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Subject Area: Economics
Topic: Free Trade

ESSAY No. XXXIV. - Condy Raguet, The Principles of Free Trade [1835]

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The Principles of Free Trade illustrated in a series of short and familiar Essays originally published in the Banner of the Constitution, 2nd ed. (Philadelphia, 1840).

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ESSAY No. XXXIV.

april 28, 1830.

Twofold operation of the tariff. It diminishes imports, and it diminishes exports. High duties fall heavier upon the consumers in the interior, than upon those on the seaboard. The cotton, rice, and tobacco planters more injured by the protective system, than the growers of other products.

THE people of the South, it is well known, loudly complain of the operation of the tariff system upon their interests, and we hear the question frequently asked, Why should they represent their sufferings to be greater than those of the inhabitants of the other states, seeing that if high duties are a tax upon consumers, they pay no more than their share? This is a question of some importance, and merits a brief examination; for if it can be made to appear, that the cotton growers are no more injured than other classes of citizens, their complaints will not be entitled to as much sympathy, as an opposite result would give them a fair claim to.

The high duty system works two ways upon the nation that adopts it. In the first place, it diminishes imports; in the second place, it diminishes exports. These positions we shall undertake to prove.

It diminishes imports, by raising the price of the imported commodity to the consumer. No nation can afford to consume as many foreign goods at high prices as at low prices, and for the same reason, that no individual can afford to buy as many goods at high prices as at low prices, since every man’s income is limited, and the extent to which he can buy, is limited by his income. This proposition one would suppose would be self-evident. It is so to a man who earns a dollar a day, and who knows that he cannot afford to buy as many coats in a year, if the cloth costs him two dollars a yard, as if it cost him but one dollar. But it is not so to many of those who fancy themselves to be statesmen, and who tell you that high duties do not diminish commerce; and it is for their benefit that we have undertaken to prove what, in our estimation, requires no more argument to support, than that six-pence will not buy as much as a shilling.

The tariff system diminishes exports, in consequence of its depriving foreign nations of the power to pay for them. If a man who has an article for sale, refuses to take in exchange for it the only commodities which others have to offer, he cannot possibly sell. He may give away, if he chooses, but this would be a game at which he could not long afford to play. The same is the case with a nation. If she will not buy, she cannot sell. It will be admitted, we think, that commerce is an exchange of equivalents; that is, of commodities of equal value at the places where the exchanges are made. Now if a nation imports foreign articles to the extent of fifty millions of dollars, can she do this, but in consequence of selling fifty millions of dollars worth of her produce? The answer must be in the negative. And if the proposition be true in whole, must it not be true in part? If, for example, she refuses to purchase beyond the extent of twenty-five millions of dollars, must not her exports be at the same time reduced to twenty-five millions? Here we shall be told, by some who only think superficially on such subjects, that it by no means follows that her exports would be diminished; for that foreign nations would give her gold and silver for the overplus. To render such a doctrine as this admissible, the possibility of such payments, in gold and silver, must be established. Great Britain exports in a year to this country, manufactures of cotton, wool, iron, &c., to the amount of, say twenty-five millions of dollars, and takes in exchange for them, chiefly cotton, tobacco, and rice. Now suppose she were to say to the United States, “I will only take hereafter from you half the quantity of cotton, tobacco, and rice, that I now take; you must pay the balance in money.” Where would this money come from? Would not the trade instantly be reduced one half? And what is true in this case, is true in all others. It would even be true with Mexico and Peru; for even those gold and silver producing countries can furnish but a very small proportion of the quantity that would be required to make such enormous payments as the doctrine advanced calls for. To our mind it is as clear, as that two and two are four, that for every diminution of imports, there is, pro tanto, a diminution of exports; that the two are just as inseparable as cause and effect; and that a law which says, you shall diminish your imports, pronounces, in the same words, you shall diminish your exports. These two points being then established, as we believe, let us see how each operates.

