WEBVTT NOTE XXIX. Restriction of Production 1 00:00:00.000 --> 00:00:04.500 CHAPTER 29 RESTRICTION OF PRODUCTION 2 00:00:04.500 --> 00:00:08.500 1. THE NATURE OF RESTRICTION 3 00:00:08.500 --> 00:00:18.500 We shall deal in this chapter with those measures which are directly and primarily intended to divert production in the broadest meaning of the word, 4 00:00:18.500 --> 00:00:25.500 including commerce and transportation, from the ways it would take in the unhampered market economy. 5 00:00:25.500 --> 00:00:38.500 Each authoritarian interference with business diverts production, of course, from the lines it would take if it were only directed by the demand of the consumers, as manifested on the market. 6 00:00:38.500 --> 00:00:53.500 The characteristic mark of restrictive interference with production is that the diversion of production is not merely an unavoidable and unintentional secondary effect, but precisely what the authority wants to bring about. 7 00:00:53.500 --> 00:01:00.860 Like any other act of intervention, such restrictive measures affect consumption also. 8 00:01:00.860 --> 00:01:06.340 But this again, in the case of the restrictive measures we are dealing with in this chapter, 9 00:01:06.340 --> 00:01:10.420 is not the primary end the authority aims at. 10 00:01:10.420 --> 00:01:14.360 The government wants to interfere with production. 11 00:01:14.360 --> 00:01:19.980 The fact that its measure influences the ways of consumption also is, from its point of 12 00:01:19.980 --> 00:01:26.920 view either altogether contrary to its intentions or at least an unwelcome consequence with 13 00:01:26.920 --> 00:01:33.140 which it puts up because it is unavoidable and is considered as a minor evil when compared 14 00:01:33.140 --> 00:01:37.120 with the consequences of non-intervention. 15 00:01:37.120 --> 00:01:42.260 Restriction of production means that the government either forbids or makes more difficult or 16 00:01:42.260 --> 00:01:49.200 more expensive the production, transportation or distribution of definite articles, or the 17 00:01:49.200 --> 00:01:55.760 the application of definite modes of production, transportation or distribution. 18 00:01:55.760 --> 00:02:01.280 The authority thus eliminates some of the means available for the satisfaction of human 19 00:02:01.280 --> 00:02:02.520 wants. 20 00:02:02.520 --> 00:02:07.560 The effect of its interference is that people are prevented from using their knowledge and 21 00:02:07.560 --> 00:02:13.040 abilities, their labor and their material means of production in the way in which they 22 00:02:13.040 --> 00:02:19.240 would earn the highest returns and satisfy their needs as much as possible. 23 00:02:19.240 --> 00:02:24.240 Such interference makes people poorer and less satisfied. 24 00:02:24.240 --> 00:02:26.800 This is the crux of the matter. 25 00:02:26.800 --> 00:02:32.120 All the subtlety and hair-splitting wasted in the effort to invalidate this fundamental 26 00:02:32.120 --> 00:02:34.480 thesis are vain. 27 00:02:34.480 --> 00:02:40.680 On the unhampered market there prevails an irresistible tendency to employ every factor 28 00:02:40.680 --> 00:02:47.840 of Production for the best possible satisfaction of the most urgent needs of the consumers. 29 00:02:47.840 --> 00:02:54.100 If the government interferes with this process, it can only impair satisfaction. 30 00:02:54.100 --> 00:02:57.080 It can never improve it. 31 00:02:57.080 --> 00:03:02.480 The correctness of this thesis has been proved in an excellent and irrefutable manner with 32 00:03:02.480 --> 00:03:08.640 regard to the historically most important class of government interference with production, 33 00:03:08.640 --> 00:03:11.880 and the Barriers to International Trade. 34 00:03:11.880 --> 00:03:17.240 In this field, the teachings of the classical economists, especially those of Ricardo, are 35 00:03:17.240 --> 00:03:20.760 final and settle the issue forever. 36 00:03:20.760 --> 00:03:26.720 All that a tariff can achieve is to divert production from those locations in which the 37 00:03:26.720 --> 00:03:32.880 output per unit of input is higher to locations in which it is lower. 38 00:03:32.880 --> 00:03:35.560 It does not increase production. 39 00:03:35.560 --> 00:03:38.040 It curtails it. 40 00:03:38.040 --> 00:03:42.440 will expatiate on alleged government encouragement of production. 41 00:03:42.440 --> 00:03:48.940 However, government does not have the power to encourage one branch of production except 42 00:03:48.940 --> 00:03:51.840 by curtailing other branches. 43 00:03:51.840 --> 00:03:57.240 It withdraws the factors of production from those branches in which the unhampered market 44 00:03:57.240 --> 00:04:01.580 would employ them and directs them into other branches. 45 00:04:01.580 --> 00:04:06.640 It little matters what kind of administrative procedures the government resorts to for the 46 00:04:06.640 --> 00:04:31.640 What alone counts is the fact that people are forced to forego some satisfactions which they value more highly, and are compensated only by satisfactions which they value less. 47 00:04:31.640 --> 00:04:54.640 At the bottom of the interventionist argument, there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. 48 00:04:54.640 --> 00:05:08.640 This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. 49 00:05:08.640 --> 00:05:19.640 As against these popular fallacies, there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens, 50 00:05:19.640 --> 00:05:29.640 and that its additional spending and investment curtail the citizen's spending and investment to the full extent of its quantity. 51 00:05:29.640 --> 00:05:35.640 While government has no power to make people more prosperous by interference with business, 52 00:05:35.640 --> 00:05:42.640 it certainly does have the power to make them less satisfied by restriction of production. 53 00:05:42.640 --> 00:05:46.640 2. The Prize of Restriction 54 00:05:46.640 --> 00:06:00.640 The fact that restricting production invariably involves a curtailment of the individual citizen's satisfaction does not mean that such restriction is necessarily to be regarded as a damage. 55 00:06:00.640 --> 00:06:13.640 A government does not wantonly resort to restrictive measures. It wants to attain certain ends, and considers the restriction as the appropriate means for the realization of its plan. 56 00:06:13.640 --> 00:06:20.680 The appraisal of restrictive policies depends, therefore, on the answer to two questions. 57 00:06:20.680 --> 00:06:26.240 Is the means chosen by the government fitted to attain the end sought? 58 00:06:26.240 --> 00:06:33.080 Is the realization of this end a compensation for the individual citizen's privation? 59 00:06:33.080 --> 00:06:39.680 In raising these questions, we look upon restriction of production as we look upon taxes. 