The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction.
• Taxation and Work.
• Chapter I.: Occupations. Distribution of Products.
• Chapter II.: Taxation Measured By Work.
• Chapter III.: Taxation Measured In Money.
• Chapter IV.: Principal Sources of Revenue.
• Chapter V.: How the Tariff Should Be Reformed.
• Chapter VI.: Taxation Which the Government Does Not Receive.
• Chapter VII.: British Tariff Reform.
• Chapter VIII.: Beggarly Compensation of United States Officials.
• Chapter IX.: What Is Protection?
• Chapter X.: Occupations That Cannot Be Protected By Duties On Imports.
• Chapter XI.: Method of Tariff Reform.
• Chapter XII.: Protection By Exemption From Taxation.
• Chapter XIII.: Free Trade the Objective Point.
• Chapter XIV.: Attempted Definition of the Principle of Protection By Senators Sherman, Hoar, and Aldrich.
• Chapter XV.: Hamilton’s Policy.
• Chapter XVI.: Tariff Protection Does Not Raise Wages.
• Chapter XVII.: Protection Promotes War; Free Trade Promotes Peace.
• Chapter XVIII.: Does Tariff Protection Promote Liberty?
• Chapter XIX.: Progressive Reduction of Duties.
• Chapter XX.: Cost of a High Tariff.
• Chapter XXI.: Development By Free Commerce.
• Chapter XXII.: High Wages and Low Cost.
• Chapter XXIII.: The Use of Machinery By Nations.
• Chapter XXIV.: The Waste of Armies.
• Chapter XXV.: Senator Morrill’s Report On Canada Received. Food and Wages.
• Chapter XXVI.: In the Matter of Silver, Bi-metallism, and Free Coinage.
• Chapter XXVII.: Volume of Trade.
• Chapter XXVIII.: Taxation By Bad Money.
• Chapter XXIX.: How to Maintain Silver Equal to Gold.
• Chapter XXX.: The Issue Joined.
• Chapter XXXI.: Personal Observations—conclusion.

CHAPTER IX.

What Is Protection?

“What is Protection?” “In what does the true Protection to Domestic Industry consist?” This question may have a strange sound; yet there never was a time in the history of this country when a definite answer was more needed, the confusion among the advocates of the policy which has been heretofore known as that of “Protection to Domestic Industry” being now greater than among any other class of people. The system formerly called Protection varies very much from the policy which is now advocated under that name, which should rather be called McKinleyism.

In dealing with this subject certain propositions may serve as a true guide.

First. In selecting the subjects upon which duties are to be placed in framing a tariff bill, such discrimination should be used as will most fully protect American labor from injury.

Second. In the preparation of measures for collecting duties upon imports, such discrimination should be used as will most fully promote domestic manufactures, mining, and mechanic arts.

Third. In framing measures for collecting duties on imports, such discrimination should be used as will most readily and fully develop a home market for domestic products to the utmost either for export or for home consumption.

Fourth. It is not expedient or even lawful to impose duties upon imports without such discrimination in the choice of the subjects of taxation as may conduce most fully to the public interest.

Fifth. In devising a just method of framing a tariff, if any separation can be made in respect to the relations of capital and of labor, the interest of the workmen should be first considered.

Sixth. The public revenues derived from taxation either by way of an excise on domestic liquors and tobacco or by way of duties on imports should be strictly limited to the necessary expenses of the government when economically administered.

Seventh. An excess of revenue which cannot be immediately applied to the payment of debt is a constant source of danger and is likely to promote either a waste or misapplication of the money derived by taxation from the hardly earned products of the people.

Eighth. All taxes that the people pay, the government should receive, and no money should be diverted from public use to purposes of private gain either directly or indirectly.

Ninth. It is neither just nor expedient to frame a tariff for the purpose of raising or maintaining the price of any given article of domestic manufacture above what it would otherwise be, since that purpose can only be accomplished for the benefit of the few at the cost of the many.

Tenth. It is neither just nor expedient to put a tax or duty upon any crude or partly manufactured product that is of foreign origin but which is necessary in the processes of domestic industry, since such a tax will burden and obstruct the work of very large numbers of persons even if the private interest of a lesser number may be for a time promoted.

The former policy which preceded McKinleyism has been justified by its advocates by imputing its origin in this country to Alexander Hamilton. It is true that Hamilton called attention to the incidental stimulus which might be given to some branches of domestic manufactue already existing, through the imposition of a tariff imposed for the main purpose of collecting revenue from duties upon a few finished articles commonly called manufactures; but this was the incident of Hamilton’s revenue tariff and not the main object. Hamilton’s tariff was limited to a small number of taxed articles; the average rate upon dutiable imports was less than ten per cent.1 Crude materials were left substantially untaxed. A few minor changes had been made in Hamilton’s tariff down to the embargo which preceded the war of 1812. That war and the previous embargo changed the conditions materially, giving a very unwholesome stimulus to certain branches of industry at the cost of many others; those over-stimulated branches clamored to be upheld and sustained by increasing duties.

A short time after the war of 1812 the first formidable and influential movement towards raising the duties for the direct promotion of certain specific branches of industry was mooted. The discussion took a very wide scope; the change was resisted, especially in New England, under the popular cry of “Free Trade and Sailors’ Rights.” In 1820, Daniel Webster made one of the greatest speeches which he ever uttered, at a meeting in Faneuil Hall, which was called by the merchants of Boston to oppose these measures. Abbott Lawrence and Nathan Appleton, who afterward became the most conspicuous champions of the high-tariff policy, were among the prominent men present and taking an active part in this meeting. In 1824, Webster opposed the protective policy in the Senate in debate with Henry Clay, who had attempted to give it the name of “The American System.” Webster pointed out that it was not an American system at all, but that it was a system which had been long in force in foreign countries, notably in Great Britain. He called attention to the fact that the United States were proposing to take this system up at the very time when its adverse influence on Great Britain had become apparent and when measures were pending under the lead of Huskisson for a change in the policy. But the advocates of a high tariff in the United States had their way, passing various acts culminating in the tariff of 1842, which was enacted in the United States in the very year that the great reform of the tariff in England was instituted under the leadership of Sir Robert Peel in the direction of what has since been called British Free Trade.

