fact: Consumers can now buy the same quality of sweater for less money. But they have $5 left over. With the $5 left over they help employment in any number of other industries in the United States.
By buying English sweaters they furnish the English with dollars to buy American goods here. Tariff helps the protected producers at the expense of all other American producers, and particularly of those who have a comparatively large potential export market.-----------------
fact: By these restrictive policies wages and capital returns might indeed be kept higher than otherwise within the X industry itself; but wages and capital returns in other industries would be forced down lower than otherwise. The X industry would benefit only at the expense of the A, B and C industries.
If subsidies are provided, The result is also (and this is where the net loss comes in to the nation considered as a unit) that capital and labor are driven out of industries in which they are more efficiently employed to be diverted to an industry in which they are less efficiently employed. Less wealth is created. The average standard of living is lowered compared with what it would have been.
Up to a certain point it is necessary to produce shoes. But it is also necessary to produce coats, shirts, trousers, homes, plows, shovels, factories, bridges, milk and bread. It would be idiotic to go on piling up mountains of surplus shoes, simply because we could do it, while hundreds of more urgent needs went unfilled.
In an economy in equilibrium, a given industry can expand only at the expense of other industries.
Dying industries should be allowed to die as that growing industries should be allowed to grow.
The government must act. We are not trying to boost the price; we are only trying to stabilize it.
When the State steps in and either buys the farmers’ crops itself or lends them the money to hold the crops off the market.The farmer is encouraged, with the taxpayers’ money, to withhold his crops excessively.This leads to a falling off in buyers.Excessive stocks are held off the market. artificial shortage built up this year means an artificial surplus the next year.
Now we cannot hold the price of any commodity below its market level without in time bringing about two consequences. The first is to increase the demand for that commodity.The second consequence is to reduce the supply of that commodity.Profit margins are reduced or wiped out.
When it becomes obvious that a shortage of some commodity is developing as a result of a price fixed below the market, rich consumers are accused of taking “more than their fair share”. The government then adopts a set of rules concerning who shall have priority in buying that commodity or how it shall be rationed.
The government may try to assure supply through extending its control over the costs of production of a commodity. To hold down the retail price of beef, for example, it may fix the wholesale price of beef, the slaughter-house price of beef, the price of live cattle, the price of feed, the wages of farmhands.But as the government extends this price-fixing backwards, it extends at the same time the consequences that originally drove it to this course.
Therefore the government attempts to compensate for this by paying a subsidy.though the subsidy is paid to producers, those who are really being subsidized are the consumers.
During the transition period the large, long-established firms, with a heavy capital investment and a great dependence upon the retention of public good-will, are forced to restrict or discontinue production. Their place is taken by fly-by-night concerns with little capital and little accumulated experience in production. These new firms are inefficient compared with those they displace; they turn out inferior and dishonest goods at much higher production costs than the older concerns would have required for continuing to turn out their former goods. A premium is put on dishonesty.
Rent control, however, encourages wasteful use of space.New housing is not built because there is no incentive to build it. If, as often happens, the government finally recognizes this and exempts new housing from rent control,rents for new housing might be ten or twenty times as high as rent in equivalent space in the old.
landlords will not trouble to remodel apartments.
A common next step is to take rent controls off “luxury” apartments while keeping them on low or middle-grade apartments. Effect:The builders and owners of luxury apartments are encouraged and rewarded; the builders and owners of the more needed low-rent housing are discouraged and penalized. There is no incentive to build new low-income housing, or even to keep existing low-income housing in good repair.It may reach a point where many landlords not only cease to make any profit but are faced with mounting and compulsory losses. They may find that they cannot even give their property away. They may actually abandon their property and disappear. The tenants are compelled to abandon their apartments.
So the government launches on a gigantic housing program — at the taxpayers’ expense.
The politicians—remembering that tenants have more votes than landlords—cynically continue their rent control long after they have been forced to give up general price controls.
The first thing that happens, for example, when a law is passed that no one shall be paid less than $106 for a forty-hour week is that no one who is not worth $106 a week to an employer will be employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment.
It may be thought that industry can then charge higher prices for its product, so that the burden of paying the higher wage is merely shifted to consumers.
It may merely drive consumers to the equivalent imported products or to some substitute. Or, if consumers continue to buy the product of the industry in which wages have been raised, the higher price will cause them to buy less of it.
By a minimum wage of, say, $2.65 an hour, we have forbidden anyone to work forty hours in a week for less than $106. Suppose, now, we offer only $70 a week on relief. This means that we have forbidden a man to be usefully employed at, say, $90 a week, in order that we may support him at $70 a week in idleness. We have deprived society of the value of his services.
If the relief is $106 a week, for example, workers offered a wage of $2.75 an hour, or $110 a week, are in fact, as they see it, being asked to work for only $4 a week—for they can get the rest without doing anything.