60 00:06:39.680 --> 00:06:46.020 The amount of taxes also directly curtails the taxpayer's satisfaction, but it is the 61 00:06:46.020 --> 00:06:53.360 price he pays for the services which government renders to society and to each of its members. 62 00:06:53.360 --> 00:06:58.560 As far as the government fulfills its social functions and the taxes do not exceed the 63 00:06:58.560 --> 00:07:05.340 amount required for securing the smooth operation of the government apparatus, they are necessary 64 00:07:05.340 --> 00:07:09.240 costs and repay themselves. 65 00:07:09.240 --> 00:07:14.340 The adequacy of this mode of dealing with restrictive measures is especially manifest 66 00:07:14.340 --> 00:07:21.220 in all those cases in which restriction is resorted to as a substitute for taxation. 67 00:07:21.220 --> 00:07:26.760 The bulk of expenditure for national defense is defrayed by the Treasury out of the public 68 00:07:26.760 --> 00:07:28.080 revenue. 69 00:07:28.080 --> 00:07:31.480 But occasionally another procedure is chosen. 70 00:07:31.480 --> 00:07:37.600 It happens sometimes that the nation's preparedness to repel aggression depends on the existence 71 00:07:37.600 --> 00:07:42.600 and the importance of certain branches of industry which would be absent in the unhampered market. 72 00:07:43.600 --> 00:07:50.600 These industries must be subsidized, and the subsidies granted are to be considered as any other armaments expenditure. 73 00:07:51.600 --> 00:08:00.600 Their character remains the same if the government grants them indirectly by the imposition of an import duty for the products concerned. 74 00:08:00.600 --> 00:08:07.600 The difference is only that then the consumers are directly burdened with the costs incurred, 75 00:08:07.600 --> 00:08:15.600 while in the case of a government subsidy they defray these costs indirectly in paying higher taxes. 76 00:08:15.600 --> 00:08:24.600 In enacting restrictive measures, governments and parliaments have hardly ever been aware of the consequences of their meddling with business. 77 00:08:24.600 --> 00:08:30.800 Thus, they have blithely assumed that protective tariffs are capable of raising the nation's 78 00:08:30.800 --> 00:08:36.920 standard of living, and they have stubbornly refused to admit the correctness of the economic 79 00:08:36.920 --> 00:08:41.080 teachings concerning the effects of protectionism. 80 00:08:41.080 --> 00:08:48.080 The economist's condemnation of protectionism is irrefutable and free of any party bias. 81 00:08:48.080 --> 00:08:54.980 For the economists do not say that protection is bad from any preconceived point of view. 82 00:08:54.980 --> 00:09:01.420 They show that protection cannot attain those ends which the governments as a rule want 83 00:09:01.420 --> 00:09:04.400 to attain by resorting to it. 84 00:09:04.400 --> 00:09:08.360 They do not question the ultimate end of the government's action. 85 00:09:08.360 --> 00:09:15.840 They merely reject the means chosen as inappropriate to realize the ends aimed at. 86 00:09:15.840 --> 00:09:22.440 Most popular among all restrictive measures are those styled pro-labor legislation. 87 00:09:22.440 --> 00:09:28.160 Here too, the governments and public opinion badly misjudge the effects. 88 00:09:28.160 --> 00:09:34.160 They believe that restricting the hours of work and prohibiting child labor exclusively 89 00:09:34.160 --> 00:09:39.400 burdens the employers and is a social gain for the wage earners. 90 00:09:39.400 --> 00:09:45.920 However, this is true only to the extent that such laws reduce the supply of labor, and 91 00:09:45.920 --> 00:09:53.120 thus raise the marginal productivity of labor as against the marginal productivity of capital. 92 00:09:53.120 --> 00:09:58.820 But the drop in the supply of labor results also in a decrease in the total amount of 93 00:09:58.820 --> 00:10:04.780 goods produced, and thereby in the average per capita consumption. 94 00:10:04.780 --> 00:10:11.260 The total cake shrinks, but the portion of the smaller cake which goes to the wage earners 95 00:10:11.260 --> 00:10:16.500 is proportionately higher than what they received from the bigger cake. 96 00:10:16.500 --> 00:10:22.060 Concomitantly, the portion of the capitalists drops. 97 00:10:22.060 --> 00:10:27.060 Entrepreneurial profits and losses are not affected by pro-labor legislation as they 98 00:10:27.060 --> 00:10:33.840 entirely depend on the more or less successful adjustment of production to the changing conditions 99 00:10:33.840 --> 00:10:35.560 of the Market. 100 00:10:35.560 --> 00:10:42.760 With regard to these, labor legislation counts only as a factor producing change. 101 00:10:42.760 --> 00:10:49.860 It depends on the concrete data of each case whether or not this outcome improves or impairs 102 00:10:49.860 --> 00:10:55.400 the real wage rates of the various groups of wage earners. 103 00:10:55.400 --> 00:11:01.720 The popular appraisal of pro-labor legislation was based on the error that wage rates have 104 00:11:01.720 --> 00:11:08.880 have no causal relation whatever to the value that the worker's labor adds to the material. 105 00:11:08.880 --> 00:11:15.180 Wage rates, says the iron law, are determined by the minimum amount of indispensable necessities 106 00:11:15.180 --> 00:11:16.620 of life. 107 00:11:16.620 --> 00:11:20.820 They can never rise above the subsistence level. 108 00:11:20.820 --> 00:11:26.380 The difference between the value produced by the worker and the wages paid to him goes 109 00:11:26.380 --> 00:11:29.340 to the exploiting employer. 110 00:11:29.340 --> 00:11:35.180 If this surplus is curtailed by restricting the working hours, the wage earner is relieved 111 00:11:35.180 --> 00:11:37.980 of a part of his toil and trouble. 112 00:11:37.980 --> 00:11:45.460 His wages remain unchanged, and the employer is deprived of a part of his unfair profit. 113 00:11:45.460 --> 00:11:52.380 The restriction of total output curtails only the income of the exploiting bourgeois. 114 00:11:52.380 --> 00:11:57.740 It has been pointed out already that the role which pro-labor legislation played in the 115 00:11:57.740 --> 00:12:10.740 The rapid evolution of Western capitalism was, until a few years ago, much less important than would be suggested by the vehemence with which the problems involved have been publicly discussed. 116 00:12:10.740 --> 00:12:21.740 Labor legislation, for the most part, merely provided a legal recognition of changes in conditions already consummated by the rapid evolution of business. 117 00:12:21.740 --> 00:12:27.760 But in the countries which were slow in adopting capitalistic modes of production and are backward 118 00:12:27.760 --> 00:12:34.220 in developing modern methods of processing and manufacturing, the problem of labor legislation 119 00:12:34.220 --> 00:12:36.080 is crucial. 