Front Page Titles (by Subject) PROTECTIONISM the -ism which teaches that waste makes wealth  - The Forgotten Man and Other Essays (corrected edition)
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PROTECTIONISM the -ism which teaches that waste makes wealth  - William Graham Sumner, The Forgotten Man and Other Essays (corrected edition) 
The Forgotten Man and Other Essays, ed. Albert Galloway Keller (New Haven: Yale University Press, 1918).
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|Fair refining testing.................................||89||1.96|
|Fair refining testing.................................||90||2.00|
It will be clearly seen from the above figures that with a net drawback upon hard sugar of 2.79 our refiners are able to sell to foreigners, through the assistance of our Treasury, sugar at less than cost. Taking, for instance, the net price of centrifugal testing only 97° and the net price less drawback of granulated:
|Centrifugal raw sugar testing 97°......................||6.00|
|Granulated refined testing 99°.........................||6.37½|
Nothing could demonstrate the absurdity of the present rate of drawback more deafly than the above. A refiner pays 6½ cents per hundred more for raw sugar testing 2° less saccharine than he sells refined for. Not, however, to the American consumers, but to foreigners. After paying the expenses necessary to refining by the assistance of a drawback, which clearly amounts to a subsidy of about 50 cents a hundred pounds, our large sugar monopolists are assisted by the government to increase the cost of sugar to American consumers. One firm controls almost the entire trade of the east; at all events it is safe to say that the trade of the entire country is controlled by three firms, and the Treasury assists this monopoly in sustaining prices against the interest of the country at large. Up to date the exports of refined sugar have amounted to 83,340 tons, which, taken at 50 cents a hundred, has cost the treasury over $830,000. All this may not have gone into the pockets of the refiners, as the ship owners have obtained a share, but the fact remains that the Treasury is the loser by this amount. Besides this bounty presses hard upon the consumers. They not only have to pay the tax, but during the late rise they were compelled to pay more for their sugar than they otherwise would have done had not the export demand caused by selling sugar to foreigners at less than cost, the Treasury paying the difference, increased prices. While an American consumer is charged 6½ cents for granulated, foreign buyers, through the liberality of our government, can buy it under 3¾ cents. Certainly it is time that the Secretary of the Treasury asked the sugar commission to commence a comprehensive and impartial inquiry.”
81. Of course the story would not be complete if the English refiners did not besiege their government for a tax to keep out this maleficent gift of foreign taxpayers. This, say they, is not free trade. This is protection turned the other way around. We might hold our own on an equal footing, but we cannot contend against a subsidized industry. A superficial thinker might say that this protest was conclusive. The English government set on foot an investigation, not of the sugar refining, but of those other interests which were in danger of being forgotten. There was a tariff investigation which was worth something and was worthy of an enlightened government. It was found that the consumers of sugar had gained more than all the wages paid in sugar refining. But, on the side of the producers, it was found that 6,000 persons are employed and 45,000 tons of sugar are used annually in the neighborhood of London in manufacturing jam and confectionery. In Scotland there are eighty establishments, employing over 4,000 people and using 35,000 tons of sugar per annum in similar industries. In the whole United Kingdom, in those industries, 100,000 tons of sugar are used and 12,000 people are employed, three times as many as in sugar refining. Within twenty years the confectionery trade of Scotland has quadrupled and the preserving trade — jam and marmalade — has practically been originated. In addition, refined sugar is a raw material in biscuit making and the manufacture of mineral waters, and 50,000 tons are used in brewing and distilling. Hence the Economist argues (and this view seems to have controlled the decision): “It may be that the gain which we at present realize from the bounties may not be enduring, as it is impossible to believe that foreign nations will go on taxing themselves to the extent of several millions a year in order to supply us and others with sugar at less than its fair price, but that is no reason for refusing to avail ourselves of their liberality so long as it does last.”1 (See § 83, note.)
82. One point in this case ought not to be lost sight of. If the English government had yielded to the sugar refiners without looking further, all these little industries which are mentioned, and which in their aggregate are so important, would have been crushed out. Ten years later they would have been forgotten. It is from such an example that one must learn to form a judgment as to the effect of our tariff in crushing out industries which are now lost and gone, and cannot even be recalled for purposes of controversy, but which would spring into existence again ff the repeal of the taxes should give them a chance.
