Manufacturing Surged When Tariffs Were Lifted

Tariffs raised costs and manufacturing jobs disappeared. Now, the administration is declaring victory for partially filling the hole it dug. 

By David Hebert of AIER. 

"The New Right is taking a victory lap. Treasury Secretary Scott Bessent says that manufacturing is “roaring back at its fastest pace in years.” He followed that up, calling this a “manufacturing renaissance.” And when the August payroll data showed factories adding jobs, the White House called the report “explosive” and proof that the tariff agenda is working. Checkmate, economists.

Not quite. An honest comparison of 2025 and 2026 reveals the economists were right.

In 2025, the US ran what can only be described as the largest, most aggressive tariff experiment in nearly a century. The average effective tariff rate peaked at 22.4 percent in April, which was the highest since 1909. By comparison, that figure was about 2.4 percent in 2024. But the worst part of 2025 was not the increase in the tariff rate; it was the chaotic manner in which trade policy shifted. Rates could be announced one week, doubled the next, paused a few days later, and then reinstated at an altogether new number months later. They could be imposed due to trace amounts of fentanyl crossing a border, other countries not buying enough of our products, or because President Trump didn’t like a person’s tone during a phone call. Americans were told that tariffs were going to apply to countries with which the US ran trade deficits in order to reduce those deficits. But then tariffs were imposed on the UK and Australia, with both of which the US runs trade surpluses.

Unfortunately, this wasn’t even the beginning of the uncertainty. Americans were told by Commerce Secretary Howard Lutnick that tariffs were “here to stay,” but later that same week, President Trump himself said that he was ready to negotiate with affected countries. In another instance, President Trump said that tariffs would be deployed to create jobs, but then Lutnick said that the jobs brought back would be automated. 

“The army of millions and millions of human beings screwing in little screws to make iPhones — that kind of thing will come back to the America,” Lutnick said, “it’s going to be automated, and great Americans, the tradecraft of America, is going to fix them, is going to work on them.” 

Likewise, Americans were told that tariffs would bring in trillions of dollars in revenue. But at oral argument before the Supreme Court, Solicitor General John Sauer said, “these are regulatory tariffs. They are not revenue-raising tariffs. The fact that they raise revenue is only incidental. The tariffs would be most effective, so to speak, if no person ever paid them. They achieve their goals and so forth.” Here, Sauer is pointing out that if a tariff is generating revenue, then it is not blocking imports and, by extension, not leading to domestic consumers shifting to buying domestically made products. Thus, the goal, according to Sauer, was to not raise revenues at all. 

Others associated with the Trump administration saw things differently. 

In a lengthy post on X and in The Wall Street Journal, Stephen Miran — formerly the chair of the Council of Economic Advisers and Federal Reserve board member — wrote that “it would have interfered with the legal case if I had said that tariffs were good for revenue and tax purposes, even if that’s not actually the reason we gave in law for the tariffs.” In other words, the tariffs were about revenue, except they weren’t, but really they were.

In 2025, Scott Bessent described tariffs as a “gun [that] will always be loaded and on the table, but rarely discharged.” The reality is that in 2025, there was no clear explanation of why the US was using tariffs, nor was there any clear indication of what the tariffs were ultimately trying to accomplish.

The combination of high tariffs with uncertain start dates and unclear goals proved disastrous for firms looking to make long-term investments. As a result, the manufacturing sector shrank. The ISM’s Manufacturing PMI fell into contraction and stayed there for ten months. Factory payrolls fell for eleven straight months, resulting in a loss of about 92,000 manufacturing jobs. Economists had predicted these outcomes and warned that the tariff agenda would produce them.

2026, by comparison, has brought the exact opposite: tariff relief. In February, the Supreme Court struck down the IEEPA tariffs. The White House immediately replaced these with a 10 percent tariff under Section 122. At the same time, the White House announced Section 301 investigations were beginning. While the findings of those investigations were almost certainly predetermined, they resulted in tariff rates of between 10 and 12.5 percent, which were (again) still lower than those in 2025. In other words, tariff rates in the US fell in 2026 compared to 2025.

