Front Page Titles (by Subject) CHAPTER IV.: SUNDRY FALLACIES OF PROTECTIONISM - Protectionism: the -ism which teaches that waste makes wealth
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CHAPTER IV.: SUNDRY FALLACIES OF PROTECTIONISM - William Graham Sumner, Protectionism: the -ism which teaches that waste makes wealth 
Protectionism: the -ism which teaches that waste makes wealth (New York: Henry Holt and Company, 1888).
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SUNDRY FALLACIES OF PROTECTIONISM
108. I can now dispose rapidly of a series of current fallacies put forward by the protectionists. They generally are fanciful or far-fetched attempts to show some equivalent which the taxpayer gets for his taxes.
That infant industries can be nourished up to independence and that they then become productive.
109. I know of no case where this hope has been realized, although we have been trying the experiment for nearly a century. The weakest infants to-day are those whom Alexander Hamilton set out to protect in 1791. As soon as the infants begin to get any strength (if they ever do get any) the protective system forces them to bear the burden of other infants, and so on forever. The system superinduces hydrocephalus on the infants, and instead of ever growing to maturity, the longer they live, the bigger babies they are. It is the system which makes them so, and on its own plan it can never rationally be expected to have any other effect. (See further, under the next fallacy, § 111, fg.)
110. Mill* makes a statement of a case, as within the bonds of conceivability, where there might be an advantage for a young country to protect an infant industry. He is often quoted without regard to the limitation of his statement, as if he had affirmed the general expediency of protection in new countries and for infant industries. It amounts to a misquotation to quote him without regard to the limitations which he specified. The statement which he did make is mathematically demonstrable.† The doctrine so developed is very familiar in private enterprise. A business enterprise may be started which for some years will return no profits or will occasion losses, but which is expected later to recoup all these. What are the limits within which such an enterprise can succeed? It must either call for sinking capital only for a short period (like building a railroad or planting an orange grove), or it must promise enormous gains after it is started (like a patented novelty). The higher the rate of interest, as in any new country, the more stringent and narrow these conditions are. Mill said that it was conceivable that a case of an industry might occur in which this same calculation might be applied to a protective tax. If, then, any body says that he can offer an industry which meets the conditions, let it be examined to see if it does so. If protection is never applied until such a case is offered, it will never be applied at all. A thing which is mathematically conceivable is one which is not absurd; but a thing which is practically possible is quite another thing. For myself, I strenuously dissent from Mill's doctrine even as he limits it. In the first place the state can not by taxes work out an industrial enterprise of a character such that it, as any one can see, demands the most intense and careful oversight by persons whose capital is at stake in it, and, in the second place, the state would bear the loss, while it lasted, but private interests would take the gain after it began.
That protective taxes do not raise prices but lower prices.
111. To this it is obvious to reply: what good can they then do toward the end proposed? Still it is true that, under circumstances, protective taxes do lower prices. The protectionist takes an infant industry in hand and proposes to rear it by putting on taxes to ward off competition, and by giving it more profits than the world's market price would give. This raises the price. But the consumer then raises a complaint. The protectionist turns to him and promises that by and by there will be “overproduction,” and prices will fall. This arrives in due time, for every protected industry is organized as a more or less limited monopoly, and a monopoly which has overproduced its market, at the price which it wants, is the weakest industry possible (§ 24). The consumer now wins, but a wail from the cradle calls the protectionist back to the infant industry which is in convulsions from “overproduction.” Some of the infants die. This gives a new chance to the others. They combine for more effective monopoly, put the prices up again by limiting production, and go on until “overproduction” produces a new collapse. This is another reason why infants never win vitality. The net result is that the market is in constant alternations of stringency and laxity, and nothing at all is gained.
112. Whenever we talk of prices it should be noticed that our statements involve money—the rate at which goods exchange for money. If then we want to raise prices, we must restrict the supply of goods, so that on the doctrine of money also we shall come to the same result as before, that protective taxes lessen production and diminish wealth.
113. The problem of managing any monopoly is to dose the market with just the quantity which it will take at the price which the monopolist wants to get. In a qualified monopoly, that is, one which is shared by a number of persons, the difficulty is to get agreement about the management. They may not have any communication with each other and may compete. If so they will overdose the market and the price will fall. Then they meet, to establish communication; form an “association,” to get harmonious action, and agree to divide the production among them and limit and regulate it, to prevent the former mistake and restore prices (§ 24).
