The Online Library of Liberty

A project of Liberty Fund, Inc.

• The Liberty Fund Library of the Works of Ludwig Von Mises
• Foreword to the Liberty Fund Edition
• Preface
• Omnipotent Government
• Introduction
• Part I: The Collapse of German Liberalism
• I: German Liberalism
• 1.: The Ancien Régime and Liberalism
• 2.: The Weakness of German Liberalism
• 3.: The Prussian Army
• 4.: The Constitutional Conflict In Prussia
• 5.: The “little German” Program
• 6.: The Lassalle Episode
• II: The Triumph of Militarism
• 1.: The Prussian Army In the New German Empire
• 2.: German Militarism
• 3.: The Liberals and Militarism
• 4.: The Current Explanation of the Success of Militarism
• Part II: Nationalism
• III: Etatism
• 1.: The New Mentality
• 2.: The State
• 3.: The Political and Social Doctrines of Liberalism
• 4.: Socialism
• 5.: Socialism In Russia and In Germany
• 6.: Interventionism
• 7.: Etatism and Protectionism
• 8.: Economic Nationalism and Domestic Monopoly Prices
• 9.: Autarky
• 10.: German Protectionism
• IV: Etatism and Nationalism
• 1.: The Principle of Nationality
• 2.: The Linguistic Group
• 3.: Liberalism and the Principle of Nationality
• 4.: Aggressive Nationalism
• 5.: Colonial Imperialism
• 6.: Foreign Investment and Foreign Loans
• 7.: Total War
• 8.: Socialism and War
• V: Refutation of Some Fallacious Explanations
• 1.: The Shortcomings of Current Explanations
• 2.: The Alleged Irrationality of Nationalism
• 3.: The Aristocratic Doctrine
• 4.: Misapprehended Darwinism
• 5.: The Role of Chauvinism
• 6.: The Role of Myths
• Part III: German Nazism
• VI: The Peculiar Characteristics of German Nationalism
• 1.: The Awakening
• 2.: The Ascendancy of Pan-germanism
• 3.: German Nationalism Within an Etatist World
• 4.: A Critique of German Nationalism
• 5.: Nazism and German Philosophy
• 6.: Polylogism
• 7.: Pan-germanism and Nazism
• VII: The Social Democrats In Imperial Germany
• 1.: The Legend
• 2.: Marxism and the Labor Movement
• 3.: The German Workers and the German State
• 4.: The Social Democrats Within the German Caste System
• 5.: The Social Democrats and War
• VIII: Anti-semitism and Racism
• 1.: The Role of Racism
• 2.: The Struggle Against the Jewish Mind
• 3.: Interventionism and Legal Discrimination Against Jews
• 4.: The “stab In the Back”
• 5.: Anti-semitism As a Factor In International Politics
• IX: The Weimar Republic and Its Collapse
• 1.: The Weimar Constitution
• 2.: The Abortive Socialization
• 3.: The Armed Parties
• 4.: The Treaty of Versailles
• 5.: The Economic Depression
• 6.: Nazism and German Labor
• 7.: The Foreign Critics of Nazism
• X: Nazism As a World Problem
• 1.: The Scope and Limitations of History
• 2.: The Fallacy of the Concept of “national Character”
• 3.: Germany’s Rubicon
• 4.: The Alternative
• Part IV: The Future of Western Civilization
• XI: The Delusions of World Planning
• 1.: The Term “planning”
• 2.: The Dictatorship Complex
• 3.: A World Government
• 4.: Planned Production
• 5.: Foreign Trade Agreements
• 6.: Monet Ary Planning
• 7.: Planning International Capital Transactions
• XII: Peace Schemes
• 1.: Armament Control
• 2.: A Critique of Some Other Schemes Proposed
• 3.: The Union of the Western Democracies
• 4.: Peace In Eastern Europe
• 5.: The Problems of Asia
• 6.: The Role of the League of Nations
• Conclusion

7.

Etatism and Protectionism

Etatism—whether interventionism or socialism—is a national policy. The national governments of various countries adopt it. Their concern is whatever they consider favors the interests of their own nations. They are not troubled about the fate or the happiness of foreigners. They are free from any inhibitions which would prevent them from inflicting harm on aliens.

We have dealt already with how the policies of etatism hurt the well-being of the whole nation and even of the groups or classes which they are intended to benefit. For the purpose of this book it is still more important to emphasize that no national system of etatism can work within a world of free trade. Etatism and free trade in international relations are incompatible, not only in the long run but even in the short run. Etatism must be accompanied by measures severing the connections of the domestic market with foreign markets. Modern protectionism, with its tendency to make every country economically self-sufficient as far as possible, is inextricably linked with interventionism and its inherent tendency to turn into socialism. Economic nationalism is the unavoidable outcome of etatism.

