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 XV.

Hamilton’s Policy.

The replies of the Senators previously given to the request for a definition of the principle of Protection have given their conception of the facts, especially in respect to wages, on which they justify their policy. I next endeavored to find gentlemen of authority, connected with the higher institutions of learning, who might, either through their knowledge of economic history, or their position as teachers of political economy, be rightly requested to reply to the same question. It is singular, however, that there is but one gentleman to be found within my knowledge, connected with any college or university of repute, who sustains the so-called principle of Protection, Professor Robert Ellis Thompson of the University of Pennsylvania. His reply to my question is as follows:

“Philadelphia, Dec. 4, 1891.

“It is not so easy to make a brief statement of ‘the principle of Protection’ as it is to render that service for the rival theory. Free Trade rests on theory and assumes ideal conditions. Protection rests on experience, and deals with actual conditions. These latter always are complex, and do not lend themselves to neat formalization.

“In making the attempt to supply what you ask, I do so under protest that what I write is inadequate.

“Nations are industrial as well as political units. To their industrial welfare a diversification of industry is indispensable. Following the law of biological classification they take high industrial rank or law, according to the measure of the industrial differentialism of the parts from each other, and from the whole. This differentialism is the normal process of industrial growth, which would proceed equably and equally in all countries, if the conditions were the same in all. But as the world now is, no two are equal; and the more advanced find their real (or supposed) interest in monopolizing what they regard as the more profitable industries, and in keeping others on the level of industrial uniformity. They wish to supply the others with highly elaborate products, and take coarser in exchange. The experience of these others is that such exchanges are unprofitable, as exposing them to the largest risks in production, laying upon them the heaviest cost of transportation, and leaving them incapable of military defence. Protection is their resistance to this programme, and is exercised for them by their government, for the reason that it is the business of government to ‘promote the general welfare,’ by exercising a supervision over the nation’s industrial growth with a view to the proper co-ordination of its various branches, This duty of government is not tied to any kind of legislative method, such as discriminating duties on imposts. It has been exercised by prohibitions, bounties, and other measures.

“I should define protection as the policy which, by the collective action of the nation, seeks to divert a part of its capital into a channel in which it would not flow otherwise, and which experience shows to be for the general benefit.

“Very truly yours,

“R. E. Thompson.”

It will be observed that while the Senators rest their justification of a high tariff upon an assumed difference in the cost of labor in this as compared to other countries, which excess of cost they attribute to the admittedly higher rates of wages, Prof. Thompson justifies the policy upon the ground that “the collective action of the nation may rightly divert a part of its capital into a channel into which it would not otherwise flow, and which experience shows to be for the general benefit.”

Before reviewing this letter it may be well to revert to the beginning of the protective system in this country. In the discussion of the tariff question Alexander Hamilton, in the celebrated Report on Manufactures, of 1791, was called upon to meet a misapprehension which had then prevailed not only in this but in many other countries, that all wealth was derived from the soil, and that the processes of manufacture added nothing thereto. This misapprehension which had dominated the policy of nations is now so obsolete that it has a grotesque sound, yet a large part of Hamilton’s argument was devoted to an analysis of that idea. Hamilton justified revenue duties so adjusted as to give some advantage or stimulus to domestic industries and manufactures upon other grounds while exposing this fallacy. He said:

He then refers to the common system of bounties upon exports and other artificial methods of promoting commerce in European countries. Hamilton rests no argument upon the difference in wages and the higher rates which he refers to and considers an advantage on the part of the United States.

The most singular fact bearing upon Professor Thompson’s justification by experience is found in Hamilton’s list of the manufacturing arts which were, at that time in 1791, as he states, successfully established in this country. The following is the statement:

If careful consideration be given to Hamilton’s list, the statement which has been previously made in this series will be justified. There is not a single important branch of manufacturing industry—except those which have been developed by subsequent inventions—now established in this country, which was not, according to Alexander Hamilton, well established and successful prior to 1791. Among the arts which have been developed added subsequently to 1791 and through subsequent invention, now to be found in this country, the only one of any conspicuous importance is the manufacture of cotton.

