From my book:
That there is so much capital accumulated in the US, and so little elsewhere, is a settled historical fact. For example, the US has enjoyed a strong tradition of liberty and respect for private property rights which contributed to its affluence. A company that wants to outsource its labor force to a poor country will, at first, be immune to the butler paradox, because of the intense worker competition there. As long as there is little capital accumulation overall in society, a firm can import even the most sophisticated tools and still save a bundle on labor costs. A worker will be very productive in that firm’s line of business but receive low wages, since his community will still be poor, until the amount of capital invested per worker reaches some critical mass. His opportunity cost of working elsewhere is low.
Immigration presents its own complications. If both capital and labor are mobile, then, abstracting from the political problems of mass immigration, and even assuming that only labor is mobile, i.e., unemployed people cannot move easily (contrary to all reason, because it is precisely the unemployed who are most in need of relocation services), it is the case that the capital presently concentrated in the US will become “spread” over the entire world. Hundreds of millions of people will want to move to the US, and firms will want to move out of the US. This would improve the standard of living of the poor in the “developing” countries but indeed, lower the standard of living of the US workers.
It is this and not the possibility that immigrants may take advantage of the welfare state that has people worried about opening up borders.
However, as economists, we must not take the parochial view of “America first” but be mindful of the interests of the entire world. Marshall argues that
custom in a primitive society… prescribes an attitude of hostility to strangers. In a modern society… neighbors are put more nearly on the same footing with strangers. In ordinary dealings with both of them the standard of fairness and honesty is lower than in some of the dealings of a primitive people with their neighbors: but it is much higher than in their dealings with strangers. … sympathy with those who are strangers to us is a growing source of a kind of deliberate unselfishness, that never existed before the modern age. (1964: 5)
That was, of course, written before the mass slaughter of World War I. But the devil’s century has finally left us, and we should struggle to live up to Marshall’s observations of the state of affairs in the 19th and early 20th centuries.
Even in the unique situation, in which we find ourselves, there is everything economically right about freedom of movement of capital and labor both within and between national borders. This is the fastest “path to global economic prosperity” in the long run.
A quick political analysis will illustrate the matter. Consider that the Republicans are the party of the corrupt power elite, and the Democrats are the party of the violent bloodthirsty mob. Among other things, this schema explains why the Republicans, when they obtain power in a reactionary spasm, faithfully preserve whatever socialistic policies were previously enacted by the Democrats. This is because the Democrat laws (which harm society as a whole) reshuffle the social hierarchy. The masses so love a good shake-up. But under both socialism and interventionism, the worst get on top. The elite in a welfare-warfare state, therefore, consists of moral and economic monsters. These are the people the Republicans predictably end up protecting.
It is an accident of history that the American masses are better than the American elites; arguably, in the US, there are almost no elites at all, if by that we mean people animated by any sense of noblesse oblige. The American rich and powerful are generally grasping, venal, anti-intellectual, and deeply selfish people who, in Marshall’s words, have “the worst faults of the old aristocracy without their virtues” (1964: 259) and who neither understand anything about the common good nor are interested in it. For that reason, the Republicans are at least in the long run a greater danger to liberty than the Democrats.
Sometimes, however, the Republicans go populist, especially on immigration, appealing to the masses. Why? Because compared with the rest of the world, American workers are a privileged upper class.
Do the Mexicans, say, take American jobs? Assuredly, they do. However, in order for the situation to be ameliorated, it would be sufficient that for any 50 Mexicans who become workers here, 1 becomes an entrepreneur and creates jobs both for his fellow Mexicans and for Americans, as well. The whole reason why this rarely happens is that the Mexican illegal immigrants have no standing under the US law. How could they become entrepreneurs with all the settled responsibility (such as, at least, a permanent address) that this implies, if they cannot even get driver’s licenses legally? We need to retain and even reinforce the privileges of citizenship: immigrants should not be able to vote or be elected to public office; but the status of “illegal immigrant” ought to be abolished.
