Globalization Creates a Global Neighborhood, Benefiting All

It’s a natural and beneficial result of humans doing what humans have done since the beginning, making their families better off by working hard, inventing new stuff, keeping alert, looking around, making little deals, etc. The result of all this human liberty of choice has been globalization. At various scales of time, it’s been happening from the caves to the modern world, or from 1350 to 1800, or from 1776 to 2024.

Your neighborhood is a “single economy.” Most people in Manhattan don’t own cars, so the economic neighborhood in effect is smallish. A grocery store at the corner of Broadway and West 143rd Street can’t get away with charging $10 for a loaf of bread when another store two blocks away is charging $2. Within 10 blocks or so, the prices of the same brand of bread and the wages of the same quality dentist and the interest charged on a bank loan for the same credit rating will be pretty much the same.

On Long Island, everyone has a car, or two, or three, and the approximate sameness of prices extends for miles. And the overlap of neighborhoods means that anything that can move or can be offered easily to people who do move—bread, cars, dentists, bank loans (not so much for houses, which are usually immoveable by nature, and not so much across restricted borders, which are basically immovable by law)—is pretty much the same, as Woody Guthrie’s song “This Land Is Your Land” goes, from the redwood forest to the Gulf Stream waters. And the overlap of the overlaps, if not restricted by legal interventions by the state in the prices permitted, means that even globally, from the Amazon forest to the North Atlantic Current waters, the prices of wheat and iron and AK-47s are pretty much the same. Globalization.

The rough sameness of prices is not caused by a gracious state official enforcing a just price or by an evil monopolist imposing an unjust price. It’s caused by moderately alert customers making the sameness happen by exercising their liberty to shift from this to that purveyor of cars or dentistry or bread. No one will pay $10 for a loaf when she knows that a couple of blocks away she can pay $2. And the $2 grocery store will make sure she is alert to the difference. In Miami, which has a large population of retired people on fixed incomes, the prices of milk and toilet paper differ very little from store to store, within extraordinarily tight limits (a cent or two). The older people spend their days comparison shopping and sharply buying. Fool me once, shame on you; fool me twice, shame on me. If you thrill to economic jargon, you can call this “arbitrage.”

Globalization puts everyone whose government permits it into a global neighborhood in which the price of a Samsung TV at a Best Buy in Washington is pretty much the same as in Beijing or New Delhi. Big price differences in the same neighborhood would mean that you could easily do better. For example, as a low-price buyer, you could resell to a high-price buyer. Or as a low-price seller, you could advertise. Or as a high-price buyer, you could get smarter and look around for a better deal. The deals are voluntary and therefore must benefit both buyer and seller, a little or a lot. If permitted widely in a society, gross domestic product (GDP) per head goes up, a little or a lot. It happens by arbitrage, globalization, and common sense—the natural result of people liberated to better themselves while bettering others.

If the price of TVs is higher in Beijing, then suppliers will send TVs there, instead of to Washington. Ordinary prudence recommends “buy low, sell high” until the arbitrage of suppliers and demanders makes the price difference come down to a level at which no more deals are profitable. Economists call the result of such a mutual exhaustion of deals and the uniform prices that signal its achievement “Pareto efficiency.”

Arbitrage also applies, though often at a slower pace, to the labor, capital, materials, and especially to the technical know-how that goes into a Samsung TV. Again, it’s all about liberty. China opened economically after 1978, permitting exports and imports, permitting people to move to new jobs, and permitting people to start new businesses. In the largest migration in human history, hundreds of millions of Chinese from the interior moved one by one to the coast to work in the new factories at higher wages than at home. And the Communist Party let wages and prices be set by business suppliers and citizen demanders instead of by the state. Arbitrage ruled, and China waxed pretty prosperous.

Contrary to what you might have heard, however, there’s no “Chinese model” to be seen as an intriguing if authoritarian alternative to Western economic liberalism. The Communist Party of China would like you to believe there is. Nope. After 1978, the party merely started to permit an economic liberalism of the sort partially implemented in the West in the 19th century—though of course the party did not permit anything like a corresponding liberalism in politics. The “Chinese model” is merely “the capitalist road.”

