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3. Restrictions of Production
Economics need not say much about the immediate effect of production restrictions. Government or any organization of coercion can at first achieve what it sets out to achieve through intervention. But whether it can achieve the remoter objectives sought indirectly by the intervention is a different question. And it must further be determined whether the result is worth the cost, that is, whether the intervening authority would embark upon the intervention if it were fully aware of the costs. An import duty, for instance, is surely practical, and its immediate effect may correspond to the government’s objective. But it does not follow at all that the import duty can realize the government’s ultimate objective. At this point the economist’s work commences. The purpose of the theorists of free trade was not to demonstrate that tariffs are impractical or harmful, but that they have unforeseen consequences and do not, nor can they, achieve what their advocates expect of them. What is even more significant, as they observed, protective tariffs as well as all other production restrictions reduce the productivity of human labor. The result is always the same: a given expenditure of capital and labor yields less with the restriction than without it, or from the beginning less capital and labor is invested in production. This is true with protective tariffs that cause grain to be grown in less fertile soil while more fertile land is lying fallow, with class restrictions of trade and occupation (such as the certificates of qualification for certain occupations in Austria, or the favored tax treatment of small enterprises) which promote less productive businesses at the expense of more productive activity, and, finally, with the limitation of labor time and of the employment of certain labor (women and children), which diminishes the quantity of available labor.
It may very well be that government would have intervened even with full knowledge of the consequences. It may intervene in the belief that it will achieve other, not purely economic, objectives, which are thought to be more important than the expected reduction in output. But we doubt very much that this would ever be the case. The fact is that all production restrictions are supported wholly or partially by arguments that are to prove that they raise productivity, not lower it. Even the legislation that reduces the labor of women and children was enacted because it was believed that only entrepreneurs and capitalists would be handicapped while the protected labor groups would have to work less.
The writings of the “Socialists of the Chair” have been rightly criticized in that, in the final analysis, there can be no objective concept of productivity and that all judgments on economic goals are subjective. But when we assert that production restrictions reduce labor productivity, we do not yet enter the field where differences in subjective judgments prohibit observations on the goals and means of action. When the formation of nearly autarkic economic blocs hampers the international division of labor, preventing the advantages of specialized large-scale production and the employment of labor at the most advantageous locations, we face undesirable consequences on which the opinions of most inhabitants of the earth should not differ. To be sure, some may believe that the advantages of autarky outweigh its disadvantages. In the discussion of the pros and cons its advocates brazenly assert that autarky does not diminish the quantity and quality of economic goods, or else they do not speak about it openly and clearly. Obviously, they are fully aware that their propaganda would be less effective if they were to admit the whole truth of the consequences.
All production restrictions directly hamper some production inasmuch as they prevent certain employment opportunities that are open to the goods of higher order (land, capital, labor). By its very nature, a government decree that “it be” cannot create anything that has not been created before. Only the naive inflationists could believe that government could enrich mankind through fiat money. Government cannot create anything; its orders cannot even evict anything from the world of reality, but they can evict from the world of the permissible. Government cannot make man richer, but it can make him poorer.
With most production restrictions this is so clear that their sponsors rarely dare openly claim credit for the restrictions. Many generations of writers, therefore, sought in vain to demonstrate that production restrictions do not reduce the quantity and quality of output. There is no need to deal again with the protective tariff arguments that are raised from a purely economic point of view. The only case that can be made on behalf of protective tariffs is this: the sacrifices they impose could be offset by other, noneconomic advantages—for instance, from a national and military point of view it could be desirable to more or less isolate a country from the world.4
Indeed, it is difficult to ignore the fact that production restrictions always reduce the productivity of human labor and thus the social dividend. Therefore, no one dares defend the restrictions as a separate system of economic policy. Their advocates—at least the majority of them—are now promoting them as mere supplements to government interference with the structure of prices. The emphasis of the system of interventionism is on price intervention.
- 4. For a critique of these notions see my Nation, Staat, und Wirtschaft [Nation, state, and economy], Vienna, 1919, p. 56, et seq., especially with regard to German policies since the 1870s.