That we should be a purely agricultural nation under free trade.
114. A purely agricultural nation covering a territory as large as that of the United States is inconceivable. The distribution of industries now inside the United States is a complete proof that no such thing would come to pass, for we have absolute free trade inside, and manufactures are growing up in the agricultural states just as fast as circumstances favor, and just as fast as they can be profitably carried on. Under free trade there would be a subdivision of cotton, woollen, iron and other industries, and we should both export and import different varieties and qualities of these goods. The southern states are now manufacturing coarse cottons in competition with New England. The western states manufacture coarse woollens, certain grades of leather and iron goods, etc., in competition with the East. Here we see the exact kind of differentiation which would take place under free trade, and we can see the mischief of the tariff, whether on the one hand it strikes a whole category with the same brutal ignorance, or tries, by cunning sub-classification, to head off every effort to save itself which the trade makes.* If, however, it was conceivable that we should become a purely agricultural nation, the only legitimate inference would be that our whole population could be better supported in that way than in any other. If there was a greater profit in something else some of them would go into it.
That communities which manufacture are more prosperous than those which are agricultural.
115. This is as true as if it should be said that all tall men are healthy. It would be answered that some are and some are not; that tallness and health have no connection. Some manufacturing communities are prosperous and some not. The self-contradiction of protectionism appears in one of its boldest forms in this fallacy. We are told that manufactures are a special blessing. The protectionist says that he is going to give us some. Instead of that he makes new demands on us, lays a new burden on us, gives us nothing but more taxes. He promises us an income and increases our expenditure; promises an asset and gives a liability; promises a gift and creates a debt; promises a blessing and gives a burden. The very thing which he boasts of as a great and beneficial advantage gives us nothing, but takes from us more. Prosperity is no more connected with one form of industry than another. If it were so, some of mankind would have, by nature, a permanently better chance than others, and no one could emigrate to a new, that is agricultural country, without injuring his interests. The world is not made so.
That it is an object to diversify industry, and that nations which have various industries are stronger than others which have not various industries.
116. It is not an object to diversify industry, but to multiply and diversify our satisfactions, comforts, and enjoyments. If we can do this by unifying our industry, in greater measure than by diversifying it, then we should do, and we will do, the former. It is not a question to be decided à priori, but depends upon economic circumstances. If a country has a supremacy in some one industry it will have only one. California and Australia had only one industry until the gold mines declined in productiveness, that is, until their supreme advantage over other countries was diminished: they began to diversify when they began to be less well off. The oil region of Pennsylvania has a chance of three industries, the old farming industry, coal, and oil. It will have only one industry so long as oil gives chances superior to those enjoyed by any other similar district. When it loses its unique advantage by nature it will diversify. The “strongest” nation is the one which brings products into the world's market which are of high demand, but which cost it little toil and sacrifice to get; for it will then have command of all the good things which men can get on earth at little effort to itself. Whether the products which it offers are one or numerous is immaterial. All the tariff has to do with it is that when the American comes into the world's market with wheat, cotton, tobacco, and petroleum, all objects of high demand by mankind and little cost to him, it forces him to forego a part of his due advantage. (§§ 125, 134.)
That manufactures give value to land.
117. This doctrine issued from the Agricultural Bureau. It has been thought a grand development of the protectionist argument. It is a simple logical fallacy based on some misconstrued statistics. The value of land depends on supply and demand. The demand for land is population. Hence where the population is dense the value of land is great. Manufactures can be carried on only where there is a supply of labor, that is, where the population is dense. Hence high value of land and manufacturing industry are common results of dense population. The statistician of the Agricultural Bureau connected them with each other as cause and effect, and the New York Tribune said that it was the grandest contribution to political economy since “the fingers of Horace Greeley stiffened in death;” which was true.
118. If manufactures spring up spontaneously out of original strength, and by independent development, of course they “add value to land,” that is to say, the district has new industrial power and every interest in it is benefited; but, if the manufactures have to be protected, paid for, and supported, they do not do any good as manufactures, but only as a device for drawing capital from elsewhere, as tribute. In this way, protective taxes do alter the comparative value of land in different districts. This effect can be seen under some astonishing phases in Connecticut and other manufacturing states. The farmers are taxed to hire some people to go and live in manufacturing villages and carry on manufacturing there. This displacement of population, brought about at the expense of the rural population, diminishes the value of agricultural land and raises that of city land right here within the same state. The hill side population is being impoverished, and the hill-side farms are being abandoned on account of the tribute levied on them to swell the value of mill sites and adjoining land in the manufacturing towns. (§§ 120, 137.)
