Browse the program of almost any major management conference and a clear pattern emerges: business schools now teach students how firms should solve society’s problems before they teach them how firms create value in the first place. Conference sessions devoted to sustainability, stakeholder governance, social impact, and public policy occupy an increasingly prominent place alongside marketing, finance, strategy, and operations. The Academy of Management, the largest professional organization for business scholars, reflects this evolution through both its conference programming and its growing emphasis on research that addresses society’s pressing challenges. The shift is also evident in business school accreditation. Accreditation standards likewise encourage schools to demonstrate “societal impact” and commitment to responsible management alongside excellence in teaching and research. These are worthwhile topics of conversation, but their political prominence is beginning to crowd out something more fundamental: understanding how successful firms actually work. 

Business schools occupy a unique place in higher education because their comparative advantage lies in helping students understand how markets coordinate human effort, how entrepreneurs discover opportunities for creating value, and how voluntary exchange improves people’s lives. Those essential lessons have become increasingly difficult to find amid the expanding emphasis on corporate stakeholders and social responsibility.

Business is one of the most successful institutions of social cooperation ever developed. Every prescription medication, grocery order, airline ticket, and smartphone upgrade reflects the coordinated efforts of thousands of people who will never meet. Farmers, engineers, software developers, manufacturers, marketers, logistics providers, retailers, financiers, and countless others contribute specialized knowledge that combines to produce the products and services most consumers take for granted. This extraordinary level of coordination occurs without a central authority directing each participant. 

Before asking students how businesses should improve society, business schools should first help them appreciate what businesses already do.  

The intellectual foundations for appreciating business as a system of social cooperation are hardly new. Adam Smith recognized that specialization and exchange enable individuals pursuing their own interests to create prosperity that extends well beyond their immediate transactions. The famous example of the pin factory illustrates that productivity emerges when labor is organized according to comparative strengths and coordinated through markets rather than command. Smith’s insights remain relevant because they explain not only economic growth but also the remarkable cooperation that occurs whenever individuals engage in voluntary exchange. Whether manufacturing pins in eighteenth-century Scotland or coordinating global semiconductor production today, Smith’s insight remains the same: specialization enables productivity that no individual could achieve alone. 

Austrian economists Ludwig von Mises and Friedrich Hayek expanded Smith’s insights during the twentieth century. Mises demonstrated that profits and losses are signals that communicate whether certain uses of scarce resources are generating value for consumers. 

Hayek explained why this process succeeds where centralized planning inevitably falls short. 

Consider a smartphone. No government agency designed the intricate web of cooperation required to produce it. The chips may come from Taiwan, rare earth minerals from Australia, software from California, camera components from Japan, and assembly from factories in China or India. Thousands of firms, each responding to prices, profits, and consumer demand, coordinate without anyone possessing a complete blueprint of the entire system. What appears to consumers as a single product is actually the outcome of millions of decentralized decisions. Businesses coordinate this process; profit signals that value has been created.

No planner possesses the knowledge dispersed among millions of buyers, sellers, workers, and innovators. Markets coordinate that knowledge through prices, competition, and voluntary exchange. Profit rewards entrepreneurs who anticipate consumer needs more effectively than their competitors. Losses encourage firms to redirect labor, capital, and creativity toward more valuable uses. 

Firms cannot command consumers to value a product. They must discover unmet needs, communicate value effectively, and continually adapt to changing preferences. No regulator, executive, academic, or government agency possesses enough information to determine which products should succeed, which innovations deserve investment, or which business models should prevail. Only millions of decentralized decisions can reveal that information through prices, competition, and consumer choice.

Taken together, Smith, Mises, and Hayek describe business not as a mechanism for accumulating wealth alone but as a dynamic process of discovery and coordination. Business creates prosperity because it enables individuals with different knowledge, talents, and ambitions to cooperate in ways that no single organization could ever fully design. But it’s increasingly rare to find this understanding of business — as a system of discovery and cooperation — reflected in business schools’ priorities.

When social objectives take priority over value production, students become proficient in frameworks for evaluating a firm’s social impact while receiving comparatively less exposure to the economic logic that allows firms to generate value in the first place. This shift is driven by understandable aspirations. Few would oppose ethical conduct, environmental stewardship, or community engagement by business leaders. The challenge arises when these important objectives become detached from the productive activities that make them possible. 

Businesses contribute to society most fundamentally by serving customers, creating jobs, directing scarce resources toward their highest-valued uses, and fostering higher living standards. These productive goals are not incidental byproducts; they are the primary contribution of business to society. Many firms also strengthen their communities through charitable giving or other social activities, but such initiatives are made possible by the value businesses first create through the marketplace. Business schools’ distinctive educational mission is to help students understand how businesses function at the core, not the periphery. 

