested in getting a Hillsdale-style education, would go to “Chevrolet.” You can buy a college campus these days for almost nothing — maybe less than $5 million, for a campus that could cost $100m to build new, in construction costs alone. A professor from Hillsdale told me that they have been offered college campuses basically for free, if they would take it over. He said that they have trouble finding qualified professors. I believe him, but nevertheless, there are so many

Economists today are very concerned about the “neutral rate of interest.” But, at the same time, they admit that nobody knows what it is. Here’s Wikipedia. It would take some time to express where this concept comes from. Maybe we’ll get to that in time. But, let’s start with some basic observations. Was there ever a time when interest rates were not manipulated by the Federal Reserve, or other central banks in a similar fashion? Yes, of course. Although you could argue that interest rates were not quite set by the unmolested market in those days, it certainly was a lot closer than what we have today. Currencies were, of course, fixed to gold. This also was the primary source of money supply activity, just as I described as common to any Currency Option One system in Gold: The Final Standard. read Gold: The Final Standard What we see, in those periods, is a lot of variation in interest rates in the short term, and a lot of stability in the longer term. There was no “neutral rate of interest” for the short term. It was wildly variable from day to day. This was a rate for a single institution, the Bank of England, not a market rate. And, it is only monthly; and for loans and discounts typically of about 90 days, not overnight. Here are Call Money Rates in the US, before the Federal Reserve, with more of a distributed banking system. Again, this is monthly data, not daily. Here is a little closer look at the 1880 to 1910 period, which is a good representation of “normalcy” during that era. Again, it is all over the place. Now remember, long term bond yields were very, very, extremely stable during this time, for good credits and in gold.