Published in 1938 in the symposium The World Crisis and reproduced in the 1990 collection Money, Method, and the Market Process, this essay explains the retreat from international economic cooperation through the political ideas sustaining it. Its eight sections examine protectionist arguments, domestic intervention, and international conflicts before concluding that commercial reconstruction requires an intellectual transformation. Mises’s central claim is that economic interdependence depends on a liberal commitment to peace: neither technical progress nor diplomatic negotiation can preserve it when governments pursue military independence and protection for particular producers.
The opening distinguishes occasional ancient commerce from the extensive dependence on foreign supplies characteristic of modern life. Liberalism made this transformation possible by dismantling mercantilist barriers. Ricardo supplies Mises’s economic standard: international specialization increases the productivity of capital and labor, while protection sacrifices output. The infant-industry argument fails, he maintains, because initial losses are an ordinary entrepreneurial problem, not something peculiar to competition across borders. If prospective returns justify an enterprise, protection is unnecessary; if they do not, protection sustains a wasteful allocation. Moreover, supposedly temporary assistance repeatedly becomes permanent.
National prestige introduces a different criterion of success. Following Friedrich List’s developmental hierarchy, agricultural nations identify industrialization with cultural maturity and national power. Protection formerly also served to retain potential emigrants, preserving population for the state. Mises thus separates the consumer’s interest in efficient provision from nationalist ambitions concerning industrial status and population.
The longest discussion concerns preparation for war. Liberal free trade presupposes peaceful relations; militarists instead regard dependence on foreign supplies as a constraint on sovereign action.
Division of labor and war are incompatible.
This proposition explains the drive for autarky, but does not establish its effectiveness. Mises argues that expensive domestic substitutes absorb capital and workers needed elsewhere, provide inferior equipment, and frequently require imported inputs themselves. Substitution relocates dependence rather than abolishing it. Recalling the Central Powers’ material disadvantages in the First World War, he turns the military argument against its advocates:
It is the paradox of self-sufficiency as economic preparation for war that it weakens the military potential of the nation by rendering its arms less efficient.
His criticism distinguishes genuine technical improvements from substitutes adopted despite their higher costs or poorer performance. He also qualifies the general case against self-sufficiency: neutral Switzerland, exposed to wartime supply interruptions it cannot prevent, may reasonably adopt precautions that would be economically unsound under peaceful conditions. Such measures remain consequences of international insecurity, not evidence of autarky’s general superiority.
The wages and over-population sections connect trade restrictions to restrictions on migration. When workers cannot move toward more favorable productive conditions, international wage differences persist. Commodity trade nevertheless links labor markets. In Mises’s account, unions in high-wage countries resist both immigration and competition from cheaper foreign labor, then seek tariffs to sustain wages above market-clearing levels. Protection cannot eliminate the resulting unemployment and reduces the benefits of specialization.
The policy of economic isolation is in no way the right means of improving a nation's standard of living.
The corresponding predicament of poorer countries is real: exclusion from richer labor markets depresses their opportunities. Yet protective retaliation raises commodity prices and worsens living standards. Mises therefore condemns affluent countries’ exclusionary policies without endorsing the protectionist response of disadvantaged nations.
The monetary section attacks the notion that imports exhaust a fixed national stock of foreign exchange. Trade belongs within a wider balance of payments; absent inflationary interference, changes in prices, credit, and exchange rates provide adjustment. Import restrictions contract exports as well as imports. Compulsory surrender of foreign currency below its market price penalizes exporters and produces the shortage governments claim to remedy. Territorial ownership of raw materials likewise confers no inherent purchasing advantage under peaceful trade. Bilateral clearing sacrifices the flexibility of triangular exchange, while the breakdown of the gold standard is presented as an effect of governments’ hostility to international cooperation rather than its cause.
Domestic politics supplies a complementary explanation. Governments protect inefficient producers because public opinion treats assistance to threatened occupations as a public duty. Organized interests alone cannot explain their success: minorities prevail because their claims command wider approval.
Seen from the point of view of home policy, protection is but a category of measures in the system of government interference.
The final section nevertheless rejects an easy assertion of universal harmony under existing institutions. Immigration barriers create genuine conflicts by benefiting workers in favored territories at others’ expense; impediments to capital movement intensify the disadvantage. Mises criticizes Marxists for overlooking conflicts between national working classes, fascists for preferring conquest to emigration, and internationalist intellectuals for accommodating exclusionary unions. Neither war nor protection resolves these conflicts, and Ricardo’s case remains applicable precisely because it assumes internationally immobile labor and capital.
The conclusion locates the decisive struggle in public conviction. Agreements cannot secure openness while governments regard protection as nationally beneficial. The essay’s enduring relevance lies in linking commercial fragmentation to military aims, labor exclusion, monetary controls, and the legitimacy of producer privileges, rather than treating tariffs as isolated technical errors.
What the world needs is not more conferences and conventions but a radical change of mentality.
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