What Mexicans do take is the use of capital that is clustered in the US. But that, too, is scarcely relevant, because if Americans enjoyed sustainable economic growth with sound money and banking, no taxes beyond the local, and the rest of my pleasant visions, then they would be happy to “share the wealth” with the Mexicans. In all probability, there would an immense sense of pride that America is such a magnet for immigrants.
Moreover, a great political system would attract capital back into the US, as opposed to the current incentive to companies to go overseas. The American system of government needs to stay competitive and improve, not deteriorate. (Republicans are simply bad sports: they do not strive to improve the governance of the Unites States but rail against improvements in the political organization of other nations. That people who are better than “us” at something — anything — will be bombed is an ever-present threat.)
Banish the cynical thought that good government is a pie in the sky. It is a laudable goal, worth fighting for, and never a lost cause. An evil empire can last for a century, look impregnable, and disappear in a day.
There is even more to it. An increase in wealth brought about by capital accumulation will strengthen the incentive for people to have more children. Now people purposively limit the number of the children they have precisely to enjoy the fruits of their labor. Children are expensive in two senses. First, as helpless infants to their parents. Second, even when they grow up to society as large; that is, to each other as workers competing for jobs and bidding down wages.
Regarding the first sense, in times of peace and prosperity, people’s happiness may overflow into their kids. I fully endorse the wisdom of St. Thomas that the “generation of offspring for the multiplication of the human race” is a “a great blessing.” (ST, I, 98, 1) The “optimal” population size can only be discovered and reached under unhampered free market with the aid of the individual and family responsibility promoted by it.
Regarding the second cost, let us consider an extreme case of there being so many machines out there that there are not enough people to work them. Then accumulation of novel capital must slow down, and complementary to capital labor must be found, either by means of capital goods physically moving to workers or vice versa. It is far more efficient to do so than to abandon whole projects and industries due to something so easily remedied as dearth of workers. This can relieve the scarcity of workers and reignite economic growth.
(Machines, such as some sort of super-intelligent robots, can perhaps be designed and built that “on their own” produce other machines, but in practice it is much cheaper to import some folks from abroad. At any rate, we have dealt with the differences between men and machines and thereby also between labor and capital already.)
It may be readily objected that we are far from the happy surfeit of capital under consideration. That is true, but that is our fault.
And in second place, the poverty of other nations will under freedom of immigration cause a tremendous influx of people into the more prosperous countries. True, as well, but that is now their fault.
What both faults have in common, however, is that they stem from similar anti-laissez-faire ideologies and from Keynesism in particular. If Keynes were decisively refuted, and if nations quit ruining their own economies, then immigration policy would become a non-issue, and freedom of movement (restricted only by private property rights) would in not-so-distant future reign throughout the world.
The reason is, again, that free nations, like happy families according to Leo Tolstoy, are all alike in the most important ways. “The funniest thing about Europe,” says Vincent in the movie Pulp Fiction (Miramax Films, 1994), “is… the little differences.” In other words, cultural differences. Laissez-faire capitalism in country A will make it less likely for a person to feel the need to emigrate to country B. The pressure on countries with a high standard of living now treated crudely with coercive immigration controls will subside. Insofar as people do move around, there will be no easily identifiable pattern to the migrations, just as it is hard to track how Americans move throughout the very porous states, cities, and communities within the United States.
Recall the discussion of ideology in (Introduction, 1). A pertinent query is how one can measure general happiness. A useful measure is precisely immigration. If more people move from country A to country B than the reverse, voting, as it were, with their feet, then country B must be doing something right. David Friedman understood well the civilizing effects of the ability to immigrate: “Consider our world as it would be if the cost of moving from one country to another were zero. Everyone lives in a housetrailer and speaks the same language. One day, the president of France announces that because of troubles with neighboring countries, new military taxes are being levied and conscription will begin shortly. The next morning the president of France finds himself ruling a peaceful but empty landscape, the population having been reduced to himself, three generals, and twenty-seven war correspondents.” (1995: 123) By cutting off immigration, we lose the ability to gauge our own relative national success.