AN ANALYTICAL FRAMEWORK FOR A STUDY OF ECONOMIC WARFARE AS APPLIED TO THE EAST-WEST TRADE PROBLEM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP75-00662R000200150042-1
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 19
• Document Creation Date: December 9, 2016
• Document Release Date: February 13, 2001
• Sequence Number: 42
• Publication Date: December 18, 1951
• Content Type: REPORT

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Secures n tion
-_- ]O:eae
18 December 1951
AN ANALYTICAL FRAMEWORK FOR A STUDY OF ECONOMIC WARFARE AS
APPLIED TO THE EAST-WEST TRADE PROBLEM
to General Considerations
D.ecusaion of the East-West trade problem has frequently been carried
on in terms of irrelevant side issues or outright fa1.laciea. The purpose
of this paper is to establish a general frame of reference in which this
and similar Economic Warfare problems can be analyzed.
It should be evident at the start that in terms of economic welfare
both the East and the West gain from trade - or conversely, that both will
lose from a cessation of trade. 0a entries or regions will engage in trade
only if the foreign money price of a commodity v converted by an exchange
rate - is lower for the importing country than it would be if the.importing
Country were to produce the same commodity itself. This money price
differential masks either a comparative or an absolute advantage in terms of
-"real" costs. This difference in real costs means that a country could not
obtain the same volume (or kind) of commodities as they now import if they
were forced to produce them domestieglly, i.e., the factors of production
now being used in the export industries could not produce the same volume
of imports as the country now obtains by exchanging exports for imports0
If it were,true that both East and West planned their economic activity
solely in terms of maximizing economic welfare, there would be no apparent
advantage from severing trade. If trade were to be severed, economic.
welfare in the West (as well as in the East) would be lower than before.
The East and West are concerned, however, with "strategic welfare" as
well as with general economic welfare. The strategic welfare of the West
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potential of the Eaato M increase in strategic welfare for the West musty
by definition, imply a decrease in strategic welfare for the Easto-V From
this line of reasoning, it follows that if both East and West were interested
solely in strategic welfare, trade between the two areas would take place
only under special circumstanceco If both sides had perfect knowledge of the
intentions, capabilities, and vulnerabilities of the other, trade would not
take place at olio Amy trade that would result in an increase in strategic
Welfare for one side would be bound to decrease the strategic welfare of
the others and the side that was made relatively worse off would refuse to
play the gamed
Perfect knowledge of intentions, capabilities, and vulnerabilities
implies not only that both sides have all the necessary facts about the
other but also that both sides have plans for military activities that are
mutually consistent, If one side misjudges the intentions of the other,, or if
either side is planning to fight a different kind of war than the other,
then either aide might believe that it would be increasing strategic welfare
by trading with the otherG For example, the West might assume that Western
Europe could be defended after two years of preparation but would be easily
overrun now.. Furthers the West might assume that. continued wheat imports
from the Bloc would be necessary in order to maintain a level of industrial
production sufficiently-high to produce the required amount of defensive
armamentso Since the Bloc is already strong enough to overrun Western
Europe not, additional supplies of strategic commodities (say rubber) might
gt should be noted that an increase in strategic welfare for the West
(East) is.consistent with a ecreaee in the "absolute" military potential.
of either or both sides.
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be considered to be worth less to the Bloc than the wheat exports of the
Bloc are worth to Western Europe On the other hands the Bloc might assume
thatefense of Western Europe could not be improved significantly with two
years of additionalpeparation, Then aM supplies of wheat shipped to the west
would only go to build up a Western Europe which would be taken over by the
Bloc anyway, and the rubber received in return would increase the present
military superiority of the Bloc vis-a-vis Western Europe, Both sides would
be willing to trade under such circumstances, since each believes that
it is increasing strategic welfare,
Other circumstances in which trade would take place because of different
intentions are fairly commono Suppose that the West anticipated the mass-
production of tactical atomic weapons which would render tanks obsolete.
