If someone external to your group wants to invest in a certain territory encompassing you, your group’s permission should be required. The argument seems obvious. It is nearly by definition that when we make a decision collectively, the individual must submit. The individual is just one but the collective is more than one. Or so goes the argument.
Controlling foreign capital inflows would be coherent with the collectivist and mercantilist approach to human affairs (Gillian Tett, “Tariffs on Goods May Be a Prelude to Tariffs on Money,” Financial Times, March 14, 2025):
Could Trump’s assault on free trade lead to attacks on free capital flows too? …
Might tariffs on goods be a prelude to tariffs on money? …
Until recently, the notion would have seemed crazy. After all, most western economists have long seen capital inflows as a good thing for America. …
And six years ago, Democratic senator Tammy Baldwin and Josh Hawley, her Republican counterpart, issued a congressional bill, the Competitive Dollar for Jobs and Prosperity Act, which called for taxes on capital inflows and a Federal Reserve weak-dollar policy.
Says McNair [a financial analyst] “the strategy itself is more coherent and far-reaching than most observers recognise.”
I am not implying that Tett herself embraces collectivist thinking. She explicitly says that she is “not endorsing” a tax on capital inflows.
There are good reasons for generally rejecting the primacy of collective choices that is ingrained in the minds of politicians on both sides of the aisle and therefore for opposing collective control of capital inflows. Circumscribing the group and the territory where collective choices can crush minority individual choices is broadly arbitrary, as is the collectivist we of my introductory paragraph. Even setting aside the issue of who constitutes the group and where the territory lies, the political we itself remains highly problematic. Is it represented by the 49.8% of the voters, which means the third of the electorate, who supported Donald Trump in the last election? What about the Condorcet paradox and its extensions that prove the frequent logical incoherence of a democratic majority?
Any policy and political decision requires a moral judgment about distribution, as welfare economics famously demonstrated. Any collective choice that is not unanimous means that some individuals will be exploited by others, so the required moral judgment can only be arbitrary. It is to circumvent this conclusion that the public choice school of economics, notably James Buchanan and Gordon Tullock, developed a theory of unanimous but limited social contract.
Not surprisingly, then, capital controls—whether on inflows or outflows—raise many problems. Government allocation, that is, allocation by politicians and bureaucrats, at least partly replaces market signals and incentives. Those who can tax can also control and ban if only with prohibitive tax rates or the threat thereof. A tax on capital inflows would prevent American businesses from freely appealing to foreign lenders or investors. It would limit the purchase of American dollars by foreign tourists. Perhaps, after a few decades of autarkic controls, remittance flows would be reversed and Americans would need to pay a tax to receive foreign remittances from exiled family members. Remember that, at the turn of the 20th century, Argentina was among rich countries. Similarly, if capital inflows can be collectively managed, so can outflows, such as investment or travel abroad.
The collective is made up of individuals while the individual is not made up of collectives. There is no a priori reason why the collective is superior to the individual. If there is any axiomatic foundation to politics, it seems to be the primacy of the individual, recognizing all individuals are to be formally equal. Otherwise, it is accepting that some individuals will rule over others. And we know from the theory of autoregulated social order developed since the 18th century that spontaneous coordination in society is possible and efficient, at least under certain conditions.
In short, the superiority of the collective and its choices is not obvious at all.
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Are individuals composed of countries? A complicated question for DALL-E