Appreciating this achievement ought to be central to business education. Students must first understand why profits communicate valuable information, why competition promotes discovery, why entrepreneurship expands opportunity, and why decentralized decision-making consistently outperforms centralized direction in environments characterized by complexity and change. 

Ethics, sustainability, and corporate responsibility all deserve serious attention. But they rest on a prior question: how do businesses create the wealth that makes those aspirations possible? 

Recovering the central purpose of business education begins by teaching the principles Adam Smith first articulated and that Mises and Hayek later refined. Markets generate wealth by enabling millions of strangers to cooperate peacefully in creating value for one another. Recovering an appreciation for that achievement should be the defining purpose of business education. 

We readily celebrate athletes, musicians, scientists, and artists for extraordinary achievement, not only for the charitable giving or social causes they might undertake later. Entrepreneurs and innovators deserve the same admiration: businesspeople create value that didn’t exist before, transforming dispersed knowledge into products and services that improve everyday life. Helping students understand that process is not one objective among many. It is the distinctive purpose of business education.

Writing recently at National Affairs, Yale University political philosopher Gregory Collins leveled serious charges against modern economics. Because Collins is an accomplished scholar of the works of Edmund Burke and Adam Smith (among others) — and because he harbors toward the market order none of the knee-jerk hostility that today motivates so many progressives and postliberals — his criticisms deserve to be taken seriously.

Among the economists whose work Collins criticizes is me. Specifically, he criticizes my distinction, expressed in this AIER Explainer, between consumption and production. My respect for Collins and his work fortified me to contemplate his criticisms with an open mind. I nevertheless believe that Collins misses my point. And so while I’ll devote the first part of this essay to addressing some of Collins’s criticisms of other economists, I’ll devote most of this essay to a defense of my distinction between consumption and production.

An Overly Broad-Brush Criticism of Economics

Collins argues that modern economics rests on an impoverished understanding of human nature — one that compresses human beings into creatures seeking to maximize utility by satisfying as many material preferences as possible. Economics, in his view, reduces “the spice and variety of life to the vapid premises of preference satisfaction, utility maximization, and rational-choice theory.” This impoverished understanding, Collins argues, stems from economists’ failure to draw sufficiently on pre-Enlightenment wisdom, especially the insights of Aristotle and St. Thomas.

The best pre-Enlightenment thinkers, Collins argues, understood that human existence involves more than mere preference satisfaction. They recognized that each of us — or at least those striving to live a worthy life — “seeks,” in Collins’s words, “moral purpose and spiritual transcendence.” By ignoring this reality, modern economics misunderstands humanity and, with it, social activity.

I have no interest in defending every tenet of neoclassical economics. Much economic analysis is carried out with too narrow an understanding of human nature. In addition, many economists, focused as they are on quantitative measurement, overlook economically relevant phenomena that cannot be captured in numerical data. But I know of no such flaw in economics that has not been identified and challenged by economists themselves. Although not all of these arguments and discoveries appear in textbooks, they are prominent enough within the discipline to make Collins’s portrayal of economics itself ironically reductionist.

Consider two examples.

The typical neoclassical economist assumes that self-interest encourages individuals to capture as much of the gains from trade as possible, leaving their trading partners with as little as possible. Yet in laboratory experiments of what is called “the ultimatum game,” individuals typically exhibit a sense of fairness and will knowingly sacrifice material gain in order to enforce that sense of fairness.

It’s true that changing the rules of the ‘game’ often changes the outcomes. Indeed, it’s possible to arrange, by changing the rules, for each player to behave more like a narrow-minded homo economicus. But this latter experimental finding itself reveals that narrow-minded homo economicus is, under certain circumstances, an empirical reality — and, thus, attention to both formal and informal institutions is important if we wish to prevent society from being dominated by narrow-minded homines economici pursuing only their short-run material interests.

Another example of work that belies Collins’s description of modern economics is that of the late Nobel laureate Elinor Ostrom. Through extensive fieldwork, Ostrom discovered that individuals in communities often solve collective-action problems, such as creating and sustaining communal irrigation systems, that would never be solved by narrow-minded homines economici.

Of course, one can attempt to describe these behaviors in utility-maximizing terms. But the fact that prominent economic research recognizes human purposes as complex, layered, and often nonmaterial is powerful evidence that Collins’s critique paints economics with too broad a brush. 

