This short July 1996 essay asks whether foreign trade causes unemployment and uses that question to restate a market-liberal theory of labor, wages, and adjustment. Sennholz begins by treating joblessness as a problem intensified by false explanations rather than clarified by public policy.
Unemployment is the great puzzle of our time.
The essay surveys three accounts he rejects: the Marxian claim that capitalism necessarily produces a reserve army of labor, the Keynesian claim that unemployment reflects insufficient spending, and the protectionist claim that American workers are displaced by low-wage foreign labor. Sennholz’s answer is that unemployment is not caused by trade as such. It arises when workers, skills, wage demands, and institutional conditions fail to match what buyers and employers actually value.
His first move against protectionism is empirical and polemical. If imports destroyed jobs, the enormous expansion of U.S. imports after 1950 should have produced persistent mass unemployment. Instead, he argues, rising trade accompanied higher living standards and foreign investment. This is not a technical econometric proof but a reductio of the simple import-destroys-jobs narrative. For Sennholz, jobs are not a fixed national stock that foreign sellers can drain away; they are created where labor can be employed productively at a cost buyers will bear.
Employment always is a phenomenon of productivity and cost.
This principle organizes the essay’s treatment of both blue-collar and educated labor. A worker’s degree, occupation, or past usefulness does not by itself create demand. Employers hire labor when expected output exceeds cost, and changing technology, consumer preferences, taxes, capital costs, and competition can alter that calculation. Sennholz therefore interprets unemployment as a signal of maladjustment rather than as proof that markets have failed. His examples of typists, defense engineers, and highly credentialed graduates all serve the same purpose: to show that training and specialization can become detached from peaceful commercial demand.
The essay’s critique of government is broad but compact. Subsidies to education, defense priorities, and political efforts to shelter particular occupations may encourage people to acquire skills that later have little market value. Sennholz does not deny that this adjustment is painful; he denies that pain justifies tariffs, subsidies, or coercive transfers to preserve obsolete uses of labor. The ethical burden of the essay falls on adaptation: workers and firms must respond to the market rather than require consumers and taxpayers to sustain uneconomic arrangements.
Sennholz then returns to trade. Foreign competition is, in his view, only ordinary competition across political borders. It disciplines sellers, benefits consumers, and directs labor and capital toward more productive employments.
International competition is as beneficial as domestic competition; it forces sellers to outdo one another by offering better and cheaper goods and services and forces buyers to outdo one another by offering higher prices.
Protectionism reverses this process. Tariffs and trade barriers do not create prosperity; they protect higher-cost producers, raise prices, and divert resources into less efficient uses. Sennholz also resists the simple low-wage argument by noting that competitiveness depends on productivity, capital, technology, and costs, not wages alone. Capital-intensive industries do not compete merely on hourly pay, while many labor-intensive services are insulated from direct foreign labor competition by immigration restrictions.
The essay’s structure moves from public confusion to economic principle: unemployment is first presented as a politically misdiagnosed problem, then explained through productivity and cost, and finally linked to the case for free trade. Sennholz’s closing maxim gives the argument its moral form.
Free trade is fair trade; those who deny it to others do not deserve it for themselves.
The result is a concise classical-liberal reply to job-loss anxiety. Sennholz sees opportunity not in shielding existing jobs from imports, but in allowing labor, capital, and consumers to adjust freely to changing conditions.
This work was divided into 1 sections when it entered the library's research corpus—an apparatus for search and citation, not necessarily the author's own table of contents. Each title opens its summary.
Put a question to this work; the Librarian answers from its 1 sections and cites the passage.
Ask the Librarian