… is from page 190 of the late Nobel-laureate economist Douglass North‘s 1961 paper “The United States in the International Economy, 1790-1950,” which is Chapter 7 of American Economic History (Seymour Harris, ed., 1961):
The rapid increase in capital and labor in the nineteenth century was slowly and inexorably changing the factor combination in this country, in a fashion that continually improved our ability to produce efficiently many types of manufactures. The tariff effectively protected many American industries against foreign competition. But the tariff indiscriminately blanketed protection on many raw materials and manufactures, aiding and abetting those which represented a poor use of resources as well as some in which we were efficient.
DBx: The market in a regime of free trade will not allocate resources as efficiently as would an omniscient, omnipotent, and benevolent god. But such a standard, as ridiculous as it obviously is when stated straightforwardly, is nevertheless often resorted to by protectionists when they point to alleged ‘failures’ of free trade to achieve this, that, or some other desired set of outcomes. A chief virtue of free trade is that any failures or imperfections that arise under it typically create incentives that incite private economic actors to make improvements. Efficient activities continue to get resources while inefficient one lose resources.
In principle, protectionism done for economic purposes is supposed to achieve the same outcome, only more quickly, more surely, and more thoroughly. But because in practice the decision-makers who are empowered by protectionist policies – unlike decision-makers in free markets – have neither the information nor the incentives necessary to discover errors as well as new, economically justified opportunities, protectionism creates greater errors than does free trade and protects these errors for long periods from being discovered and corrected.