Then it would be to its advantage to ship the Bloc all the tank-making
material that it could sell, in return for arq materials which could be
used in producing atomic weapons The Bloc, on the other hand, might be
planning to make use of tanks as a major weapon of its military strategy,
Both sides would again be willing to trade, each believing that it was
increasing strategic welfare,
Trade would also take place if the side that could gain by trade
restrictions found that the cost of initiating and enforcing the restrictions
outweighed the gain, This factor of enforcement cost might also carry
some weight in determining whether "selective" controls are better than
"across the board " controls, An embargo on a commodity which has greater
strategic value than the average for all traded commodities would by
definition be more'damaging (per unit controlled) than an indiscriminate
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embargo; but the administrative burden could outweigh this gain.,
If we modify the original. assumption that both East and West are
interested solely in increasing "strategic welfare" we have a third reason
wIy trade might be justifiedo Either area might have a twofold objectives
e.,g0, to increase their strategic welfare and to maintain their economic
welfare., Then it would be profitable for either area to engage in trade
in order to maintain the level of their economic welfare, even at the cost
of a smaller increase in strategic welfare than would otherwise be possible,
Use of this criterion (strategic welfare) for purposes of policy
implies that we have some method of making at least qualitative estimates of
the way in which strategic welfare will vary under different policies* Since
strategic welfare is measured by relative military potential,, attention
must be diierted to measurement of changes in military potential and to
measurement of changes in the capabilities of the economic system, one of
the more important foundations of military potentialo Considerable time
and energy has been spent in developing what istauallry' called the "bottle-
neck" approach to measuring economic capabilities, It is argued that
Some of the elements of cost which would make this burden sigificant
are8
(a)
Intelligence organization man-hours - analysis of the strategic
value of particular commoditiesa formulation of licensing arrange.
ments, accounting mechanisms,, etc,
Policing and patrolling manhours and transportation equipment.
Administrative organization manhours necessary to keep track of
results.
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commodity X or Y is indispensable d without it production of end-items A
and B cannot continue. This approach seems to be a blind alley- }ny of
the item that are now imported by the East (West) can be produced domestically.
The reason they are not at present is that it is cheaper (in terms of real
coats) to produce the wheat, coal, etco for export in exchange for commodities
whose domestic production cost is higho Even for those items which cannot
be produced domestically, it is usually possible., again at higher costs, to
use a substitute commodity. Synthetic rubber can be used in place of natural,
steel can be substituted for copper in some uses, and aluminum silicate can
be substituted for industrial diamonds in some uses.
Another fallacy that obscures the real issues consists of a presumption
that the "strategic" importance of an item depends on (a) its direct usefulness
to?the military establishment, and (b) its closeness to the end-item stage
of productiono This.presumption disregards the inter-relatedness of the
economic system. Rifles can be banned from export to the Bloc, and cotton
allowed to proceed. But the resources freed from the necessity of producing
this cotton might produce more rifles than the Bloc would have been able
to import ? with some time-lag, The same argument can be applied to the
effect of cutting off supplies of any commodity which forms a link in the
chain of production relationships. From a long-run point of view, it
matters little whether we were to reduce shipments of airplanes,_of machine
tools used in stamping aluminum parts, of steel used in the production of
machine tools, of cobalt used to temper the steel,.or of food required by
the cobalt workers,, Cutting off any of these items would eventually
result 3n a reduction of airplane output if no counterbnlaneing measures
were taken.
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On the other hands the "etrategicness" of specific military goods
or of end-items does depend in part on time perspectives. If the amount of
cobalt in the industrial pipeline were sufficient to enable production
of alloy steel (at the current rate) to continue for one year, cutting off
all supplies of cobalt would not r educe the r ate of alloy steel production
until after one year, Hence, to the extent that a war of limited duration
is expected to begin in the immediate future, the strategic importance of a
commodity my-depend in part on its direct usefulness to the military
establishment or to its closeness to the end-item stage of productions
Up to this points we have not indicated what criteria can be used to
determine the "strategicness" of an itemlo This is in part a question of
the specificity of the commodity in regard to military and civilian uses.
Regardless of any other factor, an item which can be utilised either directly
or indirectly by the military establishment is 3.ikely to be somewhat strategic.
Items such as face powder and rubber balloons are not likely to be strategic
under arr circumstances, since their contribution to the military establishment
is nil.
The level of civilian consumption also determines in part whether
an item is strategic or not, Some minim m consumption level is required to
prevent deterioration of the input "manpower," which is essential to the
production of all commodities. Consumer goods which form part of this
minimum consumption level are obviously strategic commodities. Generally
speaking, it may be said that an item is strategic if a reduction in its
availability causes a reduction in (absolute) military potential. It
follows that w item - produced or imported - is strategic if consumption
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in the Bloc (West) is at the irreducible minimum, since loss of the item
would cause either a direct reduction in the output of some commodity geared
to the military establishments or an indirect reduction in some outputs because
of a decline in productivity.