120 00:12:36.080 --> 00:12:42.360 Deluded by the spurious doctrines of interventionism, the politicians of these nations believe that 121 00:12:42.360 --> 00:12:48.600 they can improve the lot of the destitute masses by copying the labor legislation of 122 00:12:48.600 --> 00:12:54.440 of the most advanced capitalistic countries, they look upon the problems involved as if 123 00:12:54.440 --> 00:13:00.520 they were merely to be treated from what is erroneously called the human angle and fail 124 00:13:00.520 --> 00:13:03.700 to recognize the real issue. 125 00:13:03.700 --> 00:13:09.560 It is a sad fact indeed that in Asia many millions of tender children are destitute 126 00:13:09.560 --> 00:13:16.680 and starving, that wages are extremely low when compared with American or Western European 127 00:13:16.680 --> 00:13:24.280 Words, that hours of work are long, and that sanitary conditions in the workshops are deplorable. 128 00:13:24.280 --> 00:13:30.680 But there is no means of eliminating these evils other than to work, to produce, and 129 00:13:30.680 --> 00:13:35.440 to save more, and thus to accumulate more capital. 130 00:13:35.440 --> 00:13:39.420 This is indispensable for any lasting improvement. 131 00:13:39.420 --> 00:13:45.440 The restrictive measures advocated by self-styled philanthropists and humanitarians would be 132 00:13:45.440 --> 00:13:46.680 be futile. 133 00:13:46.680 --> 00:13:52.640 They would not only fail to improve conditions, they would make things a good deal worse. 134 00:13:52.640 --> 00:13:58.040 If the parents are too poor to feed their children adequately, prohibition of child 135 00:13:58.040 --> 00:14:01.480 labor condemns the children to starvation. 136 00:14:01.480 --> 00:14:08.520 If the marginal productivity of labor is so low that a worker can only earn, in ten hours, 137 00:14:08.520 --> 00:14:14.140 wages which are substandard when compared with American wages, one does not benefit 138 00:14:14.140 --> 00:14:18.300 at the Laborer by Decreeing the Eight-Hour Day. 139 00:14:18.300 --> 00:14:25.980 The problem under discussion is not the desirability of improving the wage earner's material well-being. 140 00:14:25.980 --> 00:14:32.920 The advocates of what are miscalled pro-labor laws intentionally confuse the issue in repeating 141 00:14:32.920 --> 00:14:39.580 again and again that more leisure, higher real wages and freeing children and married 142 00:14:39.580 --> 00:14:45.980 Women from the Necessity of Seeking Jobs would make the families of the workers happier. 143 00:14:45.980 --> 00:14:52.900 They resort to falsehood and mean calumny in calling those who oppose such laws as detrimental 144 00:14:52.900 --> 00:14:59.340 to the vital interests of the wage earners, labor-baiters, and enemies of labor. 145 00:14:59.340 --> 00:15:03.060 The disagreement does not refer to the end sought. 146 00:15:03.060 --> 00:15:08.500 It concerns solely the means to be applied for their realization. 147 00:15:08.500 --> 00:15:14.660 The question is not whether or not improvement of the masses welfare is desirable. 148 00:15:14.660 --> 00:15:20.900 It is exclusively whether or not government decrees restricting the hours of work and 149 00:15:20.900 --> 00:15:26.420 the employment of women and children are the right means for raising the worker's standard 150 00:15:26.420 --> 00:15:28.060 of living. 151 00:15:28.060 --> 00:15:33.820 This is a purely catallactic problem to be solved by economics. 152 00:15:33.820 --> 00:15:36.660 Emotional talk is beside the point. 153 00:15:36.660 --> 00:15:42.240 It is a poor disguise for the fact that these self-righteous advocates of restriction are 154 00:15:42.240 --> 00:15:49.240 unable to advance any tenable objections to the economist's well-founded argumentation. 155 00:15:49.240 --> 00:15:54.360 The fact that the standard of living of the average American worker is incomparably more 156 00:15:54.360 --> 00:16:00.240 satisfactory than that of the average Chinese worker, that in the United States hours of 157 00:16:00.240 --> 00:16:05.680 work are shorter and that the children are sent to school and not to the factories, is 158 00:16:05.680 --> 00:16:11.040 is not an achievement of the government and the laws of the country, it is the outcome 159 00:16:11.040 --> 00:16:17.080 of the fact that the capital invested per head of the employees is much greater than 160 00:16:17.080 --> 00:16:24.040 in China, and that consequently the marginal productivity of labor is much higher. 161 00:16:24.040 --> 00:16:29.780 This is not the merit of social policies, it is the result of the laissez-faire methods 162 00:16:29.780 --> 00:16:35.780 of the Past which abstained from sabotaging the evolution of capitalism. 163 00:16:35.780 --> 00:16:41.720 It is this laissez-faire that the Asiatics must adopt if they want to improve the lot 164 00:16:41.720 --> 00:16:44.080 of their peoples. 165 00:16:44.080 --> 00:16:49.820 The poverty of Asia and other backward countries is due to the same causes which made conditions 166 00:16:49.820 --> 00:16:55.100 unsatisfactory in the early periods of Western capitalism. 167 00:16:55.100 --> 00:17:00.940 While population figures increased rapidly, restrictive policies delayed the adjustment 168 00:17:00.940 --> 00:17:06.140 of production methods to the needs of the growing number of mouths. 169 00:17:06.140 --> 00:17:12.380 It is to the imperishable credit of the laissez-faire economists, whom the typical textbooks of our 170 00:17:12.380 --> 00:17:20.140 universities dismiss as pessimists and apologists of the unfair greed of exploiting bourgeois, 171 00:17:20.140 --> 00:17:25.620 that they paved the way for economic freedom, which raised the average standard of living 172 00:17:25.620 --> 00:17:29.340 to an unprecedented height. 173 00:17:29.340 --> 00:17:35.820 Economics is not dogmatic, as the self-styled unorthodox advocates of government omnipotence 174 00:17:35.820 --> 00:17:40.340 and totalitarian dictatorship contend. 175 00:17:40.340 --> 00:17:45.060 Economics neither approves nor disapproves of government measures restricting production 176 00:17:45.060 --> 00:17:46.700 and output. 177 00:17:46.700 --> 00:17:53.300 merely considers it its duty to clarify the consequences of such measures. 178 00:17:53.300 --> 00:17:58.100 The choice of policies to be adopted devolves upon the people. 179 00:17:58.100 --> 00:18:03.980 But in choosing, they must not disregard the teachings of economics if they want to attain 180 00:18:03.980 --> 00:18:06.380 the end sought. 181 00:18:06.380 --> 00:18:11.320 There are certainly cases in which people may consider definite restrictive measures 182 00:18:11.320 --> 00:18:13.900 as justified. 183 00:18:13.900 --> 00:18:19.680 Questions concerning fire prevention are restrictive and raise the cost of production, but the 184 00:18:19.680 --> 00:18:26.100 curtailment of total output they bring about is the price to be paid for avoidance of greater 185 00:18:26.100 --> 00:18:27.700 disaster. 