The economic result of liberty in China’s economy? China’s income per head in 1978 was then lower than Sudan’s. It’s now about 12 times higher, about the same as Mexico’s (after adjusting for purchasing power parity), which is in turn about the global average. That’s still less than a third of U.S. income per head. But if Premier Xi Jinping fails in reverting to economic anti-liberalism with central planning and controls in prices, China’s on the way to parity in one to two generations. India likewise after 1991 opened to global prices, and as a result, if Premier Modi in India like Xi in China does not leave liberalism behind, India can expect parity with Europe and the United States in two or three long generations. Latin America and Africa cannot be far behind. Globalization, which is to say the force of arbitrage exercised by liberated people in the economy, spreads prosperity.

Globalization has gone forward, and occasionally backward, from two sources.

The big source for going forward has been innovation in transport, and the resulting fall in the price of moving goods and people. It came again from individual choice, not by state action. The voyageurs in New France adopted the birchbark canoe from the First Nations, driving down the price differential on furs between the supply in the interior of Canada and the demand in Montreal. The shipping container invented in North Carolina in 1955 drove down the price differential of soybeans between the supply in Iowa and the demand in Shanghai.

An original monopoly in a neighborhood—such as a country store in town in 1800 or the sole purchaser of wheat in a local county in 1850 or Peabody Coal in a company town in 1900—could search out high prices for its selling or buying. But transport costs steadily fell—especially in the last two centuries of frenetic innovation suddenly permitted by liberalism—as people permitted new entrants to break the monopolies. Enterprise monopoly has steadily declined, because of better roads, longer canals, the railway, the telegraph, riverboats, ocean steamships, bicycles, streetcars, subways, downtown department stores, mail-order companies, telephones, automobiles, longer hours of business, airplanes, superhighways, strip malls, containerization, the internet, Ama​zon​.com, and much more. Prices converged. Prosperity spread, because at the same prices faced by all, there were no more reallocations for additional arbitrage to make both sides of a deal better off. Buying low and selling high had done its job. Economic activity was doing as well for people as it could. The economist’s “efficiency” was achieved.

The other significant source of globalization has been the reversal, intended or not, of state-supported monopolies against the trade in goods or the flows of financial capital or the migration of people who are poor. Globalization, that is, came from allowing more arbitrage, by dropping instead of raising the taxes on imports on foreign goods—the jargon for the taxes is “tariffs”—and dropping the restrictions on where you can invest, and dropping the legal rules keeping retail prices up, and dropping the laws against selling on Sundays, and especially dropping the numerous state-supported monopolies such as telephones and taxis and citizenship itself. Drop, drop, drop, and you get more arbitrage and more globalization and more income. We all end up trading in the same global neighborhood. We get richer, because we all get the best deals available. The right people specialize in making TVs, and the right people specialize in buying them. (Yes, there’s jargon for that too: “following comparative advantage to achieve global efficiency.”)

Globalization has occasionally gone backwards, because of fresh, brilliant, coerced schemes for state laws to block the arbitrage of prices of goods and people and ideas, globally or locally. “Trading blocs” such as the Council for Mutual Economic Assistance (Comecon) in Eastern Europe until the fall of Russian-imposed communism blocked trade with the West and, administered by bureaucrats, blocked trading within the bloc in a way that prevented complete arbitrage between, say, Poland and Romania. Block, block, block, and globalization stops or reverses. And you get poorer when you could so easily be richer. The Comecon did. Its fall after 1989 made Eastern Europe much richer.

Exactly where, say, melons are grown and where they are eaten matters only if globalization has not happened. If everyone under globalization pays pretty much the same price, melons will come from where they are best grown, and they will go to where they are most eagerly eaten. It’s all for betterment in a globalized world with decent prosperity. No drama, no corrupt “protection” for Paul at the expense of Peter. But Japan once protected its small group of melon growers. They were incompetent compared with its Toyota employees, speaking relative to U.S. melon growers compared with Detroit automakers, and therefore Japan was violating its comparative advantage in autos as against melons. Japan imposed heavy tariffs on importation of melons from the Philippines or the United States. Melons costing $1.40 in Manila or Los Angeles cost $20 in Tokyo, wrapped in lovely tissue paper and elegantly boxed as wedding gifts. Japanese GDP per head was a little lower than it could have been with thorough globalization.

