Now, what I'm going to do is start by looking at something which Mises said.
And what I'll be doing in the course of my talk is simply expanding and explaining how he reached that conclusion.
Okay, what Mises said was that there is nothing, sorry, the market economy does not respect
political frontiers, its field is the world.
In other words, so far as each individual economy is concerned, what we're looking
at really is a sector of the world economy.
The question is how this happened.
The second quote which you've got up there is, of course, a very old quote and there
is no new thing under the sun.
In other words, international trade, a long-distance trade, is something which began back in the
Stone Age when we first emerged as human beings.
So it's something which has been going on for a long time and there's really no need
This was actually the beginning of a lecture which I prepared for my students in Australia.
What I did was I simply went at random through the house and I had a look at the various products and where they came from.
This is in Australia, not here of course, but as you'll see, as we go through, just about every little item there was made somewhere outside of Australia.
Okay, biros, what you people call ballpoint pens, we people properly call biros.
It was invented by Joseph Biros, so we always remember him.
Ok, they're made in Germany and Japan. Towels and sheets are made in India and in Australia.
And I'm staying with Norma, who's on the staff here, and she doesn't know but I had
a quick look through her linen closet and found that your sheets here are actually made
The medicines are made in Denmark, England, France and Germany.
Toothpaste. Your toothpaste is obviously made in the US, but mine is made in Ireland and Australia.
My computer is made in Malaysia. Various accessories, things which you plug into it, don't ask me what they are.
made in Taiwan in Thailand. The TV is made in Malaysia, but it's made by Philips, which is a Dutch multinational enterprise.
The CD player is made in China, but that is by a Japanese company, multinational.
The nail clipper, for some reason, is made in the US. I don't know why. That's your specialism.
It's only nail clippers, however. Scissors and things are actually made in China. That was what I found.
Light bulbs are now made in Indonesia. They don't last as long as the Philips light bulbs, which are made somewhere in Malaysia, but they're cheaper.
Clocks and watches is interesting. For over 30 years now or more, the Japanese have been making the clock movements, and therefore you've made these very cheap throw-away watches.
and the cases of course are made in China and the Philippines.
Mugs are made in, well my mugs anyway, are made in Korea, Japan, England and Sweden.
Norma's mugs are made in Korea and Taiwan.
The soap is made in Germany and Australia and the books.
Now, this is interesting, which has happened very much in recent years, where you've had more, you might say, free trade.
And the books we find are printed in mostly the US and Britain, but many are also printed in Spain, Slovenia, Italy and Singapore.
And those are the more complicated multicoloured books, illustrated books.
and many are also typeset in South India where labor is cheaper but then printed
elsewhere. I'll come back to this printing thing later on when I'm talking
about US history. Okay, perfumes are made in England, Australia, China, the talcum
powder for some reason was made in China. Now we find another interesting range of
things, clothing, toys, a spanner, I think that's what you people call a monkey
Anyway, we call it a spanner. Screwdrivers, clips, shoes, etc. were all made in China.
The bookcases, originally made in Sweden, the ones which I bought earlier, and the later
ones are made in China and also now Vietnam, is now starting to produce furniture. At least
we're getting it in Australia. Stools were made in Finland, pots and pans Korea, writing
pads Indonesia, and then when you look at the electronics, the higher big ticket items
as you say, the reverse cycle air conditioner was made in Japan, the
dishwasher was made in Italy, at least until it clapped out and I had to get a
new one, the fridge is from Italy, the washing machine, very good, it's lasted
for years and years and years, made in Japan and the car is from Sweden and
that's because my husband is very keen on safety, otherwise most of our cars are
How is Australia surviving with all these imports?
We are all alive and well and happy and flourishing.
Let's have a look at some of these items. Now, I'll give you the answer straight away.
What's happening is that for each of the countries that you're looking at, for each of the products that you're looking at,
the firms involved are producing literally for a world market.
Soap, for example, is now made, is a complicated chemical product. It's not as simple as it looks.
And that is why you find the Germans are world suppliers of soap.
Because they have, since the late 19th century,
they've specialized in the production of chemicals.