83. On our side the water efforts have been made to get us into the sugar struggle by the proposed commercial treaties with Spain and England, which would in effect have extended our protective tariff around Cuban and English West Indian sugar.2 The sugar consumers of the United States were to pay to the Cuban planters the twenty-five million dollars revenue which they now pay to the treasury on Cuban sugar, on condition that the Cubans should bring back part of it and spend it among our manufacturers. It was a new extension of the plan of taxing some of us for the benefit of others of us. Let it be noticed, too, that when it suited their purpose, the protectionists were ready to sacrifice the sugar industry of Louisiana without the least concern. We have been trying for twenty-five years to secure the home market and keep everybody else out of it. As soon as we get it firmly shut, so that nobody else can get in, we find that it is a question of life and death with us to get out ourselves. The next device is to tax Americans in order to go and buy a piece of the foreign market. At the last session of Congress Senator Cameron proposed to allow a drawback on raw materials used in exported products. On that plan the American manufacturer would have two costs of production, one when he was working for the home market, and another much lower one when working for the foreign market. As it is now, the exports of manufactured products, of which so much boasting is heard, are for the most part articles sold abroad lower than here so as not to break down the home monopoly market. The proposed plan would raise that to a system, and we should be giving more presents to foreigners.
84. To return to sugar, our treaty with the Sandwich Islands has produced anomalous and mischievous results on the Pacific coast. In the southern Pacific New Zealand is just going into the plan of bounties and protection on sugar.1 It would not, therefore, be very bold to predict a worldwide catastrophe in the sugar industry within five years.
85. Now what is it all for? What is it all about? Napoleon Bonaparte began it in a despotic whim, when he determined to force the production of beetroot sugar to show that he did not care for the supremacy of England at sea which cut him off from the sugar islands. In order not to lose the capital engaged in the industry, protection was continued. But this led to putting more capital into it and further need of protection. The problem has tormented financiers for seventyfive years. There are two natural products, of which the cane is far richer in sugar. But the processes of the beet-sugar industry have been improved, until recently, far more rapidly than those of the cane industry. Then the refining is a separate interest. If, then, a country has cane-sugar colonies which it wants to protect against other colonies, and a beet-sugar industry which it wants to protect against neighbors who produce beet-sugar, and refiners to be protected against foreign refiners, and if the relations of its own colonial cane-sugar producers to its own domestic beet-sugar producers must be kept satisfactorily adjusted, in spite of changes in processes, transportation, and taxation, and if it wants to get a revenue from sugar, and to use the colonial trade to develop its shipping, and if it has two or three commercial treaties in which sugar is an important item, the statesman of that country has a task like that of a juggler riding several horses and keeping several balls in motion. Sugar is the commodity on which the effects of a world-embracing commerce, produced by modern inventions, are most apparent, and it is the commodity through which all the old protectionist anti-commercial doctrines will be brought to the most decisive test.
Forced Foreign Relations to Regulate Improvement which can no Longer be Defeated.
86. If we turn back once more to our own case, we note the rise in 1883–1884 of the policy of commercial treaties and of a “vigorous foreign policy.” For years a “national policy” for us has meant “securing the home market.” The perfection of this policy has led to isolation and ostentatious withdrawal from cosmopolitan interests. I may say that I do not write out of any sympathy with vague humanitarianism or cosmopolitan sentiments. It seems to me that local groupings have great natural strength and obvious utility so long as they are subdivisions of a higher organization of the human race, or so long as they are formed freely and their relations to each other are developed naturally. But now suddenly rises a clap-trap demand for a “national policy,” which means that we shall force our way out of our tax-created isolation by diplomacy or war. The effort, however, is to be restrained carefully and arbitrarily to the western hemisphere, and we have anxiously disavowed any part or lot in the regulation of the Congo, although we shall certainly some day desire to take our share in the trade of that district. Our statesmen, however, if they are going to let us have any foreign trade, cannot bear to let us go and take it where we shall make most by it. They must draw a priori lines for it. They have taxed us in order to shut us up at home, This has killed the carrying trade, for, if we decided not to trade, what could the shippers find to do? Next ship-building perished, for if there was no carrying trade why build ships, especially when the taxes to protect manufactures were crushing ships and commerce? (§ 101.) Next the navy declined, for with no commerce to protect at sea, we need no navy. Next we lost the interest which we took thirty years ago in a canal across the isthmus, because we have now, under the no-trade policy, no use for it. Next diplomacy became a sinecure, for we have no foreign relations.
