 All right, ladies and gentlemen, the clock says one o'clock, so it is time to reconvene. This afternoon, our very first post-lunch lecture will be on free trade versus protectionism, and I will be sharing what I can about that in the time allotted. Free trade versus protectionism tends to be thought of in terms of a field of a conventional field of economics called international trade. I think it's better to sort of back up a little bit and think of it more fundamentally. We can see that there's two basic economic policies, if we want to call them that. There's the policies that allow the unhampered market to flourish, so that would be one policy, the unhampered market. The other policy would be a policy of state control, either outright socialism or a hampered market where the state intervenes to control some aspect of the market or to direct market activity away from what an unhampered market would have in one way or another. If we understand free trade and protectionism in light of that sort of basic dichotomy, the unhampered market versus the hampered market or the no market, if you want to go for socialism, the anti-market, it brings to mind this passage I read from Murray Rothbard. It's a passage, by the way, that is both in man economy estate and in power and market, virtually word for word identical. He says, one very popular subdivision of economics has been, quote, international trade, end of quote. In a purely free market such as we are analyzing the bulk of this work, meaning man economy estate, there can be no such thing as a, quote, international trade problem. For nations might then possibly continue as cultural expressions, but not as economically meaningful units, end of quote. I think what Rothbard is getting at there is that the principles of economics, the laws of economics are not limited by national borders or by political boundaries, that the economic principles that apply to voluntary exchange and the price determination and the concepts of profit and loss and the price formation for factors of production, issues related to capital and interest, all of those principles are not bound by political entities. And so that's what he's getting at and that's going to be sort of the, I tend to embrace that position as well, that the economic principles that inform intervention such as protectionism are not bound by political boundaries. Now then we can then, that informs how we understand even what we mean by free trade. There are two broad conceptions of free trade. A lot of people, the conventional view of free trade is what we could call sort of the Ricardian free trade, the free trade between people in different political entities, the free exchange of consumer goods across political boundaries, while capital and labor do not move between countries. That was sort of the Ricardian, when he talked about free trade and the big free trade debates in England in the 1800s, that was basically the debate. Free trade meant free trade of goods when capital and labor were not mobile. Another view of free trade is simply the unhappened market. Free trade occurs when people are able to voluntarily trade consumer goods and producer goods, regardless of where they are. Free exchange and movement of all goods, including factors of production throughout the economic order, however broad that economic order is. In whatever societies or whatever people groups, this economic order incorporates. And so I think that's the best way to think of free trade. Free trade is simply voluntary exchange. And then a society is simply the network of voluntary exchange. And so when we compare the free market versus protectionism, we need to sort of have a good general understanding of these two policies, the two types of societies we get when we have free trade and when we have protectionism. And the first thing we want to remind ourselves is things we've already learned. A lot of this is going to be review because we're building on principles that you should have learned yesterday and the day before. But the first is that trade is mutually beneficial. Trade is mutually beneficial. People act to increase their future status satisfaction. When you decided this morning I'm going to brush my teeth, if you did. I am applying toothbrush and toothpaste and water and my physical labor to achieve the end of wider teeth and fresh breath. And you deemed that was an end worth pursuing. That's what you wanted to do. And so you engaged in that action. Exchange is an action. So when people trade goods for other goods, or they trade goods for money or money for goods, they're doing it because that will increase their status satisfaction. And a free market allows everyone to achieve more of their ends given their environment of scarcity through voluntary exchange. So if here in town we have a Buford who is in need of driving someplace. So Buford is in need of gasoline. And he doesn't have gasoline, but he has $39.50. And then Mr. Circle K has gasoline, but he wants more money. Buford might value the 10 gallons of gasoline more than the $39.50 that he has, whereas Circle K values $39.50 more than the 10 gallons of gas that Mr. Circle K has. And so they can engage in an exchange. And if they engage in that exchange, both Buford and Mr. Circle K receive something that they value more highly than what they trade away, so it's mutually beneficial. What is not to like about that? So the parties, both parties, not just Buford and not just Circle K, but both parties benefit from this voluntary exchange. And that's why one of the conclusions of Murray Rothbard in Power and Market is that a free market tends to maximize