Again, they're the world suppliers of things
like fertilizers, pesticides, all sorts of chemicals everywhere.
Even from the late 19th century onwards, in the US,
you find that it was the German firms which were really
the main suppliers of chemicals.
All right, I'll add another little story here about what governments cannot do.
First World War, all the German assets in the US were confiscated and handed over to American companies.
1918 onwards, guess what happened?
The Germans returned to produce exactly the same things as they'd produced before 1914, the chemicals and so forth.
And although the American companies had all the assets, they just could not compete.
Second World War, the same thing happened again.
All the German assets in the US were confiscated, handed over to American companies.
Post-1945, what happened? The Germans returned.
Again, the American companies could not compete.
The reason, of course, is because when you've been specializing in something for 125 years or more,
and supplying it to the world,
you know you become specialists and that is exactly what's been happening here
if you have a look as I mentioned to repeat Japan for example now supplies
cars to the entire world now if you can think of producing I don't know how
many hundreds of millions of cars that is and you think about the costs involved
reduction in costs when you're producing on that scale obviously the world is
What are you going to get? Huge numbers of cars, all produced very cheaply, and more importantly, what you're going to get is a much wider range of cars.
In other words, more specialized for the different kinds of tastes, requirements that people have in different parts of the world.
Similarly, with things like washing machines and computers and all these things, you get a range produced, rock bottom costs, because you're producing for the world, and therefore, again, a range of types available and, of course, much better quality. It keeps on improving year after year, these products.
Okay, so that's what, and you see here, the other point I want to make is that you get countries joining the world economy, as it were, becoming additional regions in the world economy, Vietnam now producing small items of furniture.
All right, another point I want to add is that China, the big bogeyman, is not a very large player, the world as a whole.
You see all these other countries also part of the world economy and again, as I said, producing for the world as a whole.
China supplies only 21% of Chinese exports come to the US.
What is it, 89% or whatever, 79% go to the rest of the world.
And why does the US get such cheap goods from China?
Because China produces for the world as a whole.
It's selling clothing to the world as a whole.
Again, think in terms of reduction in costs, increase in range and variety,
and therefore the US also benefits.
All right, okay.
Now, to reinforce this, to show what it is in reality,
I thought we might have a look also at the cotton clothing.
There's a jacket hanging up in Norma's laundry, and I peered into it.
Made in Hong Kong, it said.
Okay, so what does made in China mean?
I'll tell you the answer in advance. It means made by the entire world.
Even the U.S. is involved.
Okay.
Right. Cotton clothing.
Label says made in China. That's what the government requires. Made in China.
All right.
We start with the clothing that's in your cupboard at home here in the U.S.
And we then move on.
Is that the only copy I have of that?
Sorry, I haven't got my own copy. Okay, all right.
The clothing in the cupboard here in the US.
All right, next step.
You still have American investment, American equipment, whatever required to produce it
and put it in your cupboard at home.
So you've got the people who are involved in the imports,
the retail shops, your wholesalers, etc., etc.
The container ships which bring the goods from China to the US, they don't fly from the factory to your cupboard.
Okay, those container ships are registered in Panama, Liberia, Greece, Norway.
In Greece and Norway, again, world suppliers are shipping services, therefore much cheaper than anyone else,
certainly much cheaper than either the Australian or the US shipping services, God bless us.
Okay, and the ships themselves are now made in Korea and Japan.
The containers, I just looked it up, are made in the US and the UK.
The labour on the ships comes from the less developed countries, the Philippines, various other less developed countries.
Okay, if you go to the docks in China, the clothing has to be taken to the docks, the lorries or the trucks are all made in Japan.
The clothing factories are in China, the cloth is made in China, but where do the industrial sewing machines come from?
Japan, Korea and also the US.
Okay, the cloth has to be dyed and finished, the dyeing works are in China, but where do the chemicals, the dyes and all come from? They come from Germany.
You need buttons. Where do the buttons come from? Again, the factories are in China, but the machinery to make the buttons is made in the US and Taiwan, Hong Kong and so forth.
