by a Modest Member of Parliament [Bert Kelly],
“A licence to print a quota of money,”
The Australian Financial Review, May 6, 1977, p. 3.
Reprinted in Economics Made Easy (Adelaide: Brolga Books, 1982), pp. 72-74, as “Import Quotas (2).” [“Import Quotas (1)” is here.]

Eccles is always nagging me about the danger of using import quotas as a method of protecting Australian industry.

Sometimes he calls them import quotas, sometimes quota restrictions (QRs for short), sometimes tariff quotas, sometimes even import licences. So it is not surprising that your Modest Member gets confused.

There was a time B.E. (Before Eccles) when it seemed to me that if an Australian industry was protected by quotas and not by tariffs, then whatever imports came in would not have to come in over the tariff wall and so would not be made dearer, so the consumer would not have to pay extra as he does if tariffs are used. I asked:

So why do you get in such an awful lather about QRs, Eccles?

They always seem so definite in their operation. If imports are limited by quotas to, say, 30 per cent of the market then the Australian industry knows that it has the remaining 70 per cent so can plan more definitely. And QRs don’t seem to make things dearer as tariffs do. Why do you hate them so?

Eccles took a long deep breath and started in on me.

He first ridiculed the idea that if a product was imported under a quota its selling price in Australia would not be increased as it would if it had come in over a tariff wall. Eccles growled:

Surely even you can see that because an importer is only allowed to import a limited amount he would have no incentive to compete strongly with the Australian manufacturer? What would be the sense of so doing if he can’t import any more goods because he is only allowed a limited import quota.

One reason why import quotas are so popular with Australian industry and with importers who have been given quotas is that everyone knows their place; there is no incentive to rock the boat, to compete.

No wonder quotas are popular with the people who either have been allotted import quotas or are protected by them.

Then Eccles explained that if imports came in over the tariff wall the Customs duty went into consolidated revenue so the taxpayer benefited even though the consumer paid an increased price.

But with import quotas the price to the consumers still rises to the Australian price for reasons given. But with quotas the difference between the Australian price and the duty-free price is a windfall gain to the importer with a quota.

Eccles says that getting a quota is like getting a licence to print a quota of money.

“If that is so, quotas must be greatly sought after. How then are they allocated?” I asked.

Eccles says that there are two grave dangers in doing this. It may be nice and comfortable for the importer with a quota but it keeps out any up and coming new importer. In other words, it offends Eccles’ bucket of worms conception of the economy.

Eccles warned me yet again:

Anything that keeps things as they are, anything that inhibits change is bad for the economy in the end. Nothing is quite so offensive as a bucket of worms that stops turning.

But there was a great worry gnawing at Eccles and I too am concerned. Even since Eccles made me read Professor Hayek’s The Constitution of Liberty I have been on my guard against particular advantage being given to particular people by administrative discretion. I quote from page 168:

Englishmen then understood better than they do today that the control of production always means the creation of privilege: that Peter is given permission to do what Paul is not allowed to do.

Even more telling is this pregnant quotation from Sir Edward Coke’s examination of Magna Carta in 1624:

if a grant be made to any man, to have the sole making of cards, or the sole dealing with any other trade, that before did, or lawfully might have used that trade and consequently is against this great charter.

By giving particular people a licence to import, the government is giving a particular advantage to those people. If tariffs are used all citizens are free to engage in the trade if they pay the tariff duty, but with QRs it is only those with a quota that can trade, a quota given to them by administrative discretion and not by law.

As Coke said in 1624, it would be far better “to leave all causes to be measured by the golden and straight meter-wand of the law and not to the uncertain and crooked cord of discretion.”