satisfaction in a society, maximize not in the mathematical calculus sense, but maximize simply in the sense that in a free market people are free to participate in the most, the largest quantity of mutually beneficial exchanges that they can. That's what the free market gets you. And as people pursue their ends in a free market, no one has their preferences frustrated, meaning no one is forced to make an exchange if they don't want to make an exchange. And no one is kept from making a voluntary exchange if they want to. And so at the mutually beneficial, the mutually agreed to market price, everybody who wants to buy at that price can. And everybody who wants to sell at that price can. And at the market price, no one who doesn't want to pay that price has to pay the price. And no one who is not willing to sell at that price is forced to sell at that price. So in that sense, people's preferences are satisfied and the free market tends to maximize the number of satisfied preferences. Everyone is free to act to achieve the highest ends on their value scale. Now, why is this relevant to anything? Well, it turns out that the same principles that apply to trade between people of the same country or even the same town or perhaps even the same neighborhood, the same principles apply to trading parties who happen to live in different countries. And so here we have a situation with Mr. Smith and Mr. Kishimoto, one person living in, say, Western Pennsylvania, the person living in Kawachinagano, Nagasaki, Japan. And Mr. Kishimoto has a Toyota RAV4. And I've noticed, by the way, that we've taken to simply calling cars by numbers now increasingly. There's a CR4, a RAV4, there's a PDQ or something, just numbers and letters. I don't think that I tend to see that not as an aesthetically pleasing development, but, you know, maybe it's efficient. I don't know, it must be. But in any event, Kishimoto has a Toyota RAV4, but he doesn't have $27,000. But he prefers $27,000 to the Toyota RAV4 that he has. Smith, on the other hand, in Western Pennsylvania, does not have the RAV4, but he does have $27,000. But he prefers, according to his preference ranking that we see here, the Toyota RAV4. Well, is there a way for both parties to achieve what they value more? And of course the answer is yes. They can engage in mutually beneficial exchange, just like we've been talking about. And so that they do that, that little arrow, that little arrow there signifies the movement from the where they were to what the things, how things are going to be after the exchange. And it turns out that after the exchange, both Smith and Kishimoto end up with the good that they prefer the most. Smith gets the Toyota RAV4, Kishimoto gets the $27,000. Both parties also engage in an exchange that's mutually beneficial. And so the principles of exchange apply to traders that are, quote unquote, international just as much as they apply to traders that are local. So that's the way so that the free market benefits people privately. But there's also then sort of great social benefits that we've also talked about already. It turns out that the free market is necessary for economic progress. The free market is necessary for the development of the market division of labor. In order for us, we've talked about that, it was Monday, I guess. I know somebody did. And they talked about the market division of labor and the social order. May have ringed a bell with somebody? And we found that one of the great blessings of the market division of labor is that people can specialize according to efficiency. And when they do that, that raises a productivity of everyone in society, and hence society in general, and people will be able to produce more goods and then also consume more goods. So it elevates the standard of living. An institutional requirement for people to be able to participate in the market division of labor is that they must be able to exchange their output. In order for it to be feasible for people to specialize in producing one thing and then using that one thing to get other things that they need, they must be able to engage in exchange. And so a free market is necessary for the market division of labor. It's also necessary for capital accumulation. People have to have an incentive to save and invest and obtain capital goods within the market division of labor. And if we don't have a free market, if we have a hampered market where investment decisions are regulated or there is a state that is taking loads and loads of your income away from you, keeping you from being able to save it and direct it towards capital formation, we don't have a free market, we will have less capital accumulation. And so a free market is necessary for capital formation and maintenance and accumulation. Capital, a free market also enhances technological development. People need to be free to discover and to try out new ways of doing things and to try out new technologies embodied in particular capital goods. And so a free market leads to or encourages technological development as well as capital accumulation, as well allows for the development of the market division of labor. And finally, a free market is necessary for entrepreneurial activity. Entrepreneurial activity, as you've seen, is crucial for the economization of factors of production. Entrepreneurs earn profit when they economize and direct the scarce factors that they can obtain towards their most highly valued use. And it's the free market that allows entrepreneurs to fully utilize resources accordingly. And so if we have a society that is an unhappened market because it is a society that