Japan is the world supplier of zippers. It's impossible to buy a non-Japanese zipper.
So therefore you have best quality zippers, produced at the least possible cost, supplying gazillions to the world as a whole.
The cloth is woven and spun in China. Where does the machinery come from? It comes from Britain.
Okay, the transport and the shipping of the machinery to China, again, your shipping industry
is involved, you have then the cotton dealers who supply the raw cotton to the factories
and the farms producing the raw cotton are Uzbekistan these days, China, Egypt which
produces the world's best cotton and has produced the world's best cotton since the late 19th
The U.S. cotton is going to the Chinese factories to produce the cotton clothing which now comes back to the U.S.
Again, another little story. Earlier, the 60s and 70s and 80s, first of all you had
subsidized production of cotton in the US and therefore producing it again five or six
times the world price. Then you had to sell it, so you had an export subsidy to sell it
at the world price. Hong Kong factories bought US cotton at the world price and then of course
The Department of Commerce added a countervailing tariff to offset the fact that it was buying US cotton at world prices.
So you have first of all a production subsidy and then an export subsidy and then you have a countervailing tariff.
So, you know, where do you stop?
Okay, so, but the cotton gins, you need cotton gins to produce the cotton, they're made in the US.
World specialists, again.
Now, all these farmers use, again, fertilizers, pesticides, insecticides, they all come from Germany.
and again you have to use world shipping to get all these inputs to the farmers in Uzbekistan and so forth.
The steel for the machinery and for the ships and the containers and so on which are produced
are all made in Japan and Korea and finally, that's where Australia comes in,
we supply the world with commodities, we supply the world with foodstuffs, meat, grain, etc.
And at prices again, about one-half to one-third U.S. prices.
Once I spoke to my husband back in Australia about the price which I saw meat at in the supermarket here.
He was horrified.
He went round immediately to the supermarket at home and had a look.
And we find that the prices are about a half.
The quality is much better.
So again, it's your government which is getting in the way
and preventing living costs from falling.
Again, a very ordinary example.
Before we reduced tariffs in Australia,
if I wanted to buy a jersey for Dennis,
I paid 60 or 70 dollars.
Now that the tariffs have been removed
and we are importing goods from China,
I pay, guess what, 10 dollars for a jersey,
good quality jersey,
and I've got, what, 50, 60, whatever dollars left over
Okay, so when you read a label which says made in China, it is not made in China. It is made by the world economy, by the globe as a whole.
Nothing, it is impossible to make anything, you might say, in one country. And that is why, as Mises pointed out, the market economy does not respect political frontiers, its field is the world.
Starting with the Stone Age and now, year 2006, what we have is a world economy.
Okay, now, we've already noticed that we've got specialisms appearing,
the specialisms which have lasted well over a century, and therefore we get, everyone gets benefits
of Specialized Knowledge, Improving Techniques, Building Up of Knowledge in Particular Areas.
Okay, now you say, how are we going to compete with all these other countries?
The answer is, of course, you compete in producing goods that were not produced before.
The resources which went into high cost, low quality cotton fabrics in Australia now go
into the production of other things, processed food stuffs for example, which we sell in
Asia and we can sell it in Asia because Asian housewives believe that there is no pollution
in Australia, the food is very good quality, it is pure food and therefore they are quite
I'm quite happy to buy biscuits and things made in Australia.
The other thing is, you notice that on the list there, I do have some Australian sheets.
Now, what is the difference between Australian and Indian hasso linen?
The difference is in quality.
So that the Australian mills now specialize in producing very high quality clothing, fabrics, whatever.
and the ordinary everyday things you buy from China or India or wherever, whoever supplies it.
The same thing, the Swiss weren't able to do anything at all about the Japanese and other competitors.
And so now, instead of producing cheap watches, what they produce are very high quality, very expensive watches.
They do all sorts of things, you know, tell you the time in about six different countries and all sorts of bells and whistles.
So, what's happened? The world as a whole has got a much wider range of goods, a range of cheaper watches if you want, and a range of very expensive, better quality watches that do all sorts of other things, if that's what you want.
Okay, and again, it's specializing in things which you alone can supply.
