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Subject Area: Economics
Topic: Free Trade

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

Edition used:

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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Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


ESSAY No. LXXXII.

february 23, 1831.

Examination of the doctrine, that the American Protective System has reduced the prices of foreign goods in foreign countries.

OF all the assumed propositions of the tariff party, there is none which has more plausibility than this, viz., “that, even admitting that the American tariff has not reduced the prices of the protected articles as low as they can be purchased in foreign countries, yet, that it undoubtedly has had the effect of reducing the prices of foreign goods in foreign countries.” There are probably some of our friends who have been puzzled to answer this postulate, but we think we can furnish them with the means of meeting it hereafter.

The proposition, stripped of its generality, is simply this: that, owing to the existence of our protecting duty on sugar, for example, of three cents per pound, the price of sugar in the West Indies is permanently lower than it would have been had this duty not existed. Now, we deny this proposition, and call for the arguments by which it is sustained. If there be a single one, it must be the following, viz., that, as we have withdrawn or withheld our custom from the foreign sugar-growingcountries of the world, to the extent of 80,000 hogsheads per annum, this diminished demand must have occasioned a reduction in the expenses of cultivation; for it is only by such a reduction that the price of sugar could be permanently reduced. A sudden cessation of a great demand for a commodity, upon any given supply, would no doubt have the effect of diminishing temporarily the price, but, as the future supply would soon be adjusted to the future demand, no permanent fall could be occasioned. In this particular article, however, there is not the slightest reason for believing that the least temporary fall was ever for a single moment occasioned, in the foreign price of sugar, by our increase of the duty from two cents to three cents per pound, and for the simple reason, that, since the duty was raised, there has been no sensible diminution of the imports for consumption. Our increased demand, arising from our increase of population, has been quite equal to the domestic production. Now, the only question to be determined, is, what permanent effect a diminution of demand has upon the price of a commodity—can it have the effect of lowering it? Is it not a universal truth, known to every body, that the more there is called for of a particular article, the cheaper it can be furnished? Will not every manufacturer agree to supply a customer at a lower price, when he takes a large quantity, than when he requires only a small one? How then can withdrawing or withholding a demand have the same effect as the demand itself? It cannot possibly have it, and it is therefore clear, that, so far from our duty on sugar having the effect of reducing the price of that article in the general market of the world, it has the contrary effect: it prevents sugar from being as cheap as it otherwise would be, although we admit that an additional demand for 80,000 hhds., on the general stock of the world, would have but an imperceptible operation.

But let us take another article for the illustration of this principle. The proposition we are combating, says, that, owing to our duty of $37 per ton on foreign iron, iron in foreign countries has been made permanently cheaper. Our domestic production of iron is estimated at about 30,000 tons per annum. The quantity we import is about the same, so that one-half of our demand is supplied by foreign countries. Now, the only temporary influence which the withholding of our demand upon all the iron-producing countries of Europe, for 30,000 tons, could have, would be in the proportion that six millions of consumers of iron bear to the whole iron-consuming population of the world, that uses the iron and hardware of Europe, which would be an imperceptible one, as will appear to any one who reflects, that, of the vast body of people who inhabit this globe, every individual, almost, uses European iron, in some shape or other, as an implement or a weapon. And, as to any permanent effect, upon what principle can it be contended, because the Americans choose to make at home, at an expense of $80, an article that can be purchased abroad for $30, which is the fact in reference to a ton of iron, that the foreign iron manufacturer can afford to sell it cheaper than if he had a greater demand?

Again.—It is asserted, in substance, that, owing to our duty of 8¾ cents per square yard upon cotton goods, the price of cotton goods in foreign countries is permanently cheaper. And here again we will ask, why should such an effect be produced? Every body knows that the price of this article has been reduced partly by the fall in price of the raw material, (a fall occasioned by the very principle we are contending for, an increased demand,) but chiefly from the improvements in labour-saving machinery, which have taken place since 1815, and which a close competition has had much agency in producing. We say close competition, because that is the only sort of competition that can be efficient. When thousands of people are engaged in a particular branch of industry, pretty nearly on a par as to ability, then competition sets their wits, ingenuity, and energy, to work, and in that way they discover expeditious and economical processes, which would never otherwise have been found out. It is like the competition between two horses, pretty nearly matched, in a race. Each one is made to exert his utmost speed, because the other is made to do so too. But, to pretend that any real competition exists with those who require duties of 50 or 100 per centum to enable them to be upon an equality with others, is just as absurd as to suppose that a fleet horse would be pushed in a race with another that could not run half as fast. We are not able to perceive how the competition of the American manufacturers ever can, whilst they need high duties to sustain them, have any influence whatever upon the price of similar commodities abroad. They may indeed have an influence in preventing the prices from falling as low as they otherwise would fall, and we have no doubt that they produce this effect; for, by diminishing the demand for cotton goods in Europe, they prevent the competition from being as strong as it otherwise would be.

If this reasoning be sound, as we think it is, it will apply to all the protected articles, and we have long been of opinion, that, so far from our protective policy having reduced the prices of manufactured goods abroad, it has prevented them from falling as low as they otherwise would have done. But, even admitting that the proposition we have taken as the text of this article were true, what argument would it afford in favour of our adherence to the restrictive system? If we have occasioned a fall of prices abroad, in the name of common sense let us have the benefit of it. Do not let us, like a parcel of numsculls stand by, and see other people enjoy all the advantages which we have purchased at so great a sacrifice as that of throwing twenty thousand females in our large cities out of employ, five times as many men, driving our sailors to foreign service, and our merchants out of their accustomed trade, heaping insupportable burthens upon the planting States, and finally placing in jeopardy the existence of the Union. Let us, like sensible people, share with others the blessings which we have been instrumental in gratuitously conferring upon them.