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Quotation of the Day…

… is from pages 560-561 of Armen Alchian’s 1979 paper “Words: Musical or Meaningful?” which appears in print for the first time in The Collected Works of Armen A. Alchian (2006), Volume 1 (“Choice and Cost Under Uncertainty”; Daniel K. Benjamin, ed.):

But, then, if I price below cost, what is the objection to my own acceptance of that loss? I bear that social loss. No one else does. Is that not a form of charity?

DBx: If I choose to offer to you a gift in the form of performing some service for you in exchange for a sum of money that doesn’t (by some measure) cover my cost of providing that service to you, you are free to accept or not. If you’re a friend or loved one, you might reject my offer in an attempt to help steer me clear of poverty. (But please do beware that you are here skirting on the edge of arrogance.)

If you are an arm’s-length stranger, I cannot see that you have any good reason to reject my offer on the grounds that the price I ask is too low. It’s my business and mine alone to determine the terms on which I choose to offer my services. It is your business and yours alone to do the same for yourself. If you find my offer appealing, you have no good reason to reject it. You will benefit and I (by assumption) will be made economically poorer. And seller Jones who thereby sells less to you because you accepted my offer has no economic or ethical cause to complain, for you do not owe seller Jones your patronage as a consumer.

In short, if I choose to transfer some of my wealth to you, you commit no economic or ethical offense in accepting my offer.

Nothing changes if I live in, say, China and you live in the United States.

The protectionist will object to this last claim. He will point out, almost always correctly, that the only reason I offer to sell to you at a price below my cost is that my government subsidizes me with funds taken from my fellow Chinese citizens. Thus, the gift that is given to you is not from me but, instead, from my fellow citizens. And they do not give this gift voluntarily; they are forced by Beijing to give it.

The protectionist here feigns concern for the welfare of ordinary citizens of foreign countries, and to help protect the wealth of ordinary Chinese people from the predations of Beijing, the protectionist demands that his government – Uncle Sam – reduce the wealth of Americans by denying to them the freedom to purchase imports sold in the U.S. at prices made artificially low by Beijing’s subsidies.

Of course, in reality the protectionist doesn’t care one little bit about the welfare of ordinary Chinese people. The protectionist’s only goal is to protect his preferred American producers from competition. He latches on to the existence of those Chinese subsidies merely as a convenient excuse to plead for his government to do to his fellow citizens what he pretends he believes is wrongly done by Beijing to Chinese citizens.

We know that the protectionist is insincere because he never complains about the many taxes, regulations, and other burdensome interventions by foreign governments that do not increase other countries’ exports or decrease other countries’ imports.

Despite his sometimes ostentatious protests to the contrary, the protectionist is not offended by government interventions that artificially reduce ordinary people’s consumption and production opportunities. Indeed, the protectionist’s chief order of business is to make a case for such interventions in his own country, and he uses whatever duplicity, hypocrisy, half-truths, falsehoods, and twisted coils of logic he can pass off to the general public as plausible.


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