dwells within and is supported by an institutional framework of private property, then we get the blessings of the market division of labor, capital accumulation, technological development, and entrepreneurial activity, all of which culminates in an increased standard of living. Producers are able to be as productive as possible, in other words. Producers are as productive as possible. Resources are economized the greatest possible extent. People can obtain and use more and better goods to satisfy their ends and also provide more for their families. That is the great social blessing of a free market. And incidentally, of course, as we participate in the market division of labor as we've already seen, it is something that is socially productive, meaning it is something that enhances the development of society. It increases this understanding that we know in a society, the market division of labor in a free market, we benefit as we benefit other people. We gain income only to the extent that we can serve other people better than anybody else. Even the most greedy capitalist pig can only earn a profit in a free market if he serves other people more successfully than anybody else, as defined by the people themselves. And so that's what we get with the free market. Now, it's important to recognize that the market is, in fact, dynamic. It's not static. The market is an institution by which entrepreneurs are trying to best serve other people and these other people have preferences that change. And these other people live in an environment where the quantity of resources available change. And so we live in technology changes. So the market is a dynamic place. And that means it doesn't stay the same from one period to the next. There are changes. There are changes in relative demands. There's changes in technology. There's changes in the quantity of population. There's changes in the stock of natural resources. And every change in the market has an effect. And every change in the market affects various individuals and groups in different ways. And in the short term, some of these people will gain and some of these people will lose, right? An entrepreneur invests in somebody. If I was in the theater business, the movie theater business in 1944 or 45, and I thought things were just going to keep humming along just like they had from 1935 to 1945. And I'm going to invest in movie theaters and movie production just like I did before. If I wasn't planning ahead for contingencies, I would have been bankrupt. Because from 1946 to about 1948 or 49, movie going was cut in half. There was a tremendous drop in the number of movie tickets. And so if you just think, oh, everything's hunky-dour, everything's the same, I'm just going to invest and do the same old thing, same old thing. Changes in the market will be such that some entrepreneurs that don't foresee these changes or don't anticipate them well will lose. They'll earn losses. On the other hand, those entrepreneurs that do anticipate those changes will invest accordingly and they will continue to gain profits and sometimes even more profits than they earned before. Or you could have a brand new entrepreneur that really wasn't in the game a handful of years ago. And suddenly they see something and they have an idea of what demand's going to be like in a little bit. And so they invest accordingly and they make big profits. The point is that every change in the market can create an opportunity for profit and for loss. And those entrepreneurs who correctly forecast and act accordingly will reap the profits and those who do not will be losers. Not personally, but I mean they'll earn a loss. And so that's the state of the market, that's a free market. Protectionism is a form of intervention. It's a form of government intervention and so it will be helpful for us to examine, it'll be helpful for us to examine the sort of intervention in general. Intervention by definition is when the state interferes with market phenomena. So when the state interferes with market phenomena, example would be price controls. Where the state doesn't allow the price to be determined through mutually beneficial or voluntary exchange. They issue a mandate saying that the price can't go above this, that'd be a price ceiling or the price can't go below that, that's a price floor. That's one example of an intervention. Engaging in economically redistributive tax policy. Taxing from the more productive to give to whoever we want to privilege. That's a form of intervention. Government regulations of one type or another, that's a type of intervention. And so intervention is whenever the state intervenes or interferes with market phenomena. And the state then directs the market away from its natural path determined by preferences of people in society. So whatever, you know, whatever the price is going to be when the state puts a price control on that product, you put it say, whatever the wage for relatively unskilled labor would be in the market, the government puts a minimum wage there that is going to direct, if it's effective, it's going to direct that wage away from what it would be in a free market. It's also important to note that these are not, this is not voluntary. This is not sort of a, come on, can you please do what we'd like you to do? Come on, can you raise that wage for unskilled labor? Can you just do it? No. It's a mandate, it's a law, which means this intervention is always backed up by violence. Taxes are not contributions. Taxes are required payments. And if you don't believe me, just don't pay your taxes and see what happens. Just a little experiment. I'm