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Quotation of the Day…

… is from page 295 of the 1981 Liberty Fund edition of Trygve Hoff’s 1949 study, Economic Calculation in the Socialist Society:

The question, however, is not whether factories can be built and efficiently conducted, but whether the factors of production could have been put to a more advantageous use by employing them elsewhere. In a society whose aim is the maximum production of needs its resources must not be used for producing what may be momentarily lacking and so have a certain value, but for producing goods which, according to the ends stated, are of greater value than other goods. Each factor of production must be so employed as to give the greatest return according to the ends. This, and only this, is the criterion for rational economic activity. For determining this there is needed valuation apparatus, an apparatus with prices and costs varying with the variables with which one has to reckon in the world of reality, and it is here that there arise specific, and so far, unsolved difficulties for the socialist society.

DBx: Proponents of industrial policy frequently point to this profitable subsidized firm or that thriving protected industry as evidence of the success of the government overriding or distorting competitive markets. Such pointing misses the point. The question is not “Is there some amount of subsidies or some degree of protectionism that will enable particular firms or industries to develop or grow and thrive?” The answer to this question is “Of course.” (Remember Adam Smith’s “glasses, hotbeds, and hotwalls” for making excellent wine in Scotland.)

The relevant question instead is “What is sacrificed as a result of the subsidies or tariffs that enable the thriving of the pointed-to firms and industries?” Because the resources diverted by subsidies and tariffs into subsidized and protected firms are scarce and have alternative uses, something is sacrificed. What? And what would have been the value of that which we are now unable to produce and consume compared to the value of that which we actually do – only because of the subsidies and tariffs – produce and consume?

Proponents of industrial policy and protectionism never tell us how the flesh-and-blood government officials charged with implementing industrial policy and protectionism – how the men and women who will override with bureaucratic commands the voluntary choices of individuals investing and spending their own (and only their own) money – can be sufficiently confident that the industrial processes and economic outputs that emerge from their interventions will have greater value for the people of the economy as a whole than is the value of the processes and outputs that their bureaucratic commands prevent from arising. We are to accept interventionists’ assertions of the net benefits of industrial policy and protectionism as a matter of faith.

Because industrial policy and protectionism are guided by faith that government officials can have superhuman knowledge, while market processes are guided by actual on-going feedback of actual information – to and from actual individuals – about the relative values of goods, services, and inputs, I trust that over time better results will emerge from market processes than from government commands that override market processes. I reject the religion of industrial policy or of protectionism.


Pictured above is Trygve J.B. Hoff (1895-1982).

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