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

4.

Planned Production

The more realistic suggestions for world planning do not imply the establishment of a world state with a world parliament. They propose international agreements and regulations concerning production, foreign trade, currency and credit, and finally foreign loans and investments.

Planners sometimes describe their proposals as measures to combat poverty and want. The description is ambiguous. All economic policies are designed as remedies for poverty. Laissez faire too is a method of abolishing poverty. Both history and economic theory have demonstrated that it has been more successful than any other policy. When the Japanese tried to expand their exports by underselling, they too sought to improve the lot of the Japanese masses. If economic nationalism in other countries had not hindered their endeavors, they would not only have attained this end but would at the same time have raised the standards of living in the importing countries by providing their peoples with cheaper goods.

It is necessary to emphasize that we are not dealing here with plans for international charity. It would relieve much suffering if some nations were prepared to aid the starving masses in the poor countries by gratuitously distributing food and clothing. But such actions are outside the scope of strictly economic considerations. They are modes of consumption, not of production of goods.

We may first examine the proposals for regulating—by international agreements of various governments or by the order of an international authority established for that task—the production of various commodities.

In the unhampered market the prices are the guides and regulators of production. Goods are produced whenever they can be produced at a profit and are not produced when production involves a loss. A profitable industry tends to expand and an unprofitable one to shrink. An industry is unprofitable if the prices which the producer can obtain for the products do not cover the cost of the materials and labor required for their production. The consumers therefore determine by their buying or nonbuying how much should be produced in every branch of industry. The amount of wheat produced is determined by the price which the consumers are ready to pay. An expansion of production beyond these limits would mean that factors of production (labor and capital), which in accordance with the demands of the consumers are needed for the production of other commodities, would be diverted to the satisfaction of needs which the consumers consider less urgent. There prevails under unhampered capitalism a tendency to fix the amount of production in every field at a level at which the marginal producer or producers, i.e., those working under the least favorable conditions, neither make a profit nor incur a loss.

Conditions being such, a regulation providing for the expansion of production of a commodity would be to no purpose if the government or international authority did not subsidize the submarginal producers in order to indemnify them for the losses incurred. But this would result in a corresponding restriction of the output of other commodities. Factors of production would be withdrawn from other branches to be used to expand the industry subsidized. The consumers, who as taxpayers provide the means needed for the subsidies, must restrict their consumption. They get smaller amounts of commodities of which they want to get more, and have the opportunity to get more of other commodities for which their demand is less intense. The intervention of the government does not comply with their individual wishes. At bottom they cannot consider its result an improvement of their condition.

It is not in the power of governments to increase the supply of one commodity without a corresponding restriction in the supply of other commoditiesmore urgently demanded by consumers. The authority may reduce the price of one commodity only by raising the prices of others.

There are of course hundreds of millions of people who would be ready to consume more wheat, sugar, rubber, or tin if the prices were lower. The sales of every commodity increase with falling prices. But no government interference could make these commodities cheaper without raising the prices of other commodities, e.g., meat, wool, or pulp. A general increase of production can be obtained only by the improvement of technical methods, by the accumulation of additional capital, and by a more efficient use of all factors of production. No planning—whether national or international—can effect a general lowering of real prices and redress the grievances of those for whom prices are too high.

But most supporters of international planning have not the least intention of making raw materials and foodstuffs cheaper. On the contrary. What they really have in mind is raising prices and restricting supply. They see the best promise in the policies by which various governments—mainly in the last twenty years—have tried to put into effect restrictions and price increases for the benefit of special groups of producers and to the disadvantage of consumers. True, some of these schemes worked only for a short time and then collapsed, while many did not work at all. But this, according to the planners, was due to faults in technical execution. It is the essence of all their projects for postwar economic planning that they will so improve the methods applied as to make them succeed in the future.

The dangerous fact is that while government is hampered in endeavors to make a commodity cheaper by intervention, it certainly has the power to make it more expensive. Governments have the power to create monopolies; they can force the consumers to pay monopoly prices; and they use this power lavishly.

Nothing more disastrous could happen in the field of international economic relations than the realization of such plans. It would divide the nations into two groups—the exploiting and the exploited; those restricting output and charging monopoly prices, and those forced to pay monopoly prices. It would engender insoluble conflicts of interests and inevitably result in new wars.

The advocates of these schemes try to justify their suggestions by pointing out that conditions are very unsatisfactory for the producers of raw materials and foodstuffs. There is overproduction, in these lines, they insist, and prices are so low that the producers lose money. The aim of their plans, they say, is to restore the profitability of production.

It is true that a good deal of the production of these commodities does not pay. The trend toward autarky makes it harder for the industrial nations to sell their manufactures abroad; consequently they have to restrict their buying of food and raw materials. Hence it is necessary to retrench production of food and raw materials; the sub-marginal producers must go out of business. It is very unfortunate for them, but they can blame only the politicians of their own countries who have been responsible for the hyper-protectionist policies. The only way to increase the sales of coffee and to make prices go up on a nonmonopolized market is to buy more products from those countries in which coffee consumption would expand if their exports increased. But the pressure groups of the producers reject this solution and work for monopoly prices. They want to substitute monopolistic schemes for the operation of an unhampered market. On an un-hampered market the restriction in the output of raw materials and foodstuffs, made unavoidable by the protectionist policies of the producing countries, would take place automatically by the elimination of the submarginal producers—i.e., those for whom production does not pay at the market price. But the governments want to put into effect a much greater restriction for the sake of establishing monopoly prices.

It is often said that the mechanism of the capitalist market no longer works under present conditions. The submarginal producers, the argument runs, do not go out of business; they continue production; thus prices go down to a level at which production no longer pays any producer. Therefore government intervention is needed.

The fact is true; but its interpretation and the conclusions drawn from the interpretation are entirely wrong. The reason the submarginal producers do not stop producing is that they are confident that government intervention will render their business profitable again. Their continued production gluts the market so that prices no longer cover the costs even of the other producers. In this as in so many other instances the unsatisfactory effects of a previous government intervention are put forward as arguments for further intervention. Export sales drop because imports have been checked; thus the prices of export goods also drop; and then a demand arises for measures to make prices go up.

Let us look once again at conditions in American agriculture. From its early colonial beginnings there has been a continuous shifting of farming from less fertile to more fertile soil. There have always been submarginal farms on which production had to be discontinued because the competition of farmers producing at lower costs rendered them unprofitable. But with the New Deal things took a new turn. The government interfered to the advantage of the submarginal farmers. All farmers had to submit to a proportional restriction of output. The government embarked upon a vast scheme for restricting output, raising prices, and subsidizing the farmers. In interfering for the special benefit of the submarginal farmer it did so to the disadvantage of everyone consuming food and cotton and to the disadvantage of the taxpayer. It burdened the rest of the nation in order to pay bounties to some groups. Thus it split the nation into conflicting classes—a class of bounty receivers and a more numerous class of bounty payers. This is the inevitable outcome of interventionism. The government can give to one group only what it takes from another.

The domestic conflicts engendered by such policies are very serious indeed. But in the sphere of international relations they are incomparably more disastrous. To the extent that monopoly prices are charged for food and raw materials the grievances of the have-nots are justified.

Such are the prospects of international or world planning in the sphere of production of raw materials and foodstuffs. It would be difficult to imagine any program whose realization would contribute more to engendering future conflicts and wars.