On Production and Consumption

Collins explicitly rejects my attempt to distinguish production from consumption. He writes:

Many economists today believe that maximizing consumption should be the aim of political economy. Donald Boudreaux asserts as much in an essay published last summer by the American Institute for Economic Research. Powered by the logic of Ludwig von Mises, Boudreaux insists that “consumption is the end, and production is the means” of economic activity, and that all productive activities are “means to the end of achieving maximum-possible consumption satisfaction.”

Boudreaux’s view represents the first commandment of the economic mind today: Thou shalt study the satisfaction of subjective preferences. This assumption, like the philosopher’s stone, transmutes the complexities of human behavior into the hallowed touchstone of economic analysis, effectively chilling serious reflection of the social and moral dimensions of man’s natural constitution.

Collins misunderstands my point because he overlooks the purpose of my essay. That purpose is not the normative claim that “maximizing consumption should be the aim of political economy.” Rather, my purpose is to expose an analytical error committed by many interventionists, especially protectionists such as Oren Cass and Robert Lighthizer.

Protectionists typically justify their policies by pointing to the particular jobs they save. Economists respond that protectionism also destroys particular jobs. They also note that protectionism reduces the spending power of domestic consumers. In public debates, protectionists often ignore the first point while eagerly seizing on the second to make what they believe is a “gotcha” argument against economists.

“Aha!” protectionists cry. “Economists’ view of humanity is absurdly narrow! Unlike us protectionists, who understand that people are not only consumers but also producers, economists think people are only consumers. How silly! We can therefore ignore economists.”

If economists were guilty as charged, then policy recommendations rooted in our positive analysis would indeed be worthless. But we’re innocent.

To see why requires that the analytical distinction between “consumption” and “production” be made clear. “Consumption” is a label for ends; “production” is a label for means. The particular content of the ends (and of the means) isn’t specified. “Consumption” can refer to the wise pursuit and embrace of the true and the beautiful as defined by Aristotle or Aquinas (or by Adrian Vermeule, Pope Leo, the Dalai Lama, Hasan Piker, Nick Fuentes, whoever) no less than to myopic attempts to gratify the most fleeting desires of the flesh.

When economists say that individuals act to satisfy as many consumption desires as possible, we describe a category of human action; we prescribe nothing. We simply mean that individuals act to achieve as many of their ends as possible. When challenging protectionist policies and other government interventions, we explain that such policies increase some individuals’ ability to achieve their ends only by reducing the ability of others to achieve theirs. Economics imposes no restrictions on what those ends are or ought to be, and it makes no value judgment about one set of ends compared with another. 

Nor do economists elevate consumption over production. Rather, we point out that production is a means to consumption, whatever the particular consumption desires might be. To argue for policies that treat production as an end in itself is therefore to commit a category error. 

It is akin, for example, to mistaking an emergency appendectomy for an end on par with the patient’s goal of good health. The successful performance of the surgery has genuine value, and the surgeon may rightly take satisfaction in performing her craft with skill and care. Yet no sensible person would wish to protect the surgeon’s job by opposing a pharmaceutical breakthrough that ensures appendixes never again rupture. The dignity and satisfaction the surgeon derives from her work come from restoring patients to health. If patients are already healthy, the surgeon would be perverse — and most undignified — to insist on performing unnecessary operations. 

No competent economist denies that work has dignity or that individuals find satisfaction and meaning in their work beyond the incomes they earn. What economists deny is the practical possibility of using government to protect some individuals’ pursuit of dignity and other nonmaterial goals without obstructing other individuals’ pursuit of the same. 

Similar reasoning applies to the values people attach to their families, communities, churches, and countless other non-monetary aspects of life. Perhaps “consumption” is an imperfect word to describe the pursuit of both material and higher ends. I am open to suggestions for a better term. But until such a term gains currency, scholars should avoid concluding from economists’ description of “consumption” as the goal of human action that economists either deny or dismiss the human pursuit of truth, beauty, and transcendence.

A university degree once distinguished its holder precisely because few people had one. As degrees spread, employers began demanding them as a baseline, and today many jobs that historically required a high-school education demand a bachelor’s degree, not because the work grew more complex, but because the signal became an entry fee. Everyone pays more; nobody stands out. That sentence describes far more of modern life than credentials.

Replying to email quickly once demonstrated diligence. Then prompt replies became the norm, the advantage evaporated, and what remains is an expectation of perpetual availability. Consultants encounter a version of the same trap: clients rarely read a 300-slide deck, and a concise 30-slide report would usually communicate the recommendations better, but the extra 270 slides signal effort and thoroughness. Psychologists call the instinct behind it the effort heuristic. Even prizefighting has its costume: athletes dehydrate themselves by as much as ten kilograms to make a weight class below their natural size, a practice doctors condemn and many fighters privately hate, yet no one can quit alone without gifting an opponent a size advantage.

