this phrasing confused me for a minute, so to clarify: do you mean that if libraries could magically create infinite copies of a book, they wouldn't be allowed to exist, and are only tolerated because their presumed impact on copies-sold is limited?

Libraries are allowed to only lend the number of books they have bought because it's a good compromise between public interest and copyright protection. It has nothing to do with scarcity.

Libraries didn't get the right to make copies of books when copyright was invented, simply because libraries didn't need an exemption - it's cheaper to buy another copy than to maintain printing capability.

I don't think that's true. As far as I'm aware, we're talking dollars, not cents. For mass-market paperbacks, it's less than that, but that's the opposite of small scale.

what would they print? they don't have the original "master" file for the book, scans look bad and take time and OCR-ing a scan is error-prone

honestly i don't find this convincing... i think if small-scale printing made economic sense (and was something people want), you'd see bootleg books, despite the illegality. digital piracy is mostly illegal and that hardly stops people