186 00:18:27.700 --> 00:18:32.940 The decision about each restrictive measure is to be made on the ground of a meticulous 187 00:18:32.940 --> 00:18:38.820 weighing of the costs to be incurred and the prize to be obtained. 188 00:18:38.820 --> 00:18:44.820 No reasonable man could possibly question this rule. 189 00:18:44.820 --> 00:18:49.820 3. Restriction as a Privilege 190 00:18:49.820 --> 00:18:55.820 Every disarrangement of the market data affects various individuals and groups of individuals 191 00:18:55.820 --> 00:19:01.820 in a different way. For some people it is a boon, for others a blow. 192 00:19:01.820 --> 00:19:07.820 Only after a while, when production is adjusted to the emergence of the new datum, 193 00:19:07.820 --> 00:19:36.820 Here again, the most striking example is provided by protectionism, the imposition of a duty 194 00:19:36.820 --> 00:19:44.140 on the importation of a commodity burdens the consumers. But, to the domestic producers, 195 00:19:44.140 --> 00:19:51.500 it is a boon. From their point of view, decreeing new tariffs and raising already existing tariffs 196 00:19:51.500 --> 00:19:58.460 is an excellent thing. The same is valid with regard to many other restrictive measures. 197 00:19:58.460 --> 00:20:04.500 If the government restricts, either by direct restriction or by fiscal discrimination, big 198 00:20:04.500 --> 00:20:11.580 Business and Corporations, the competitive position of small size enterprises is strengthened. 199 00:20:11.580 --> 00:20:19.120 If it restricts the operation of big stores and chain stores, the small shopkeepers rejoice. 200 00:20:19.120 --> 00:20:25.140 It is important to realize that what those benefited by these measures consider an advantage 201 00:20:25.140 --> 00:20:29.980 for themselves, lasts only for a limited time. 202 00:20:29.980 --> 00:20:35.760 In the long run, the privilege accorded to a definite class of producers loses its power 203 00:20:35.760 --> 00:20:38.800 to create specific gains. 204 00:20:38.800 --> 00:20:44.260 The privileged branch attracts newcomers, and their competition tends to eliminate the 205 00:20:44.260 --> 00:20:48.180 specific gains derived from the privilege. 206 00:20:48.180 --> 00:20:54.180 Thus the eagerness of the law's pet children to acquire privileges is insatiable. 207 00:20:54.180 --> 00:21:00.660 They continue to ask for new privileges because the old ones lose their power. 208 00:21:00.660 --> 00:21:06.020 On the other hand, the repeal of a restrictive measure to the existence of which the structure 209 00:21:06.020 --> 00:21:13.140 of production has already been adjusted means a new disarrangement of the market data favors 210 00:21:13.140 --> 00:21:19.580 the short-run interests of some people and hurts the short-run interests of other people. 211 00:21:19.580 --> 00:21:25.820 Let us illustrate the issue by referring to a tariff item. Ruritania, years ago, let us 212 00:21:25.820 --> 00:21:33.620 say in 1920, decreed a tariff on the importation of leather. This was a boon for the enterprises 213 00:21:33.620 --> 00:21:39.780 which, at the moment, happened to be engaged in the tanning industry. But then, later, 214 00:21:39.780 --> 00:21:45.420 the size of the industry expanded, and the windfall gains which the tanners enjoyed in 215 00:21:45.420 --> 00:21:52.740 1920 and, in the following years, Peter Doubt. What remains is merely the fact that a part 216 00:21:52.740 --> 00:21:58.380 of the world's leather production is shifted from locations in which the output per unit 217 00:21:58.380 --> 00:22:06.260 of input is higher to locations in ruritania in which production requires higher costs. 218 00:22:06.260 --> 00:22:11.840 The residents of ruritania pay higher prices for leather than they would pay in the absence 219 00:22:11.840 --> 00:22:13.840 of the Tariff. 220 00:22:13.840 --> 00:22:19.400 As a greater part of Ruritania's capital and labor is employed in the tanneries than would 221 00:22:19.400 --> 00:22:25.520 be the case under free trade for leather, some other domestic industries shrank, or 222 00:22:25.520 --> 00:22:28.960 were at least prevented from growing. 223 00:22:28.960 --> 00:22:34.440 Less leather is imported from abroad, and a smaller amount of Ruritanian products is 224 00:22:34.440 --> 00:22:38.160 exported as payment for leather imported. 225 00:22:38.160 --> 00:22:42.800 The volume of Ruritania's foreign trade is curtailed. 226 00:22:42.800 --> 00:22:48.600 Not a single soul in the whole world derives any advantage from the preservation of the 227 00:22:48.600 --> 00:22:50.520 old tariff. 228 00:22:50.520 --> 00:22:56.760 On the contrary, everyone is hurt by the drop in the total output of mankind's industrial 229 00:22:56.760 --> 00:22:58.400 effort. 230 00:22:58.400 --> 00:23:04.920 If the policy adopted by Ruritania with regard to leather were to be adopted by all nations 231 00:23:04.920 --> 00:23:11.600 and with regard to every kind of merchandise in the most rigid way so as to abolish international 232 00:23:11.600 --> 00:23:18.120 trade altogether and to make every nation perfectly autarkic, all people would have 233 00:23:18.120 --> 00:23:25.020 to forgo entirely the advantages which the international division of labor gives them. 234 00:23:25.020 --> 00:23:31.560 It is obvious that the repeal of the ruritanian tariff on leather must in the long run benefit 235 00:23:31.560 --> 00:23:38.120 Everybody, Ruritanians as well as foreigners. However, in the short run it would hurt the 236 00:23:38.120 --> 00:23:44.260 interests of the capitalists who have invested in Ruritanian tanneries. It would no less 237 00:23:44.260 --> 00:23:50.960 hurt the short run interests of the Ruritanian workers specialized in tannery work. A part 238 00:23:50.960 --> 00:23:57.340 of them would have either to emigrate or to change their occupation. These capitalists 239 00:23:57.340 --> 00:24:02.620 Lawyers and workers passionately fight all attempts to lower the leather tariff or to 240 00:24:02.620 --> 00:24:05.440 abolish it altogether. 241 00:24:05.440 --> 00:24:11.880 This shows clearly why it is politically extremely difficult to brush away measures restricting 242 00:24:11.880 --> 00:24:18.040 production once the structure of business has been adjusted to their existence. 243 00:24:18.040 --> 00:24:24.700 Although their effects are pernicious to everybody, their disappearance is in the short run disadvantageous 244 00:24:24.700 --> 00:24:27.140 to special groups. 245 00:24:27.140 --> 00:24:32.780 These special groups interested in the preservation of the restrictive measures are, of course, 246 00:24:32.780 --> 00:24:34.580 only minorities. 247 00:24:34.580 --> 00:24:40.660 In Ruritania, only the small fraction of the population engaged in the tanneries can suffer 248 00:24:40.660 --> 00:24:44.180 from the abolition of the tariff on leather. 