That the farmer, if he pays taxes to bring into existence a factory, which would not otherwise exist, will win more than the taxes by selling farm produce to the artisans.
119. This is an arithmetical fallacy. It proposes to get three pints out of a quart. The farmer is out for the tax and the farm produce and he can not get back more than the tax because, if the factory owes its existence to the protective taxes, it can not make any profit outside of the taxes. The proposition to the farmer is that he shall pay taxes to another man who will bring part of the tax back to buy produce with it. This is to make the farmer rich. The man who owned stock in a railroad and who rode on it, paying his fare, in the hope of swelling his own dividends, was wise compared with a farmer who believes that protection can be a source of gain to him.
120. Since, as I have shown (§ 101), protective taxes act like a reduction in the fertility of the soil, they lower the “margin of cultivation,” and raise rent. They do not, however, raise it in favor of the agricultural land owner, for, by the displacement just described, they take away from him to give to the town land owner. Of course, I do not believe that the protective taxes have really lowered the margin of cultivation in this country, for they have not been able to offset the greater richness of the newest land, and the advance in the arts. What protection costs us comes out of the exuberant bounty of nature to us. Still I know of very few who could not stand it to be a great deal better off than they are, and the New England farmer is the one who has the least chance, and the fewest advantages, with which to endure protection.
That farmers gain by, protection, because it draws so many laborers out of competition with them.
121. Since the farmers pay the taxes by which this operation is supposed to be produced, a simple question is raised, viz., how much can one afford to pay to buy off competition in his business? He can not afford to pay any thing unless he has a monopoly which he wants to consolidate. Our farmers are completely open to competition on every side. The immigration of farmers every three or four years exceeds all the workers in all the protected trades. Hence the farmers, if they take the view which is recommended to them, instead of gaining any ground, are face to face with a task which gets bigger and bigger the longer they work at it. If one man should support another in order to get rid of the latter's competition as a producer, that would be the case where the tax payer supports soldiers, idle pensioners, paupers, etc. A protected manufacturer, however, by the hypothesis, is not simply supported in idleness, but he is carrying on a business the losses of which must be paid by those who buy off his competition in their own production. On the other hand, when farmers come to market, they are in free competition with several other sources of supply. Hence, if they did any good to agricultural industry by hiring the artisans to go out of competition with them, they would have to share the gain with all their competitors the world over while paying all the expense of it themselves.
122. The movement of men over the earth and the movement of goods over the earth are complementary operations. Passports to stop the men and taxes to stop the goods would be equally legitimate. Since it is, once for all, a fact that some parts of the earth have advantages for one thing and other parts for other things, men avail themselves of the local advantages either by moving themselves to the places, or by trading what they produce where they are for what others produce in the other places. The passenger trains and the freight trains are set in motion by the same ultimate economic fact. Our exports are all bulky and require more tonnage than our imports. On the westward trip, consequently, bunks are erected and men are brought in space where cotton, wheat, etc., were taken out. The tariff, by so much as it lessens the import of goods, leaves room which the ship owners are eager to fill with immigrants. To do this they lower the rates. Hence the tariff is a premium on immigration. The protectionists have claimed that the tariff does favor immigration. But nine-tenths of the immigrants are laborers, domestic servants, and farmers.* Probably more than one-third of the total number, including women, find their way to the land. As we have seen, the tariff also lowers the profits of agriculture, which discourages immigration and the movement to the land. Therefore, if the farmer believes what the protectionist tells him, he must understand that the taxes he pays bring in more people, and raise the value of land by settling it, and that they also bring more competition, which the farmer must buy off by lowering the profits of his own (the farming) industry. Then, too, so far as the immigrants are artisans, the premium on immigration is a tax paid to increase the supply of labor, that is, to lower wages, although the protectionists say that the tariff raises wages. Hence we see that when a tax is laid, in our modern complicated society, instead of being a simple and easy means or method to be employed for a specific purpose, its action and reaction on transportation, land, wages, etc., will produce erratic, contradictory, and confused effects, which can not be predicted or analyzed thoroughly, and the protectionist, when he pleads three or four arguments for his system, is alleging three or four features of it which, if properly analyzed and brought together, are found to be mutually destructive, and cumulative only as to the mischief they do. (See §§ 29, 101.)
