Front Page Titles (by Subject) 10.: German Protectionism - Omnipotent Government: The Rise of the Total State and Total War
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10.: German Protectionism - Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War 
Omnipotent Government: The Rise of the Total State and Total War, edited with a Foreword by Bettina Bien Greaves (Indianapolis: Indiana, 2011).
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The second German Empire, founded at Versailles in 1871, was not only a powerful nation; it was—in spite of the depression which started in 1873—economically very prosperous. Its industrial plants were extremely successful in competing—abroad and at home—with foreign products. Some grumblers found fault with German manufactures; German goods, they said, were cheap but inferior. But the great foreign demand was precisely for such cheap goods. The masses put more stress upon cheapness than upon fine quality. Whoever wanted to increase sales had to cut prices.
In those optimistic 1870’s everybody was fully convinced that Europe was on the eve of a period of peace and prosperity. There were to be no more wars; trade barriers were doomed to disappear; men would be more eager to build up and to produce than to destroy and to kill each other. Of course, farsighted men could not overlook the fact that Europe’s cultural preëminence would slowly vanish. Natural conditions for production were more favorable in overseas countries. Capitalism was on the point of developing the resources of backward nations. Some branches of production would not be able to stand the competition of the newly opened areas. Agricultural production and mining would drop in Europe; Europeans would buy such goods by exporting manufactures. But people did not worry. Intensification of the international division of labor was in their eyes not a disaster but on the contrary a source of richer supply. Free trade was bound to make all nations more flourishing.
The German liberals advocated free trade, the gold standard, and freedom of domestic business. German manufacturing did not need any protection. It triumphantly swept the world market. It would have been nonsensical to bring forward the infant-industry argument. German industry had reached its maturity.
Of course, there were still many countries eager to penalize imports. However, the inference from Ricardo’s free-trade argument was irrefutable. Even if all other countries cling to protection, every nation serves its own interest best by free trade. Not for the sake of foreigners but for the sake of their own nation, the liberals advocated free trade. There was the great example set by Great Britain, and by some smaller nations, like Switzerland. These countries did very well with free trade. Should Germany adopt their policies? Or should it imitate half-barbarian nations like Russia?
But Germany chose the second path. This decision was a turning point in modern history.
There are many errors current concerning modern German protectionism.
It is important to recognize first of all that the teachings of Frederick List have nothing to do with modern German protectionism. List did not advocate tariffs for agricultural products. He asked for protection of infant industries. In doing this he underrated the competitive power of contemporary German manufacturing. Even in those days, in the early 1840’s, German industrial production was already much stronger than List believed. Thirty to forty years later it was paramount on the European continent and could very successfully compete on the world market. List’s doctrines played an important role in the evolution of protectionism in Eastern Europe and in Latin America. But the German supporters of protectionism were not justified in referring to List. He did not unconditionally reject free trade; he advocated protection of manufacturing only for a period of transition, and he nowhere suggested protection for agriculture. List would have violently opposed the trend of German foreign-trade policy of the last sixty-five years.
The representative literary champion of modern German protectionism was Adolf Wagner. The essence of his teachings is this: All countries with an excess production of foodstuffs and raw materials are eager to develop domestic manufacturing and to bar access to foreign manufactures; the world is on the way to economic self-sufficiency for each nation. In such a world what will be the fate of those nations which can neither feed nor clothe their citizens out of domestic foodstuffs and raw materials? They are doomed to starvation.
Adolf Wagner was not a keen mind. He was a poor economist. The same is true of his partisans. But they were not so dull as to fail to recognize that protection is not a panacea against the dangers which they depicted. The remedy they recommended was conquest of more space—war. They asked for protection of German agriculture in order to encourage production on the poor soil of the country, because they wanted to make Germany independent of foreign supplies of food for the impending war. Import duties for food were in their eyes a short-run remedy only, a measure for a period of transition. The ultimate remedy was war and conquest.
