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Quotation of the Day…

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… is from page 325 of the 1936 English-language edition (translated from German by Alfred Stonier and Frederic Benham) of Gottfried Haberler [2]’s classic 1933 work, The Theory of International Trade With Its Application to Commercial Policy [3]:

For without a tariff each producer has only the natural protection of transport costs; as soon as his price exceeds the level at which foreign producers can profitably sell in his country they will commence to do so.

These views are confirmed by a thousandfold by experience. Cartels have developed much less in England than on the Continent. This is partly due to such factors as the proverbial individualism of the English entrepreneur, but it is largely due to the absence of protective tariffs. Nor is it a mere coincidence that the rapid growth of cartels in Germany began just after she adopted Protection in 1879.

DBx: Haberler is correct that when the state obstructs its citizens’ abilities to trade with foreigners, a source of often real and always potential competition in the home market thereby shrinks. This outcome also raises the likelihood of the successful formation and maintenance of domestic cartels, although in a large and otherwise dynamic economy, such as the U.S., cartels remain unlikely.

But in all cases, even when because of domestic competition producers have no ability to charge monopolistically high prices – that is, to charge prices above their costs of production – the ‘protected’ domestic economy suffers. The access of home-country buyers to lower-priced goods and services from abroad is nevertheless obstructed. (Also, depending upon the details of how home-country trade restrictions are defined and imposed, home-country consumers might also be obstructed in their access to goods and services of higher quality.)

Because genuine competition is a process – an on-going effort of entrepreneurs to earn profit by finding better ways to serve consumers – trade restrictions obstruct competition. Many better ideas from abroad – ideas for new and better outputs and for means of production and distribution – are prevented from improving the market processes of the home country.

A protected economy experiences less creative destruction and, hence, less growth.

A lesson drawn from the New Yorker’s cartoon-caption contest is relevant here [4].

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In 1879, Bismarck turned Germany more resolutely toward protectionism [5].

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