That our industries would perish without protection.
123. Those who say this think only of manufacturing establishments as “industries.” They also talk of “our” industries. They mean those we support by the taxes we pay; not those from which we get dividends. No industry will ever be given up except in order to take up a better one, and if, under free trade, any of our industries should perish, it would only be because the removal of restrictions enabled some other industry to offer so much better rewards that labor and capital would seek the latter. It is plain that, if a man does not know of any better way to earn his living than the one in which he is, he must remain in that, or move to some other place. If any one can suppose that the population of the United States could be forced, by free trade, to move away, he must suppose that this country can not support its population, and that we made a mistake in coming here. This argument is especially full of force if the articles to be produced are coal. iron, wool, copper, timber, or any other primary products of the soil. For, if it is said that we can not raise these products of the soil in competition with some other part of the earth's surface, all it proves is that we have come to the wrong spot to seek them. If, however, the soil can support the population under an arrangement by which certain industries support themselves, and those which do not pay besides, then it is plain that the former are really supporting the whole population,—part directly and part indirectly, through a circuitous and wasteful organization. Hence the same strong and independent industries could certainly still better support the whole population, if they supported it directly.
124. I have been asked whether we should have had any steel-works in this country, if we had had no protection. I reply that I do not know; neither does any body else, but it is certain that we should have had a great deal more steel, if we had had no protection.
125. “But,” it is said, “we should import every thing.” Should we import every thing and give nothing? If so, foreigners would make us presents and support us. Should we give equal value in exchange? If so, there would be just as much “industry” and a great deal less “work” in that way of getting things than in making them ourselves. The moment that ceased to be true we should make and not buy. Suppose that a district, A, has two million inhabitants, one million of whom produce a million bushels of wheat, and one million produce a million hundred weight of iron; and suppose that a bushel of wheat exchanges for a hundred weight of iron. Now, by improved transportation and emigration, suppose that a new wheat country, B, is opened, and that its people bring wheat to the first district, offering two bushels for a hundred weight of iron. Plainly they must offer more than one bushel for one hundred weight, or it is useless for them to come. Now the people of A, by putting all their labor and capital in iron production, produce two million hundred weight. They keep one million hundred weight, and exchange one million hundred weight of iron for two million bushels of wheat. The destruction of their wheat industry is a sign of a change in industry (unifying and not diversifying) by which they have gained a million bushels of wheat. Such is the gain of all trade. If the gain did not exist trade would not be a feature of civilization.
That it would be wise to call into existence various industries, even at an expense, if we could thus offer employment to all kinds of artisans, etc., who might come to us.
126. This would be only maintaining public workshops at the expense of the taxpayers, and would be open to all the objections which are conclusive against public workshops. The expense would be prodigious, and the return little or nothing. This argument shows less sense of comparative cost and gain than any other which is ever proposed.
That we want to be complete in ourselves and sufficient to ourselves, and independent, as a nation, which state of things will be produced by protection.
127. I will only refer to what I have already said about China and Japan (§ 69) as types of what this plan produces. If a number of families from among us should be shipwrecked on an island, their greatest woe would be that they could not trade with the rest of the world. They might live there “self-contained” and “independent,” fulfilling the ideal of happiness which this proposition offers, but they would look about them to see a surfeit of things, which, as they know, their friends at home would like to have, and they would think of all the old comforts which they used to have, and which they could not produce on their island. They might be contented to live on there and make it their home, if they could exchange the former things for the latter. If now a ship should chance that way and discover them and should open communication and trade between them and their old home, a protectionist philosopher would say to them: “You are making a great mistake. You ought to make every thing for yourselves. The wise thing to do would be to isolate yourselves again by taxes as soon as possible.” We sent some sages to the Japanese to induct them into the ways of civilization, who, as a matter of fact, did tell them that the first step in civilization was to adopt a protective tariff and shut up again by taxes the very ports which they had just opened.
That protective taxes are necessary to prevent a foreign monopoly from getting control of our market.
