If trade were completely free, production would only take place under the most suitable conditions. Raw materials would be produced in those parts which, taking everything into account, would yield the highest product. Manufacture would be localized where the transport charges, including those necessary to place the commodities in the hands of the ultimate consumer, were at a minimum. As labour settles around the centres of production, the geographical distribution of population would necessarily adapt itself to the natural conditions of production.

Natural conditions, however, are unchanging only in a stationary economic system. The forces of change are continually transforming them. In a changing economy men migrate continually from the places where conditions are less favourable to places where they are more favourable for production. Under Capitalism the stress of competition tends to direct labour and capital to the most suitable places. In a closed socialist community the same result would have to be achieved by administrative decree. In both cases the principle would be the same: men would have to go where the conditions of life were most favourable.1

These migrations have the closest bearing upon the condition of the different nations. They cause citizens of one nation, the natural conditions of which are less favourable, to move into the territory of other nations more favourably endowed. If the conditions under which migration takes place are such that the immigrants are assimilated to their new surroundings then the nation from which they came is, to that extent, weakened in numbers. If they are such that the immigrants preserve their nationality in their new home — still more if they assimilate the original inhabitants — then the nation receiving them will find immigration a menace to its national position.

To be a member of a national minority involves multitudinous political disadvantages.2  The wider the functions of the political authority the more burdensome are these disadvantages. They are smallest in the state which is founded upon purely liberal principles. They are greatest in the state which is founded upon Socialism. The more they are felt, the greater become the efforts of each nation to protect its members from the fate of belonging to a national minority. To wax in numbers, to be a majority in rich and extensive territories these become highly desirable political aims. But this is nothing but Imperialism.3  In the last decades of the nineteenth century, and the first decades of the twentieth, the favourite weapons of Imperialism were commercial weapons—protective tariffs, prohibitions of imports, premiums on exports, freight discriminations, and the like. Less attention was paid to the use of another powerful imperialistic weapon — limitations on emigration and immigration. This is becoming more significant now. The ultima ratio of imperialism is, however, war. Beside war, all other weapons that it may use appear merely insufficient auxiliaries.

Nothing justifies us in assuming that under Socialism the disadvantages of belonging to a national minority would be diminished. On the contrary. The more the individual depended on the State — the more importance political decisions had for the life of the individual — the more would the national minority feel the political impotence to which it was condemned.

But when we are considering migration under Socialism we need not give special attention to the friction which would arise therefrom between nations. For under Socialism there must arise, even between members of one and the same nation, points of difference which make the division of the surface of the earth — which is a matter of indifference to Liberalism —a problem of cardinal importance.

• 1See my Nation, Stoat und Wirtschaft, Wien 1919, p. 45 et seq., and Liberalismus, Jena 1927, p. 93 et seq.
• 2Nation, Staat und Wirtschaft, p. 37 et seq.
• 3Ibid, p. 63 et seq.;Liberalismus, p. 107 et seq.

Under Capitalism, capital and labour move until marginal utilities are everywhere equal. Equilibrium is attained when the marginal productivity of all capital and labour is the same.

Let us leave the movement of capital on one side and consider first the movement of labour. The migrating workers depress the marginal productivity of labour wherever they betake themselves. The fact that wages, their income, sink, directly damages the workers who were employed in centres of migration before the incursion of new workers took place. They regard the ‘immigrants’ as the enemy of high wages. Their particular interest would be served by a prohibition of ‘immigration’. It becomes a cardinal point of the particularist policy of all such particular groups of workers to keep newcomers out.

It has been the task of Liberalism to show who bear the costs of such a policy. The first to be injured are the workers in the less favourably situated centres of production, who, on account of the lower marginal productivity of their labour in those centres, have to content themselves with lower wages. At the same time, the owners of the more favourably situated means of production suffer through not being able to obtain the product which they might obtain could they employ a larger number of workers. But this is not the end of the matter. A system which protects the immediate interests of particular groups limits productivity in general and, in the end, injures everybody — even those whom it began by favouring, How protection finally affects the individual, whether he gains or loses, compared with what he would have got under complete freedom of trade, depends on the degrees of protection to him and to others. Although, under protection, the total produce is lower than it would have been under free trade, so that the average income is necessarily lower, it is still quite possible that certain individuals may do better than they would under free trade. The greater the protection afforded to particular interests, the greater the damage to the community as a whole, and to that extent the smaller the probability that single individuals gain thereby more than they lose.

As soon as it is possible to forward private interests in this way and to obtain special privileges, a struggle for pre-eminence breaks out among those interested. Each tries to get the better of the other. Each tries to get more privileges so as to reap the greater private gain. The idea of perfectly equal protection for all is the fantasy of an ill-thought out theory. For, if all particular interests were equally protected, nobody would reap any advantage: the only result would be that all would feel the disadvantage of the curtailment of productivity equally. Only the hope of obtaining for himself a degree of protection, which will benefit him as compared with the less protected, makes protection attractive to the individual. It is always demanded by those who have the power to acquire and preserve especial privileges for themselves.

In exposing the effects of protection, Liberalism broke the aggressive power of particular interests. It now became obvious that, at best, only a few could gain absolutely by protection and privileges and that the great majority must inevitably lose. This demonstration deprived such systems of the support of the masses. Privilege fell because it lost popularity.

In order to rehabilitate protection, it was necessary to destroy Liberalism. This was attempted by a double attack: an attack from the point of view of nationalism, and an attack from the point of view of those special interests of the middle and working classes which were menaced by Capitalism. The one served to mature the movement towards territorial exclusiveness, the other the growth of special privileges for such employers and workmen as are not equal to the stress of competition. Once Liberalism has been completely vanquished, however, and no longer menaces the protective system, there remains nothing to oppose the extension of particular privilege. It was long thought that territorial protection was limited to national areas, that the re-imposition of internal tariffs, limitation of internal migration, and so on, was no longer conceivable. And this is certainly true so long as any regard at all is preserved for Liberalism. But, during the war, even this was abandoned in Germany and Austria, and there sprang up overnight all kinds of regional barriers. In order to secure a lower cost of living for their own population, the districts producing a surplus of agricultural produce cut themselves off from the districts that could support their population only by importing foodstuffs. The cities and industrial areas limited immigration in order to counteract the rise in the price of foodstuffs and rents. Regional particularism broke up that unity of economic area on which national neo-merchantilism had based all its plans.

Even granting that Socialism is at all practicable, the development of a unitary world socialism would encounter grave difficulties. It is quite possible that the workers in particular districts, or particular concerns, or particular factories, would take the view that the instruments of production which happened to lie within their area were their own property, and that no outsider was entitled to profit by them. In such a case World Socialism would split up into numerous self-independent socialist communities — if, indeed, it did not become completely syndicalized. For Syndicalism is nothing less than the principle of decentralization consistently applied.