Suppose that, making use of our entire store of technological skill and our present-day knowledge of geography, we were to undertake to resettle the earth’s surface in such a way that we should afterwards be in a position to take maximum advantage of the natural distribution of raw materials. And suppose further that for this purpose the entire capital wealth of the present were at our disposal in a form that would allow us to invest it in whatever way was regarded as the most suitable for the end in view.

The infant industries argument advanced in favor of protective tariffs represents a hopeless attempt to justify such measures on a purely economic basis, without regard to political considerations. It is a grievous error to fail to recognize the political motivation behind the demand for tariffs on behalf of infant industries. The same arguments as are advanced in favor of protecting a domestic product against foreign competition could also be adduced in favor of protecting one part of a general customs area against the competition of other parts.

The malinvestment of capital goods can have come about in several ways.

Economic progress in the narrower sense is the work of the savers, who accumulate capital, and of the entrepreneurs, who turn capital to new uses. The other members of society, of course, enjoy the advantages of progress, but they not only do not contribute anything to it; they even place obstacles in its way. As consumers they meet every innovation with distrust, so that new products at first are unable to command the price that they could reach if the buyers were less conservative in their tastes. This is the reason for the not inconsiderable costs of introducing new articles.

The foregoing discussion makes quite clear the conduct of the individual entrepreneur and of the individual capitalist in the face of losses that come about through the commitment of inconvertible capital in enterprises in which a person having complete knowledge of all the relevant circumstances would no longer invest it today. Nevertheless, the way in which businessmen and the press generally discuss these matters differs markedly in many respects from our description.

In spite of their steady expansion and the growth of their turnover, the cooperatives as they exist and operate today are merely dim shadows of what they were designed to be in the ambitious schemes of their first promoters. Robert Owen, William King, and Ferdinand Lassalle planned a cooperative organization of industrial production as a “New System of Society.” They wanted to eliminate the entrepreneurs and the capitalists altogether.

The capitalistic market economy, the system of private profit-seeking enterprise, is essentially social cooperation under the division of labor. The various specialized enterprises and branches of industry cooperate with one another. The objective of each of them is collaboration for the production of all those goods and services which the consumers want to use. Within each enterprise, the various divisions and subdivisions cooperatively turn out products which are delivered to other enterprises which again use them for the production of more elaborate products.