The pattern behind all of these is old and well mapped. Michael Spence won a Nobel for showing that a signal can be perfectly rational for each individual and pure waste for the group. Garrett Hardin’s tragedy of the commons is the textbook cousin: each herder benefits from grazing one more animal, so every herder does, and the pasture dies. Individually sensible, collectively expensive. The life cycle is always the same. A practice starts by conferring a real advantage; the advantage is competed away as everyone adopts it; the costs become permanent.

Why does nobody simply stop? Three forces keep these equilibria in place. The first is the first-mover penalty: whoever stops first suffers first and alone. The consultancy that slims its decks does not become worse at analysis, but it becomes different—and different demands an explanation. The second is inertia: practices that have endured for decades acquire a presumption of legitimacy, and some of that presumption is earned, since most new ideas are bad. The third is conformity: visible non-participation unnerves people even when it is harmless. The complaint about the plain-spoken colleague is never, “Communicates too clearly.”

The encouraging part is that these equilibria are not permanent. They end, and history shows how.

Sometimes innovation obsoletes them. Employers are currently dropping degree requirements in favor of skills assessments, portfolios, and work samples, not because they became altruistic, but because better predictors of performance emerged. When a superior alternative changes the incentive structure, an old equilibrium unravels surprisingly fast, and the first mover to kill a hated practice captures real goodwill.

Sometimes coordination does it. People who cannot stop individually can stop together. Volkswagen famously configured its servers to stop routing email to employees’ phones outside working hours. Many firms now enforce hard stops on after-hours messages, a private fix for a private arms race. And sometimes private governance moves where regulators stall: after a fighter died during a weight cut in 2015, the promotion ONE Championship banned dehydration cutting and introduced hydration testing, a reform state athletic commissions in boxing have still not matched.

And sometimes status does it, which is the strangest exit of all. The first-mover penalty is not distributed evenly. Warren Buffett writes his shareholder letters in plain, folksy English while much of finance drowns in jargon, and nobody concludes that he must not understand derivatives. Economists call this countersignaling: when your position is beyond question, refusing to signal becomes the loudest signal of all. The people at the top can abandon a pointless practice at little cost, and when they do, they give everyone below them permission to follow. Casual Fridays did not spread from the interns upward. If you are waiting for one of these equilibria to die, watch the most secure person in the room.

Notice what none of these exits requires: mass moral improvement. These systems rarely disappear because people become more rational or more generous. They disappear because incentives change. The moment participation stops conferring an advantage, or non-participation stops carrying a penalty, the structure collapses faster than anyone inside it expected.

So here is a better question to ask of any practice than, “Why does this exist?”: If everyone could stop doing this tomorrow without consequences, would they? If the answer is yes, you are probably not looking at an efficient institution. You are looking at an equilibrium people maintain simply because everyone else maintains it.

Apply the question with care; G.K. Chesterton’s rule about fences still holds, and some practices that look pointless are quietly load-bearing. But apply it. Many practices we now consider absurd were once perfectly normal, and many we currently accept will one day receive the same treatment. Progress rarely comes from convincing people to be better. It comes from changing incentives until the sensible thing and the individually rational thing become the same thing.

Imagine being stranded alone on a deserted island. You’ve developed basic survival skills such as fishing and foraging, although you are better at the latter than the former. You built a functional shelter and have enough food to survive. But life could be better. 

One day after gathering coconuts, you suddenly see another human on the beach. That individual, who is carrying a basketful of fish, spots you as well. You both pause, staring at one another in surprise. 

This “Robinson Crusoe” scenario is a common in many Economics 101 courses to advance the discussion of market exchange. If you’ve ever taken this course, you know what happens next. Both individuals instantaneously realize it is in their mutual interest to exchange goods, agree to specialize, and construct a chart summarizing their comparative advantages. You, being better at climbing trees, become the coconut collector, whereas your new trading partner becomes the expert fisherman. Your quality of life improves with the increased efficiency arising from specialization and trade. 

This logic arises directly from Adam Smith and David Ricardo. In The Wealth of Nations, Smith argues that the division of labor improves productivity by allowing individuals to enhance dexterity and avoid “sauntering” between activities. But if one devotes more attention to one task, it is necessary to rely upon others to supply those things you no longer produce for yourself. Fortunately, humans are natural-born truckers, barterers, and exchangers. An expanded market that promotes exchange with an increasing number of individuals thus allows for more specialization, productivity, and wealth. Even if some individuals are better at all tasks, division of labor still works if people specialize in the things they are relatively best at. This is the concept of comparative advantage articulated by David Ricardo in The Principles of Political Economy and Taxation.