not advocating this by the way, I'm just saying if you don't believe me, if you would try it, you would see what happens. Now, it also we need to know that whoever is advocating for such an intervention, whoever is advocating for a minimum wage or for a rent control price or a price ceiling or is advocating for an income redistribution program being paid for by taxes on certain people or giving grants to certain artists or certain professors and humanities programs or whoever is advocating for passing certain regulations on certain industries or certain companies, people who advocate for this are advocating for privilege to be given to somebody at the expense of somebody else. We're going to find that intervention, one of the consequences of intervention is that it sort of divides citizens into different groups. Those who receive benefits from the intervention and those who are harmed by the intervention that's backed up by state coercion. Now, intervention in general results in relative impoverishment, meaning that people will be more poor or less wealthy as a result of the intervention compared to if you don't have the intervention. Why? Well, there'll be fewer beneficial exchanges, fewer mutually beneficial exchanges. If the state intervenes and says you cannot engage in a labor contract unless you're willing to pay this amount of money, those people who are not productive enough to warrant the artificially high wage but yet would be willing to work for a lower wage, those people are not employable and those are people who would be willing to work and who would be have employers willing to hire them but they can't. That's a mutually beneficial exchange that is off the table, that is made illegal. When we have state intervention we have fewer mutually beneficial exchanges because there's less exchange, the extent of the market shrink so we know that constricts and contracts and distorts the division of labor. It tends to promote malinvestment, directing resources in a way that's different than what we would have as a result of people acting only according to their subjective preferences and so we have capital malinvestment, we have reductions in capital accumulation. Intervention tends to stifle entrepreneurial activity. It keeps entrepreneurs or some entrepreneurs from investing in the best way that they see to invest based on their anticipation of future market conditions and therefore it inhibits economization. It inhibits economization so it results in resources being squandered, it results in productivity declining, it results in fewer goods being produced and a lower standard of living in general. Additionally, you will see right there, it also promotes social conflict. As I said it promotes social conflict. Instead of us all truly being in this together all of us truly participating and seeing us as part of a mutually beneficial market division of labor, intervention pits citizen against citizen because it tends to benefit one citizen at the harm or the expense of others and that's what intervention does in general. If you want to learn more of that in detail I'd encourage you to take a look at Marie Rothbard's Power and Market where he goes through a full analysis of this. Mises also wrote a very good monograph called interventionism and I encourage you to take a look at that. Protectionism, protectionism is a particular type of intervention. Protectionism is a policy that seeks to promote the national welfare. The national welfare by extending monopolistic privileges to domestic producers of some goods, some particular goods. And they do that, they try to extend these privileges by encouraging exports and inhibiting imports. So protectionism as a policy tends to promote the exporting of goods produced by the domestic producers and we want to forestall goods coming in the country produced by people in other countries. And in general we could say that this policy is driven by basically a mercantilist understanding of the nature of exchange which is as we've already seen it turns out a faulty understanding. It assumes that trade is beneficial only when we gain and others lose or it's beneficial when we gain more than somebody else's gain. It's okay if the riffraff gain but as long as we gain more than the riffraff then it's okay. In other words, we have to be the one that gains the most. And the point is we can't quantify this really value subjective so we can't quantify who gains and who loses in this way but one thing we do know is that a voluntary exchange both parties gain, both parties benefit. It's not a zero-sum game in other words. I think that's also helpful sort of principles to understand as we understand protection in general. What I'm going to do now is work through a handful of arguments that you see as sort of a common in support of protectionism, in support of protection in the form of tariffs, taxes on imports or subsidies for exports but primarily taxes on imports tariffs and see what are the arguments that are brought forth commonly for these things and we sort of analyze them as we have time. The first argument for protectionism, well I should say this by the way, all the arguments for protectionism are ostensibly to benefit the increase of welfare of the nation. Protectionism is most definitely, it tends to be a policy, generally speaking, of economic nationalism. But it wouldn't have to be like this. I mean you can imagine a case where someone would say, buy Alabamian. Don't buy any goods that are imported from Georgia. Definitely not Mississippi. We don't even want to talk about Connecticut, Yankee land. We're not going to, we don't want any goods