Other factors mist be brought out in order to indicate the re ties
%trategicnees"of those commodities that have some strategic characteristics.
The ease or difficulty with which an item can be substituted for is highly
significant in this contexts If the West were to cut off an item now
imported by the Blocs such as spare parts for machinery built to Western
specifications., it may mean that this machinery in the Bloc would become
useless as it broke down and required repairs since a substitute part
produced in the Bloc might ruin the machine if tolerance limits were too
broad. Construction of extensive capital facilities might be needed to
replace natural rubber by synthetic production. The training of thousands
of technicians and scientists might be required to replace the "know how"
received as a byproduct of machinery imports. These criteria for
determining the relative "strategicness" of commodities can be expressed in
terms of one common denominator ? the range of real costs required to
produce the commodity. It should be noted that this criterion for
determining "strategicness" has no necessary relationship' to the direct
military usefulness of the item, or its closeness to the end item stage
of production.
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2. Peculiarities of the East-West Trade Froblem:
In order to place the East-West trade problem.in proper perspective pit
is important to have some idea as to the over-all significance of the trade.
Exports to the Bloc totaled roughly lay billion dollars in 1950, contrasted
to a GNP in the Bloc of some 125 billions. Exports from the Bloc were also
roughly 1.5 billion dollars, which is insignificant compared to GNP in the
West. These figures do not properly reflect the importance of trade in
particular commodities. This is a question of strategic importance, as de-
fined by the above criteria. It is evident that the Bloc will undergo a
considerable loss--particularly in the long run--if the supply of Western
technology is cut off. Some of.the goods currently being obtained by the
Bloc embody the results of over a hundred years of technological experi-
mentation and development. The consequences of this loss might be staggering.
The strategic importance of particular commodities depends in part on
the way in which East and West are defined. For every commodity now traded
by either area, there exists a world supply curve.which rises 'sharply as
world production increases, because of unequal factor endowment and uneven
stages of technological development. If the entire low-cost section of
this supp3:y curve lies in one of the two areas, then the other area will
suffer severe damage from the trade restriction, particularly if demand
for the commodity is strong. Under the assumption that the world is divided
into.two parts, the East and the West, domestic production of Bloc exports
by the Western country now receiving the exported commodity will not have
to be undertaken in most cases. The country now receiving the Bloc export
will use foreign sources of supply not quite so cheap, since for almost
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every commodity now exported by the Bloc it appears to be true that there
is a substantial section of the low-cost part of world supply outside the
Bloc. Thus, the cost of replacing Bloc exports would be considerably lower
than if all countries now receiving Bloc exports had to either produce them
domestically or go without. The same possibilities for obtaining low-cost
replacement of imports is probably not true of the Bloc. We can assume
this partly because the diversity of resources and the present'level of
technology in the Bloc is not as suited to production adjustments as it is
in the West. The higher cost of replacement also reflects in part the in-
heritance of past development. The capital resources of the West are
substantially greater than those of the Bloc, particularly in the non-
strategic sectors of the economy. Most of the additional capital equipment
and facilities needed by the West for import replacement can be met by con-
verting existing capital now being used in relatively non-strategic sectors.
Most of the capital requirements of the Bloc can be met only by diverting
resources to new construction.
Other peculiar characteristics of the East-West trade problem have
been noted before. The assumption that the objective of the Bloc is the
maximization of military potential, while the West is partly interested in
economic welfare, means that any loss for the Bloc would be reflected in
a direct reduction of military potential, while the loss to the West would
be partly absorbed in sectors of the economy that do not contribute to the
military establishment. Another way of stating this difference is in terms
of a "cushion" of resources not contributing to "strategic welfare." The
size of this cushion depends on the amount of resources in the economy
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devoted directly or indirectly to supporting the military establishment.
At first glance it might appear that the cushion in the West is far grater
than in the East, since absolute living standards are much higher and non-
essential production is greater. However, "non-essential" production in
this context really means production that could be curtailed without having
any effect on the incentive to produce. Absolute living standards are not
useful as a basis of comparison, since what matters is the level of the
standard of living relative to what people think is a minimum level. It
might be true that cutting off production of television sets would reduce
US productivity as much as a cut in the bread ration would reduce USSR
productivity. We can probably assumep however, that the size of the cushion
in the West is greater than in the East.