But the remarkable thing about 2026 is how stable tariff policy has been compared to 2025. If anything, the uncertainty surrounding 2026 is characterized more by which tariffs the president is going to reduce, not impose. When beef prices rose, President Trump lowered tariffs to help ease the burden on households. When the price of steel, aluminum, and copper threatened domestic industry, the president lowered tariffs to “more effectively address national security threats, spur investment in American agriculture, housing, and manufacturing, and facilitate US production of related products.” Certain provisions of the Big Beautiful Bill, such as full expensing even for construction, took effect. Where 2025 can only be described as “raising taxes,” 2026 is a paragon of lowering taxes.

And what happens when taxes, especially those that affect manufacturing formation and expansion, are lowered? Manufacturing expands. And that is exactly what has happened in 2026. The ISM’s Manufacturing PMI crossed into expansion in January and has stayed there for eight months. Factory payrolls, which bottomed out in December 2025, have grown by 58,000 jobs. What’s more, the manufacturing job growth is concentrated in the very industries that are less exposed to tariffs.

None of this should surprise anyone who has sat through an economics course. A tariff is a tax. It makes Americans poorer by forcing us to pay more for less. Given the composition of US imports, tariffs land disproportionately on two groups: low-income households and manufacturers, since roughly half of all US imports are either raw materials or intermediate inputs used in American production. Tariffs make those goods more expensive. Take steel as an example. US steel prices have increased dramatically as tariffs have priced out foreign suppliers. As a result, manufacturing (which uses steel) becomes more expensive, too. It doesn’t take an economist to understand that when the cost of production rises, production slows down. 

The manufacturing renaissance that is happening right now is not because we imposed tariffs on the rest of the world. It’s because we lowered tariffs and made it easier for American workers to get access to the materials they need to produce. 

That the New Right would rush to claim this moment as a victory was not hard to foresee. Last December in The Wall Street Journal, I wrote that “When tariffs don’t deliver the promised renaissance, administration officials push back the timeline. First it was weeks, then months. Now, we need ‘the right timeline’ and must not grade policy ‘on a news cycle.’” I argued that they were “buying time until the economy improves despite tariffs, at which point the administration will claim victory.”

This is exactly what is happening. The timeline was stretched from weeks, to months, to “don’t grade us on a news cycle.” The economy, and specifically the manufacturing sector, improved the moment the tariffs were lowered. The officials who spent a year explaining away the damages their policies were causing are now taking bows after mitigating the harms of their own policies.

So let’s just be clear. Manufacturing shrank when tariffs were high and erratic. Manufacturing rebounded when tariffs fell and became more stable. Far from being tariff-induced, the “manufacturing renaissance” is what happens when you lower taxes on steel, chips, and components. None of this takes a crystal ball. Ironically, all of this matches exactly what the standard economic textbooks — the very textbooks that the New Right insists are wrong and in desperate need of updating — have been saying all along. All that the administration has done is dig a hole and then partially fill it back in. 

If we want to see manufacturing continue to rebound, we need to be cutting tariffs even further and making sure that they are stable and predictable."

 

Average Canadian family spent 42% of income on taxes—more than on housing, food and clothing combined (and the share has grown over time)

By Grady Munro and Jake Fuss of The Fraser Institute.

Taxes versus the Necessities of Life: The Canadian Consumer Tax Index, 2026 Edition

• The Canadian Consumer Tax Index tracks the total tax bill of the average Canadian family from 1961 to 2025. Including all types of taxes, that bill has increased by 2,928% since 1961.
• Taxes have grown much more rapidly than any other single expenditure for the average Canadian family: expenditures on shelter increased by 2,349%, food by 952%, and clothing by 526% from 1961 to 2025.
• The 2,928% increase in the tax bill has also greatly outpaced the increase in the Consumer Price Index (946%), which measures the average price that consumers pay for food, shelter, clothing, transportation, health and personal care, education, and other items.
• The average Canadian family now spends more of its income on taxes (41.9%) than it does on basic necessities such as food, shelter, and clothing combined (36.0%). By comparison, 33.5% of the average family’s income went to pay taxes in 1961 while 56.5% went to basic necessities.
• In 2025, the average Canadian family earned an income of $121,111 and paid total taxes equaling $50,721 (41.9%). In 1961, the average family had an income of $5,000 and paid a total tax bill of $1,675 (33.5%).