128. It is said that English manufacturers once combined to lower prices in order to kill out American manufactures, and that they then put up their prices to monopoly rates. If they did this, why did not their other customers send to the United States and buy the goods here in the first instance, and why did not the Americans go and buy the goods of the Englishmen's other customers in the second instance? If the Englishmen put down their prices for their whole market in the first instance, why did they not incur a great loss? and, if they raised it for their whole market in the second instance, why did they not yield the entire market to their competitors? The Englishmen are said to be wonderfully shrewd, and are here credited with the most stupid and incredible folly.
129. The protective system puts us certainly in the hands of a home monopoly for fear of the impossible chance that we may fall into the hands of a foreign monopoly. Before the war we made no first quality thread. We got it at four cents a spool (retail) of an English monopoly. Under the tariff we were saved from this by being put into the hands of a home monopoly which charged five cents a spool. In the meantime the foreign monopoly lowered thread to three cents a spool (retail) for the Canadians, who were at its mercy. Lest we should have to buy nickel of a foreign monopolist, Congress forced us to buy it of the owner of the only mine in the United States, and added thirty cents a pound to any price the foreigner might ask.
That free trade is good in theory but impossible in practice; that it would be a good thing if all nations would have it.
130. That a thing can be true in theory and false in practice is the most utter absurdity that human language can express. For, if a thing is true in practice (protectionism, for instance) the theory of its truth can be found, and that theory will be true. But it was admitted that free trade is true in theory. Hence two things which are contradictory would both be true at the same time about the same thing. The fact is, that protectionism is totally impracticable. It does not work as it is expected to work; it does not produce any of the results which were promised from it; it is never properly and finally established to the satisfaction of its own votaries. They can not let it alone. They always want to “correct inequalities,” or revise it one way or another. It was they who got up the Tariff Commission of 1882. Their system is not capable of construction so as to furnish a normal and regular status for industry. One of them said that the tariff would be all right if it could only be made stable: another said that it ought to be revised every two years. One said that it ought to include every thing; another said that it would be good “if it was only laid on the right things.”
131. If all nations had free trade, no one of them would have any special gain from it, just as, if all men were honest, honesty would have no commercial value. Some say that a man can not afford to be honest unless every body is honest. The truth is that, if there was one honest man among a lot of cheats, his character and reputation would reach their maximum value. So the nation which has free trade when the others do not have it, gains the most by comparison with them. It gains while they impoverish themselves. If all had free trade all would be better off, but then no one would profit from it more than others. If this were not true, if the man who first sees the truth and first acts wisely did not get a special premium for it, the whole moral order of the universe would have to be altered, for no reform or improvement could be tried until unanimous consent was obtained. If a man or a nation does right, the rewards of doing right are obtained. They are not as great as could be obtained if all did right, but they are greater than those enjoy who still do wrong.
That trade is WAR, so that free trade methods are unfit for it, and that protective taxes are suited to it.
132. It is evidently meant by this that trade involves a struggle or contest of competition. It might, however, as well be said that practicing law is war, because it is contentious; or that practicing medicine is war, because doctors are jealous rivals of each other. The protectionists do, however, always seem to think of trade as commercial war. One of them was reported to have said in a speech in the late campaign, that nations would not fight any more with guns but with taxes. The nations are to boycott each other. One would think that the experience our southerners made of that notion in the civil war, upon which they entered in the faith that “cotton is king,” would have sufficed to banish forever that antique piece of imbecility, a commercial war. If trade is war, all the tariff can do about it is to make A fight B's battles, although A has his own battles to fight besides.
That protection brings into employment labor and capital which would otherwise be idle.
133. If there is any labor or capital which is idle that fact is a symptom of industrial disease; especially is this true in the United States. If a laborer is idle he is in danger of starving to death. If capital is idle it is producing nothing to its owner, who depends on it, and is suffering loss. Therefore, if labor or capital is idle, some antecedent error or folly must have produced a stoppage in the industrial organization. The cure is, not to lay some more taxes, but to find the error and correct it. If then things are in their normal and healthy condition, the labor and capital of the country are employed as far as possible under the existing organization. We are constantly trying to improve our exchange and credit systems so as to keep all our capital all the time employed. Such improvements are important and valuable, but to make them costs more thought and skillful labor than to invent machines. Hence Congress can not do that work by discharging a volley of taxes at selected articles, and leaving those taxes to find out the proper points to affect, and to exert the proper influence. It takes intelligent and hard working men to do it. The faith that any thing else can do it is superstition.
