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North Korea: From Hermit Kingdom to Merchant Kingdom? – Article by J. Wiltz

North Korea: From Hermit Kingdom to Merchant Kingdom? – Article by J. Wiltz

The New Renaissance Hat
J. Wiltz
December 7, 2014

Toward the end of her remarkable speech at this year’s One Young World Summit in Dublin, North Korean defector and human rights activist Yeon-mi Park listed three ways in which ordinary people can help freedom-seekers in North Korea:

One, educate yourself so you can raise awareness about the human crisis in North Korea. Two, help and support North Korean refugees who are trying to escape to freedom. Three, petition China to stop repatriation.

To this list, Swiss-born businessman Felix Abt might add a fourth suggestion: do business with them. This suggestion forms the heart of Abt’s new book, A Capitalist in North Korea: My Seven Years in the Hermit Kingdom (Tuttle Publishing 2014).

From Hermit Kingdom to Merchant Kingdom


Those familiar with the situation in North Korea (officially known as the Democratic People’s Republic of Korea or DPRK) will not find Abt’s title as shocking as it’s probably intended to be. Indeed, as early as 2009, and undoubtedly even before that, Western media outlets were reporting on “the secret capitalist economy of North Korea” (i.e., the black market) which sprung up in response to the famine of the mid-1990s. Writing for the Washington Post in May 2014, Yeon-mi Park herself even referred to the young people currently living in North Korea as the “Jangmadang, or ‘Black Market Generation’.”  These young people, she says, are far more individualistic than their predecessors, far less loyal to the ruling Kim regime, and infinitely more likely to be exposed to outside media and information.

Abt’s book echoes and elaborates on all of these points. Drawing on his personal experience as the foreign head of a North Korean pharmaceutical company, as well as a co-founder of the Pyongyang Business School, he details the DPRK’s early forays into franchising, customer service, online forums(!), bicycle merchants, performance incentives, and even that most un-socialist of all market activities, advertising.

These ideas and practices are still very new to the world’s most notorious “bastion of communism” (Abt’s words), but already the government is being forced to make gradual changes to its market policies. Two quick examples: “More flexible opening hours are allowed for markets, and more companies are permitted to interact with businesses abroad.”

In spite of these positive developments, however, Abt laments, “There appears to be no end in sight for the severe economic problems of the world’s most centrally planned economy.” He divides the blame for these problems among several perpetrators: (1) North Korean military policy; (2) over-dependence on foreign humanitarian aid; and (3) foreign sanctions and embargoes.

“North Korea,” says Abt, “is the most heavily sanctioned nation in the world, and no other people have had to deal with the massive quarantines that Western and Asian powers have enclosed around its economy.”

Two Steps Forward, One Step Back


To be sure, arguments against North Korean sanctions are a tough sell, given the country’s well-documented human rights abuses and annual nuclear threats against the United States and South Korea. Several Amazon reviewers have accused Abt of simply parroting North Korean propaganda, calling him “Pyongyang Pete” and “the Kim Dynasty’s useful idiot.”  Even many libertarians, long opposed to the Cuban embargo, can probably agree that many of North Korea’s domestic and international woes are self-inflicted.

For example, in 2006, the former president of South Korea’s largest dairy company came up with the strategy to provide every child in North Korea a daily glass of milk. “Charities and wealthy individuals committed to the project,” Abt writes, “but after Kim Jong Il’s first nuclear test, the prospect quickly vanished.”

Abt also notes that in 2007, the website DailyNK reported that North Korea spends up to 40 percent of its annual budget on monuments and celebrations dedicated to the Kim regime. Abt recounts how he “gasped” at the sheer size of these monuments, as well as other buildings like the Koryo Hotel where “up to 1000 guests can stay in 504 rooms on 45 floors.”

But read to the end of A Capitalist in North Korea and you’ll find that “fewer than a third of all hotel rooms are occupied during most weeks.” Pyongyang tourist videos on YouTube corroborate this point. On almost every day of any given year, the 504 rooms of the Koryo Hotel sit empty (a predictable side effect of the DPRK’s notoriously tight travel restrictions). This is not what an efficient allocation of resources looks like.

Moreover, the North Korean government sometimes reacts to the market activities of its foreign investors with repression and cronyism. In 2006, a Chinese-run pharmacy was closed because it posed a threat to the socialist public health system. Several years later, a German internet provider was able to lobby the government, making it impossible for other foreign-invested businesses to install their own satellite dishes.

“So how will reform come about?”