Thus, on our formerly-deserted island, two people leveraging comparative advantage increases both individuals’ welfare. Cooperation improves living standards.

Not So Fast: Relations Before Transactions

But is this really what would happen if two strangers met for the first time on what was believed to be a deserted island? Confronted with this situation, would you automatically draw a comparative advantage chart? And would you honestly expect the stranger you just encountered to agree without question that specialization and exchange are the obvious solutions to a fruitful (and fish-filled) standard of living? Is it obvious that cooperation would spontaneously emerge? 

I propose that the answer to these questions is emphatically “No!” Rather, the first reaction of each individual is more likely to be confusion, distrust, and fear. Granted, both castaways may be excited to meet someone else; companionship is often a desired good. But what if the stranger is hostile, plans to attack, and steals all your hard-earned coconuts? And what if the other person is part of a larger tribe that views intruders with suspicion? With little knowledge of the “other,” it may be prudent to expect conflict, and not cooperation, as a possible outcome. Uncertainty about the intentions of strangers clouds the possibility of cooperation. 

The initial moment of contact between two strangers creates a fundamental choice. Even before mutually advantageous exchange can occur, each party must decide whether to attempt friendly interaction or run away in fear. Choosing the latter option would leave you “alone” on the “deserted” island without any gains from trade to improve your living standards. Things wouldn’t be the same as before, however. Now, you face trepidation that the “other” might sneak into your camp, pilfer your goods, and possibly cause you harm. What a horrible, Hobbesian world this would be – solitary, poor, nasty, brutish, and (alas) probably short! 

You might surmise that mutually advantageous exchange and cooperation are the better choice in this scenario, but how does one convince the other party of your peaceful and productive intentions? You probably aren’t the only one thinking this; the other person is likely engaged in the same thought process. As such, something else must happen before we create a comparative advantage chart. Cooperative relations don’t spontaneously occur. Uncertainty must be alleviated. Trust must be built. Relations must precede transactions. But how? 

Fellow-Feeling Builds Trusting Relations

While Smith is best known for explaining how specialization and market exchange lead to prosperity, he also gave us the recipe for solving the initial problem of uncertain intentions in his other magnum opus, The Theory of Moral Sentiments (TMS). Indeed, he lays it out clearly in the first sentence of the work: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” Smith calls this “fellow-feeling.” From here, Smith builds a theory of morality based upon prudent and propitious decisions under conditions of uncertainty. 

Smith accomplishes this task by positing the mechanism of the impartial spectator. When making important decisions affecting others, we step outside of ourselves and consider how others would react to such choices. One should choose the option that best improves the well-being of all individuals affected, and one that is socially propitious – that is, in keeping with accepted norms and values. Choices are not merely about satisfying our immediate material preferences, as simplified neoclassical economic models assume; such decisions include considerations about how society views our choices. Our social reputation matters. We want not only to be loved, but to be lovely; not only to be praised, but to be praiseworthy. This takes human choice beyond immediate and direct gratification, embedding it within a context of long-term reputations and relationships, the things that are crucial for extending markets. Before markets, we must forge trusting relationships. Fellow-feeling becomes the foundation of the wealth of nations. 

The Gift of Sacrifice 

Let us return to our “deserted island.” When we last left our two castaways, they were both staring at one another, wondering furiously whether the person across from them was friend or foe. The answer to that question will determine whether there will be any bartering, exchanging, specialization, and increased prosperity. What to do now? 

Cooperative exchange first requires a desire for peaceful relations. Achieving this likely necessitates a sacrificial offering – a gift – to signal one’s intentions are not hostile. If you offer up several coconuts by laying them on the ground and motioning with your hands that they are for the stranger to take, you have shown a willingness to give up valuable resources to forge an ongoing relationship. Michael Thomas and I have argued that sacrificial gift-giving is historically common as a means of building trust among strangers and alleviating uncertainty surrounding contractual exchange.

Gifts also encourage reciprocity, a needed ingredient in economic exchange. Even a simple “thank you” signals a gracious desire for a relationship. This seed of reciprocal obligation underlies all commercial relations. 