In the past various doctrines and considerations induced governments to embark upon a policy of protectionism. Economics has exposed all these arguments as fallacious. Nobody tolerably familiar with economic theory dares today to defend these long since unmasked errors. They still play an important role in popular discussion; they are the preferred theme of demagogic fulminations; but they have nothing to do with present-day protectionism. Present-day protectionism is a necessary corollary of the domestic policy of government interference with business. Interventionism begets economic nationalism. It thus kindles the antagonisms resulting in war. An abandonment of economic nationalism is not feasible if nations cling to interference with business. Free trade in international relations requires domestic free trade. This is fundamental to any understanding of contemporary international relations.

It is obvious that all interventionist measures aiming at a rise in domestic prices for the benefit of domestic producers, and all measures whose immediate effect consists in a rise in domestic costs of production, would be frustrated if foreign products were not either barred altogether from competition on the domestic market or penalized when imported. When, other things being unchanged, labor legislation succeeds in shortening the hours of work or in imposing on the employer in another way additional burdens to the advantage of the employees, the immediate effect is a rise in production costs. Foreign producers can compete under more favorable conditions, both on the home market and abroad, than they could before.

The acknowledgment of this fact has long since given impetus to the idea of equalizing labor legislation in different countries. These plans have taken on more definite form since the international conference called by the German government in 1890. They led finally in 1919 to the establishment of the International Labor Office in Geneva. The results obtained were rather meager. The only efficient way to equalize labor conditions all over the world would be freedom of migration. But it is precisely this which unionized labor of the better-endowed and comparatively underpopulated countries fights with every means available.

The workers of those countries where natural conditions of production are more favorable and the population is comparatively thin enjoy the advantages of a higher marginal productivity of labor. They get higher wages and have a higher standard of living. They are eager to protect their advantageous position by barring or restricting immigration.* On the other hand, they denounce as “dumping” the competition of goods produced abroad by foreign labor remunerated at a lower scale; and they ask for protection against the importation of such goods.

The countries which are comparatively overpopulated—i.e., in which the marginal productivity of labor is lower than in other countries—have but one means to compete with the more favored countries: lower wages and a lower standard of living. Wage rates are lower in Hungary and in Poland than in Sweden or in Canada because the natural resources are poorer and the population is greater in respect to them. This fact cannot be disposed of by an international agreement, or by the interference of an international labor office. The average standard of living is lower in Japan than in the United States because the same amount of labor produces less in Japan than in the United States.

Such being the conditions, the goal of international agreements concerning labor legislation and trade-union policies cannot be the equalization of wage rates, hours of work, or other such “pro-labor” measures. Their only aim could be to coördinate these things so that no changes in the previously prevailing conditions of competition resulted. If, for example, American laws or trade-union policies resulted in a 5 per cent rise in construction costs, it would be necessary to find out how much this increased the cost of production in the various branches of industry in which America and Japan are competing or could compete if the relation of production costs changed. Then it would be necessary to investigate what kind of measures could burden Japanese production to such an extent that no change in the competitive power of both nations would take place. It is obvious that such calculations would be extremely difficult. Experts would disagree with regard both to the methods to be used and the probable results. But even if this were not the case an agreement could not be reached. For it is contrary to the interests of Japanese workers to adopt such measures of compensation. It would be more advantageous for them to expand their export sales to the disadvantage of American exports; thus the demand for their labor would rise and the condition of Japanese workers improve effectively. Guided by this idea, Japan would be ready to minimize the rise in production costs effected by the American measures and would be reluctant to adopt compensatory measures. It is chimerical to expect that international agreements concerning socio-economic policies could be substituted for protectionism.

We must realize that practically every new pro-labor measure forced on employers results in higher costs of production and thereby in a change in the conditions of competition. If it were not for protectionism such measures would immediately fail to attain the ends sought. They would result only in a restriction of domestic production and consequently in an increase of unemployment. The unemployed could find jobs only at lower wage rates; if they were not prepared to acquiesce in this solution they would remain unemployed. Even narrow-minded people would realize that economic laws are inexorable, and that government interference with business cannot attain its ends but must result in a state of affairs which—from the point of view of the government and the supporters of its policy—is even less desirable than the conditions which it was designed to alter.

Protectionism, of course, cannot brush away the unavoidable consequences of interventionism. It can only improve conditions, in appearance; it can only conceal the true state of affairs. Its aim is to raise domestic prices. The higher prices provide a compensation for the rise in costs of production. The worker does not suffer a cut in money wages but he has to pay more for the goods he wants to buy. As far as the home market is concerned the problem is seemingly settled.

But this brings us to a new problem: monopoly.

[* ]Many Americans are not familiar with the fact that, in the years between the two world wars, almost all European nations had recourse to very strict anti-immigration laws. These laws were more rigid than the American laws, since most of them did not provide for any immigration quotas. Every nation was eager to protect its wage level—a low one when compared with American conditions—against the immigration of men from other countries in which wage rates were still lower. The result was mutual hatred and—in face of a threatening common danger—disunion.