imported from there. I don't know why they're bringing down professors from Pennsylvania to lecture here. Aren't the professors in Alabama good enough? That actually was somewhat of a question to me. I know that I did something similar to this on a smaller scale up in Canada and at the border actually are very concerned about this. They look at you sort of suspiciously if they know that you're going up there to lecture in Canada and they sort of ask this question, oh I'm going to an academic meeting. I made the mistake the first time saying I'm lecturing and they said no, no, you say you're going to an academic meeting. That's a little bit softer touch. But you say I'm lecturing, so they can in this look, they will, are there not enough people in Canada who can lecture? And I'm thinking, well obviously not or I would not be invited. So here I am. But you could take that tact if you wanted to but the Constitution does sort of ensure sort of the United States is a free trade zone if you will. So from our perspective protectionism is very much a sort of economic nationalism. It's you'll buy USA and don't buy anything produced by someone who's not in the USA. So the goal of protectionism in general is to increase the economic welfare of the nation. One argument that you see trying to promote this policy of tariffs to discourage imports and promote exports is the argument that we need protectionism to provide a favorable balance of trade, a favorable balance of trade, to increase money flows into the nations. And this is classic mercantilism, right? Mercantilist, the mercantilist doctrines that was developed in the 1600, 15 maybe hundreds, 1600s, early 1700s. The doctrines that Smith was trying to counter were doctrines that argued that for the state to be powerful, they need more revenue. So the more money, the more gold we have coming into the country, the more powerful the nation's going to be, the better off the people, well, the rulers will be and by extension the people. And so this is classic mercantilism. What this argument misses is that the balance of payments is not the cause of anything, right? The people talk about the balance of payments as if it's a trigger, like if the balance of payments is, you know, in deficit, meaning if the balance of payment, if the balance of trade is such that we are importing more than we're exporting, then, you know, it's like the balance of payments get, they wake up grumpy and they go on a rampage and throw everybody out of work or something. It's really kind of like that the balance of payments is an entity that acts, but actually the balance of payments is not a cause of anything. It's an effect. It is simply a reflection of how people allocate their spending. So think of it this way, what, if you, let's suppose I assume that many of you are gainfully employed, either fully or partially, and you get income. What do you do with that income? There are different ways you can allocate your income. You get different things you can do with the cash that you are paid, the money that you are paid. You can buy consumer goods from others, right? You can, you can go to the Winn-Dixie and buy some bottled water. You can buy some pop tarts. You can buy some pork rinds. You can buy some, you can go someplace else and buy, you can go to go to go to Planet or was it Pluto, Plato's closet and buy some pants, buy a nice clutch purse. You can buy a whole host of things. You can buy some shoes. You could spend it on consumer goods or you could also buy real assets, right? You could buy real assets. You could buy land labor, you could buy land, you could hire labor, you could buy capital goods as you work towards some type of business enterprise. You could also buy financial assets from others. You could spend some of your income buying stocks or bonds, financial bonds. So you can buy financial assets or of course you could just hold your money, right? You could build up your cash, you could build up your cash balances, right? So you can do any of these things. And of course as you spend your money that you earned on consumer goods, producer goods, financial assets, or building up your cash balances, you could tally them up and you could come up with, oh, this is your balance of payments, right? You could look at the money coming in and how you allocated it going out. And one important point is that the trade and capital payments must always balance, right? So that if we end up as a nation, if we end up importing more goods, then we export, right? Cash is going to flow out, right? But that s going to be balanced with the capital inflow, right? But that s just a pattern. That s just a pattern of spending, right? Now traditionally, we have ran what is called a trade deficit for a number of years. And a trade deficit simply means that people are spending more money on imports than foreigners are spending on our exports. That s all it means. And in the United States in 2021, the balance of trade deficit was estimated to be at 1.09 trillion, one of the highest efforts. But again, what does that mean? That just means that more money flowed out of the country to pay for imports than flowed in in exchange for exports. Now when that happens, when those payment patterns happens, two possible things could follow, right? People could do with that money that flows out of the country according to their preferences in two ways, right? One way would be people outside of the U.S. could increase their demand for money for not just money in general, but for American dollars, right? In other words, they could hold on to it. And if they hold on to it, if they hold on to