If people are allowed to buy and sell where they want, geography gradually stops mattering much. We’ve come to live in one big economic neighborhood. Marketed income is higher, because the trades that constitute it are accomplished as efficiently as can be. During the 1950s, an American could buy from only three and a half Detroit auto manufacturers. Then the tariffs and quotas on foreign cars, imposed when U.S. policymakers were still hostile to free trade, were eliminated, slowly, with much anger in Detroit about the evils of Volkswagens and Toyotas. Now American consumers of cars have the choice of 20 companies competing (even Chinese) and hundreds of models. Look at the frenetic car-company advertisements on TV.

To consume much, when you come right down to it, we must trade. Cooking and childcare in homes is a true and significant part of a properly defined national product. But as the centuries marched down to the present, we’ve more and more traded away our own work in farm and factory and office to get the benefit of the work of others. A hunter-gatherer band, true, gets most of its consumption inside the band. Yet Aboriginal Australians traded gemstones and boomerangs over hundreds of miles, and prices converged. A medieval village was not averse to trading butter for blacksmithing within the village. But the self-sufficiency of a European medieval village is exaggerated in imagination. It imported iron from other neighborhoods and sold its grain into the little urban markets.

Anciently, a massive trade in grain from Egypt supported bread and circuses in Rome. As commerce revived in medieval Europe (much earlier than was once believed), wheat prices between the lowest European level, Poland as a supplier, and the highest, Venice as a consumer, converged (Figure 1). The same was true inside China and inside vast swathes of the rest of the world. In central Mexico from 1000 BCE to the Spanish conquest, the Teotihuacan, the Toltec, and the Aztec mined obsidian, an extremely sharp volcanic glass used for knives. As it was shipped north on the backs of men from the neighborhood of present-day Mexico City, it of course became more and more expensive and was sliced finer and finer. In what is now New Mexico, archaeological sites show it sliced very fine indeed. The Spaniards with their horses caused the price differential to fall. The transport cost had put a big wedge between prices, and innovation caused the wedge to become smaller. It was arbitrage and rising income from the more efficient trade in obsidian.

As late as 1900, a third of Americans still lived on farms. At about the same time, only 15 percent of the global population lived in substantial cities. Today, it’s about 60 percent globally. But in 1900, even urban households—even in the relatively rich United States—were little factories of “autarchy.” (In Greek, it means “self-rule”; in this economic context, it means not trading at all or self-sufficiency.) A mother would typically spend 40 hours a week on food preparation alone, would make most of the clothing for herself or the children, would store in glass jars the vegetables from her garden for consumption in winter, and before innovation in antibiotics made purchased medical doctoring a good idea, would work as the sole doctor/​nurse for most diseases. “Man works from sun to sun,” the proverb goes, “but woman’s work is never done.”

A hermit could refuse to take advantage of globalization and achieve self-sufficiency in his own little hut. It sounds lovely and brave. Grow your own wheat. Make your own accordion. But it’s been calculated that nowadays a hamburger made wholly self-sufficiently would cost about $83. Perhaps it would be better to work a little in a market and then take the earnings to spend at the neighborhood McDonald’s. When Henry David Thoreau went to be self-sufficient for two years from 1845 to 1847 on the banks of Walden Pond in Concord, Massachusetts, he still bought nails in town for his hut, and hoes for his crops, and books to read. Every Sunday, he went into town for dinner. Towns and trade are mighty tempting, with their low prices in production achieved by specialization and their low prices in marketing achieved by arbitrage.

Self-sufficiency, true, charms people. But it also serves the self-interest of monopolies sitting inside the sufficient place. Medieval market towns run by monopolizing guildsmen arranged to keep the indwellers from buying anywhere else. During the early modern period, the same policy at the level of the entire nation was called “mercantilism.” The accumulation of gold in the nation, a “positive balance of payments,” was achieved by making exports large and making imports small. Getting gold was seen as just the ticket. Wait a minute. It’s like saying that it’s good for you as a little nation to work to earn money but bad for you to spend the money on groceries. Keep money stashed away, like Scrooge McDuck.