We have shewn that high duties raise prices, or (if they happen to be laid, as ours have been since 1816, during the operation of causes which have been annually bringing down the costs of production,) what is the same thing, they prevent prices from being as low as they would otherwise be. These duties operate as a tax upon all consumers. Each consumer pays exactly in proportion to the quantity he consumes, with this modification, that the tax falls heaviest upon consumers who live at a distance from the seaports, inasmuch as the profits of merchants in the country are higher, owing to the deficiency of capital, than on the seaboard; and beside the duty, the consumer is obliged to pay a profit to the merchant on that duty, which, where profits are from 20 to 50 per cent., falls very heavily upon him. The cotton grower, under this view of the subject, pays no more tax than other inland consumers, and as he possesses, like all others, the right to limit his consumption of foreign commodities, or of the domestic substitute, he would stand upon the same footing as all other consumers. High duties then, operating as a tax on consumption, fall equally upon all consumers, leaving out of view the question of inequality as to the articles selected for taxation, which, under the “American System,” consist of those which make the burthen fall heaviest upon the farmers and the working men.

Let us now examine the subject under the other aspect. High duties diminish exports. By this operation, the loss falls directly upon those who raise the articles of which the export is diminished, and those who were concerned in the export trade and navigation of the country; and indirectly upon the whole community, inasmuch as the total product of the entire land and labour of the country is not as great as it would have been under a greater extent of exchanges. The greatest portion of the loss, however, would fall upon the first named class, especially if they should be agriculturists, possessing land adapted peculiarly for the cultivation of the articles referred to. Thus we have seen, by an article lately published in this paper upon the French restrictive system, that the refusal to import iron, linen, &c., from the North of Europe into France, had occasioned so great a diminution of the demand for wine, that three millions of people, engaged in the cultivation of the grape, had been thrown into a state of the most extreme distress. Now, inasmuch as cotton, rice and tobacco constitute the only important productions of agriculture which we can furnish to Great Britain cheaper than she can procure them elsewhere, and which she finds it convenient to take in exchange for her manufactures, and inasmuch as she is ready and willing to take of those articles to as great an amount as we are willing to purchase of her, it is manifest, that a refusal to take British goods, amounts to a positive interdict upon the cultivation of cotton, rice and tobacco, to an extent equal to the value of the articles which we exclude. Whether this operates upon the growers of those articles more or less oppressively, depends upon various circumstances. If the land upon which cotton, rice and tobacco are grown, is not capable of producing as valuable a crop of other products, (which is not to be supposed, or otherwise it would have been applied to the cultivation of such more valuable products,) the loss will be precisely equal to this difference, and in reference to cotton lands, we can readily suppose that a prohibition to raise cotton upon them, would be an almost entire annihilation of their value.

From this view of the subject, if the reasoning is correct, it is evident that the Southern states feel the pressure of the high duty system more sensibly than those of the North and West, and it is not therefore to be wondered at that they should be more restive than the others under the burthen. We have heard a distinguished Carolina planter say, that, in his district of country, during the past year, he did not derive from the labour of his hands, more, upon an average, than ten cents per day each, including the use of the land. A little reflection will shew how a trifling fall in the price of cotton affects the income of the growers. Thus, if cotton were ten cents per pound, and the actual expenses of raising it, six cents, a fall of one cent per pound would not be a mere diminution of the planter’s income of ten per cent.; it would be a diminution of twenty-five per cent.—seeing, that only four of the ten cents consisted of revenue. Upon the same principle, a fall of two cents per pound would be a reduction of fifty per cent., or one half of his whole income; and this is the extent to which the income of no small portion of the cotton planters has been reduced.

This severe pressure has naturally excited a good deal of inquiry in the Southern states; and the people have, consequently, applied themselves to a study of the principles of that science which points out the operation of restrictive laws. They are consequently better political economists than the inhabitants of the other states, and they understand better than the latter how to present the question in its true matter-of-fact form. When they are told by a Northern manufacturer, that goods are cheaper than they used to be fifteen years ago, they admit the fact, but they ask this question—“Can I get as many pounds of iron, or of sugar, or as many bushels of salt, or as many yards of cotton or woollen cloth, for a bale of cotton, as I could if there was no American System to keep up the prices of the former articles, and to restrict my market for the latter?” This, after all, is the true question, and no honest man, who has a mind capable of comprehending the most simple proposition, can answer in the affirmative. The truth is too apparent to admit of denial, that the effect of the restrictive system is to diminish the exchangeable value of cotton, rice, and tobacco, and thus to sacrifice the interests of the people whom Heaven has favoured with a climate and soil adapted for their cultivation, for the fancied, not real, benefit of others, inhabiting different sections of country.