Island Earth: Ritualistic Gifting, Civility, and Prosperity 

The “deserted island” example is instructive, but is it realistic? Very few people are stranded on desolate atolls; we are born into societies populated by millions of individuals. We encounter dozens of people daily, some of whom we’ve never known before. Now consider that each time you meet a stranger in a commercial environment, you are essentially in the same scenario as our hypothesized island. Without some level of certainty whether a potential trade partner is honest and reliable, we are unlikely to exchange. Without generalized trust, the extent of the market shrinks drastically, and we are the poorer for it. 

Unfortunately offering coconuts to every stranger we meet is cost-prohibitive. So how could society recreate the fellow-feeling and beneficial sacrificial behavior witnessed on our island? The answer is public ritual. 

To overcome the difficulties of giving gifts to every stranger we encounter, societies invest in ritualistic forms of gift giving. Christmas, Hanukkah, Valentine’s Day, and even Halloween are infused with gifting practices, reinforcing the values of sacrifice and reciprocity. These ritualistic gifting practices are celebrated publicly. People visibly adorn their residences and businesses with decorations and dress in fancy attire during holidays. Such frivolous expenditures indicate willingness to sacrifice resources to be seen as lovely and praiseworthy. We celebrate businesses and households that decorate for the enjoyment of others. 

To put it another way, public gifting rituals help build key components of civility — sacrifice, graciousness, and reciprocity. This is the basis for the Golden Rule, a simple yet effective decision-making heuristic that allows two strangers on a desolate island realize gains from trade and benefit from specialization. Adam Smith would approve!

Relations before transactions. Trust before trade. Our moral sentiments before the wealth of nations. 

The lesson extends beyond the classroom. We should all remember that the simple act of freely giving a coconut can initiate and enhance the power of voluntary exchange and comparative advantage to create common prosperity.

A recent interview in Foreign Affairs acknowledges: it’s hard to name someone alive today who has had more of an effect on how America thinks about trade policy than Robert Lighthizer. In “The New Trade Order,” he lays out the case against free trade. For decades, he says, Washington chased a free-trade fantasy. The “trifecta of stupid” (his phrase for NAFTA, the WTO, and permanent normal trade relations with China) exposed our markets, caused the “China shock,” and shipped millions of manufacturing jobs overseas. The narrative result is a hollowed-out heartland where wages stagnated while coastal areas like San Francisco and New York City boomed, $27 trillion in wealth signed over to foreigners, and industrial towns so broken that men without college degrees now die eight years sooner than those with them. 

By Lighthizer’s account, our pursuit of free trade has caused all of this. “Nobody really believes in free trade,” he told Foreign Affairs last week, “with the exception of the Harvard economics faculty and a few Anglophone politicians.” This harkens back to US Trade Representative Jamieson Greer’s indictment of economic models being a product of “elite consensus,” as opposed to real world evidence.

There’s just one problem. Today, with mountains of evidence, the verdict is in. As we’ve understood for 250 years now, protectionism has not led to the reindustrialization of America, has raised hardly any revenue, and has made us less safe, not more. 

The Public Isn’t Buying It

The American people seem to have noticed the pernicious effects of tariffs and other forms of protectionism. New polling among 3,000 registered voters in late July finds that support for free trade beats the opposition by more than four to one in every single income bracket. Further, it’s popular with Republicans, Democrats, and Independents, and those with and without college degrees. Navigator Research finds that 59 percent of Americans view tariffs unfavorably against just 29 percent favorable. YouGov finds 72 percent of Americans understand that tariffs raise prices while just three percent think they lower them. And another poll finds that 64 percent of Americans disapprove of how the president has handled tariffs.

As if that weren’t enough, a new Reuters/Ipsos poll finds that, for the first time in decades, “Democrats lead Republicans 37 percent to 36 percent on stewardship of the US economy.” While a great deal of that can be attributed to high gas prices and the war with Iran, the public’s verdict on protectionism is not in doubt.

Tariffs were sold as a means of supporting the “forgotten man at the bottom of the economic pyramid” against the “coastal elites.” Despite this, the forgotten man wants free trade and overwhelmingly so. Non-college voters, the very people that Lighthizer is concerned about and wants to help, back free trade. Why have the supposed beneficiaries of tariffs turned against the very policy that was promised to deliver jobs, wealth, and security? The answer is simple: on all three counts, tariffs are not working.

Jobs: Are We More Industrialized?

Start with the promise of reindustrialization. On April 29, 2025 President Trump held a rally in Michigan celebrating his hundredth day in office. There, he made several claims about how his administration was going to completely revitalize the state and its economy. As he said, “And a lot of auto jobs coming [sic]. Watch what’s happening. The companies are coming in by the tens. You got to see what’s happening. They all want to come back to Michigan and build cars again. You know why? Because of our tax and tariff policy.”