Modern mercantilism has the same illogical logic. After 2016, both the Trump and Biden administrations in the United States tried to raise exports of airplanes and reduce imports of steel. Negotiation over “trade agreements” have the same rhetorical structure. “I’ll let your exports into the United States only if you let U.S. exports into your country.” Exports are good, the rhetoric in the negotiation says; imports are bad. Working is good; eating is bad.

Such talk is of course lunacy, though still the basis of public policy worldwide, as it was anciently. You have, after all, a balance of payments deficit with your grocer. The grocer accumulates the money. Has the deficit kept you up at night worrying? Not likely. Yet the stop-go policy of the British state during the 1950s and 1960s was based on such mercantilist lunacy and crippled real growth. Words matter. Words like “self-sufficiency” and “protection” and “balance of payments deficit” lead us far astray and make us poor. Better to get the economic rhetoric right, and achieve prosperity, by speaking of “arbitrage,” “efficiency,” and “globalization.”

The first globalization came to its height in the 1890s. An economics-drive ideology in the UK had inspired in the mid-19th century a brief flurry of “free trade” (i.e., allowing international trade to happen free of let or hindrance). Buy what and where you will. The state will not obstruct you. Reject mercantilist rhetoric.

Free trade was part of a wider liberalization. It began in theorizing by A. R. J. Turgot and Adam Smith and Thomas Paine and Mary Wollstonecraft in the late 18th century, to be applied massively in the 19th century by governments now increasingly of, by, and for the people. Liberalism rejected for the first time a rule of, by, and for the masters. It ended slavery and serfdom, broke down city guilds, and inspired free international trade in goods, people, and investments. A country like Sweden was in 1800 clotted with blocked opportunity for arbitrage, and its people were among the poorest in Europe. In the mid-19th century, it began to liberalize and began its long rise, by the 1930s, to a position among the richest.

The first globalization, then, was notably British. Britain after the 1840s essentially let anyone trade with it free of state-imposed restrictions and became the central market of the world. With few exceptions, the result by the 1890s globally was startlingly free trade in wheat and wine, free migration of people to the New World or the Colonies, and unhindered liberty to invest in Argentinian and Indian railways.

Notice that the liberalization of the first globalization was in goods, yes, but also in migrants and in investments. A deep economic point is that any one of the three liberalizations is a substitute for the other two. You can trade internationally with Juan Valdez in far Colombia by buying his product and letting it be shipped to you, in this case the coffee that he grows. Or Juan can move to your town and trade domestically with you, as a worker in a local restaurant, say. Except for Juan’s location, the results in the prices of goods, workers, or capital tend to be similar whether he stays in Colombia and is permitted to trade goods with you or comes to your town and is permitted to trade labor with you. Prices and wages and interest rates tend to converge internationally whether people trade internationally in goods or migrate internationally in person or invest their capital abroad. Capital flowing into new factories and extended railways abroad is, again, a substitute for goods imports and human migration. To get around a U.S. tariff, for example, a foreign company opens a factory in Tennessee. Eventually, the economist predicts, and the history of globalization shows, all the world will have the same prices and wages and interest rates and so forth, and much greater prosperity. For example, if present barriers to migration were removed, it has been plausibly calculated that GDP per head worldwide would increase 50 percent.

Until the 1960s, the German and American and most other governments never did sign on to free trade with anything like the 19th-century British enthusiasm. Germans long protected farmers from Ukrainian and American wheat, and the Americans protected steelmakers from German and British steel. Yet so large did Britain, as the first industrial nation, weigh in the world’s economy that such corrupt and foolish machinations mattered little to the making of a global neighborhood.