One may therefore contest the ground upon which Prof. Thompson sustains the so-called principle of Protection, by the proof that is found in Hamilton’s evidence of success in manufactures, that experience does not justify the claim of the advocates of a high tariff to diversify industry, to maintain wages, or to add to the general product of a country. Experience may be cited to prove the very reverse of all these conditions.

Reverting now to the question of wages, it is important in the first instance to submit some general considerations to be subsequently dealt with in more minute detail. In 1880 agriculture gave occupation to forty per cent. or more of all the people who are occupied for gain in this country. The wages earned by those who work for wages in farm industry are higher than they are in any other country with the exception of Australia and New Zealand. The product of agriculture was valued at the farms in 1880 by the Commissioner of Agriculture, on a revision of the census figures, at a fraction under four thousand millions ($4,000,000,000). Taking no cognizance of the small exchanges between ourselves and the neighboring Dominion of Canada, to whose people, owing to our advantage in an earlier spring, we sell more of the products of agriculture than we buy, there were not in 1880, and are not now, five per cent. of the domestic products of agriculture of which any corresponding product could be imported from a foreign country. These articles of possible import consist of sugar, hemp, flax, tobacco, and wool, and a few other insignificant articles. Hemp and sugar have been put into the free list; tobacco, wool and flax are now the only products of agriculture in whose behalf tariff Protection is demanded; they do not now constitute in value two dollars in one hundred of the products of agriculture. The wool of Australia and New Zealand is produced at higher rates of wages than prevail in this country, yet a duty is demanded for protection against the import of such wool upon the ground of its low cost of production. Every other product of our domestic agriculture is produced at a lower cost and at higher rates of wages than prevail in any other country.

The protective system cannot, of course, be invoked in behalf of those who are occupied for gain in professional or personal service or in trade and transportation. Under the head of manufactures, mechanics, and mining, the persons occupied in 1880 numbered 3,837,112.

In the specific list of manufacturing, mechanical, and mining establishments, in which the work is done which might be in part subjected to foreign competition, the total number was 2,732,595, of whom 2,019,045 were males above sixteen, 531,069 females above fifteen, and 181,921 young persons. The product of these establishments, valued at the works, amounted to $5,369,579,191. The cost of the materials used was $3,396,823,549, sum of wages $947,953,795. It will be observed that the cost of materials comes to 63 per cent., the cost of labor 17 per cent. But, under this title there are listed establishments like sugar refineries and meat-packing establishments, in which the cost of labor is very small and the cost of the materials is very large. Eliminating such classes, it may fairly be considered that the proportion of labor which is directly exerted in the factory or the workshop is substantially twenty-five per cent. of the cost of the goods. According to the figures of the Commissioner on Woollen and Worsted Manufactures in 1890, lately published, the percentage of labor is given at twenty-three; material at sixty per cent.

The question may now be asked, What are these materials which enter into the various processes of the manufacture of machinery, cars, wagons, boots and shoes, textile fabrics, food preparations, food in its secondary condition, chemicals, and the like? They are the primary products of the field, the forest, and the mine. With respect to all the chief products of the field, such as cotton, grain, hay, and the like, there can be no foreign competition with us. These articles come into the category of those which are produced at the lowest labor cost and at the highest rate of wages.

Wool is the sole product of the field, except tobacco which must be separately treated, on which any consideration is claimed that is or can be given in tariff legislation. With respect to leather, lumber, marbles, glass, and the like, and with regard to the ingredients of fertilizers and a vast number of other chemical products, no other country approaches us either in the abundance of the supply of crude materials or in the facility with which these resources can be worked at high wages and low cost.

With respect to metal or the products of the mine, there can be no competition by other countries with us in copper, lead, oil, and iron, except in the latter case in regard to special qualities intended for particular purposes. If, then, the duties on crude materials were wholly removed, there would remain only the question of wages to be dealt with in specific manufacturing industries.

It will be remarked that if there were no duties upon the materials which are used in the processes of manufacturing industry this country would hold a superiority over all others in the abundant supply of crude materials derived from the greatest natural resources, from which the highest rates of wages are derived in converting them to use at the lowest cost per unit of product.

We are thus led to the simple question of the expediency of tariff Protection in respect to those branches of industry to which thought is apt to be limited when the word manufactures is made use of. The relation of wages to the cost of labor in those specific branches of domestic industry will be dealt with in the subsequent chapters.