One other interesting feature of the problem should be noted. A trade
restriction policy amounts to setting 'zp a barrier to the normal flow of
goods. It will thus always be profitable in the abort run to attempt circum-
vention of this barrier, One of the methods by which the Bloc can minimize
losses is to smuggle Jai goods formerly imported from the West, while one of
the costs to the West is that of making the barrier more smuggle-proof.
This is one burden of the restriction policy which fails exclusively on the
area initiating and enforcing the restrictions. The restricted area will
only smuggle in goods to the extent that it is cheaper than domestic pro-
duction.
3o Methods of Measuring Relative Damage.
In order to estimate the relative damage on both sides, it is necessary
to know the volume of trade that will be carried on for the period under
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discussion. This is necessary because we cannot measure the damage re-
sulting from a trade cessation unless we know what the trade would have been
in. the first place. For simplicity, we can assume that the problem is to
measure the damage fran a complete cessation of ,-grade? and that the volume
of trade that will be moving in 1952 would continae to. be maintained in
subsequent years if the cessation policy were not initiated. We then need
estimates of "trade that would have take,-, place between the Bloc and
non-Bloc world in 1952." This estimate presumabEy includes both recorded
and clandestine trade. It could be obtained for recorded trade by pro-
jecting trade volumes for the latter part of 195 and. taking into account
any change due to the effects of current trade negotiations.
The clandestine trade estimate is more Jiff: cult. Calculations of
the total volume and value of clandestine trade lave never really been
made, but might be done in the following roundabcut manner. From spot
reports and information about covert shipments we could estimate the
relative magnitude of the amounts of the most important commodities known
to be moving in clandestine trade. Using recorded trade data and other
sources, we could then estimate the total amount of means of payment that
can be used for illegal procurement. For this estimate we would have to
know:
(1) The trade balance of the Bloc.
(2) Changes in gold holdings and current gold production rate.
(3) The amount of non-recorded exports to the West from the Bloc.
(14) Net short and long term capital movements.
(5) Net balance of "inviolbles" on current account.
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Considering this total as an estimate of the over-all value of clan-
destine shipments, we could convert the relative volume figures above to
relative value figures by means of prices paid per unit, and prorate the
relative values on the basis of the (]mown) total value.
Having thus estimated the volume of "trade that would have taken
place," we can. proceed to measure damage to each area by assuming that all
trade is out off. It is evident that readjustments in the production
pattern of both areas will take place, involving losses and gains in terms
of input resources.
Domestic production of goods formerly imported will increase, probably
not to such an extent as to equal the previous total of imports plus domestic
production. The cost of this expansion of production may be expressed as
X. units, Part of the cost will involvo capital expenditure, which can be
measured as resource cost in the period of construction, plus depreciation,
defined as the quantity of resources required to maintain the capital at
constant efficiency. We can express this cost as Xc. The other part of
this cost will consist of direct inputs cf labor and materials, which wil
probably vary as the new capital equipment comes into use. While the rtoc
essary capital is in the process of construction, the direct cost per unit
of output will presumably be higher than after construction is completed,
since the additional "doses" of labor and mterials into the existing
capital will not Zpield as high an output per unit as the same'doses applied
to newly constructed capital. We may express this cost as 2 Production of goods formerly exported trill decrease, and the resources
will be transferred to the uses mentioned above. The extent and nature of
this transference will be determined by the relative efficiency of these
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resources in occupations where expansion of production is important. The
relative efficiency of the resources, in turn, is determined partly by the
length of time considered as having elapsed in estimating an annual damage
figure. Given more time, unskilled labor can be trained and shifted to new
locations, and new techniques can be developed to make better use of the
change in the relative scarcity of resources. The value of the resources
thus released from exporting may be expressed as l 'units,
Production of goods neither imported nor exported would fall off some-
what. This must occur if the quantity of resources required to increase
domestic production of imiorts were greater than the quantity of resources
released from exporting. Inasmuch as trade existed in the first place, this
condition must hold. It would be impossible to pinpoint these losses in
terms of end-items without complete knowledge of the demand and cost functions
of all Bloc products, so we can measure them up by their counterparts-the
basic resources needed to reproduce the imports minus the resources released
from exporting.