Down to the coming of the income tax in 1913, the U.S. federal government depended on revenues from tariffs on foreign trade. The word “tariffs” sounded scientific and obscured that they were simply taxes on imports. Yet a tariff was a tax that, unlike a tax on domestic beer or incomes, could be claimed to be imposed on the “damned foreigners.” The economic claim was silly, because prices of wheat and steel and the rest were by the 19th century (Figure 1) largely determined in global markets, over which even an increasingly bulky U.S. economy had little influence. A tariff on steel merely raised the price of, say, rails in the United States, to the world price plus the tariff. It’s still true. A tariff on steel imports means that Americans themselves pay for cutting off their noses to spite their faces. They lose the low price of foreign goods, on the false premise that doing so makes Americans in general better off. It is why countries should adopt free trade even if other countries don’t. Keep your own nose, and the lower price of steel, even if others adopt the mercantilist fashion of cutting off theirs.

But especially in the 19th century, such corruptions and foolishness didn’t matter much to prosperity in the United States, and not much more in the German Empire, so large were both internally. Wide trade from Chicago to Boston in meat made domestic markets into one big neighborhood. The pressure of domestically arbitraged prices bore great fruit. By Article I, Section 9, Clause 5 of the U.S. Constitution, the individual American states were forbidden from the outset to impose tariffs on each other. Such tariffs still happen between modern Indian states and happened among European nations before the formation of the European Union. In 1960, trucks crossing from Switzerland to Italy lined up for miles to pay tariffs, and on passenger trains everyone’s passport was checked when crossing from the Netherlands to Belgium. Bettering deals were evidently available. But they weren’t taken up. Result? Lower income.

A widespread retreat from globalization happened worldwide during and after World War I, a Great Deglobalization. New walls were erected at national borders on the arbitrage of goods, migrants, and capital. Until well after World War II, the economic world had reverted to economic autarchy, nation by nation. The disastrous interlude of retreat from the first globalization began during the 1920s and especially the 1930s. Hard cases make bad law, and hard recessions make bad economic and political policy. The Great Depression of the 1930s, presaged in Britain by a slump in the 1920s, radically undermined earlier liberalism, in both the economy and politics. In the Great Deglobalization, even the British abandoned free trade. Fascist and communist parties flourished worldwide. The three major political ideas dreamed by intellectuals during the past couple of centuries have been, in sequence, liberalism after 1776, nationalism after 1789, and socialism after 1848. The liberation and consequent Great Enrichment of the globe has come from the first one. But if you think you like the other two, maybe you’ll like Germany’s “national socialism,” 1933–1945, or its recent rebirth in white nationalism. I hope not.

But then our present, second globalization happened, and the second political liberalization. Yet understand that blocking and blocking and blocking arbitrage to benefit this or that special interest never completely stops, even now, well into the second globalization, even with approximately liberal politics.

For example, new schemes have been implemented recently making the Uber taxi service illegal in Germany and imposing a tax on cheap Chinese solar panels imported into the United States. They are always justified as “protecting” Hans the taxi driver in Hamburg or Harriet the stockholder of Hanwha Q CELLS in Dalton, Georgia. A journalist covering home improvement for the business magazine Forbes writes that the tariffs imposed by the Trump administration on imported solar panels “result in financial benefit for solar customers.” Never mind the rest of us. Uber customers in Hamburg, you see, get financial benefit from paying higher prices for blocked rides. Uh huh. A most ingenious paradox. Just like homeowners in the United States benefit from paying higher wages to their lawn services with blocked immigration from Central America. Sure. And British people benefited from the £50 block imposed in 1966 on the number of pounds sterling allowed to be taken on holidays abroad. Go to Calais, buy a nice if not too expensive French dinner, stay one night in a French hotel, and the next afternoon, board the ferry back to Dover. Financial benefit. Ha, ha.

The second globalization commenced only after fascism had been defeated in World War II and communism was being resisted in the Cold War. The various economic nationalisms started to recede. A crux was the so-called Kennedy Round in 1964–67 of tariff reductions under the new General Agreement on Tariffs and Trade (GATT). Its surviving offspring is the World Trade Organization (WTO), administered in Geneva. The United States, once addicted to tariffs, began after the Second World War to take adult responsibility as the dominant economy in the world. Suddenly—through something of a political and rhetorical accident—it became enthusiastically free trading. In 1962, Congress passed the Trade Expansion Act, which authorized the government to negotiate tariff cuts of up to 50 percent.