Only the Swiss can supply a couple of hundred years' worth of expertise in producing really good quality watches and watch parts.
The Japanese produce low quality stuff.
Okay, now another point I want to make is, as I mentioned, the time period over which all this has been developing, I said the Stone Age,
but also we have in the 19th century, we have the real development of the world economy,
and that is because Britain at that time followed a policy of unilateral free trade.
All other countries' trading partners restricted British imports, imports from Britain.
Even its own colonies restricted imports from Britain.
New Zealand and the Australian colonies had restrictions on British manufacturers coming in.
and it was supposed to be the British Empire. Whitehall could do nothing about it, of course,
because these were sovereign colonies. Contradiction in terms? No, it's exactly the reality.
Okay, so as a result of that, what you had was therefore a large part of the underdeveloped world as well,
which is part of the British Empire, following the same policy of free trade,
And in all of these areas, you had eventually the development of industries under both laissez-faire and free trade.
The Indian cotton textile industry, in fact, is older than the Japanese.
The first Indian cotton mill was opened in 1851 or 52.
The first Japanese cotton mill was opened in 1860 something.
So that the Indian cotton textile industry is older than the Japanese.
Complete free trade, complete laissez-faire, and it produced cotton yarn and therefore
you had expansion in the handloom industry in India.
And to this day, the best textiles in the world are mill-made yarn, hand-woven into
various sorts of textiles.
The Indian textile industry also supplied cotton yarn to the handloom spinners in China, and
so therefore the Chinese handloom industry expanded.
And it was as a result of British shipping, lowest cost shipping that you could get and
therefore all this stuff, intra-Asian trade also developed amongst the less developed
areas.
International specialization, in other words, is something which is to be embraced because
It Reduces Costs, Increases Variety
Okay, 20th century, of course, we had problems and that is mainly because of the increased
role of government officials and also because, unfortunately, the increased influence of
the US, US governments and therefore, first of all, you raise trade barriers and then
you go around higgling about how you're going to reduce those trade barriers which you raised
in the first place. Lots of work for bureaucrats, terrible for everyone else.
Okay, the expansion of trade in specialization in the 20th century, in other words, has been despite the WTO, despite GATT, despite all these acronyms that bureaucrats produce.
Right, K, and of course you have the growth of multinational enterprises also as a part of the growth of international trade generally.
The multinationals that survive are the ones which have been in existence actually since the late 19th century.
And with the same specializations, the Germans produce chemicals and so forth, the Americans produce things like sewing machines.
Before 1914, the world's largest factory for producing sewing machines
was the Singer Sewing Machine Factory in Glasgow,
which sold all over the world.
And if you look at what the American multinationals produce,
it's things like lift elevators, cash registers,
and a whole range of similar things.
So what you get, in other words, is, again,
specialization in producing those things for which you have
What the economists call comparative advantage, your own skills, which the rest of the world doesn't have.
Right, okay, how much time do we have? Two minutes, okay, can I stop there?
Okay, any, ask for questions I think.
I'm a student of Thomas J. Watts, and I once worked for IBM in 1939, and he promoted the idea of world peace through world trade. Could you touch on that?
The more interdependent you are, the less likely you are to go to war. If you want to
stop war, you want to stop the people who start war. It's only governments who benefit.
If you ask me, wars are a giant conspiracy by all the governments involved against their
I can't get a jet plane to go and sort of bomb my neighbor, however much I might dislike
him. The most I can do is perhaps shoot him if I wanted to. It's only governments who
have the resources to go to war, and it's only governments who benefit from war. A number
The very good books are coming out now in Germany, pointing out that during the second
world war, the people who suffered were on the one hand the British and the other populations
who were bombed by the Germans, and the Germans who in turn were being bombed by the British
and the Americans and all the rest.
So they're beginning to ask the question, who benefited?
Not the populations who were at the receiving end of all these bombs.
The reason Germany lost the war was because it was so interdependent with the rest of
the world that it was impossible to cut itself off.
And if you can't cut yourself off, how are you going to have a war?
So the more interdependence, the more trade, the more peace.