It would be wrong, however, to assume that the incentive to Germany’s embarking upon protectionism was a propensity to wage war. Wagner, Schmoller, and the other socialists of the chair, in their lectures and seminars, long preached the gospel of conquest. But before the end of the ’nineties they did not dare to propagate such views in print. Considerations of war economy, moreover, could justify protection only for agriculture; they were not applicable in the case of protection for the processing industries. The military argument of war preparedness did not play an important role in the protection of Germany’s industrial production.
The main motive for the tariff on manufactures was the Sozialpolitik. The pro-labor policy raised the domestic costs of production and made it necessary to safeguard the policy’s short-run effects. Domestic prices had to be raised above the world market level in order to escape the dilemma of either lower money wages or a restriction of exports and increase of unemployment. Every new progress of the Sozialpolitik, and every successful strike, disarranged conditions to the disadvantage of the German enterprises and made it harder for them to outdo foreign competitors both on the domestic and on the foreign markets. The much glorified Sozialpolitik was only possible within an economic body sheltered by tariffs.
Thus Germany developed its characteristic system of cartels. The cartels charged the domestic consumers high prices and sold cheaper abroad. What the worker gained from labor legislation and union wages was absorbed by higher prices. The government and the trade-union leaders boasted of the apparent success of their policies: the workers received higher money wages. But real wages did not rise more than the marginal productivity of labor.
Only a few observers saw through all this, however. Some economists tried to justify industrial protectionism as a measure for safeguarding the fruits of Sozialpolitik and of unionism; they advocated social protectionism (den sozialen Schutzzoll). They failed to recognize that the whole process demonstrated the futility of coercive government and union interference with the conditions of labor. The greater part of public opinion did not suspect at all that Sozialpolitik and protection were closely linked together. The trend toward cartels and monopoly was in their opinion one of the many disastrous consequences of capitalism. They bitterly indicted the greediness of capitalists. The Marxians interpreted it as that concentration of capital which Marx had predicted. They purposely ignored the fact that it was not an outcome of the free evolution of capitalism but the result of government interference, of tariffs and—in the case of some branches, like potash and coal—of direct government compulsion. Some of the less shrewd socialists of the chair (Lujo Brentano, for example) went so far in their inconsistency as to advocate at the same time free trade and a more radical pro-labor policy.
In the thirty years preceding the first World War Germany could eclipse all other European countries in pro-labor policies because it above all indulged in protectionism and subsequently in cartelization.
When, later, in the course of the depression of 1929 and the following years, unemployment figures went up conspicuously because trade-unions would not accept a reduction of boom wage rates, the comparatively mild tariff protectionism turned into the hyper-protectionist policies of the quota system, monetary devaluation, and foreign exchange control. At that time Germany was no longer ahead in pro-labor policies; other countries had surpassed it. Great Britain, once the champion of free trade, adopted the German idea of social protection. So did all other countries. Up-to-date hyper-protectionism is the corollary of present-day Sozialpolitik.
There cannot be any doubt that for nearly sixty years Germany set the example in Europe both of Sozialpolitik and of protectionism. But the problems involved are not Germany’s problems alone.
The most advanced countries of Europe have poor domestic resources. They are comparatively overpopulated. They are in a very unlucky position indeed in the present trend toward autarky, migration barriers, and expropriation of foreign investments. Insulation means for them a severe fall in standards of living. After the present war Great Britain—with its foreign assets gone—will be in the same position as Germany. The same will be true for Italy, Belgium, Switzerland. Perhaps France is better off because it has long had a low birth rate. But even the smaller, predominantly agricultural countries of the European East are in a critical position. How should they pay for imports of cotton, coffee, various minerals, and so on? Their soil is much poorer than that of Canada or the American wheat belt; its products cannot compete on the world market.
Thus the problem is not a German one; it is a European problem. It is a German problem only to the extent that the Germans tried—in vain—to solve it by war and conquest.
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