If the neo-mercantilism of the 1930s, or for that matter the long-running opposition on the left of politics to “neo-liberalism,” as the left calls it, and now also on the right in the “new economic nationalism,” was a good idea, then the Kennedy Round and the GATT/WTO and the second globalization would have been a global disaster. It would have impoverished the poor of the world. One could buy bumper stickers declaring, “Milton Friedman, Father of Global Poverty.” But in 1960, four billion out of the five billion people in the world lived at an appalling $2 a day in present-day prices, cooking over cow-dung fires, hauling water two miles for drinking, and dying young and illiterate. It was how almost all humans had lived from the beginning. By now, one billion of the present eight billion people still live in such misery. But the other seven billion have leapt forward, many to the “superabundance” that Marian Tupy and Gale Pooley have recently chronicled. It happened in the face of gloomy predictions that rising population would starve us all, that our best days were behind us. Real income per head on the globe has risen during the second globalization from a little over $2 a head per day to about $50 a day (Figure 2).

The World Bank reckons that it will keep rising at about 2 percent per year into the indefinite future—if we don’t kill it with bloody war or policy panic of the sort that caused the Great Deglobalization in 1914–45. Two percent doesn’t sound like much. But at such rates, the average person on the planet, more globalized and urbanized and educated and cured over the next century, will come to earn in real, inflation-adjusted terms three or four times more than a present-day Swiss or American person.

But wait. Surely the anxieties about globalization have some economic and historical justification. Surely, it’s not all rosy.

One reason people say so is that pessimistic histories and predictions are popular. You are cooler—if that is what you worry about being—to predict disaster even though it doesn’t happen and to paint the past in dark colors though they are false than to adopt the optimistic bet on the century to come and the optimistic history of the two centuries past.

From 1776 to the present, though, the optimistic bet and history have been much the wiser. One important instance, contrary to what you hear about the rich getting richer and the poor getting poorer, is that globalization has radically reduced inequality of incomes. For one thing, the enrichment of the globe brought a great many of the wretched of the Earth to a pretty good standard of comfort, the $50 a day. In 1901, the American economist John Bates Clark predicted that “the typical laborer will increase his wages [in real terms, allowing for inflation] from one dollar a day to two, from two to four and from four to eight. Such gains will mean infinitely more to him than any possible increase of capital can mean to the rich.… This very change will bring with it a continual approach to equality of genuine comfort.” His prediction was spot on.

And in any case, envy of the rich is not a sound basis for social policy, being insatiable. You can envy almost anyone, as Shakespeare put it, “wishing me like to one more rich in hope, / Featured like him, like him with friends possessed, / Desiring this man’s art and that man’s scope.” The football star or rock musician or entrepreneur might inspire envy, but after all, they achieved their wealth by making you better off. You pay to get their services, voluntarily, and you gain. If you don’t think so, please give me your season tickets to the Washington Nationals. Better: give me your access to Walmart or Ama​zon​.com. Oh, wait, I already have my own access. Liberty of trade.

Furthermore, the force of arbitrage works to erode pools of great wealth. The Nobel economist William Nordhaus has calculated that the gain from all the innovations in the United States since World War II went overwhelmingly to us, the customers, American and foreign, when competitors to General Motors, General Electric, and General Foods rushed in. Once upon a time we faced the terrible “monopolies” of Kodak, Nokia, IBM, Toys R Us, Tower Records, and Blockbuster. They are all now one with Nineveh and Tyre. Eighty-five percent of the Fortune 500 firms in 1955 are gone. That’s good, not bad. New ideas replace the old ones, and then new investment replaces the old, and new jobs replace the old, which is to our benefit.

The result is that during the second globalization, contrary again to what you may have heard on TV, the inequality of income worldwide has dramatically fallen (Figure 3). As China and India have enriched, their large shares of global population have risen from utter misery. Other successes such as Botswana and Ireland have added to the result that individuals worldwide are much more equal than ever. Want to see enormous inequality? Go back to 1800 and compare the Duchess of Norfolk with the average English peasant.