it, the cash, the currency stays out of the country, okay. But what that means is we re still receiving the imported goods which cost resources to produce in exchange for money that we value less than the goods, right? So we still benefit from this exchange. We still benefit. People still bet. They wouldn t do it if they didn t benefit from it. It s not like they re forced to buy goods that are produced elsewhere. So and if the foreigners increase the demand for dollars, the dollars stay outside the country, and the increase global demand for money increases the purchasing power of the dollar and actually makes U.S. consumers better off the long run. So that s one thing that could happen, right? Foreigners could increase the demand for dollars and we could end up with an increased purchasing power of money. On the other hand, let s suppose that foreigners didn t increase their demand for dollars, then they could send it all back. They could send it back as a capital flow, right? Foreigners don t increase their demand for dollars, and foreign investors use the dollars to buy American assets, maybe gold from America. They could buy government bonds, they invest in U.S. Treasury bonds, corporate bonds, they could buy equity shares, they could buy direct investment. Foreigners could invest with U.S. dollars directly in companies here in the United States. All of that capital inflow helps with actual capital formation in the United States, resulting in expanding businesses, resulting in increased employment, more jobs and higher wages. And so it turns out in a free market. I m emphasizing it in a free market. These are not flows that are directed by massive monetary inflation by the central bank. I mean, I know the central bank would never really want to do that. But if they did, then some of these bets are off. But in a free market, it turns out, the balance of payments is merely an expression of our desires, expression of our values, and we do not need to be afraid of the balance of trade deficit. It s not something to be fearful of. It s just an expression of our preferences. It doesn t cause anything. It s just a reflection of what we do. And since it s just a reflection of what we do, it seems not wise to try to force the balance of payments one way or another, because you re trying to force something against the preferences of people. And that tends to be a temporary band-aid at best. And there s really not even a boo-boo to cover with a band-aid. Another argument in favor of tariffs is that we need tariffs to benefit domestic labor and domestic businesses. We need to protect domestic businesses from foreign competition that s just too good or too underhanded or too sneaky or too something. They re too something. So the argument is that tariffs increase the price of foreign goods relative to domestic goods. So domestic producers and their employees benefit, therefore, the welfare of the country is increased. If our domestic producers, if the saying goes, as business goes, so goes the nation. So far domestic producers, their welfare is increased, the national welfare must be increased. The reality is that tariffs benefit some domestic producers at the expense of others. Tariffs benefit some domestic producers in the short run at the expense of others, namely consumers, workers in unprotected industries, and domestic exporters. So suppose, for instance, that the U.S. imposes a tariff on imported shirts, which they do. But suppose that they do. And they do. This will increase the price of foreign shirts relative to domestically produced shirts. Because if the price of a domestically produced shirt, let s say, of a dress shirt, say, is like $60, but some foreigner can produce it for $40. And then they ship it in here and it looks like, okay, retailer maybe $45, that s just too much. That s too big of a price. How can we compete against this? I know. Let s put a $15 tariff on it. Put a $15 tariff on it. That s going to boost the price, the full price of the shirt up to $60. Now we have an even playing field. So that s what they do. They put a tariff on there and that increases the price of foreign produced shirts relative to domestically produced shirts. Now, what s the short run effects of this? The short run effects follow. The price of the consumer is going to be higher with the tariff than the free trade price. Without the tariff, the foreign producers of shirts would be able to supply the U.S. market in terms of freely. And there would be a market clearing price. It would be lower than it would be without the tariff. So with the tariff, the price is going to be higher. And another short run effect is that the quantity of shirts consumed will decrease. It will be lower because the price is higher, right? According to law of demand. That s going to happen, right? Because of law of mass utility, when the price of the good goes up, the quantity of the good demand will fall. And so consumers will be paying higher prices for shirts. And they will be purchasing fewer shirts. At the same time, in terms of the number of the shirts that are actually produced and sold, the domestic producers will sell more shirts. The domestic producers of shirts will sell more shirts temporarily. And that means that some previously unprofitable shirt production will be undertaken for profit in the U.S. not because people s preferences dictate that it should be, but because the tariff has made it allowable. The tariff has allowed less efficient producers to continue to produce. And so those producers, those producers are the benefit of the privilege. Those producers are privileged by the tariff. And those