AI Leaders Are Asking to Be Regulated. This Is Nothing New.

By Christopher J. Calton of The Independent Institute.

"After Dario Amodei, CEO of the AI company Anthropic, penned an open letter calling for AI regulation, Rahm Emanuel took to X. “I’ve served in two White Houses and in Congressional leadership,” the former Chicago mayor wrote, “and I can tell you when the last time a CEO or an industry at large asked to be regulated: never.” 

Emanuel’s statement reflects the commonly held progressive myth that conniving Robber Barons do everything they can to impede the state’s noble effort to regulate them, but nothing could be further from the truth. 

Business leaders have long lobbied to have their own industries regulated. In fact, an entire body of historical scholarship is devoted to that phenomenon. Historians such as Gabriel Kolko, Robert Wiebe, and James Weinstein spent their careers detailing how Big Business allied with progressive reformers and politicians to construct the federal regulatory apparatus.

What does Big Business have to gain from regulation? More than anything else, to suppress economic competition and avoid cutting prices. 

“Competition was unacceptable to many key business and financial interests,” Kolko wrote in his landmark history of the Progressive Era. “As new competition sprang up, and as economic power was diffused throughout an expanding nation, it became apparent to many important businessmen that only the national government could rationalize the economy.”

Railroads were the first major industry to face widespread regulation, and the champions of the movement were railroad tycoons who had grown weary of the competitive pressure to cut prices. One railroad president endorsed the proposed Interstate Commerce Commission as the solution to “the prevailing contagion of depression and loss, from the effects of ruinous rates, which were uncontrollable from a lack of adequate protection of railroad interests.” Attempts to cartelize the railroads under the leadership of J. P. Morgan predictably failed owing to the strong incentives to offer discounts to shippers in the hope of generating enough traffic to cover the high fixed costs of building track networks. 

Business leaders in other sectors adopted the same strategy for suppressing competition. The public-school narrative of American history teaches that Upton Sinclair’s The Jungle, an entirely fabricated account of Chicago’s meat-packing industry, triggered the onset of economic regulation. In reality, twenty years beforeThe Jungle was published, the so-called Beef Trust was already lobbying for inspection laws to protect them from European competition. 

The corporatist state reached its apex during the New Deal, when President Franklin Roosevelt invited executives from the nation’s largest companies to Washington to draft their own protectionist regulations under the ultimately unconstitutional National Industrial Recovery Act. Mammoth corporations were in a better position to absorb regulatory costs than their competitors, and price controls made it impossible for smaller operations to undercut them. In one instance, the National Recovery Administration even jailed a businessman for charging customers five cents less than his industrial code allowed. 

Today, large companies are reluctant to explicitly acknowledge their desire to suppress competition when they lobby for regulations, but the playbook is essentially unchanged. When Apple publicly endorsed California State Senator Scott Wiener’s bill to require California businesses to disclose their greenhouse gas emissions, the company insisted that “fighting climate change” was one of its top priorities. Apple boasted that it had already been measuring and reporting its climate emissions, implicitly acknowledging that its business model would be unaffected by the burdens the new rule imposes on its smaller competitors.

The nascent AI industry is already enormously competitive, and rivalry has contributed to rapid advancements in the quality and availability of the technology. Dario Amodei’s plea for regulation sounds the alarm about “cyberattacks,” “bioterrorism” and “serious economic disruption,” but underlying all of those concerns is a fear of market competition. “A race to the bottom, spurred by commercial incentives,” he writes, “can make these risks more acute.” 

