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Mises on how the “boon” of a tariff privilege is soon dissipated (1949)

The Austrian economist Ludwig von Mises (1881-1973) argued in Human Action that those granted the political privilege of tariff protection enjoyed a boon that would be short lived as the gains would be competed away by new entrants:

It is important to realize that what those benefited by these measures (tariffs) consider an advantage for themselves lasts only for a limited time. In the long run the privilege accorded to a definite class of producers loses its power to create specific gains. The privileged branch attracts newcomers, and their competition tends to eliminate the specific gains derived from the privilege. Thus the eagerness of the law’s pet children to acquire privileges is insatiable. They continue to ask for new privileges because the old ones lose their power.

For those favored the measure is tantamount to the acquisition of a privilege. They are asking for such measures because they want to be privileged.

Here again the most striking example is provided by protectionism. The imposition of a duty on the importation of a commodity burdens the consumers. But to the domestic producers it is a boon. From their point of view decreeing new tariffs and raising already existing tariffs is an excellent thing.

The same is valid with regard to many other restrictive measures. If the government restricts— either by direct restriction or by fiscal discrimination — big business and corporations, the competitive position of small-size enterprises is strengthened. If it restricts the operation of big stores and chain stores, the small shopkeepers rejoice.

It is important to realize that what those benefited by these measures consider an advantage for themselves lasts only for a limited time. In the long run the privilege accorded to a definite class of producers loses its power to create specific gains. The privileged branch attracts newcomers, and their competition tends to eliminate the specific gains derived from the privilege. Thus the eagerness of the law’s pet children to acquire privileges is insatiable. They continue to ask for new privileges because the old ones lose their power.

About this Quotation:

Mises had surprisingly little to say specifically about tariffs and other forms of “protection” for producers, since he thought the arguments in favour of free trade were “so clear, so obvious, so indisputable” that they barely needed repeating. In his mind there was little theoretical difference between domestic and foreign trade and so everything he said about intervention in the domestic economy applied equally to exchanges with “foreigners.” His most extensive treatment of tariffs therefore occurred in a chapter on “Liberal Foreign Policy” where he stressed the mutual benefits of a peaceful international trading system. In this quotation Mises argues that tariffs are a political privilege granted to a minority of interests but warns that the “boon” they got from the government would be short lived as internal competition by upstarts in the protected industry would gradually compete away those benefits. The next point he makes is very important and relates to his dynamic theory of interventionism, by which is meant the idea that one intervention creates a problem which is too often solved by the government introducing another intervention, and so infinitum. He makes a similar argument here about the constant clamor of “the law’s pet children” to get new privileges as the benefits of the first one wore off.

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