And yet, not one of these things — not the nuclear tests, the empty hotels, or the shady business dealings — could in any way be prevented by sanctions that target foreign banks, farm equipment, fertilizer, mobile phones, alcoholic drinks, French cheese, or luxury items. “The current sanctions have not only failed to curtail the nuclear ambitions and human rights abuses of the ambitious North Korean leader,” says Emma Campbell in a May 2013 article for East Asia Forum, “they are also constraining the actions of humanitarian NGOs trying to carry out life-saving activities inside the DPRK.”

Among these life-saving activities is the development of a market-minded merchant class that is less dependent on the regime and better able to conduct business with the outside world in a peaceful, profitable manner. While Abt is clear that doing business in North Korea is by no means a guaranteed success, he rightly sees it as one of the best methods for improving the lives of millions of North Koreans caught between domestic and foreign repression. “Business,” he writes, “is the way forward for Kim’s country … a promising way to open and change the hitherto isolated country and the course of things for the better.”

The decades-long task of opening North Korea to the outside world may very well be accomplished by first opening the outside world to North Korea.

J. Wiltz writes from Anyang, South Korea, where he teaches English and blogs at A Day with J.

This article was published on and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Mercantilism vs. Free Trade: The Early Years – Article by Chi-Yuen Wu

Mercantilism vs. Free Trade: The Early Years – Article by Chi-Yuen Wu

The New Renaissance Hat
Chi-Yuen Wu
September 27, 2013

Note from the Ludwig von Mises Institute (reprinted with permission, pursuant to a Creative Commons Attribution license): This selection is from Chapter II of Chi-Yuen Wu’s An Outline of International Price Theory, available in paperback and ebook editions in the Mises store.

In Chapter II, Wu discusses some early controversies in Mercantilist thought, and their effects on our thinking about free trade. It is interesting to read Wu’s summary of the debate between the interests of England-based manufacturers of clothing and the importers of clothing from the East India Company. In both cases, they are arguing from the position of special interest groups, but the arguments made by the East India Company, while not made in the spirit of any true devotion to free trade, are harbingers of later advances in our understanding of the value of free trade.


The overseas discoveries in the last decades of the fifteenth century had widened the boundaries of international trade and had given rise to a change in its nature and an expansion of its volume. As a result of the opening of the new silver mines between 1540 and 1600 in America, Europe was supplied with an abundance of money metals and thus the establishment of a real price economy was facilitated. That change in commerce together with the extension in the use of money accelerated the development of the new spirit of private enterprise and paved the way for the triumph of the moneyed classes. In fact, the time had come for a transition from a number of local economies to a national economy, from feudalism to commercial capitalism, from a state of comparatively little trade to an epoch of extensive international commerce. That change in the economic structure is sometimes called by economic historians the “Commerical Revolution.”

In the world of thought, that change in the economic structure found its expression in what is known as “Mercantilism.”

… First of all, all mercantilists considered the benefit of the State as the end and object of economic activities, in their view the interests of the State had always to take precedence to the interests of the individual. The aim of all mercantilistic doctrines is to increase the economic power of the State. Moreover, the interests of the state were, in their eyes, by no means necessarily in harmony with the activities of the individual. According to them, wages, interest, industry, and trade should be regulated so as to benefit the State. Finally, the importance of “treasure” to a State was greatly emphasized. The reasons given in support of their advocacy of the accumulation of the previous metals changed from one time to another, but all mercantilists agreed that a nation must try by all means to increase its “treasure.” In general, they recognized that countries which did not possess gold or silver mines could not increase their stocks of the previous metals except by an annually recurring favorable balance of trade (if peaceful means alone were adopted). Consequently, they gave foreign trade the foremost place among the industries of a nation. …

The protection versus “free trade” controversy at the end of the seventeenth century was connected with the East India trade. In the latter half of that century the imports of Indian textiles into England were increasing, especially in the last two decades. Owing to the high costs of production, the English textile industries could not withstand the competition of the Indian imports. The result was that in the last decade of the century the English woolen and silk industries faced a grave crisis. Those industries were experiencing depression and unemployment, and complaints were made by the weavers and the public in general against the East India trade.