More likely, he fears that Anthropic cannot win a marketplace contest that rewards quality and affordability. Like so many business leaders before him, Amodei views the regulatory state not as the protector of consumers, but as the guardian of his own self-serving corporate interests."

Household debt as a share of GDP is hovering around some of the lowest levels of the past three decades

Tweet by Gunjan Banerji of The WSJ.

 

How The No Surprises Act worsened the problem of surprise bills

By Jeremy Nighohossian of CEI. Excerpt:

"Next week, Sen. Bill Cassidy (R-LA) will convene a roundtable to discuss adjustments to the 2020 No Surprises Act, which has come under increased criticism for shifting costs away from patients while driving up overall costs without addressing the underlying problem.

The theoretical market failure

The No Surprises Act was meant to address a legitimate health care problem based on fundamental economic principles. While the claim that healthcare is incompatible with a free market and needs to be managed by government is a vast overstatement, that doesn’t mean certain interactions don’t suffer from true market failures. They’re just much rarer and narrower than critics argue.

For a market to function well, participants need information and agency over their decisions. Both can fail when decisions must be made instantaneously by third parties. This principal-agent problem has been deeply studied in economics and is relevant to government actors. These problems occur when a third party makes a decision on behalf of someone whose interests or preferences differ from its own. Economists try to develop ways to avoid that issue.

How it relates to health care

This is one of the primary complications in emergency health care. The principal, the person who needs care, may be incapacitated or unable to choose their own provider. Moreover, the insurance-based health care system means the principal has ceded much of their decision-making power. But in the case of hospitals and healthcare, the situation is even more complicated. Hospitals  also use third-party providers, such as anesthesiologists. The hospitals are therefore acting as an agent for the insurance company and the patient, without the incentives to choose providers based on quality and costs that are aligned with the preferences of the insurance company or the patient.

Prior to the No Surprises Act, if a hospital chose an anesthesiologist that was not covered by the patient’s insurance, the patient could be stuck with an enormous bill for a provider they had never agreed to.

As the problem grew larger, Congress decided to fix the issue and passed the No Surprises Act at the end of 2020. The No Surprises Act effectively transferred the financial onus away from the patient, but instead of transferring it to the hospital, which was ultimately the decisionmaker, the bill created a process in which an arbiter would choose between the practitioner (the anesthetist) and the insurance company. Both would submit their view of what the payment should be, and the arbiter would choose one or the other.

To give the legislators some credit, I don’t think anyone could have predicted the eventual way this process would fail. They assumed that arbiters would choose each side’s offer about half of the time, giving both sides incentives to make reasonable bids. Basically, the legislators assumed the arbiters would be absolutely objective and fair.

That assumption turned out to be incorrect. Arbiters consistently sided with the practitioners. Even when insurance companies raised their offers, it seemed to have no effect on the probability of winning. Consequently, practitioners raised their bids. And because the process became so profitable for them, they brought more claims into the process.

Consequently, the costs of out-of-network health care boomed. The system has not yet reached an equilibrium, but when the new system settles, providers will be much better off, and patients will not only still be paying for the original size of the Surprise Bills via their premium, but they’ll be paying higher prices for these services and they’ll be paying for more of them, too. All that money will come from the insured."

A Great Nobel (for Mike Woodford and Bob Hall who are more in line with Milton Friedman and Bob Lucas, not Keynes)

John H. Cochrane. Excerpt:

"As you may have heard, Mike Woodford and Bob Hall won the 2026 Nobel prize.

This is a great prize, honoring two superb and highly influential economists.

What their work has to do with Keynesian stabilization is more of a head scratcher. This prize lives a lot more in the shadow of Milton Friedman and Bob Lucas than Keynes.

Hall’s most famous paper (my review here) was a brilliant extension and test of Milton Friedman’s permanent income model of consumption, which undercut the whole Keynesian fiscal stimulus business. Hall’s approach is also the cornerstone of all subsequent macroeconomics. Keynesian economics thinks about each year in isolation. In modern economics people think about the future in deciding what to do today. That is also a central part in Bob Lucas and Ed Prescott’s justly famous Nobel contributions. And Woodford.