87. Now comes the “national policy,” not because it is needed, but as an artificial and inflated piece of political bombast. We are to galvanize our diplomacy by contracting commercial treaties and meddling in foreign quarrels. No doubt this will speedily make a navy necessary. In fact our proposed “American policy” is only an old, cast-off, eighteenth-century, John Bull policy, which has forced England to keep up a big army, a big navy, heavy debt, heavy taxes, and a constant succession of little wars. Hence we shall be taxed some more to pay for a navy. Then it is proposed to tax us some more to pay for canals through which the navy can go. Then we are to be taxed some more to subsidize merchant ships to go through the canal. Then we are to be taxed some more to subsidize voyages, i.e., the carrying trade. Then we are to be taxed some more to provide the ships with cargoes (§ 83).
88. All this time, the whole West Indian, Mexican, and Central and South American trade is ours if we will only stand out of the way and let it come. It is ours by all geographical and commercial advantage, and would have been ours since 1825 if we had hut taken down the barriers. Instead of that we propose to tax ourselves some more to lift it over the barriers. Take the taxes off goods, let exchange go on, and the carrying trade comes, as a consequence. If we have goods to carry, we shall build or buy ships in which to carry them. If we have merchant ships, we shall need and shall keep up a suitable navy. If we need canals, we shall build them, as, in fact, private capital is now building one and taking the risk of it. If we need diplomacy we shall learn and practice diplomacy of the democratic, peaceful, and commercial type.
89. Thus, under the philosophy of protectionism, the very same thing, if it comes to us freely by the extension of commerce and the march of improvement, is regarded with terror, while, if we can first bar it out, and then only let a little of it in at great cost and pains, it is a thing worth fighting for. Such is the fallacy of all commercial treaties. The crucial criticism on all the debates at Washington in 1884–1885 was: Have these debaters made up their minds to any standard by which to measure what you get and what you give under a commercial treaty? It was plain that they had not. A generation of protectionism has taken away the knowledge of what trade is (§§ 125, 139), and whence its benefits arise, and has created a suspicion of trade (§§ 63 ff.). Hence when our public men came to compare what we should get and what we should give, they set about measuring this by things which were entirely foreign to it. Scarcely two of them agreed as to the standards by which to measure it. Some thought that it was the number of people in one country compared with the number in the other. Others thought that it was the amount sold to as compared with the amount bought from the country in question. Others thought that it was the amount of revenue to be sacrificed by us as compared with the amount which would be sacrificed by the other party. If any one will try to establish a standard by which to measure the gain by such a treaty to one party or the other, he will be led to see the fallacy of the whole procedure. The greatest gain to both would be if the trade were perfectly free. If it is obstructed more or less, that is a harm to be corrected as far and as soon as possible. If then either party lowers its own taxes, that is a gain and a movement toward the desirable state of things. No state needs anybody's permission to lower its own taxes, and entanglements which would impair its fiscal independence would be a new harm.1
90. Protectionism, therefore, is at war with improvement. It is only useful to annul and offset the effects of those very improvements of which we boast. In time, the improvements win power so great that protectionism cannot withstand them. Then it turns about and tries to control and regulate them at great expense by diplomacy or war. The greater and more worldwide these improvements are, the more numerous are the efforts in different parts of the world to revive or extend protection. No doubt there is loss and inconvenience in the changes which improvement brings about. A notable case is the loss and inconvenience of a laborer where a machine is first introduced to supplant him. Patient endurance and hope, in the confidence that he will in the end be better off, has long been preached to him. It is true that he will be better off; but why not apply the same doctrine in connection with the other inconveniences of improvement, where it is equally true?
protection lowers wages
91. On a pure wages system, that is, where there is a class who have no capital and no land, wages are determined by supply and demand of labor. The demand for labor is measured by the capital in hand to pay for it just as the demand for anything else is measured by the supply of goods offered in exchange for it. In Cobden's language: “When two men are after one boss, wages are low; when two bosses are after one man, wages are high.”
No True Wages Class in the United States.
95. The United States, however, have never yet been on a pure wages system because there is no class which has no land or cannot get any. In fact, the cheapening of transportation which is going on is making the land of this continent, Australia, and Africa available for the laborers of Europe, and is breaking down the wages system there. This is the real reason for the rise of the proletariat and the expansion of democracy which are generally attributed to metaphysical, sentimental, or political causes. A man who has no capital and no land cannot live from day to day except by getting a share in the capital of others in return for services rendered. In an old society or dense population, such a class comes into existence. It has no reserves; no other chances; no other resource. In a new country no such class exists. The land is to be had for going to it. On the stage of agriculture which is there existing very little capital and very little division of labor are necessary. Hence he who has only unskilled manual strength can get at and use the land, and he can get out of it an abundant supply of the rude primary comforts of existence for himself and his family. If it is made so cheap and easy to get from the old centers of population to the new land that the lowest class of laborers can save enough to pay the passage, then the effect will reach the labor market of the old countries also. Such is now the fact.