The best spokesmen of the weavers’ interests were John Cary and John Pollexfen. Like other mercantilists, they based their contention upon the conception of the State as an economic entity and stood for a definite national economic policy for the benefit of the state. … Cary and Pollexfen … judged the benefit of trade … by the nature of the exports and imports [rather] than by their quantity and value. In other words, “that Trade is advantageous to the Kingdom … which Exports our Product and Manufactures; which Imports to us such Commodities as may be manufactured here, or to be used in making our manufactures; which supplies us with such things, without which we cannot carry on our Foreign Trade; [and] which encourages our Navigation, and increases our Seamen.”

Judged by those criteria, the East India trade was said to be harmful and not beneficial to England … [Cary and Pollexfen] no longer valued foreign trade and the treasure brought by it for their own sakes but for the effects upon home industries and trade.

The ablest upholders of the East India Company were Josiah Child and Charles Davenant. They did not deny the obvious fact that the Indian trade was detrimental to certain industries, but they maintained that the fact was not a sufficient condemnation of the East India trade.

In place of those criteria, they tried to establish a new rule for testing whether a trade is beneficial to a state or not:

The best and most certain discovery … is to be made from the encrease or diminution of our Trade and Shipping in general. … Where-ever Trade is great and continuous so, and grows daily more great and encreaseth in Shipping, and … for a succession not of a few years, but of Ages, that Trade must be nationally profitable.

Using that criterion and facts that they had adduced to show that the East India trade had promoted the general prosperity of the nation, they were able to make out a case for the view that the East India trade was beneficial to the country.

Negatively, they tried to show that the proposal to prohibit the wearing of all Indian imported textiles in England would be detrimental to the nation.

However, they could not do so without sacrificing some part of their mercantilistic doctrines and approaching the doctrine of free trade. The following quotations perhaps sufficiently reveal their main arguments:

Trade is in its nature free, finds its own channel, and best directeth its own course: and all laws to give it rules and directions, and to limit and circumscribe it, may serve the particular ends of private men, but are seldom advantageous to the public.

For all trades have a mutual dependence one upon the other, and one begets another, and the loss of one frequently loses half the rest.

It should be noted they were not free traders at heart. They advocated leaving trade free from restraints only in so far as the argument served the purpose of their Company and their views constitute a mere case of special pleading.

Author Description from the Ludwig von Mises Bookstore:

Greatness often comes from the most unlikely corners. Chi-Yuen Wu began this treatise while a student at London School of Economics during the Great Depression, then returning to an anxious China, on the verge of war, and in the throes of economic instability, finished it from the remoteness of Western China after being displaced from his home.

Wu looked at the history of economic thought as a way to explain what was happening and why. Lionel Robbins, in the Preface, says “Few, can read his penetrating commentaries without feeling that he has added substantially to knowledge, both in his elucidations and in his presentation of the general perspective of development.”

Murray Rothbard considered Outlines of International Price Theories to be a seminal contribution to the theory of price and international trade.

TANSTAAFL and Saving: Not the Whole Story – Article by Sanford Ikeda

TANSTAAFL and Saving: Not the Whole Story – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
October 3, 2012

How often have you heard someone say, “There ain’t no such thing as a free lunch,” or, “Saving is the path to economic development”?  Many treat these statements as the alpha and omega of economic common sense.

The problem is they are myths.

Or, at least, popular half-truths.  And they aren’t your garden-variety myths because people who favor the free market tend to say them all the time.  I’ve said them myself, because they do contain more than a grain of truth.

“There ain’t no such thing as a free lunch” (or TANSTAAFL) means that, with a limited budget, choosing one thing means sacrificing something else.  Scarcity entails tradeoffs.  It also implies that efficiency means using any resource so that no other use will give a higher reward for the risk involved.

That saving is necessary for rising labor productivity and prosperity also contains an economic truth.  No less an authority than the great Austrian economist Ludwig von Mises has stated this many times.  In an article published in The Freeman in 1981, for example, he said:

The fact that the standard of living of the average American worker is incomparably more satisfactory than that of the average [Indian] worker, that in the United States hours of work are shorter and children sent to school and not to the factories, is not an achievement of the government and the laws of the country. It is the outcome of the fact that the capital invested per head of the employees is much greater than in India and that consequently the marginal productivity of labor is much higher.

The Catalyst

But the statement is true in much the same way that saying breathable air is necessary for economic development is true.  Saving and rising capital accumulation per head do accompany significant economic development, and if we expect it to continue, people need to keep doing those activities.  But they are not the source–the catalyst, if you will–of the prosperity most of the world has seen in the past 200 years.