The best way to raise wages, therefore, is to raise marginal labor productivity. This can be done by many methods: by an increase in capital accumulation — i.e., by an increase in the machines with which the workers are aided; by new inventions and improvements.
The most obvious case in which intimidation and force are used to put or keep the wages of a particular union above the real market worth of its members’ services is that of a strike. But the moment workers have to use intimidation or violence to enforce their demands—the moment they use mass picketing to prevent any of the old workers from continuing at their jobs,case becomes suspect.These other workers are willing to take the jobs that the old employees have vacated, and at the wages that the old employees now reject. The fact proves that the other alternatives open to the new workers are not as good as those that the old employees have refused. If, therefore, the old employees succeed by force in preventing new workers from taking the place, they prevent these new workers from choosing the best alternative open to them, and force them to take something worse. The strikers are therefore insisting on a position of privilege, and are using force to maintain this privileged position against other workers.
Persistent notion is that the interests of a nation’s workers are identical with each other, and that an increase in wages for one union in some obscure way helps all other workers. the truth is that, if a particular union by coercion is able to enforce for its own members a wage substantially above the real market worth of their services, it will hurt all other workers as it hurts other members of the community.
It is at least possible for unions to make their gains in the short run at the expense of employers and investors. The investors once had liquid funds. But they have put them, say, into the railroad business. The railway unions may force them to accept smaller returns on this capital already invested.the investors will not put a cent more into railroads. Thus the exploitation of capital by labor can at best he merely temporary.
The function of profits, finally, is to put constant and unremitting pressure on the head of every competitive business to introduce further economies and efficiencies, no matter to what stage these may already have been brought.
Profits are achieved not by raising prices, but by introducing economies and efficiencies that cut costs of production.
Real wealth, of course, consists in what is produced and consumed: the food we eat, the clothes we wear, the houses we live in.
On the one hand, as we have just seen, are those who imagine that the quantity of money could be increased by almost any amount without affecting prices. They merely see this increased money as a means of increasing everyone’s “purchasing power". On the other hand is the group that holds a rigid mechanical theory of the effect of the supply of money on commodity prices. All the money in a nation, as these theorists picture the matter, will be offered against all the goods...Multiply the quantity of money n times, in short, and you must multiply the prices of goods n times.
but increase in circulation of money raises prices.
On the contrary, the process of inflation is certain to affect the fortunes of one group differently from those of another. The first groups to receive the additional money will benefit the most. The money incomes of group A, for example, will have increased before prices have increased, so that they will be able to buy almost a proportionate increase in goods. The money incomes of group B will advance later, when prices have already increased somewhat; but group B will be better off in terms of goods.
Nor is it possible to bring inflation to a smooth and gentle stop.
Inflation can correct maladjustments, but it is very dangerous.
inflation is illusionary.
But suppose the public works are not paid for from the proceeds of taxation? Suppose they are paid for by deficit financing—that is, from the proceeds of government borrowing or from resort to the printing press? but, The government cannot keep piling up debt indefinitely; for if it tries, it will some day become bankrupt.Yet when the government comes to repay the debt it has accumulated for public works, it must necessarily tax more heavily than it spends. In this later period, therefore, it must necessarily destroy more jobs than it creates.
The poor are usually more heavily taxed by inflation, in percentage terms, than the rich, for they do not have the same means of protecting themselves by speculative purchases of real equities.
saving can also be a consequence of depression...we may refuse to invest speculating that prices may further fall.
savings and investment are brought into equilibrium with each other in the same way that the supply of and demand for any commodity are brought into equilibrium.
Governments everywhere are still trying to cure by public works the unemployment brought about by their own policies. They are imposing heavier and more expropriatory taxes than ever. They still recommend credit expansion. Most of them still make “full employment” their overriding goal. They continue to impose import quotas and protective tariffs. They try to increase exports by depreciating their currencies even further. Farmers are still “striking” for “parity prices.” Governments still provide special encouragements to unprofitable industries. They still make efforts to “stabilize” special commodity prices.Governments, pushing up commodity prices by inflating their currencies, continue to blame the higher prices on private producers, sellers, and “profiteers.” They impose price ceilings on oil and natural gas, to discourage new exploration precisely when it is in most need of encouragement, or resort to general price and wage fixing or “monitoring.” They continue rent control in the face of the obvious devastation it has caused. They not only retain minimum wage laws but keep increasing their level, in face of the chronic unemployment they so clearly bring about. They continue to pass laws granting special privileges and immunities to labor unions; to oblige workers to become members; to tolerate mass picketing and other forms of coercion; and to compel employers to “bargain collectively in good faith” with such unions— i.e., to make at least some concessions to their demands.