249 00:24:44.180 --> 00:24:49.540 The immense majority are buyers of leather and leather goods, and would be benefited 250 00:24:49.540 --> 00:24:52.700 by a drop in their prices. 251 00:24:52.700 --> 00:25:09.460 The last objection advanced by the opponents of free trade runs this way. 252 00:25:09.460 --> 00:25:15.620 Granted that only those ruritanians engaged in tanning hides are immediately interested 253 00:25:15.620 --> 00:25:21.580 in the preservation of the tariff on leather, but every ruritanian belongs to one of the 254 00:25:21.580 --> 00:25:28.780 are many branches of production. If each domestic product is protected by the tariff, the transition 255 00:25:28.780 --> 00:25:35.080 to free trade hurts the interests of each industry, and thereby those of all specialized 256 00:25:35.080 --> 00:25:41.800 groups of capital and labor, the sum of which is the whole nation. It follows that repealing 257 00:25:41.800 --> 00:25:48.560 the tariff would in the short run be prejudicial to all citizens, and it is short run interests 258 00:25:48.560 --> 00:25:51.120 only that count. 259 00:25:51.120 --> 00:25:54.160 This argument involves a three-fold error. 260 00:25:54.160 --> 00:26:00.040 First, it is not true that all branches of industry would be hurt by the transition to 261 00:26:00.040 --> 00:26:01.760 free trade. 262 00:26:01.760 --> 00:26:07.760 On the contrary, those branches in which the comparative costs of production are lowest 263 00:26:07.760 --> 00:26:10.780 will expand under free trade. 264 00:26:10.780 --> 00:26:15.740 Their short-run interests would be favored by the abolition of the tariff. 265 00:26:15.740 --> 00:26:21.780 The tariff on those products they themselves turn out is of no advantage for them as they 266 00:26:21.780 --> 00:26:26.660 could not only survive but expand under free trade. 267 00:26:26.660 --> 00:26:32.000 The tariff on those products for which the comparative cost is higher in ruritania than 268 00:26:32.000 --> 00:26:38.340 abroad hurts them by directing capital and labor, which otherwise would have fertilized 269 00:26:38.340 --> 00:26:41.020 them into those other branches. 270 00:26:41.020 --> 00:26:53.020 Second, the short-run principle is entirely fallacious. In the short-run, every change in the market data hurts those who did not anticipate it in time. 271 00:26:53.020 --> 00:27:08.020 A consistent champion of the short-run principle must advocate perfect rigidity and immutability of all data, and oppose any change, including any therapeutical and technological improvement. 272 00:27:08.020 --> 00:27:14.980 If, in acting, people were always to prefer the avoidance of an evil in the nearer future 273 00:27:14.980 --> 00:27:20.100 to the avoidance of an evil in the remoter future, they would come down to the animal 274 00:27:20.100 --> 00:27:21.380 level. 275 00:27:21.380 --> 00:27:27.620 It is the very essence of human action, as distinct from animal behavior, that it consciously 276 00:27:27.620 --> 00:27:34.580 renounces some temporally nearer satisfaction in order to reap some greater but temporally 277 00:27:34.580 --> 00:27:37.860 remoter satisfaction. 278 00:27:37.860 --> 00:27:44.120 Time preference is not absolute with man. It is only one of the items entering into the 279 00:27:44.120 --> 00:27:51.860 weighing and balancing of pros and cons. Man swallows bitter pills for the sake of beneficent 280 00:27:51.860 --> 00:27:58.560 effects to be reaped at a later date. There cannot be any question of unconditionally 281 00:27:58.560 --> 00:28:04.680 preferring what is good in the short run to what is good in the long run. The intensity 282 00:28:04.680 --> 00:28:11.680 The quality of the satisfaction expected from each of the alternatives must be taken into account too. 283 00:28:11.680 --> 00:28:19.680 Finally, if the problem of the abolition of Ruritania's comprehensive tariff system is under discussion, 284 00:28:19.680 --> 00:28:30.680 one must not forget the fact that the short-run interests of those engaged in tanning are hurt only by the abolition of one of the items of the tariff, 285 00:28:30.680 --> 00:28:35.640 while they are favored by the abolition of the other items concerning the products of 286 00:28:35.640 --> 00:28:40.080 the industries in which comparative cost is high. 287 00:28:40.080 --> 00:28:45.840 It is true that wage rates of the tannery workers will drop for some time, as against 288 00:28:45.840 --> 00:28:51.680 those in other branches, and that some time will elapse until the appropriate long-run 289 00:28:51.680 --> 00:28:57.480 proportion between wage rates in the various branches of ruritanian production will be 290 00:28:57.480 --> 00:28:59.480 established. 291 00:28:59.480 --> 00:29:06.000 Concomitantly, with the merely temporary drop in their earnings, these workers will experience 292 00:29:06.000 --> 00:29:10.280 a drop in the prices of many articles they are buying. 293 00:29:10.280 --> 00:29:15.560 And this tendency toward an improvement in their conditions is not a phenomenon only 294 00:29:15.560 --> 00:29:18.160 of the period of transition. 295 00:29:18.160 --> 00:29:24.840 It is the consummation of the lasting blessings of free trade, which, in shifting every branch 296 00:29:24.840 --> 00:29:35.840 The switch of industry to the location in which comparative cost is lowest increases the productivity of labor and the total quantity of goods produced. 297 00:29:35.840 --> 00:29:43.840 It is the lasting long-run boom which free trade secures to every member of the market society. 298 00:29:43.840 --> 00:29:52.840 The opposition to the abolition of tariff protection would be reasonable from the personal point of view of those engaged in the leather industry 299 00:29:52.840 --> 00:29:58.040 Theory, if the tariff on leather were the only tariff. 300 00:29:58.040 --> 00:30:04.680 Then one could explain their attitude as dictated by status interests, the interests of a caste 301 00:30:04.680 --> 00:30:10.600 which would be temporarily hurt by the abolition of a privilege, although its mere preservation 302 00:30:10.600 --> 00:30:14.440 no longer confers any benefit on them. 303 00:30:14.440 --> 00:30:19.920 But in this hypothetical case the opposition of the tanners would be hopeless. 304 00:30:19.920 --> 00:30:23.160 The majority of the nation would overrule it. 305 00:30:23.160 --> 00:30:28.260 What strengthens the ranks of the protectionists is the fact that the tariff on leather is 306 00:30:28.260 --> 00:30:34.340 no exception, that many branches of industry are in a similar position and are fighting 307 00:30:34.340 --> 00:30:39.280 the abolition of tariff items concerning their own branch. 308 00:30:39.280 --> 00:30:45.580 This is, of course, not an alliance based on each group's special group interests. 