What am I talking about?  Deirdre McCloskey tells us in her 2010 book, Bourgeois Dignity: Why Economics Can’t Explain the World:

Two centuries ago the world’s economy stood at the present level of Bangladesh. . . .  In 1800 the average human consumed and expected her children and grandchildren and great-grandchildren to go on consuming a mere $3 a day, give or take a dollar or two [in today’s dollars]. . . .

By contrast, if you live nowadays in a thoroughly bourgeois country such as Japan or France you probably spend about $100 a day.  One hundred dollars as against three: such is the magnitude of modern economic growth.

(Hans Rosling illustrates this brilliantly in this viral video.)

That is unprecedented, historic, even miraculous growth, especially when you consider that $3 (or less) a day per person has been the norm for most of human history.  What is the sine qua non of explosive economic development and accelerating material prosperity?  What was missing for millennia that prevented the unbelievable takeoff that began about 200 years ago?

A More Complete Story

Economics teaches us the importance of TANSTAAFL and capital investment.  Again, the trouble is they are not the whole truth.

As I’ve written before, however, there is such a thing as a free lunch, and I don’t want to repeat that argument in its entirety.  The basic idea is that what Israel M. Kirzner calls “the driving force of the market” is entrepreneurship.  Entrepreneurship goes beyond working within a budget–it’s the discovery of novel opportunities that increase the wealth and raises the budgets of everyone in society, much as the late Steve Jobs or Thomas Edison or Madam C.J. Walker (probably the first African-American millionaire) did.  Yes, those innovators needed saving and capital investment by someone–most innovators were debtors at first–but note: Those savings could have been and were invested in less productive investments before these guys came along.

As McCloskey, as well as Rosenberg and Birdzell, have argued, it isn’t saving, capital investment per se, and certainly not colonialism, income inequality, capitalist exploitation, or even hard work that is responsible for the tremendous rise in economic development, especially since 1800.

It is innovation.

And, McCloskey adds, it is crucially the ideas and words that we use to think and talk about the people who innovate–the chance takers, the rebels, the individualists, the game changers–and that reflect a respect for and acceptance of the very concept of progress.  Innovation blasts the doors off budget constraints and swamps current rates of savings.

Doom to the Old Ways

Innovation can also spell doom to the old ways of doing things and, in the short run at least, create hardship for the people wedded to them.  Not everyone unambiguously gains from innovation at first, but in time we all do, though not at the same rate.

So for McCloskey, “The leading ideas were two: that the liberty to hope was a good idea and that a faithful economic life should give dignity and even honor to ordinary people. . . .”

There’s a lot in this assertion that I’ll need to think through.  But I do accept the idea that innovation, however it arises, trumps efficiency and it trumps mere savings.  Innovation discovers free lunches; it dramatically reduces scarcity.

Indeed, innovation is perhaps what enables the market economy to stay ahead of, for the time being at least, the interventionist shackles that increasingly hamper it.  You want to regulate landline telephones?  I’ll invent the mobile phone!  You make mail delivery a legal monopoly?  I’ll invent email!  You want to impose fixed-rail transport on our cities?  I’ll invent the driverless car!

These aren’t myths. They’re reality.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

The Importance of Subjectivism in Economics – Article by Sheldon Richman

The Importance of Subjectivism in Economics – Article by Sheldon Richman

The New Renaissance Hat
Sheldon Richman
October 3, 2012

After many years, Frédéric Bastiat remains a hero to libertarians. No mystery there. He made the case for freedom and punctured the arguments for socialism with clarity and imagination. He spoke to lay readers with great effect.

Bastiat loved the market economy, and badly wanted it to blossom in full—in France and everywhere else. When he described the blessings of freedom, his benevolence shined forth. Free markets can raise living standards and enable everyone to have better lives; therefore stifling freedom is unjust and tragic. The reverse of Bastiat’s benevolence is his indignation at the deprivation that results from interference with the market process.

He begins his book Economic Harmonies (available at the FEE store) by pointing out the economic benefits of living in society:

It is impossible not to be struck by the disproportion, truly incommensurable, that exists between the satisfactions [a] man derives from society and the satisfactions that he could provide for himself if he were reduced to his own resources. I make bold to say that in one day he consumes more things than he could produce himself in ten centuries. What makes the phenomenon stranger still is that the same thing holds true for all other men. Every one of the members of society has consumed a million times more than he could have produced; yet no one has robbed anyone else.