Another worry, especially from the left, is that globalization seems a terrible “minotaur,” as the one-time finance minister of Greece Yannis Varoufakis calls it, a beast eating Athenian maidens. Varoufakis’s case—that there is something sinister about investors moving investments around the globe in response to opportunities for arbitrage in returns on capital—would have at least a surface plausibility if it had not corresponded to the largest enrichment of the poor in human history.

Another is that the very enrichment from globalization is destroying the planet environmentally. But the invention of the automobile ended horrible pollution from horse poop in cities. Imposition of rules against soft-coal burning, and the replacement in heating by electricity, stopped life-shortening smog. And so forth. Want to save the environment? First get rich by globalization, and then watch the many millions of new engineers and entrepreneurs do it.

Fearful myths proliferate. For example, the decline in the United States, and every other rich country, in the share of the labor force making things such as cars and drill presses inspires fears of “deindustrialization.” What the fearful folk mean is that the share of manufacturing employment has fallen. But the share of its output has not fallen as fast. That’s good, not bad. American and British and French manufacturing is getting more productive per person. Rising productivity is the only way that real income per head can rise. If we don’t have a bigger pie, the slices to everyone can’t get larger.

Yet left and right and middle cry, “Bring back manufacturing to the United States, and establish self-sufficiency in the making of physical things.” The local versions of the cry are: “Keep money in the neighborhood.” “Buy American.” “Buy local.” But if these are such fine ideas, why not bring manufacturing back to your own house? Make everything yourself. It’s crazy. The crazy notion comes from the conviction that genuine output is a material good, an apple or an auto or an airplane, not “mere” services such as banking and insurance. It’s part of the prejudice against the middleman dating back to Aristotle and Confucius. It’s not sensible, as St. Thomas Aquinas among others noted. We need middlemen to do the necessary middle job of arbitrage, buying low and selling high to our benefit in efficiency.

The master myth haunting the fearful folk is that trade is war, or at best zero sum. They believe that what the United States gains, other countries have to lose. British writers in the 1890s declared imports from Germany an “invasion.” Such a way of talking about peaceful trade was not a small cause of the shooting war in 1914. According to the war metaphor, an immigrant, too, “invades”—a Juan Valdez giving you a good, cheap meal in Iowa City. It echoes the mercantilist and Calvinist feeling that production is good, a win, yet consumption is bad, a loss. But we produce in order to consume, not consume in order to produce. You would want your labor to be less and your consumption to be more, yes? Of course.

In the 17th century, the English raised similar fears against the commercial Dutch, erecting protectionist policies against them and fighting three Anglo-Dutch wars. Nowadays, similar “invasion” by enriching East Asian nations arouses fears that would not now be applied to trade with the same Dutch, or the British. In the 1980s, the Japanese were feared by the fearful folk, and now the Chinese are. East Asians both. Is a little racism involved? Of course it is. China today might well be a military threat to the liberal order. Taiwan is a liberal country. But giving Americans TV sets in exchange for some soybeans and a few airplanes is not war.

Yet even if you can persuade the fearful that imports are not warfare and that globalization raises the goods and services available to us all, many folk fear cultural “invasions.” Globalization is widely viewed as making world culture drearily uniform, “McDonaldization.” But globalization has opened a cultural trade, as for instance in the explosion of world cuisine, using tastes and techniques from abroad. Keeping out foreign food, music, ideas, or science clearly makes no sense. The old Soviet Union tried to keep out American jazz and blue jeans, because they were from “capitalist” America and especially because they carried a message of liberal spontaneity. The Soviet masters favored authoritarian, top-down music, like a symphony under a conductor or a ballet under a choreographer, and favored conventional pants from centrally planned factories. They hated improvisation. Plan, plan, plan, and impose the plan coercively.