That a young nation needs protection and will suffer some disadvantage in free exchange with an old one.
134. The younger a nation is the more important trade is to it (cf. § 127, fg). The younger a nation is the more it wins by trade, for it offers food and raw materials which are objects of greatest necessity to old nations. The things England buys of us are far more essential to her than what she buys of France or Germany. The strong party in an exchange is not the rich party, or the old party, but the one who is favored by supply and demand, —the one who brings to the exchange the thing which is more rare and more eagerly wanted.* If a poor woman went into Stewart's store to buy a yard of calico, she did not have to pay more because Stewart was rich. She paid less because he used his capital to serve her better and at less price than any body else could. England takes 60 per cent. of all our exports. We sell, 1st, wheat and provisions, prime articles of food; 2d, cotton, the most important raw material now used by mankind; 3d, tobacco, the most universal luxury and the one for which there is the intensest demand; 4th, petroleum, the lighting material in most universal use. These are things which are rare and of high demand. We are, therefore, strong in the market. Protection only robs us of part of our advantage (§ 116).
That we need protection to get ready for war.
135. We have no army, or navy, or fortifications worth mentioning. We are wasting more by protective taxes in a year than would be necessary to build a first-class navy and fortify our whole seacoast. It is said that, in some way, the taxes get us ready for war, and yet in fact we are not ready for war. It is plain that this argument is only a pretense put forward to try to cover the real motives of protection. If we prefer to go without army, navy, and fortifications, as we now do, then the best way to get ready for war, consistently with that policy, is to get as rich as we can. Then we can count on buying any thing in the world which any body else has got, which we need. Protection, then, which lessens our wealth, is only diminishing our power for war.
That protectionism produces some great moral advantages.
136. It is a very suspicious thing when a man who sets out to discuss an economic question shifts over on the “moral” ground. Not because economics and morals have nothing to do with each other. On the contrary, they meet at a common boundary-line, and, when both are sound, straight and consistent lines run from one into the other. Capital is the first requisite of all human effort for goods of any kind, and the increase of capital is therefore the expansion of chances that intellectual, moral, and spiritual good may be won. The moral question is: How will the chances be used? If then the economic analysis shows that protective taxes lessen capital, it follows that those taxes lessen the regular chances for all higher good.
137. It is argued that hardship disciplines a man and is good for him; hence, that the free-traders, who want people to do what is easiest, would corrupt them, and that protectionists, by “making work,” bring in salutary discipline for the people. This is the effect upon those who pay the taxes. The counter operation on the beneficiaries of the system I have never seen developed. Bastiat said that the model at which the protectionist was aiming, was Sisyphus, who was condemned in Hades to roll a stone to the top of a hill, from which, as soon as he got it there, it rolled down again to the bottom. Then he rolled it up again, and so on to all eternity. Here then was infinity of effort, zero of result; the ultimate type to which the protectionist system would come. Somebody pitied Sisyphus, to whom he replied: “Thou fool! I enjoy everlasting hope!” If Sisyphus could extract moral consolation from his case, I am not prepared to deny but that a New England farmer, ground between the upper mill-stone of free competition, in his production, with the Mississippi Valley, and the nether millstone of protective taxes on all his consumption, may derive some moral consolation from his case. There are a great many people who are apparently ready to inflict salutary chastisement on the American citizen for his welfare—and their own advantage.
138. The protectionist doctrine is that if my earnings are taken from me and given to my neighbor, and he spends them on himself, there will be important moral gains to the community which will be lost if I keep my own earnings, and spend them on myself. The facts of experience are all to the contrary. When a man keeps his own earnings he is frugal, temperate, prudent, and honest. When he gets and lives on another man's earnings, he is extravagant, wasteful, luxurious, idle, and covetous. The effects on the community in either case correspond.
139. The truth is that protectionism demoralizes and miseducates a people (§§ 89, 153, 155). It deprives them of individual self-reliance and energy, and teaches them to seek crafty and unjust advantages. It breaks down the skill of great merchants and captains of industry, and develops the skill of lobbyists. It gives faith in monopoly, combinations, jobbery, and restriction, instead of giving faith in energy, free enterprise, public purity and freedom. Illustrations of this occur all the time. Objection has been made to the introduction of machines to stop the smoke nuisance because they would interfere in the competition of anthracite and bituminous coal. People have resisted the execution of ordinances against gambling-houses because said houses “make trade” for their neighbors. The theater men recently made an attempt to get regulations adopted against skating rinks, —purely on moral grounds. The industries of the country all run to the form of combinations.* Our wisdom is developed, not in the great art of production, but in the tactics of managing a combination, and while we sustain all the causes and all the great principles of this system of business we denounce “monopoly” and “corporations.”