protected American producers are subsidized at the expense of three groups. And one of these groups are the consumers that we ve already talked about. They, the consumers, pay higher prices for fewer shirts. And because of paying higher prices for the shirts that are protected by the tariff, they also have less money to spend on other goods. So even if, even if they say, well, I have to have five shirts. So I m going to spend, I m going to spend whatever I have to do to get my five shirts for this year or whatever. They re still going to have less money to spend on other things. So they re going to have to do with less of something because of the tariff. And so one group that is harmed is the consumer. Another group that is harmed is the workers in the unprotected industry, the workers that are in industries that are not the shirt industry. And they re harmed because the demand for their labor will be somewhat less than it was before the tariff. Because consumers, remember, have less money to spend on other goods. And so there will be a decrease in demand for some other good. And therefore the demand for labor in that other industry will fall also. And their wages will fall. And there will be fewer jobs in that industry. So why, while it s possible that wages in the protected domestic industry, the shirt industry, might be higher than it would be without the tariff, it will not increase wages in the country in general. Wages are determined by the supply of the demand for labor. And the demand for labor is determined by the productivity of the worker and the price, the selling price of the product being produced. And a tariff does not increase the demand for goods in general in a country. And it does not generally increase the productivity of labor in that country. And therefore a tariff on a particular product will not generally increase wages in that country and will not increase the number of net jobs in that country. And so a tariff protecting a particular domestic producer will not increase social welfare for the nation. It will benefit some producers temporarily, but at the expense of workers in unprotected industries and consumers and American exporters. Those people that specialize in goods that are primarily for export, when fewer imports are purchased from the United States, fewer dollars go abroad, foreigners have fewer dollars with which to buy our goods, so the demand for exports fall. And so you are benefiting some producers at the expense of consumers and other producers in your own country, in your own country. And this advantage is only temporary. This advantage is only temporary. Even this advantage is only temporary. In the long run, the privilege of the tariff loses its power to create even the specific gains. And why? Well, if there is a situation where, because of the tariff, the price is held artificially high, do entrepreneurs prefer higher prices for their products or lower prices? Higher prices. Higher prices. They prefer higher prices. And so that will draw entrepreneurs into this industry. Entrepreneurs will be encouraged to enter the privileged industry because they'll say, hey, these people are getting government privilege and I want in on it. And what's going to happen then? As more people say enter the shirt market or the protected industry, what's going to happen to the output in that industry? What's going to happen to the quantity of goods produced in the industry? It's going to increase. And so what would happen to the market selling price? That price will fall. And so what tends to happen is that competition tends to eliminate the specific gains derived from the privilege. So over time, even the short run privilege to the protected industries will not be permanent. They'll be short run. And this then tends to then result in what? Further lobbying for increased protection. And we need what about American jobs? We thought that this tariff was going to do the trick and it seemed to work. But then somehow it didn't work. So we need even more protection and more protection. It's never enough to maintain this level of protection. What does happen in the long run is there is a distortion of the structure production. Part of the world's shirt production was shifted away from places where production is more efficient to the United States, which requires higher production costs to produce the same product. Output then per unit of input is lower. It shifts production away from where producers are efficient in shirt production to places where they are less efficient in shirt production. And so output per unit of input is lower, which means of course higher domestic prices for shirts become a permanent trend. This is not to use a word transitory. This is a permanent trend. And until the tariffs are lifted, that pattern will continue. Some industries would shrink. Some industries that exist for producing other goods would shrink. Others would even would be prevented from growing at all because a greater part of the domestic country's land, labor and capital is employed making shirts than they would in an unhampered market. And so the division of labor gets distorted. The capital structure gets distorted. The volume of U.S. trade in general would be constrained. So that ultimately no one derives a sustainable perpetual gain due to the tariff. And everyone is hurt by a drop in total output in society's productive effort. Even those people that may earn higher wages are going to pay for it in terms of fewer goods made that would exist because of the distortion of the division of labor and the decrease in productivity. And we're out of time. So I'll stop here.