 Now, what I'm going to do is start by looking at something which Meezi said and what I'll be doing in the course of my talk is simply expanding and explaining how he reached that conclusion. What Meezi said was that 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 point which 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. There's really no need to be afraid, afraid of it. Okay, now what I did, this was actually the beginning of a lecture which I prepared for my students in Australia. What I did was I simply rented random through the house and I had a look at the various products and where they came from. And now 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, by rose, what you people call bullpoint pens, we people properly called by rose. It was invented by Joseph Byron, so we always remember him. Okay, 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 are actually made in China, as in... Okay, now I had the medicines are made in Denmark, England, France and Germany, toothpaste. I don't know, well your toothpaste is obviously made in the US but mine is made in Ireland and in Australia. My computer is made in Malaysia, the various accessories, things which you plug into it, don't ask me what they are, are made in Taiwan and 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 is 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. It's the Japanese who've 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. Normans mugs are made in Korea and Taiwan. The silks 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 multi-colored 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. Perfumes are made in England, Australia, China, the talcum powder for it, 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 wrench or something. Anyway we call it a spanner. Screwdrivers, clips, shoes etc 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. It's now starting to produce furniture at least we're getting it in Australia. Stools are 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, it's 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 made in Japan and now in Korea. All right okay how is Australia surviving with all these imports? I can assure you we're all alive and well and happy and flourishing. Okay now let's have a look at some of these items. Now I'll give you the answers 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. Silk 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, world suppliers of silk because they have since the late 19th century they're 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 and 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 specialist and that is exactly what's been happening here if you have a look as I mentioned is that it's a 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 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 taste requirements that people have in different parts of the world. Similarly with things like washing machines and computers and all these things you get range produced rock bottom costs because you're producing for the world and therefore again range of types available and of course much better quality 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 is a hoe. See all these other countries also part of the world economy and again as I said producing for the world is a hoe 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 is a hoe. It's selling clothing to the world as a hoe again think in terms of reduction in costs rate 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 is made in China mean I'll tell you the answer in advance it means made by the entire world even the US is involved okay right cotton clothing label says made in China that's what the government requires made in China all right well you start with the clothing that's in your cupboard at home here in the US and we then move on is that the only copy I have is that sorry I haven't got my own copy okay all right the clothing in the cupboard here in the 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 supplies of 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 labor 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 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 you know produced at the least possible cost because again supplying good zillions to the world as a whole okay right now the cloth is woven and spun in China again where does the machinery come from it comes from Britain okay we transport in 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 fact with 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 century so continues to do so and the US all right your government again US cotton is produced at I don't know five six seven times the world price so it's your subsidized cotton which is going to the Chinese factories to produce the cotton clothing which now comes back to the US again another little story earlier in 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 sold the cotton of the clothing here in the US so then your department of commerce bless its heart added a countervailing tariff to offset the fact that it was buying US cotton at world prices so you have first of all a subsidy and then another sub the production subsidy and then an export subsidy and then you have a countervailing tariff so you know you where do you stop okay so but the cotton gins you need cotton gins to produce the cotton they made in the US world specialists again now all these farmers use again fertilizers pesticides and pesticides 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 US prices once it's first my husband back in Australia but the price which I saw meat at in the supermarket here he was horrified he went around immediately to the supermarket at home and had a look and we find that the prices are about a half and the quality is much better so again it's your government which is getting in the way and preventing living costs from falling again very ordinary example before we reduce 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 I guess what 10 dollars for a jersey good quality jersey and in the hour I've got what 50 60 whatever dollars left over to buy other things with 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 world the market economy does not respect political frontiers its field is the world starting with the stern age and now year 2006 what we have is a world economy okay now as 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 stuff 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're quite happy to buy you know biscuits and things made in Australia the other thing is you notice that on that on the list there I do have some Australian sheets now what is the difference between Australian and Indian has a 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 that do all sorts of things you know tell you the time in about six different countries and in 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 an 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 math 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 stern age but also we have in the 19th century 19th century we have the development real development of the world economy and that is because the 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 we're 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 industries 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 government 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 um the expansion of trade in specialization in the 20th century in other words has been despite the WTO despite GATT despite all these uh acronyms that bureaucrats produce right okay and of course you have the growth of multinational enterprises also as a part of the growth of international trade generally and the multinationals that survive are the ones which have been in in existence actually since the late 19th century and with the same specializations the jet 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 single sewing machine factory in Glasgow which sold all over the world and if you look at what the American multinationals produced 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 yes not one thing to mention the word peace and i'm a student of thomas j wasp and i want to work for ibm in 1939 and he promoted the idea of world peace through world trade could you touch on that yeah what is the role of peace in world trade yeah um well the more interdependent you are the less likely you are to go to war i mean if you want to stop war you want to stop the people who start war it's only governments of benefit if you ask me wars are a giant conspiracy by all the governments involved against their respective populations yeah you know i mean i can't get a jet plane to go and sort of bomb my neighbor however much i'm like this like him the most i can do is you know perhaps to 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 um a number of 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 and so they're beginning to ask the question who benefited not the populations who were on it you know the receiving end of all these bombs it was obviously the two governments involved the various governments involved um so uh mesi's book on state first book that was that he wrote nation state and economy yeah he points out there that the reason germany lost to war was basically 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 very good thank you very much