That a “worker may gain more by having his industry protected than he will lose by having to pay dearly for what he consumes. A system which raises prices all round—like that in the United States at present—is oppressive to consumers, but is most disadvantageous to those who consume without producing any thing, and does little, if any, injury to those who produce more than they consume.”
140. This is an English contribution to the subject dropped in passing by a writer on economic history.* It is a note-worthy fact that the “historical economists” and others who deride political economy as a science do not desist from it, but at once set to work to make very bad political economy of the “abstract” or “deductive” sort. The passage quoted involves three or four fallacies already noticed, and an assumption of the truth of protectionism as a philosophy. As we have abundantly established, “workers” gain nothing by protection in their production (§ 48.) Also, “a system which raises prices all around” must either lessen the demand and requirement for money, i. e., restrict business and the supply of goods (§ 112), or it must increase the amount of money. In the former case it could not but injure “workers;” in the latter case we should find ourselves dealing with a greenback fallacy. But passing by that, who are they who consume more than they produce? I can think only of 1) princes, pensioners, sinecurists, protected persons, and paupers, who draw support from taxes, and 2) swindlers, confidence men and others who live by their wits on the produce of others. Those under 1), if they receive fixed money grants or subsidies, find an advance in price most disadvantageous. So the protected, of course, as consumers of others' products, when they spend what they have received by protection, suffer. Who are they who produce more than they consume? I can think only of 1) tax-payers, and 2) victims of fraud and of those economic errors which give one man's earnings to another's use. Rise in price is just as advantageous to this class as it was disadvantageous to the other, on the same hypothesis, viz., if they pay fixed money taxes to the parasites, and can sell their products for more money. Evidently the writer did not understand correctly what his two classes consisted of, and he put the protected “workers” in the wrong one. If in industry a person should produce more than he consumes, he could give it away, or it would decay on his hands. If he should consume more than he produced, he would run in debt and become bankrupt.* Protection has nothing to do with that.
That “a duty may at once protect the native manufacturer adequately, and recoup the country for the expense of protecting him.”
141. This is Professor Sidgwick's doctrine.† It has given great comfort to our protectionists because it is put forward by an Englishman and a Cambridge professor. It is offered under the “art” of political economy. It is a new thing; an à priori art. The “may” in it deprives it of the character of a doctrine or dogma such as our less cultivated protectionists give us: “protective taxes come out of the foreigner,” but it is not a maxim of art. It has the air of a very astute contrivance (see § 3), and is therefore very captivating to many people, and it is very difficult to dissect and to expose in a simple and popular way. It has therefore given great trouble and done great mischief. It is, however, a complete error. It is not possible in any way or in any degree to use duties so as to make the foreigner pay for protection.
142. Professor Sidgwick states the hypothetical case which he sets up to prove by illustration that there “may” be such a case, as follows: “Suppose that a five per cent. duty is imposed on foreign silks, and that, in consequence, after a certain interval, half the silks consumed are the product of native industry, and that the price of the whole has risen 2½ per cent. It is obvious that, under these circumstances, the other half which comes from abroad yields the State five per cent., while the tax levied from the consumers on the whole, is only 2½ per cent.; so that the nation, in the aggregate, is at this time losing nothing by protection, except the cost of collecting the tax, while a loss equivalent to the whole tax falls on the foreign producer.”
143. It is necessary, in the first place, to complete the hypothesis which is included in this case. Let us assume that the consumption of silk, when all was imported, was 100 yards and that the price was $1.00 per yard. Then the following points are taken for granted although not stated in the case as it is put: 1) That the state needs $5 revenue; 2) that it has determined to get this out of the consumers of silk,” 3) that the advance in price does not diminish the consumption; 4) that the tax forces a reduction of price for the silk in the whole outside market; 5) that the “silk” in question is the same thing after the tax is laid as before. Of these assumptions, 3, 4, and 5 are totally inadmissible, but, if they be admitted in the first instance, and if the doctrine of the case which is put be deduced, it is this: If the part imported multiplied by the tax is equal to the total consumption multiplied by the advance in price, the consumers can pay the latter in protection, for it is equal to the former, and the former, which is paid to the government by the foreigner, is what the consumers of silk must otherwise have paid.