For some of the commodities formerly imported, domestic production
will not be undertaken at all because the cost is too high, or, as mentioned
above, total supply will drop off because it is only worth while to produce
some fraction of the imports. Valuing these imports by domestic production
costs will overstate.the damage, since they will not be produced. The al-
ternative methods of evaluation would consist of (1) valuing the end-products
that were formerly produced with'the help of the imports, and then adjusting
this figure to take account of all. the resources--other than the imports--
that were needed in the production of these end-items, or (2) valuing the
amount of input resources which the Bloc would be w.t113t to use in order
to increase domestic production of the imports to the point where it equaled
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previous production plus imports. In case (1) above, the cost can be ex
pressed as Z - Y1, where Z is the value of the end-items and Y1 is the value
of all other inputs. In case (2), the cost can be expressed as X1.
The total damage figure can then be expressed as either:
(1) XceX,~?Z-Yt -Y, or
(2) xc X,t . X' - Y.
The units in which these costs are expressed may or may not be additive,
but they could be made so by-using monetary units throughout and expressing
them all in the some currency.
The damage figures for the East and the West are not directly comparable,
as was noted by previous discussion. We can safely assume that the loss to
the Bloc in terms of input resources will be almost entirely "strategic
damage," i.e., direct reduction of military potential in the broadest sense.
This assumes that civilian consumption is at an irreducible minimum for the
cold war. The cost to the West in terms of input resources will not be
entirely in terms of "strategic" damage. A good part of the total re-
sources used in the West are channeled into production which satisfies
individual.wants, but which can hardly be considered essential. It follows
that some of the damage to the Western economies can be absorbed in the
"non essential consumption" sectors, and will not be "strategic",damage.
The, estimate of the damage derived from the above line of reasoning
may be seriously overstated if other than internal sources of supply are
available for previously imported goods. The possibility of both East
and West obtaining goods from within their on areas by normal trade
patterns has already been discussed, and we concluded that the West
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should be able to obtain almost all of the present Bloc exports by this
method. We also .concluded that this was probably not true of the Bloc.
However,, other possibilities exists
The damage estimate for the Bloc would be modified considerably if
commodities now being imported by the Bloc and having high domestic pro-
duction costs were allowed to filter through the restrictions to any great
extent. This could be important in two ways, Commodities formerly im-
ported may be secured in semi-legal fashion through transshipment and
re-routing in Western Europe, or through countries not in sympathy with
the restriction policy. This would mean that the resource cost of in-
creasing domestic production of the item would not be relevant to
calculation of the damage. Instead, the cost of producing the means of
payment for the imports would be the effective "cost of production."
The commodities formerly imported could also be secured by smuggling,
provided this cost were lower than domestic production costs.
These possibilities of external procurement make it necessary to
increase the cost to the restricting area, since the cost of imposing
and maintaining restrictions must be considered. The more obvious costs
in this category are the manpower costs of patrolling and policing areas
through which trade normally proceeds--high ays, railroads, water routes,
etc. The other significant element, consists in the administrative cost
involved in planning and carrying out restrictions, obtaining information,
issuing and examining licenses, and keeping track of all the myriad papers
that are usually necessary for such policies.
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tto The Problem of Time Perspectives in the MstdWest Trade Project
All of the adjustments to the restriction policy have time dimensions,
Retlocation and shifting of resources, training labor, building capital,
readjusting planes-etco cannot be accomplished imaediatelyo
A minirtmm o long-run m damage figure can be calculated by assuming that
sufficient time is allowed to complete all the readjustments visualized.
This implies that the respective areas are operating on loses run production
functions, and that no further changea at the margin will yield a more
satisfactory pattern of rates of output and stocks of equipment. The
"long run" might be somewhat of the order of five years0 We could then
total up the amounts.of resources needed as complementary inputs for the
production of imports from new and existing capital, the depreciation and
maintenance on newdcapital calculated over the life of the equipment (at"
years), and the value of the reduction in the annual rate of aupp],p of
goods formerly imported, Subtracting the amounts of resources formerly
used for the production of exports, we can express "long-run" damage as
'f" + This expression given no indication of the annua?t
damage before the "long-run" is reachedo
A maxxin= damage figure can be constructed by using different
assumptions, We can assume that all necessary capital is constructed and
in operation Immediately, and that all regaining, shifting9 and production
increases are achieved Immediately* Then the total cost of the transition
period would be compressed into the first year after r estrictionso We could
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then total'up the cost of constructing capitals, the cost in complementary
inputs of increasing production in new and existing capital, and the value
of the imports not being replaced, and subtract the resources formerly
used for exports, This would give us X C4" X t --- Y. The estimate
for any year after year one would be the same as the long-run estimate above.