It is to be remarked that the lowest prices of cotton ever known were reached between 1842 and 1846, during the imposition of this high tariff; the lowest prices since that date are now prevailing under the McKinley act. Yet there are 1,000,000,000 non-machine-using people in the world who are craving for more and better cotton fabrics; but they can only pay for them in wool, dye-woods, ores, or other similar crude materials, which we tax in order to keep them out.

Either one of the tariffs of Hamilton and those enacted subsequently, including even the tariff of 1842, would now be denounced by the supporters of McKinleyism as pestilent efforts of the enemies of domestic industry to establish British Free Trade.

Webster afterward sustained the policy which was forced upon the country in 1824, but he never attempted to refute his own arguments on which he had opposed its introduction. In his latter years he merely claimed that the government was bound to sustain those branches of industry which had been stimulated by the tariff, since it had elected at the outset to turn the power of taxation against the mechanic arts, agriculture, and commerce, in which his constituents had been previously engaged, and had encouraged them to establish the factory system, of which he became later a mere advocate.

The only ground on which any of these measures, prior to the tariff of 1861, were supported was this, that the full occupation, the quick demand for labor, and high rate of wages which prevailed in this country, not only in agriculture and in the mechanic arts, but also in all the branches of domestic manufacture which cannot be conducted in any other country, for the supply of this country (constituting by far the greater part of our distinctive manufacturing arts) had rendered the special development of the iron industry and of the textile manufacture somewhat difficult and uncertain.

It is singular to observe how the special representatives of pig-iron, wool, and silver have gradually assumed the control and direction of the legislation of this country. If regard be given to their relative importance, the comparison may be made in more than one way; perhaps the surest way is to compare them with the products of the barn-yard.

The eggs only, at the standard of consumption in the factory boarding-houses of Massachusetts and of the iron and steel workers of Pennsylvania, came to between $125,000,000 and $150,000,000. According to assessors’ returns in Ohio the egg product is worth more than the wool of Ohio.

The production of pig-iron, wool, and silver is relatively an insignificant factor in our body politic; it is their abundant consumption that is important. Iron and silver give occupation to a very small fraction of the population, who are occupied in mining at very low rates of wages and under very adverse conditions of life, the benefit, if any, accruing almost wholly to the owners of the capital which is invested in the mines.

The proceeds of the sales of poultry and eggs, on the other hand, are distributed throughout the country; very little goes to capital, the payments being made almost wholly to those who require it more than any other class, because they possess so little capital.

REVERTING TO HISTORIC PARALLELS.

In 1824 the effort was still being made in Europe as it had long been in Great Britain to prevent the distribution of information and the knowledge of inventions in manufacturing. It had been a penal offence in the early part of the century, prior to 1824, and even I believe up to 1842, to take drawings or examples of many kinds of machinery out of Great Britain. True, the iron industry and the textile manufacture already existed in this country in very considerable development and, as Hamilton in 1791 and Webster in 1820 proved, on a very solid basis, having become established as infant manufactures during the colonial period in spite of the efforts of Great Britain to suppress them; but it was held that they required a certain so-called “reasonable measure of Protection” by way of duties on foreign imports of fabrics of like kinds, in order to offset the lower wages which prevailed in other countries; it being then erroneously assumed that the cost of labor per unit of product might be measured or established by reference to the rates of wages. That error in regard to the relation of rates of wages to the cost of labor still prevails.

There has been much discussion about promoting diversity of occupation or employment under a protective tariff. A very slight investigation proves that the effect of a protective tariff, so far as it is operative, has been rather to restrict than to promote diversity of employment.

All the more conspicuous and important arts in whose behalf it has been mainly advocated were well established in the United States long before Hamilton’s tariff, even in the colonies before the Revolution. The cotton industry came later, even before the invention of the cotton gin in this country, an invention which would naturally have led to the establishment of spinning and weaving here whether there had been any Protection or not. Hamilton himself advocated a remission of the duty of three cents a pound upon cotton in 1791, in order to promote the more rapid development of the cotton manufacture in this country where it was already established.

No art of any conspicuous importance, requiring skill, aptitude, and intelligence in their application to machinery, has yet been established in this country merely as a result of the adoption of a high tariff. It is possible that there are some minor branches of industry of which the corresponding import has been cut off by almost prohibitive duties which may have been brought here in consequence; but no distinct branch of manufacturing of any relative or considerable importance has ever been added to the occupations before existing here, under any tariff imposing high rates of duty.

There is a natural diversity of occupation which establishes itself. Its course may be traced throughout this country itself, in which we have the widest application of absolute Free Trade among the largest number of persons who were ever permitted to enjoy the privilege. It will be observed that the more free the conditions, the more fully each section adapts itself to its own work; but nevertheless in every State there exists a certain ratio of occupations, more manufacturing in the East, more agriculture in the West and South.

[1 ] In Hamilton’s tariffs of 1789 and 1792, spirits, wines, spices, tea, coffee, and a few other articles were subjected to duties purely for revenue which were above the ad-valorem rates on manufactures. The protective duties were all ad-valorem, and did not average ten per cent.