144. Obviously this deduction is arithmetically incorrect, even on the hypothesis. In the first place, the government has not obtained $5 revenue which it needed, but $2.50 (5 cts. on 50 yards). In the second place, the foreigner sells at $1.02½ (net 97½) the silk which he used to sell for $1.00. He therefore gets back from the consumers 2½ cts. per yard on 50 yards, or $1.25 out of the $2.50 which he has paid to the government. Also, the domestic silk to compete must be equal to the dollar imported silk which now sells for $1.02½. Hence, the consumers really pay in protection only 2½ cts. on 50 yards, i. e. $1.25. This case then is, that the foreigner pays $1.25 revenue, and the consumers pay $1.25 revenue and $1.25 protection. Hence the result is not at all what is asserted, and there is no such operation of the contrivance as was expected. But the government needs $2.50 more revenue, the operation of its tax having been interfered with by protection. As there is no equivalence or compensation in the case as it already stands, it is evident that the effect of any further tax, instead of bringing about equivalence or compensation, will be to depart from such a result still further.
145. It is, however, impossible to admit assumptions 3, 4, and 5 above, or to deal with any economic problem by any arithmetical process. The result above reached is totally incorrect and only serves to clear the ground for a correct analysis. The producer may have to bear part of a tax, if he is under the tax jurisdiction, or if he has a monopoly. If he has no monopoly, and is not under the tax jurisdiction, and works for the world's market, he can not lower his price in order to assume part of the tax. What he does is that he differentiates his commodity. This is the fact in the art of production which is established by abundant experience. It is the explanation of the constant complaint, under the protective system, of “fraud” and of the constant demand for sub-classification in the tariff schedules. The protected product never is, at least at first, as good in quality as the imported article which it aims to supersede. Hence the foreigner, if he desires to retain the protected market, can prepare a special quality for that market. The “silk” after the tax is laid is not the same silk as before. It nets to the foreign producer 97½ cents, and pays him business profits at that price. Therefore when he sells it at $1.02½ he gets back the whole tax from the consumers. The domestic silk sold at $1.02½ is no better than might have been obtained for 97½ cents. Hence the consumers are paying a tax for protection which is full and equal to the revenue rate. The fact that the price has fallen to $1.02½, and is not $1.05, evidently proves that instead of disproving it, as many believe.
146. Thus this case falls to pieces. It gains a momentary plausibility from the erroneous assumptions which are implicit in it. The foreign producer may suffer a narrowing of his market and a reduction of his aggregate profits, but there is no way to make him tributary (unless he has a monopoly) either to the treasury or the protected interests of the taxing country.* If it was true in general, or in any limited number of cases, that a country which lays protective taxes can make foreigners pay those taxes, then England, which has had no protective taxes since (say) 1850, and has been surrounded by countries which have had more or less protective taxes, must have been paying tribute to them all this time and must have been steadily impoverished accordingly.
[*]Bk. V., ch. 10, § 1.
[†]It has been developed mathematically by a French mathematician (Journal des Economistes, Aug. and Sept., 1873, pp. 285 and 464). Let a be the mean annual loss by the tax so long as it lasts in order to start the industry. Let b be the mean annual gain by the industry after it is started. Let x be the years that the tax is to last. The losses and gains must be capitalized at their present worth. The present worth of the losses is the sum of the series, The present worth of the gains forever is the sum of the infinite series, Putting one of these sums equal to the other we get
[*]See a fallacy under this head: Cunningham, Growth of English Industry, 410. note.
[*]See a fallacy under this point: Cunningham, Growth of English Industry, 410 note.
[*]See an interesting collection of illustrations in an article on “Lords of Industry” in the North American Review for June, 1884. The futile criticisms at the end of the article do not affect the value of the facts collected.
[*]Cunningham, Growth of English Industry and Commerce, 316, note 2. (See also§§ 114, 134.)
[*]Mill's Political Economy, bk. 1, ch. 5, § 5. Cairnes, Leading Principles, chap. 1, § 5.
[†]Political Economy, 491–2.
[*]I published a criticism of this case in the London Economist, Dec. 1, 1883.