A damage figure in annu4 rates from impact to long-run can be constructed
by making assumptions about the developmental pattern of capital construction;
the way in which rates of output of the former import vary over time, the
rate of absorption of r eldased and reallocated resources, and so forth.
The total cost involved in any pattern of construction less intense than the
maximum damage pattern above must be less than the cost of this (maximum)
pattern, since there must be some optimum pattern of building and reallocating
that will yield the lowest discounted cost over any given time span. It is
most unlikelrp that this optimum pattern would consist of the sort of intense
activity assumed in the maximum damage pattern,
The damage estimate m in the short-run might require modification for
those imports which have been stockpiled. If the stockpiles have been
accumulated for use in the event of trade restrictions,, then the short-run
damage resulting from restriction of this import will be zero, except for the
cost incurred because of the stockpiling process, For as long as the stockpile
holds out, depletion of stocks is the same as continued imitation of the
commodity. If the stockpiles have not been accumulated for this purpose,,
the Bloc (West) has a choice between reducing a stockpile which has been
accumulated for other "strategic a purposes, or losing the production of the
and-item which use the stockpiled input0 Since the Bloc (West) did not choose
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to increase production of the end-item when they had both the import and the
stockpile, any reduction in stocks would mean only a diffusion of the damage.
These damage estimates are based on present technology and methods,
It is therefore possible for either area to reduce the amount of resources
needed for import replacement - in tie long-run - by concentrating technical.,
scientific, and managerial resources in the import replacement industries,
Such mobilization of tr.chnieal "know aowv" could cause a drastic lowering of
the entire cost fuze tion, However, the appirent ,paving in resources to the
Bloc should be al:aost balanced by the increased costs of the slower rate of
technological progress in those industries fron which the skilled resources
were drawn iC, as suns likely, the supply of such skilled resources is
severely limited. This presumption probably world not, apply to the West?
The damage est:LAte assumes that the replacement of imports will have
no effect on other sectors of the economy aside from the question of which
sector will lose the basic resources necessary to increase Production of
imports. This would not be true if we consider all the "COB," of r eplacing
such items as machinery prototypes, and spare parts for Westeri. ~,achinery,
In the case of prototypes, the Bloc has been securing the equivaa.%' of years
of technical and scientific labor with each machined If these item were
to be cut, off, the BLoc would have a choice between reducing the rat4. of current
investment so that sufficient resources to maintain the current rate oa
technical progress would be released, or slowing down the rate of technicli`L
progress tc maintain current investment, This reduces to a choice between
the :relative quantity of present investment and the relative quality of
future investment. The loss involved here may not be too significant
for- several years, but might well be the single most important effect of the
trade restrictions in the long-runs
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5o Similarities of the Est-West Trade Problem to other Capabilities Problems
In the last analysis, capabilities can be reduced to quantities of
resources, stocks of equipment and "know how" m which can be considered
as a labor resource plus an organizational technique, Arty reduction in
the quantity of these resources can, in principle, be translated into
alternative reductions in end-items by means of production functions and
engineering calculations. Trade striations really amount to the removal
of a certain block of resources, This becomes evident if we consider that
the present rates of output are achieved by utilizing trade as a device
to obtain greater total output with a given amount of resources, The
cessation of this trade means that resources must now be reallocated , and the
allocation after cessation cannot yield asdesirable a pattern of output
rates as before - or it would have been used before. Therefore, the Bloc
(West) will either have to be satisfied with lower rates of output (and/or
stocks of equipment) for some commodities, or it will have to employ more
total resources.,
In estimating that certain rates of output will be reduced by the
trade restrictions, we are implying that no more total resources can be
brought into use, This is true in a strict sense, if we consider "leisure"
as one output of the economy., However, leisure can be reduced in favor of
increased man-hours with no immediate effect on capabilitiesd If carried
on over a long enough period, however, reduction in the rate of output of
this "commodity" might have serious repercussions,
?1$8
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