Automotive manufacturing employment in Michigan today is unchanged since Liberation Day. Nationwide, the automotive sector has shed over 22,000 jobs over the same timespan and manufacturing writ large in the US is down 64,000 jobs. Sixteen months after Liberation Day, the oft-promised boom in manufacturing hasn’t shown up in the data.

But perhaps those jobs are coming in the future. To that end, the President has assured us that countries are investing in the US to the tune of trillions of dollars. The White House lists all of the investments that the President has secured, pointing to trillions of dollars in “manufacturing and industry” alone. At this time, it’s not clear where that money is going. Total construction spending on manufacturing remains high by historic norms, but has fallen precipitously throughout 2025 and 2026. Arguing that things would have been worse if it weren’t for Trump and his ability to secure investments undermines the argument that tariffs are working even further.

Revenues: Are We Reducing Deficits?

In 2024, then-candidate Trump floated the idea of an “all-tariff” federal revenue system, whereby tariff revenue would replace revenue raised from income taxes. There are two problems with this idea. First is the gargantuan sum of money collected from income taxes alone in the US: an estimated $2.7 trillion in 2025. Even under Peter Navarro’s bombastic claim that tariffs would generate some $600-700 billion in revenue per year, actual revenues fell grossly short of this, coming in around $190 billion — before the refund window opened.

Tariffs would need to raise another $2.1 trillion this year just to eliminate our annual deficit. That figure is projected to rise in the coming years, and tariff revenue would need to rise commensurately. The level of taxation required to raise that kind of revenue would very quickly put us on the “wrong side” of the Laffer curve.

Tariffs were never going to simultaneously promote jobs and raise tremendous revenue. A tariff can only raise revenue if imports are coming into the country. Thus, tariffs can protect some domestic producers and raise revenues at the same time, but it cannot maximize both objectives simultaneously. Revenue requires a stream of taxable imports while protection works by reducing that stream. The more successful a tariff is at one of these, the less successful it must be at the other.

National Security: Are We Safer Among Nations?

In 2025, as in 2018, many of the tariffs that President Trump imposed appealed to “national security.” The Section 232 tariffs on steel, aluminum, and copper, for example, were justified along these grounds. Production of these materials is so important, the logic goes, that we should willingly overpay to promote domestic production, in support of America’s army and fleet.

To be clear, domestic production is one way to ensure that America has a ready supply of these materials. By the same logic, every family could ensure a ready supply of food if they grew their own vegetables and raised their own livestock. What matters is not protecting domestic production, but making sure that domestic access continues unabated in times of war.

Let’s take steel as an example. The question we should ask is “how dependent on foreign steel are we, really?” The American Iron and Steel Institute reports that only 23 percent of finished steel in the US was imported; the remaining 77 percent was produced domestically. The Association for Iron & Steel Technology finds that the US is currently the third-largest steel producer in the world, behind only China and India. And the US International Trade Administration reports that the US imports steel from, in order of most-to-least: Canada, Brazil, Mexico, Korea, Germany, Taiwan, Japan, Vietnam, India, Turkey, and 68 other countries. In other words, if Canada decided to stop selling steel to the US, we would still have 78 other countries, each with plenty of steel firms within them, from whom to buy this critical material.

Still, national security is a legitimate concern and promoting it is perhaps among the most legitimate functions a government can perform. To that end, free trade and globalization have done far more to promote a safer nation than any protectionist policy. A report from the Center for Strategic & International Studies evidences that increased trade between nations reduces the likelihood of war in the first place. Globalization, likewise, ensures a robust and diverse web of potential suppliers such that if war were to break out, access to critical materials would continue largely unabated.

Compare this to the 2026 experience. After a tumultuous 2025, which saw tariffs and other trade restrictions levied or threatened against virtually every country in the world, the US has had to largely go it alone in the current conflict in Iran. When President Trump threatened to cut off trade with Spain after they refused to assist in the Iran conflict, Spain (and Italy, for that matter) responded by closing their bases and airspace to the US for military operations. The same is largely true of Europe writ large. In other words, the tariffs and other forms of protectionism have pushed our friends and allies away.

The Verdict

Today’s protectionist program, architected in part by Robert Lighthizer, set out to rebuild American industry, fill the Treasury with new revenues, and make the country safer. Two years of evidence demonstrate the opposite. We have shed tens of thousands of manufacturing jobs, the promised factories exist almost exclusively in press releases, and the tariff revenue is a rounding error against a $2.1 trillion deficit and $2.7 trillion in income tax revenue. Turning abroad, the tariff wall meant to protect us from the world accomplished something our adversaries could only dream of: turning our allies against us, closing airspace to American forces, and leaving us to face Iran largely alone.