309 00:30:45.580 --> 00:30:52.180 If everybody is protected to the same extent, everybody not only loses as consumer as much 310 00:30:52.180 --> 00:30:58.660 as he gains as producer. Everybody is harmed by the general drop in the productivity of 311 00:30:58.660 --> 00:31:04.620 labor which the shifting of industries from more favorable to less favorable locations 312 00:31:04.620 --> 00:31:12.020 brings about. Conversely, the abolition of all tariff items would benefit everybody in 313 00:31:12.020 --> 00:31:17.860 in the long run, while the short-run harm which the abolition of some special tariff 314 00:31:17.860 --> 00:31:23.820 item brings to the special interests of the group concerned, is already in the short-run 315 00:31:23.820 --> 00:31:30.600 at least partly compensated by the consequences of the abolition of the tariff on the products 316 00:31:30.600 --> 00:31:34.860 the members of this group are buying and consuming. 317 00:31:34.860 --> 00:31:40.160 Many people look upon tariff protection as if it were a privilege accorded to their nation's 318 00:31:40.160 --> 00:31:50.160 and its wage earners, procuring them, for the full duration of its existence, a higher standard of living than they would enjoy under free trade. 319 00:31:50.160 --> 00:32:01.160 This argument is advanced not only in the United States, but in every country in the world in which average real wage rates are higher than in some other country. 320 00:32:01.160 --> 00:32:15.660 Now it is true that under perfect mobility of capital and labor, there would prevail all over the world a tendency toward an equalization of the price paid for labor of the same kind and quality. 321 00:32:15.660 --> 00:32:29.160 Yet, even if there were free trade for products, this tendency is absent in our real world of migration barriers and institutions hindering foreign investment of capital. 322 00:32:29.160 --> 00:32:35.160 The marginal productivity of labor is higher in the United States than it is in China 323 00:32:35.160 --> 00:32:40.160 because capital invested per head of the working population is greater, 324 00:32:40.160 --> 00:32:48.160 and because Chinese workers are prevented from moving to America and competing on the American labor market. 325 00:32:48.160 --> 00:32:53.160 There is no need in dealing with the explanation of this difference 326 00:32:53.160 --> 00:33:06.160 to investigate whether natural resources are or are not more abundant in America than in China and whether or not the Chinese worker is racially inferior to the American worker. 327 00:33:06.160 --> 00:33:20.160 However, this may be, these facts, namely the institutional checks upon the mobility of capital and labor, suffice to account for the absence of the equalization tendency. 328 00:33:20.160 --> 00:33:26.120 If the abolition of the American tariff could not affect these two facts, it could not impair 329 00:33:26.120 --> 00:33:31.440 the standard of living of the American wage earner in an adverse sense. 330 00:33:31.440 --> 00:33:36.760 On the contrary, given a state of affairs in which the mobility of capital and labor 331 00:33:36.760 --> 00:33:44.260 is restricted, the transition to free trade for products must necessarily raise the American 332 00:33:44.260 --> 00:33:46.440 standard of life. 333 00:33:46.440 --> 00:33:52.720 Those industries in which American costs are higher, American productivity is lower, would 334 00:33:52.720 --> 00:34:00.080 shrink, and those in which costs are lower, productivity is higher, would expand. 335 00:34:00.080 --> 00:34:06.200 It is certainly true that wage rates in Swiss watchmaking and in Chinese embroidering are 336 00:34:06.200 --> 00:34:11.880 low when compared with wage rates in the competing American industries. 337 00:34:11.880 --> 00:34:18.240 Under free trade, the Swiss and the Chinese would expand their sales on the American market, 338 00:34:18.240 --> 00:34:22.120 and the sales of their American competitors would shrink. 339 00:34:22.120 --> 00:34:26.720 But this is only a part of the consequences of free trade. 340 00:34:26.720 --> 00:34:32.520 Selling and producing more, the Swiss and Chinese would earn and buy more. 341 00:34:32.520 --> 00:34:37.400 It does not matter whether they themselves buy more of the products of other American 342 00:34:37.400 --> 00:34:42.280 in American Industries or whether they increase their domestic purchases and those in other 343 00:34:42.280 --> 00:34:45.560 countries, for instance in France. 344 00:34:45.560 --> 00:34:51.920 Whatever happens, the equivalent of the additional dollars they earned must finally go to the 345 00:34:51.920 --> 00:34:57.620 United States and increase the sales of some American industries. 346 00:34:57.620 --> 00:35:03.560 If the Swiss and Chinese do not give away their products as a gift, they must spend 347 00:35:03.560 --> 00:35:06.680 these dollars in buying. 348 00:35:06.680 --> 00:35:13.120 The popular opinion, to the contrary, is due to the illusory idea that America could expand 349 00:35:13.120 --> 00:35:20.900 its purchases of imported products by reducing the total sum of its citizens' cash holdings. 350 00:35:20.900 --> 00:35:26.880 This is the notorious fallacy according to which people buy without regard to the size 351 00:35:26.880 --> 00:35:33.360 of their cash holdings, and according to which the very existence of cash holdings is simply 352 00:35:33.360 --> 00:35:46.320 We have already shown why this mercantilist doctrine is entirely wrong. 353 00:35:46.320 --> 00:35:51.180 What the tariff really brings about in the field of wage rates and the wage earner's 354 00:35:51.180 --> 00:35:55.300 standard of living is something quite different. 355 00:35:55.300 --> 00:36:00.900 In a world in which there is free trade for commodities while the migration of workers 356 00:36:00.900 --> 00:36:03.920 Wages and foreign investment are restricted. 357 00:36:03.920 --> 00:36:10.080 There prevails a tendency toward an establishment of a definite relation between the wages paid 358 00:36:10.080 --> 00:36:15.440 for the same kind and quality of labor in various countries. 359 00:36:15.440 --> 00:36:21.200 There cannot prevail a tendency toward an equalization of wage rates. 360 00:36:21.200 --> 00:36:28.040 But the final price to be paid for labor in various countries is in a certain numerical 361 00:36:28.040 --> 00:36:29.680 relation. 362 00:36:29.680 --> 00:36:36.680 This final price is characterized by the fact that all those eager to earn wages get a job, 363 00:36:36.680 --> 00:36:42.760 and all those eager to employ workers are able to hire as many hands as they want. 364 00:36:42.760 --> 00:36:45.560 There is full employment. 365 00:36:45.560 --> 00:36:52.160 Let us assume that there are two countries only, Ruritania and Mauritania. 366 00:36:52.160 --> 00:36:58.060 In Ruritania, the final wage rate is double what it is in Mauritania. 367 00:36:58.060 --> 00:37:03.060 Now the government of ruritania resorts to one of those measures which are erroneously 368 00:37:03.060 --> 00:37:05.880 styled pro-labor. 