Viva lost business

A new Las Vegas Chamber of Commerce campaign reeks of economic illiteracy

By Geoffrey Lawrence
  • Tuesday, September 21, 2010

Academic consensus among economists is about as frequent as a solar eclipse. 

From Keynesians to Austrians to monetarists to neo-classicists, there are nearly as many schools of economic thought as there are colors of the rainbow. However, there is one aspect of economic theory about which nearly all economists agree: the merits of free exchange.

Yet, unfortunately, a new campaign of the Las Vegas Chamber of Commerce flies directly in the face of that consensus.

Freedom of exchange allows individuals to specialize in the production of certain goods and services because they know they can exchange their product with others on the market in order to fulfill their needs. Most individuals consider their highest needs to include food, water and shelter, followed perhaps by health care, convenient means of transportation and some form of entertainment. Yet, most individuals would find it impractical to acquire all of the skills necessary to provide each of these functions for themselves.

Free exchange eliminates the need for individuals to provide everything for themselves and grants them the ability to focus their efforts exclusively on the single job they perform the best.  This specialization vastly raises mankind's economic output as individuals allocate their efforts toward those pursuits for which they are most gifted.

The construction worker, for example, is able to specialize in his craft and use that specialized knowledge to build homes for himself and his neighbors. He benefits, in turn, from their specialized knowledge in areas like medicine, engineering, sports-casting, mail delivery, etc.  In short, freedom of exchange facilitates peaceful, voluntary cooperation among individuals to provide for each of their independent needs.

As Adam Smith made clear in The Wealth of Nations, freedom of exchange is the basis of all modern economics. Leftist icon Paul Krugman won a Nobel Prize for his defense of free exchange. Nobel laureates in economics often associated with the political Right, including Friedrich Hayek and Milton Friedman, have also ardently defended free exchange.

Given this wide and lasting degree of consensus among economists, it is curious that movements that would distort free exchange persist. Markets deliver the highest benefit to the greatest number of people when consumers are able to purchase all goods and services at the lowest undistorted price possible. This encourages productive resources such as labor to be allocated toward their most efficient use, delivering the greatest societal benefit.

Frequently, however, vested interest groups lobby government to force individuals into lower living standards by excluding low-priced goods from the market. In 2002, for example, tariffs were placed on imported steel coming into the United States in response to lobbying efforts from U.S. Steel workers who were unable to produce steel on a cost-competitive basis. In order to benefit a narrow interest group that refused to adjust to the law of comparative advantage, all American consumers of homes, automobiles, commuter rail and the like were injured through artificially higher prices.

At other times, uncompetitive merchants have appealed directly to consumers to lower their living standards by refusing to purchase products from more efficient suppliers. As foreign textile manufacturers began to competitively eclipse the American textile industry in the late 20th Century, American textile unions encouraged consumers to only buy clothes marked with the "Made in USA" label. While this campaign might have prolonged textile manufacturing jobs for a select few Americans, it also undermined competitive specialization in the American textile industry and elsewhere, while at the same time damaging the free exchange that benefits all consumers.

Protectionist measures such as these are popular among the well-defined constituencies who lobby on their behalf, but their long-term impact is to stifle economic growth. Adam Smith ascribed these behaviors to the "interested sophistry of merchants and manufacturers."  According to him:

"In every country, it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people."

Among the "sophistry" for which Smith would no doubt have chided the "mercantilists" is a new protectionist campaign sponsored by the Las Vegas Chamber of Commerce. The "Viva Las Business" campaign, like the "Made in USA" label, will encourage consumers to purchase goods and services from Las Vegas-area producers regardless of the relative cost or quality.

The closed economy envisioned by the Chamber will not lead to economic prosperity. It is more reminiscent of the Smoot-Hawley Tariff Act than wealth-creating measures such as NAFTA and is just another step down the "Road to Serfdom."

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. For more information visit

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