Woodford’s monumental work (Interest and Prices is a capstone) was centrally about monetary policy, what the Fed can and should do. Keynesian economics famously said monetary policy is ineffective so the government should pursue fiscal stimulus. There isn’t much fiscal stimulus in Woodford’s book, and what little there is in subsequent work has very little to do with the Keynesian story. Again, this is the shadow of Friedman, not Keynes. But Friedman needed the money supply. The Fed sets interest rates and ignores money supply. Woodford shows how the Fed can affect the economy by setting interest rates. The core proposition is John Taylor’s rule: the Fed should aggressively raise interest rates to tame inflation. Woodford credits the idea to Wicksell and Taylor, and the Fed discovered on its own in the 1980s. But if you don’t have equations you don’t really know anything, and that’s what Woodford (leading a pack of many others) did.

I have been a little critical of new-Keynesian economics. But mostly as I see unfinished business. I think FTPL repairs a hole in new-Keynesian economics, and finishes the job. (“Expectations and the neutrality of interest rates” sums that up best.) Indeed, my main criticism is that Woodford went through contortions to leave out fiscal policy and inflationary fiscal stimulus, and give the Fed too much (complete) power over the economy.

Even Brad de Long called new Keynesians the “triumph of monetarism.” So, really, this is one more prize for Milton Friedman and Bob Lucas, not Keynes. Woodford set out to do something “Keynesian,” but by Lucas rules: people optimize in their behavior, they can’t be fooled systematically, and we write a proper model based on people and firms and budget constraints and markets that clear. (Woodford has been looking at more complex expectations recently, but not in the original work.) Policy consists of rules, either explicit or inferred from repeated behavior, not actions. I think that Woodford and other new-Keynesians set out to rewrite “Keynesian” economics under Lucas rules. But when you read the actual equations of what they came back with, it has very little to do with Keynes. (A recent article making that point.) That’s only now becoming clear.

Hall ranges broadly over labor, investment, money, and many parts of macroeconomics. He is always innovative. I had given up hope of a Nobel for him, because he’s not the type who bangs away on one idea. I am glad to be wrong.

Reporters have asked “who else?” This has been a very productive few decades for macroeconomics, and there are a dozen or so economists who could easily have shared this prize. There isn’t that much common between Mike and Bob’s work, actually, so it’s really a generic prize for macroeconomics. I would hate to be on the committee that has to pick just two or three per year. Perhaps more macro prizes will come."

America Became Rich Because of Liberalism

By Peter J. Boettke.

"March 9, 2026, was the 250^th anniversary of the publication of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. July 4, 2026, was the 250^th anniversary of the signing of the Declaration of Independence. These two documents are pillars of the great liberal tradition: free trade and economic freedom, the natural rights of each individual, and political freedom. Given the timing of publications, one cannot draw a direct line of influence from Smith’s scientific tract to the practical political demands of the Declaration. However, there is a great deal of evidence that the founding fathers knew of Adam Smith and the Scottish Enlightenment and drew inspiration from their works. My task here is not to revisit this question of influence, but to seek to find the common ground between the two documents we are celebrating this year, and to suggest how that common ground influenced the development of liberal political economy in the 20^th century in the hands of F. A. Hayek and Milton Friedman, the latter who won the Nobel Prize for Economics 50 years ago.

The great historian of the American Revolution, Gordon Wood, argued in The Radicalism of the American Revolution that what is most overlooked in discussions is the radical transformation of society that resulted. Colonial America was a society of status, of privileges, of station. Patronage and personal favoritism by those with power played a major role in social mobility—to the extent that it existed. This social system would all be transformed by the Revolution.  One prominent example of the legal transformation was the abolition state by state of the practice of primogeniture between 1777 to 1798.  Not only did this change the laws of inheritance, but transformed the meaning and use of property, encouraged entrepreneurship, credit markets and social and geographic mobility. Legal distinctions based on rank disappeared, and economic opportunities were based in interest, aptitude and talent rather than birth. Certainly not perfectly, it must be acknowledged. But in a far more sweeping nature than anywhere else in the world, ordinary individuals were enabled to “give it a go,” as the historian Deirdre McCloskey likes to stress about the ascendancy of the Bourgeois Era. Almost overnight, Wood argues, Americans became “the most liberal, most democratic, most commercially minds, and most modern people in the world.”

