The press touted it as yet another chapter in the unending success story of “government-business cooperation.” The traditional tale is that a glaring problem arises, caused by the unchecked and selfish actions of capitalist greed. And that then a wise and farsighted government agency, seeing deeply and having only the public interest at heart, steps in and corrects the failure, its sage regulations gently but firmly bending private actions to the common good.

The “infant-industry” argument has been considered as the only justifiable ground for a protective tariff by many “neoclassical” economists. The substance of the argument was clearly stated by one of its most noted exponents, Professor F.W. Taussig:

The international diamond cartel, the most successful cartel in history, far more successful than the demonized OPEC, is at last falling on hard times. For more than a century, the powerful DeBeers Consolidated Mines, a South African corporation controlled by the Rothschild Bank in London, has managed to organize the cartel, restricting the supply of diamonds on the market and raising the price far above what would have been market levels.

We’re entering the wild, wonderful world of monopoly and competition. To sum up from the last lecture, what’s happened is that the words “monopoly” and “competition” have been changed. In the seventeenth, eighteenth, and nineteenth centuries, and also in the mind of the ordinary person even today, what competition means is competing; in other words, rivalry, trying to offer a better product or a cheaper price than the other guy, the next guy in the industry.

I have come to realize, since writing this essay, that I overweighted the contributions and importance of Adam Smith on the division of labor. And to my surprise, I did not sufficiently appreciate the contributions of Ludwig von Mises.

It is now time to bring other men into our Robinsonian idyll—to extend our analysis to interpersonal relations. The problem for our analysis is not simply more people: after all, we could simply postulate a world of a million Crusoes on a million isolated islands, and our analysis would not need to be expanded by one iota. The problem is to analyze the inter­action of these people. Friday, for example, might land in another part of the island, and make contact with Crusoe, or he might land on a separate island, and then later construct a boat that could reach the other island.

Ludwig von Mises (1881–1973) was born on September 29, 1881, in the city of Lemberg (present day Ukraine), then part of the Austro-Hungarian Empire, where his father, Arthur Edler von Mises, a distinguished construction engineer working for the Austrian railroads, was stationed. Growing up in Vienna, Mises entered the University of Vienna at the turn of the century to study for his graduate degree in law and economics. He died October 10, 1973, in New York City.