369 00:37:05.880 --> 00:37:11.480 It burdens the employers with an additional expenditure, the size of which is proportional 370 00:37:11.480 --> 00:37:14.420 to the number of workers employed. 371 00:37:14.420 --> 00:37:19.900 For example, it reduces the hours of work without permitting a corresponding drop in 372 00:37:19.900 --> 00:37:22.140 weekly wage rates. 373 00:37:22.140 --> 00:37:27.940 The result is a drop in the quantity of goods produced, and a rise in the price of the 374 00:37:27.940 --> 00:37:30.420 and the unit of every good. 375 00:37:30.420 --> 00:37:36.740 The individual worker enjoys more leisure, but his standard of living is curtailed. 376 00:37:36.740 --> 00:37:42.600 What else could a general decrease in the quantity of goods available bring about? 377 00:37:42.600 --> 00:37:46.980 This outcome is an internal event in ruritania. 378 00:37:46.980 --> 00:37:51.580 It would emerge also in the absence of any foreign trade. 379 00:37:51.580 --> 00:37:58.580 The fact that Ruritania is not autarkic, but buys from and sells to Mauritania does not 380 00:37:58.580 --> 00:38:01.300 alter its essential features. 381 00:38:01.300 --> 00:38:04.380 But it implicates Mauritania. 382 00:38:04.380 --> 00:38:11.220 As the Ruritanians produce and consume less, they will buy less from Mauritania. 383 00:38:11.220 --> 00:38:17.140 In Mauritania there will not be a general drop in production, but some industries which 384 00:38:17.140 --> 00:38:22.700 which produced for export to Ruritania will henceforth have to produce for the domestic 385 00:38:22.700 --> 00:38:24.980 Mauritanian market. 386 00:38:24.980 --> 00:38:29.620 Mauritania will see the volume of its foreign trade drop. 387 00:38:29.620 --> 00:38:33.940 It will become, willy-nilly, more autarkic. 388 00:38:33.940 --> 00:38:37.260 This is a blessing in the eyes of the protectionists. 389 00:38:37.260 --> 00:38:42.340 In truth, it means deterioration in the standard of living. 390 00:38:42.340 --> 00:38:47.460 Even at higher costs is substituted for that at lower costs. 391 00:38:47.460 --> 00:38:52.980 What Mauritania experiences is the same thing that the residents of an autarkic country 392 00:38:52.980 --> 00:38:59.740 would experience if an act of God were to curtail the productivity of one of the country's 393 00:38:59.740 --> 00:39:01.060 industries. 394 00:39:01.060 --> 00:39:07.140 As far as there is division of labor, everybody is affected by a drop in the amount other 395 00:39:07.140 --> 00:39:10.740 people contribute to supplying the market. 396 00:39:10.740 --> 00:39:23.740 However, these inexorable final international consequences of Ruritania's new pro-labor law will not affect the various branches of Mauritania's industry in the same way. 397 00:39:23.740 --> 00:39:33.740 A sequence of steps is needed in both countries until at last a perfect adjustment of production to the new state of data is brought about. 398 00:39:33.740 --> 00:39:38.740 These short-run effects are different from the long-run effects. 399 00:39:38.740 --> 00:39:44.980 Effects. They are more spectacular than the long-run effects. While hardly anybody can 400 00:39:44.980 --> 00:39:52.620 fail to notice the short-run effects, the long-run effects are recognized only by economists. 401 00:39:52.620 --> 00:39:58.300 While it is not difficult to conceal the long-run effects from the public, something must be 402 00:39:58.300 --> 00:40:05.300 done about the easily recognizable short-run effects, lest the enthusiasm for such allegedly 403 00:40:05.300 --> 00:40:15.300 The first short-run effect to appear is the weakening of the competitive power of some 404 00:40:15.300 --> 00:40:21.100 ruritanian branches of production as against those of ruritania. 405 00:40:21.100 --> 00:40:28.140 As prices rise in ruritania, it becomes possible for some ruritanians to expand their sales 406 00:40:28.140 --> 00:40:30.500 in ruritania. 407 00:40:30.500 --> 00:40:33.180 This is a temporary effect only. 408 00:40:33.180 --> 00:40:40.000 In the end, the total sales of all Mauritanian industries in Mauritania will drop. 409 00:40:40.000 --> 00:40:45.920 It is possible that in spite of this general drop in the total amount of Mauritanian exports 410 00:40:45.920 --> 00:40:53.500 to Mauritania, some of the Mauritanian industries will expand their sales in the long run. 411 00:40:53.500 --> 00:40:58.220 This depends on the new configuration of comparative costs. 412 00:40:58.220 --> 00:41:04.940 But there is no necessary interconnection between these short-run and long-run effects. 413 00:41:04.940 --> 00:41:11.500 The adjustments of the period of transition create kaleidoscopically changing situations, 414 00:41:11.500 --> 00:41:15.740 which may differ entirely from the final outcome. 415 00:41:15.740 --> 00:41:21.980 Yet the short-sighted public's attention is completely absorbed by these short-run effects. 416 00:41:21.980 --> 00:41:28.780 They hear the businessmen affected complain that the new Ruritanian law gives to Mauritanians 417 00:41:28.780 --> 00:41:34.700 the opportunity to undersell both in Ruritania and in Mauritania. 418 00:41:34.700 --> 00:41:40.140 They see that some Ruritanian businessmen are forced to restrict their production and 419 00:41:40.140 --> 00:41:46.340 to discharge workers, and they begin to suspect that something may be wrong with the teachings 420 00:41:46.340 --> 00:41:51.220 of the self-styled unorthodox friends of labor. 421 00:41:51.220 --> 00:41:56.940 But the picture is different if there is, in Ruritania, a tariff high enough to prevent 422 00:41:56.940 --> 00:42:03.700 Mauritanians from even temporarily expanding their sales on the Ruritanian market. 423 00:42:03.700 --> 00:42:09.820 Then, the most spectacular short-run effects of the new measure are masked in such a way 424 00:42:09.820 --> 00:42:13.500 that the public does not become aware of them. 425 00:42:13.500 --> 00:42:19.340 The long-run effects, of course, cannot be avoided, but they are brought about by another 426 00:42:19.340 --> 00:42:25.540 Another sequence of short-run effects which is less offensive because less visible. 427 00:42:25.540 --> 00:42:31.620 The talk about alleged social gains produced by the shortening of the hours of work is 428 00:42:31.620 --> 00:42:37.900 not exploded by the immediate emergence of effects which everyone, and most of all the 429 00:42:37.900 --> 00:42:41.980 discharged workers, consider undesirable. 430 00:42:41.980 --> 00:42:49.100 The main function of tariffs and other protectionist devices today is to disguise the real effects 431 00:42:49.100 --> 00:42:56.100 of Interventionist Policies Designed to Raise the Standard of Living of the Masses. 432 00:42:56.100 --> 00:43:02.080 Economic nationalism is the necessary complement of these popular policies, which pretend to 433 00:43:02.080 --> 00:43:09.660 improve the wage earner's material well-being, while they are, in fact, impairing it. 434 00:43:09.660 --> 00:43:11.400 4. 