As a result, America became the richest country in history over the next 250 years. It did so without an aristocracy, and without central planning or a comprehensive blueprint by the governmental authorities. The Revolution succeeded because it created the institutional conditions for commercial civilization. It unleashed the creative powers of a free people to a greater degree than had ever been experienced before. As Hayek would stress, the transformation for a society of status to one of contract is critical to experiencing modern economic growth. And this is only possible if the governing system seeks to eliminate privileges and instead binds itself to the rule of law.

The American Constitution, democratic self-governance, geographic advantages, and abundance of resources all played a role, but it was the transformation of society that drove progress. The system of social hierarchy, deference, patronage, and inherited privileges was transformed into a system of equality before the law, civil society consisting of voluntary association, social mobility, entrepreneurship and dignity and respect for ordinary work. Commercial activity ceased being morally suspect and the marketplace was characterized by entrepreneurs, shopkeepers and independent participants rather than clients dependent on the good graces of the privileged and powerful elite.

It might make sense to pause for a minute and reflect on Smith’s choice of words for the title of his great treatise: “An Inquiry,” not “The Theory,” followed by “Into the Nature and Causes of the Wealth of Nations,” not merely “Into the Wealth of Nations.” Smith’s work was no doubt concerned with material abundance, but not exclusively so. The division of labor, as reflected in Adam Smith’s depiction of the production of a common woolen coat, wasn’t merely about productive specialization, but the establishment of peaceful social cooperation among strangers. Rather than the traditional society of domination, commercial society is based on mutually beneficial exchange. Commerce rewards prudence, trustworthiness, reliability, reputation, and self-command. The market process in this regard is a civilizing influence by taming the passions and encouraging cooperation with others of great social and physical distance. Trading, not raiding, characterizes commercial life; just as making, not taking, is recognized as the way to generate wealth.

Smith was writing at the dawn of liberty. The American experience in the centuries after that Revolution is the realization of that liberty. Again, it has never been perfect and is still not perfect, but it always strives and bends toward that Smithian liberal plan of liberty, equality and justice. In the 20^th century, the two most important political economists pressing these Smithian points and the exemplary importance of the American project were Hayek and Friedman, perhaps most importantly in their works The Constitution of Liberty and Free to Choose.

My choice of books to link these two together is somewhat unusual because most writing an article such as this would focus instead on the relationship between Hayek’s The Road to Serfdom and Friedman’s Capitalism and Freedom and the intimate connection between economic freedom and political freedom. These works, of course, are foundational to any discussion of the liberal principles of political economy and justice. But I chose The Constitution of Liberty and Free to Choose because both can be read as making significant contributions to the field of constitutional political economy (most associated with another University of Chicago product and fellow Nobel Prize winner, James M. Buchanan).

Critical to this specialized field of inquiry is how the establishment of general rules creates the conditions conducive the progress. To Hayek, America’s uniqueness was in creating a constitution and embracing institutions that formed the “machinery of government,” where millions of economic and social experiments could be going at the same time. America—however imperfect—embodied the principles of an open commercial civilization where individuals will discover opportunities, tinker and innovate, and develop new technologies. Economic freedom is not merely permission to give it a go, but a discovery procedure to learn what is worth going for in a way that nobody can know outside of the market process itself.

Friedman rightly contrasts the power of the market with the tyranny of control. The maintenance of commercial society requires limits on political power, competition to limit coercion, and choice to preserve and protect liberal pluralism. Economic freedom is not only efficient, it disperses power in society. It erodes privileges. It creates space for ordinary individuals to achieve extraordinary things. Economic freedom results from the security of property rights, freedom of contract and association, stable money and fiscal responsibility, all embodied in the rule of law.