The Existence of Privilege

Bastiat was not naïve. He knew he was not in a fully free market. He was well aware of the existence of privilege: “Privilege implies someone to profit from it and someone to pay for it,” he wrote. Those who pay are worse off than they would be in the free market. “I trust that the reader will not conclude from the preceding remarks that we are insensible to the social suffering of our fellow men. Although the suffering is less in the present imperfect state of our society than in the state of isolation, it does not follow that we do not seek wholeheartedly for further progress to make it less and less.”

He wished to emphasize the importance of free exchange for human flourishing. In chapter four he wrote,

Exchange is political economy. It is society itself, for it is impossible to conceive of society without exchange, or exchange without society. …For man, isolation means death….

By means of exchange, men attain the same satisfaction with less effort, because the mutual services they render one another yield them a larger proportion of gratuitous utility.

Therefore, the fewer obstacles an exchange encounters, the less effort it requires, the more readily men exchange.

How does trade deliver its benefits?

Exchange produces two phenomena: the joining of men’s forces and the diversification of their occupations, or the division of labor.

It is very clear that in many cases the combined force of several men is superior to the sum of their individual separate forces.…

Now, the joining of men’s forces implies exchange. To gain their co-operation, they must have good reason to anticipate sharing in the satisfaction to be obtained. Each one by his efforts benefits the others and in turn benefits by their efforts according to the terms of the bargain, which is exchange.

But isn’t something missing from this account?

Austrian Insight

Indeed, there is: the subjectivist Austrian insight that individuals gain from trade per se. For an exchange to take place, the two parties must assess the items traded differently, with each party preferring what he is to receive to what he is to give up. If that condition did not hold, no exchange would occur. There must be what Murray Rothbard called a double inequality of value. It’s in the logic of human action–which Ludwig von Mises christened praxeology. Bastiat, like his classical forebears Smith and Ricardo, erroneously believed (at least explicitly) that people trade equal values and that something is wrong when unequal values are exchanged.

Perhaps I am too hard on Bastiat. After all, he was writing before 1850. Carl Menger did not publish Principles of Economics until 1871. Yet the Austrians were not the first to look at exchange strictly through subjectivist spectacles, that is, from the economic actors points of view. The French philosopher Étienne Bonnot de Condillac (1715-1780) did so a hundred years before Bastiat wrote:

The very fact that an exchange takes place is proof that there must necessarily be profit in it for both the contracting parties; otherwise it would not be made. Hence, every exchange represents two gains for humanity.

Bastiat Unaware?

Well, perhaps Bastiat was unaware of Condillac’s argument. That is not the case. He reprints the quote above in his book and responds:

The explanation we owe to Condillac seems to me entirely insufficient and empirical, or rather it fails to explain anything at all. . . .

The exchange represents two gains, you say. The question is: Why and how? It results from the very fact that it takes place. But why does it take place? What motives have induced the two men to make it take place? Does the exchange have in it a mysterious virtue, inherently beneficial and incapable of explanation?

We see how exchange . . . adds to our satisfactions. . . . [T]here is no trace of . . . the double and empirical profit alleged by Condillac.

This is perplexing. Clearly, the necessary double inequality of value is not empirical or contingent. Contra Bastiat, the double inequality explains quite a lot, and his questions all have easy answers.

Yet more perplexing still is Bastiat’s statement in the same chapter: “The profit of the one is the profit of the other.” This seems to imply what he just denied.

Consequential Failure

Bastiat’s failure to grasp this point had consequences for his debates with other economists. For example, he and his fellow “left-free-market” advocate Pierre-Joseph Proudhon engaged in a lengthy debate over whether interest on loans would exist in the free market or whether it was a privilege bestowed when government suppresses competition. Unfortunately, the debate suffers because neither Bastiat nor Proudhon fully and explicitly grasped the Condillac/Austrian point about the double inequality of value. As Roderick Long explains in his priceless commentary on the exchange,

[E]ach one trips up his defense of his own position through an inconsistent grasp of the Austrian principle of the “double inequality of value”; Proudhon embraces it, but fails to apply it consistently, while Bastiat implicitly relies on it, but explicitly rejects it. . . .

Proudhon’s case against interest seems to depend crucially on his claim that all exchange must be of equivalent values; so pointing out the incoherence of this notion would be a telling reply. But Bastiat cannot officially give this reply (though he comes tantalisingly close over and over throughout the debate) because elsewhere–in his Economic Harmonies–Bastiat explicitly rejects the doctrine of double inequality of value.

How frustrating! Bastiat has so much to teach. But here is one blind spot that kept him from being even better.

Sheldon Richman is the editor of The Freeman and, and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America’s Families.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.