435 00:43:11.400 --> 00:43:17.760 Restriction as an Economic System There are, as has been shown, cases in which 436 00:43:17.760 --> 00:43:23.640 A restrictive measure can attain the end sought by its application. 437 00:43:23.640 --> 00:43:28.940 If those resorting to such a measure think that the attainment of this goal is more important 438 00:43:28.940 --> 00:43:34.400 than the disadvantages brought about by the restriction, that is, the curtailment in the 439 00:43:34.400 --> 00:43:41.360 quantity of material goods available for consumption, the recourse to restriction is justified from 440 00:43:41.360 --> 00:43:44.640 the point of view of their value judgments. 441 00:43:44.640 --> 00:43:50.360 They incur costs and pay a price in order to get something that they value more than 442 00:43:50.360 --> 00:43:53.800 what they had to expend or to forgo. 443 00:43:53.800 --> 00:43:59.200 Nobody, and certainly not the theorist, is in a position to argue with them about the 444 00:43:59.200 --> 00:44:02.600 propriety of their value judgments. 445 00:44:02.600 --> 00:44:08.280 The only adequate mode of dealing with measures restricting production is to look at them 446 00:44:08.280 --> 00:44:13.040 as sacrifices made for the attainment of a definite end. 447 00:44:13.040 --> 00:44:18.000 They are quasi-expenditures and quasi-consumption. 448 00:44:18.000 --> 00:44:23.560 They are an employment of things that could be produced and consumed in one way for the 449 00:44:23.560 --> 00:44:27.080 realization of certain other ends. 450 00:44:27.080 --> 00:44:33.680 These things are prevented from coming into existence, but this quasi-consumption is precisely 451 00:44:33.680 --> 00:44:39.760 what satisfies the authors of these measures better than the increase in goods available 452 00:44:39.760 --> 00:44:44.080 which the omission of the restriction would have produced. 453 00:44:44.080 --> 00:44:49.200 With certain restrictive measures this point of view is universally adopted. 454 00:44:49.200 --> 00:44:54.560 If a government decrees that a piece of land should be kept in its natural state as a national 455 00:44:54.560 --> 00:45:00.840 park and should be withheld from any other utilization, nobody would classify such a 456 00:45:00.840 --> 00:45:04.480 venture as anything else than an expenditure. 457 00:45:04.480 --> 00:45:09.720 The government deprives the citizens of the increment in various products which the cultivation 458 00:45:09.720 --> 00:45:22.320 It follows that restriction of production can never play any role other than that of 459 00:45:22.320 --> 00:45:26.880 an ancillary complement of a system of production. 460 00:45:26.880 --> 00:45:34.260 One cannot construct a system of economic action out of such restrictive measures alone. 461 00:45:34.260 --> 00:45:40.760 So complex of such measures can be linked together into an integrated economic system. 462 00:45:40.760 --> 00:45:44.020 They cannot form a system of production. 463 00:45:44.020 --> 00:45:50.260 They belong in the sphere of consumption, not in the sphere of production. 464 00:45:50.260 --> 00:45:56.100 In scrutinizing the problems of interventionism, we are intent upon examining the claims of 465 00:45:56.100 --> 00:46:01.720 the advocates of government interference with business that their system offers an alternative 466 00:46:01.720 --> 00:46:04.480 to Other Economic Systems. 467 00:46:04.480 --> 00:46:11.200 No such claim can reasonably be raised with regard to measures restricting production. 468 00:46:11.200 --> 00:46:17.280 The best they can attain is curtailment of output and satisfaction. 469 00:46:17.280 --> 00:46:23.400 Wealth is produced by expending a certain quantity of factors of production. 470 00:46:23.400 --> 00:46:30.060 Curtailing this quantity does not increase, but decreases the amount of goods produced. 471 00:46:30.060 --> 00:46:35.820 Even if the ends aimed at by shortening the hours of work could be attained by such a 472 00:46:35.820 --> 00:46:39.420 decree, it would not be a measure of production. 473 00:46:39.420 --> 00:46:44.980 It is invariably a way of cutting down output. 474 00:46:44.980 --> 00:46:47.580 Capitalism is a system of social production. 475 00:46:47.580 --> 00:46:53.460 Socialism, say the socialists, is also a system of social production. 476 00:46:53.460 --> 00:46:59.660 But with regard to measures restricting production, even the interventionists cannot raise a similar 477 00:46:59.660 --> 00:47:24.540 Economics does not contend that restriction is a bad system of production. 478 00:47:24.540 --> 00:47:32.980 asserts that it is not a system of production at all, but rather a system of quasi-consumption. 479 00:47:32.980 --> 00:47:38.420 Most of the ends the interventionists want to attain by restriction cannot be attained 480 00:47:38.420 --> 00:47:40.000 this way. 481 00:47:40.000 --> 00:47:47.900 But even where restrictive measures are fit to attain the ends sought, they are only restrictive. 482 00:47:47.900 --> 00:47:53.360 The enormous popularity which restriction enjoys in our day is due to the fact that 483 00:47:53.360 --> 00:48:13.360 In dealing with the problem of shortening the hours of work by government decree, the public is not aware of the fact that total output must drop, and that it is very probable that the wage earner's standard of living will be potentially lowered too. 484 00:48:13.360 --> 00:48:21.060 It is a dogma of present-day unorthodoxy that such a pro-labor measure is a social gain 485 00:48:21.060 --> 00:48:27.860 for the workers, and that the costs of these gains fall entirely upon the employers. 486 00:48:27.860 --> 00:48:34.240 Whoever questions this dogma is branded as a sycophantic apologist of the unfair pretensions 487 00:48:34.240 --> 00:48:38.640 of rugged exploiters and pitilessly persecuted. 488 00:48:38.640 --> 00:48:43.920 It is insinuated that he wants to reduce the wage earners to the poverty and the long working 489 00:48:43.920 --> 00:48:48.840 hours of the early stages of modern industrialism. 490 00:48:48.840 --> 00:48:54.240 As against all this slander, it is important to emphasize again that what produces wealth 491 00:48:54.240 --> 00:48:59.600 and well-being is production and not restriction. 492 00:48:59.600 --> 00:49:05.500 That in the capitalist countries the average wage earner consumes more goods and can afford 493 00:49:05.500 --> 00:49:11.500 to enjoy more leisure than his ancestors, and that he can support his wife and children 494 00:49:11.500 --> 00:49:17.820 and need not send them to work, is not an achievement of governments and labor unions. 495 00:49:17.820 --> 00:49:23.540 It is the outcome of the fact that profit-seeking business has accumulated and invested more 496 00:49:23.540 --> 00:49:29.140 for Capital, and thus increased a thousand-fold the productivity of labor.