This to me is the enduring lesson in political economy that we should derive from reflecting on the twin 250^th anniversaries and allow to guide us through our contemporary debates which too often seem to have forgotten these. Let me add one other aspect that is too often overlooked. When Hayek founded the Mont Pelerin Society, one of the names he toyed with was the Acton-Tocqueville Society. This was rejected by the original group for a variety of reasons, but it does reflect Hayek’s thinking. In the context of this article, I think we can argue that Alexis de Tocqueville provides a bridge between Wood’s historical account of the American Revolution and Hayek and Friedman’s theoretical accounts of economic and political freedom. Tocqueville observed what Wood described as the transformation of American society: a social order characterized by vibrant civil society of voluntary associations, social mobility, local initiative, and unbounded energy. Hayek explains to us why this decentralized dynamism is a source of discovery and continuous learning how to better pursue productive specialization and realize the gains from peaceful social cooperation. Friedman explains how the constitutional structure of government, by limiting power and privileges, preserves the open society and its properties of creativity, innovation and social and material progress.

Both the left and right in our current political and intellectual culture have abandoned these principles, at least in their rhetoric. New York Mayor Zohran Mamdani and Vice President J. D. Vance have recently gone out of their way in respective speeches to dismiss the ideas of Hayek and Friedman. Critics of neoliberalism repeatedly target Hayek and Friedman without seemingly any sense of understanding the subtleties and nuances in their arguments. Post-liberals are even worse. Thinkers like Patrick Deneen argue that free market policies result in the erosion of community, destroy the social fabric, and increase inequality.  The individual becomes isolated and lacks any great purpose as a result. The remedy offered is the abandonment of the free market system with its emphasis on material growth and the adoption of public policies that stress virtue, local obligations, and the moral community.  Scholars under the New History of Capitalism movement see the coercion and abuse of corporate and state power as attributes inherent in capitalism. To both groups of critics, support for capitalism must either elide over these abuses or even justify them as the lesser evil to growth.

These criticisms are grounded in a misunderstanding of the argument for the liberalization of markets from David Hume and Adam Smith to F. A. Hayek and Milton Friedman.  Markets are no doubt vehicles for efficiency in exchange and production and the creation of great material abundance, but that isn’t the side of markets that was stressed by Hayek and Friedman, let alone Smith. Smith was a champion of the doux commerce thesis that commerce civilized. Thomas Paine, of American Revolution fame, wrote that: “If commerce were permitted to act to the universal extent it is capable of, it would extirpate the system of war…” Commercial life civilizes people. Peaceful social cooperation among strangers replaces violence and conquest. Montesquieu wrote that “wherever the ways of man are gentle, there is commerce; and wherever there is commerce, there the ways of men are gentle.”

And certainly, by solving the violence trap, humanity was able to generate the wealth of nations, and this has been a boon to the flourishing of people everywhere that should be celebrated, but which capitalism’s critics so often seem to overlook or read as evidence of rapacity. In recent history, capitalism and trade has led to the great escape from abject poverty. When I was first learning economics in the 1980s, around 40% of the global population lived in extreme poverty (less than $2/day). Today that number is under 10%. Again, there is still work to be done to achieve Smith’s liberal plan of liberty, equality and justice for all. But we are farther along the path to that achievement than at any time in recorded history. The arguments of the great classical liberal economists from Smith to J. S. Mill, as well as the refinements that were made by great liberal economists of the 20^th century such as Frank Knight, Ludwig Mises, F. A. Hayek and Milton Friedman, are critical to our scientific understanding and our practical appreciation of freedom and free enterprise. These ideas of property, contract and consent are embedded deeply in the American Project, and the promise of that project is one of the Open and Opportunity society.  The direction forward is not to turn our backs on the American Project and reject the principles of free markets and entrepreneurialism, but to encourage the principles on which our democracy was founded and that, for all of its imperfections and momentary regressions, has created one of the wealthiest, free, and, yes, egalitarian nations in the history of civilization."