Need for Constitutional Restraints on Government Powers to Tax and Restrict the Foreign Trade Transactions of Domestic Citizens: Trade Mercantilism as “Government Failure”

There is broad agreement among economists “that the rate of economic growth is the outcome of the rate of resource accumulation, the efficiency with which additional resources are used, and the rate of increase of efficiency in resource utilization”. ³ Why is it that countries rich in natural resources, such as Argentina and Zaire, continue to have low rates of production of goods and services, whereas countries less favoured with natural riches, like Japan and Switzerland, have evolved into members of the group of the world’s wealthiest and most industrialized nations? Since the publication of Adam Smith’s “Inquiry into the Nature and Causes of the Wealth of Nations” in 1776, economists tend to agree on two broad answers to this question: First, the individual incentives for the production of goods and services, for saving and for human effort and ingenuity depend to a large extent on the evolution of political, legal and social institutions that protect individual freedoms and property rights. Governments usually cannot directly produce economic wealth, but only a framework of rules that may encourage or impede the creation of wealth. ⁴ Second, in accordance with Adam Smith’s famous theorem that “the division of labour is limited by the extent of the market”, there is considerable empirical evidence to show that trade liberalization can and has acted as an “engine of growth”, for instance during the unprecedented period of international economic growth between 1950–1973, and especially in trade-oriented developing countries (such as South Korea, Singapore, Hong Kong, Taiwan, Brazil and Colombia) compared to those with 97high levels of protection and import-substitution policies (e.g. India, whose exports exceeded those of Japan as late as 1952). ⁵