The Myth of Unfettered Trade

By its opponents, free trade (I’d include free markets, but I’d be repeating myself) is often called “unfettered trade.”  Such a term represents a fundamental misunderstanding of trade.  Trade is always fettered.  Competition, both from firms and from consumers, fetters trade because trade must be mutually beneficial.

Since trade must be mutually beneficial (since, if both parties don’t benefit, the trade would not occur), then even monopolies face fettered trade.  Even though monopolies are, in technical terms, price-makers (that is, the firm can choose what price it operates at), this does not mean they can charge any price and get the same results.  Firms face downward-sloping demand curves from their customers.  This means that, as price rises, quantity demanded falls (and vice versa: as price falls, quantity demanded rises).  If a monopolist charges a price too high, it may not maximize its profits (think of it like this: which earns more: selling 1,000 units for $1 each or 10 units for $70 each?).  Further, if a monopolist harms their consumers, their consumers can ultimately choose not to consume the product and seek substitutes or other alternatives.  These forces constrain the firm’s actions; in other words, these actions fetter the trade.*

The phrase “unfettered trade” is used for justification for government intervention in trade, but the argument is a red herring; a false representation of market forces.

*By the way, the opposite analysis holds, too: if a buyer offers too low a price, the seller may not choose to sell and so on.