Rather than being an elitist viewpoint, free trade is the preferred policy of Republicans, Democrats, Independents, Americans with and without college degrees, and the “forgotten man” Lighthizer claims to champion. If anyone is clinging to a lonely and unpopular faith, it’s the protectionists.

I believe in free trade. I believe in it because 250 years of theory and evidence combined with what we have witnessed over the last two years all point in the same direction. And as it turns out, I’m not alone. Most of America believes in free trade, too.

According to a new report from Advancing American Freedom’s Plymouth Institute for Free Enterprise, tariff lobbying revenues reached $9.9 million for the second quarter of 2026, a 690 percent increase over the same quarter in 2024 and a 956 percent increase over 2016 (pre-Trump) levels. The number of registered tariff lobbying disclosures has jumped 230 percent in just two years. At least 22 contracts listed “tariffs” as their sole lobbying issue.

The surge is not surprising. When the federal government arrogates to itself the power to decide who receives carve-outs and exceptions, it transforms a free and open market into a system of cronyism and influence currying. The tariff schedule becomes a menu of favors, and the favor-seeking industry grows accordingly. Gordon Tullock famously documented this phenomenon, later named rent-seeking. Private resources that could fund payrolls, invest in equipment, or lower prices are instead diverted toward securing benefits from the government.

These lobbying contracts specifically target the administration’s tariff programs. They include at least 15 references to Section 232 tariffs, 13 to Section 301 tariffs, and 4 to the IEEPA tariffs that the Supreme Court struck down in February. In Learning Resources v. Trump (2026), the Court held 6–3 that the International Emergency Economic Powers Act does not authorize the president to impose tariffs, reaffirming Article I, Section 8 of the Constitution. The power to “lay and collect Taxes, Duties, Imposts and Excises” belongs to Congress, yet the administration has simply reached for other statutory shelves. On July 20, it announced new Section 338 tariffs on Canadian cars, alcohol, dairy, cement, and, in an almost comical fashion, hockey sticks. 

During the Liberation Day IEEPA tariff regime, the economy shed roughly 5,000 jobs per month. Since those tariffs were struck down, it has added 137,000 jobs per month. AAF’s analysis attributes a monthly cost of 75,000 to 80,000 jobs to the Liberation Day tariffs. These tariffs did not “make America rich again,” as President Trump anticipated, but instead created instability in the labor market while contributing to ever-higher prices for American families.  

The deeper distortion is the one defenders of free markets should care most about. Tariffs are regressive twice over. The first regression is familiar: import taxes fall hardest on families and small businesses, who pay the full duty at the register. The second is subtler and more corrosive. Large corporations can afford to advocate on K Street, while the little guy cannot. When exemptions are available to connected players with lobbyists and unavailable to those without, trade policy becomes a system of patronage, of government by the highest bidder. This is what Adam Smith himself referred to as the “wretched spirit of monopoly,” or what is now politely called regulatory capture or corporate welfare.  

Defenders of the tariff program will argue that the lobbying boom is merely a transitional cost — the friction of a necessary realignment. But the friction is the program. A discretionary tariff regime cannot function any other way. The 690 percent increase in lobbying revenue is not a bug in the system Washington has built; it is an example of the incentives working exactly as expected. As James Madison warned in Federalist No. 62: 

Every new regulation concerning commerce or revenue, or in any way affecting the value of the different species of property, presents a new harvest to those who watch the change, and can trace its consequences; a harvest, reared not by themselves, but by the toils and cares of the great body of their fellow-citizens.

Over the twentieth century, Congress steadily delegated portions of its constitutional tariff authority to the executive through statutes such as Section 338 (1930), Section 232 (1962), and Sections 122 and 301 (1974). Each abdication of responsibility has become a lever for executive improvisation and a profit center for the influence industry. The Supreme Court’s IEEPA ruling closed one door, but the administration, in typical fashion, walked through four others within days. Until Congress reclaims the taxing power the Framers assigned it, the carve-out economy will keep growing, because the incentive to seek favors grows with the discretion to grant them.

Free enterprise does not mean the absence of rules. It means rules that apply equally to everyone. A trade regime in which prosperity depends on proximity to power is closer to pre-industrial mercantilism than to the dynamic and meritocratic ideal that has characterized America. While big business pays K Street for carve-outs, families and small businesses pay the full tariff tax. The Framers gave the taxing power to Congress precisely so that prosperity would never depend on proximity to power; it is past time Congress took it back.