Senator Charles Schumer, R., New York

APPARENTLY, the Democratic grip on the Senate is weaker than we supposed. The senior senator from New York has embraced the traditional theory of the Republicans since 1860, “protection for American industry.”

Roughly a century and a half ago, the idea of “protection” was exposed as a fallacy by an English Jew named David Ricardo; his thinking has not been refuted by any of his successors.

Suppose that an American worker can make a car in one day and a house in five days, whereas a Mexican worker needs four days and seven days respectively. Then if each worker makes one car and one house, the American would work for six days and the poor Mexican for eleven - total, seventeen. Now imagine that the American makes two cars and the Mexican two houses; the American would have to work for only two days, the Mexican for eight - total, only ten.

Specialization makes both parties better off, they have either more goods or more free time, four days for the American and three for the Mexican - and the more efficient one gets the bigger benefit. The very essence of competition is to show who is more and who is less efficient. The rich get richer, indeed, but not by “exploiting” the poor.

This Law of Comparative Advantage proves that specialization makes both workers, or both businesses, or both countries, better off unless the comparative costs of their various products are the same for both: unless two neighboring countries are both still in the crop-growing stage of development, and have the same soils and pests and climates, it is hard to imagine two countries not profiting by free trade. Free trade accentuates the difference in productivity, what is called “fair trade” camouflages it.

How can this fundamental argument have escaped someone as well connected and - presumably ¬- well advised as the senior senator from the state named for the center of the world's commerce? Obviously, I can't read his mind, but I suspect that members of Congress have a predilection towards addressing every issue by resort to power - to put it bluntly, by violence.

What, I suspect, has deceived our legislator is that, while international trade has expanded, his devoted followers have not found themselves better off. However, one does not have to be very clever to understand why. Ricardo, and every other reasonable man, imagined that the importing nation would actually pay for its goods. Therefore, there would be less money in circulation; prices would go down, the goods the workers produced would cost less, and - presumably - more of the goods would be exported.

Have you noticed prices going down? Yes, if you are in the housing market, you have; but the prices of buildings are always volatile, because if demand goes up, it takes a long time to erect new buildings, and if demand goes down, it takes an even longer time to wear out the existing houses. Apart from housing, no, prices have not gone down. Why not? Perhaps, because a very substantial portion of the population are not paid what they are actually worth, but what some legislature chooses to pay them: if prices go down, police and prison guards and probation officers are able to buy a greater portion of the products. And many other “workers,” such as public school teachers, are “organized” so that their pay is not determined by competition in the market place. Thus an increase in imports does not actually result in a decrease in costs and therefore an increase in exports.

But, you will object, that is impossible: if goods have been imported, people here cannot still have as much money as before. However, one has to draw a distinction. There is more than one kind of money: there is specie, namely coins which are only as valuable as the metal they contain, and there is currency, which is valuable because governments, and perhaps other creditors, accept it instead of specie. (In the United States, specie coins are either gold or the standard silver dollar.) If the foreign nation accepts currency in payment for our imports, the departure of that currency does not bring our prices down; the bank is only too pleased to print some more currency and lend it out at interest.

Anyone with any sense at all clings to hir specie and spends hir currency. If se puts the specie in a bank, the bank will keep the specie in the vault and lend out currency: in fact, it will lend out even more currency than the specie in the vault, on the theory that all the depositors will not want all their money back on the same day. But if the banks are adding to the currency, prices must increase. Then, something else increases: money-lenders realize that the money they lend this year will be worth less when they get it back next year, so they increase interest rates.

So that all prices are going up, even though there is no drought or holocaust or earthquake or flood or other contingency. Yet another thing also increases - namely, tax revenues. And in a jurisdiction where there is progressive taxation, taxes increase faster than everything else. Governments appreciate this.

However, there is a fly in the ointment. Profit-and-loss is measured by striking a balance on January the first, striking another 365 - or 366 - days later, and comparing the two figures. The accounts have to include the value of the inventory at the beginning and the end, and the loss to depreciation. Plainly, you cannot measure these two items unless you have a dollar that is the same from one year to the next. If the same things are priced higher in December than in January, you may think you have made a profit and thus contributed to the general welfare, but in fact you have degraded it.

This is the reason - or, at least, one reason - why the States determined to use no thing but gold and silver coin as a tender in payment of debts: gold and silver are notoriously hard to find. But, for some mysterious reason, only Colorado, Missouri and Nevada have adopted specie coin as their legal money (and even those States do not enforce their statutes!)

If you cannot tell whether you are making a profit or a loss each year, you cannot really expect to find yourself better off as the years go by. If you feel you are not doing as well as you would wish, the first thing to do is to find out why. And a good place to look for a reason would be the U. S. Congress, which makes no secret of its belief that it can make better use of your money than you can.

And, even as Senator Schumer deplores his constituents spending their own money overseas, he and his colleagues are giving away our money to other nations. I very much wonder why, because the other nations do not vote in our elections (one would suppose.) I must be relatively stupid, because I am continually seeing allusions to an American Empire: but when I read the Gospels, or the history books, I see that in the Greek and Roman and Spanish empires, silver or gold was sent from the ends of the earth to the center. If, today, dollars are going from the U.S. to all the other nations, then either there is no American Empire, or the dollars are not money . . . .