Local arts are commonly encouraged, not suppressed, by what the economist Tyler Cowen praises as “commercial culture.” Soapstone sculptures and woven cloth by First Nations in Canada and the indigenous people of Guatemala end up in fashionable shops on Michigan Avenue, and the makers back in the villages prosper. The fear of cultural globalization causing cultural uniformity is overblown. South Asians learned the game of cricket from the British Raj. But now they play it their own way, the “great tamasha.” As the anthropologists tell us, goods and procedures are reshaped by other cultures for their own purposes.

Quit being fearful about globalization.

The ethical case for globalization is not simply that it enriches us all, though it does. It’s also that permitting arbitrage is an implication of allowing you to buy and sell with anyone you wish. It’s elementary liberty. And liberty is liberty is liberty. The liberty to trade is among the liberty to speak and read and vote and live and love.

The left and the right, and often enough the center, disagree. They want to stop you from buying marijuana or buying a Toyota or buying a book with gay characters, even in the land of the free. The economic historian J. R. T. Hughes pointed out long ago that Americans have two contradictory positions, “Don’t tread on me” and “Don’t do that.” That “that” consists of things like dressing as you want or loving whom you want or buying where you want. Globalization is part of liberty.

Such individual liberties are, well, individual. Not collective. A collective “general will” justifies “Don’t do that.” The only even approximately just notion of a general will is the economist’s GDP per head. Leaving people alone to work and trade, in line with the notion new in the 18th century of “Don’t tread on me,” led in fact to a Great Enrichment, that rise from $2 to $50 and beyond. Globalization by arbitrage was innovation’s necessary environment, without which it wouldn’t have happened.

But there’s a crucial caveat. The Great Enrichment from 1776 to the present corrected for inflation was on the order of a 3,000 percent rise of income per head. But compared with such an astonishing order of magnitude, greater efficiency by itself accounts only for modest increases. Improvements in the English constitution in 1689, or the free migrations of the first globalization, or the dropping of tariffs in the Kennedy Round, were all to the good, to be sure. But their good was nothing like 3,000 percent. They resulted in economic enrichments on the order of, say, 10 percent, or even 100 percent. But not 3,000 percent, even if you add up all the merely efficiency-yielding arbitrages. Doing the same old routines a little better is, of course, a good idea, and liberal arbitrage makes it happen in both production and consumption. Get the marginal opportunity cost lined up with the marginal utility. Fine and dandy. But the really big developments, as the economist Israel Kirzner puts it in The Foundation of Modern Austrian Economics (p. 84), come from “the incentive … to try to get something for nothing, if only one can see what it is that can be done.” Creativity is permitted to more and more humans. Massive invention therefore occurs. Innovation with arbitrage in markets makes it happen. The outcome has been the modern world, the bulk of the Great Enrichment, 3,000 percent and more.

That is, wholly new ideas, such as the steam engine and AC electricity and the modern corporation and careers for married women eventually permitted by the new liberalism of the 18th-century theorists like Adam Smith and Mary Wollstonecraft, are mainly what made us rich. Yet these, too, depended upon globalization. If governmental protectionism in goods or migrants was such a good idea, why not exclusively Russian science in Russia or Austrian music in Austria or U.S. technology in the United States? Confining, say, the sonata form in classical music to Italy by strict law would in fact be advantageous only to a few Italian musicians and disadvantageous to everyone else. Ideas flow too. But they follow material trade. National systems of patents and copyrights attempt to obstruct the flow of ideas. Fortunately, they usually fail, even in the short run, and always have since 1776 in the long run. The notion of “intellectual property” raises incomes for lawyers and reduces the incomes of everyone else. Let’s stop saying it and implementing it.

“Material” globalization, as it might be called, puts pressure on the more consequential globalization of ideas to take place. India protected its breakfast cereal industry by preventing Kellogg from entering India. Indian cold breakfast cereal was awful until the tariff was dropped after the liberalization from 1991. When auto tariffs into the United States were dropped, U.S. automakers were forced to achieve Toyota standards of excellence. They learned new ideas, such as having one key for ignition, entry, and the trunk.

Globalization, in short, has been the great teacher, both at doing a good old job at old jobs and in creating massively new ideas for new jobs—efficiency and innovation.

Long, long may it reign.