One of the Most Famous Ideas in Economics Is Wrong

The notion that free markets foster peace has historical roots.

The idea that open trade leads nations to pursue mutual interests rather than impassioned conflict surfaced in the 1600s in humanist philosophy. Humanists endeavored to understand the rights of individuals and commerce through a reading of classical doctrine.

Proponents argued that free trade would control human avarice and bring prosperity to all. The 17th-century Dutch jurist Hugo Grotius contended that the divinely bestowed elements of air and water were accessible to all, permitting all countries to trade with whomever they chose. A century later, the French philosopher Montesquieu posited that “‘gentle commerce’ would replace the warring...