93. The weakness of a true wages class is in the fact that they have no other chance. Obviously, however, a man is well of in this world in proportion to the chances which he can command. The advantage of education is that it multiplies a man's chances. Our noncapitalists have another chance on the land, and the chance is near and easy to grasp and use. It is not necessary that all or any number should use it. Every one who uses it leaves more room behind, lessens the supply and competition of labor, and helps his class as a class. The other chance which the laborer possesses is also a good one, and consequently sets the minimum of unskilled wages high. Here we have the reason for high wages in a new country.
94. The relation of things was distinctly visible in the early colonial days. Winthrop tells how the General Court in Massachusetts Bay tried to fix the wages of artisans by law. It is obvious that artisans were in great demand to build houses, and that they would not work at their trades unless the wages would buy as good or better living than the farmers could get out of the ground, for these artisans could go and take up land and be farmers too. The only effect of the law was that the artisans “went West” to the valley of the Connecticut, and the law became a dead letter. The same equilibration between the gains from the new land and the wages of artisans and laborers has been kept up ever since.
95. In 1884 an attempt was made to unite the Eastern and Western Iron Associations for common effort in behalf of higher wages. The union could not be formed because the Eastern and Western Associations never had had the same rate of wages. The latter, being farther west, where the supply of labor is smaller and the land nearer, have obtained higher wages. It may be well to anticipate a little right here in order to point out that this difference in wages has not prevented the growth of the industry in the West, and has not made competition in a common market impossible.1 The fact is of the first importance to controvert the current assumption of the protectionists. They say that an industry cannot be carried on in one place if the wages there are higher than must be paid by somebody in the same industry in another place. This proposition has no foundation in fact at all. Farm laborers in Iowa get three times the wages of farm laborers in England. The products of the former pay 5,000 miles transportation, and then drive out the products of the latter. Wages are only one element, and often they are far from being the most important element, in the economy of production. The wages which are paid to the men who make an article have nothing to do with the price or value of that article. This proposition, I know, has a startling effect on the people who hold to the monkish notions of political economy, but it is only. a special case of the theorem that “Labor which is past has no effect on value,” which is the true cornerstone of any sound political economy. Wages are determined by the supply and demand of labor. Value is determined by the supply and demand of the commodity. These two things have no connection. Wages are one element in the capitalist's outlay for production. If the total outlay in one line of production, when compared with the return obtained in that line, is not as advantageous as the total outlay in another line when compared with the return available in the second line, then the capital is withdrawn from the first line and put into the second; but the rate of wages in either case or any case is the market rate, determined by the supply and demand of labor, for that is what the employers must pay if they want the men, whether they are making any profits or not.
96. The facts and economic principles just stated above show plainly why wages are high, and put in strong light the assertion of the protectionists that their device makes wages high (§ 47), that is, higher than they would be otherwise, or higher here than they are in Europe. Wages are not arbitrary. They cannot be shifted up and down at anybody's whim. They are controlled by ultimate causes. If not, then what has made them fall during the last eighteen months, ten to forty per cent, most in the most protected industries (§ 26)? Why are they highest in the least protected and the unprotected industries, e.g., the building trades? Hod-carriers recently struck in New York for three dollars for nine hours' work. Where did the tariff touch their case? Why does not the tariff prevent the fall in wages? It is all there, and now is the time for it to come into operation, if it can keep wages up. Now it is needed. When wages were high in the market, and it was not needed, it claimed the credit. Now when they fall and it is needed, it is powerless.
97. Wages are capital. If I promise to pay wages I must find capital somewhere with which to fulfill my contract. If the tariff makes me pay more than I otherwise would, where does the surplus come from? Disregarding money as only an intermediate term, a man's wages are his means of subsistence — food, clothing, house rent, fuel, lights, furniture, etc. If the tariff system makes him get more of these for ten hours' work in a shop than he would get without tariff, where does the “more” come from? Nothing but labor and capital can produce food, clothing, etc. Either the tax must make these out of nothing, or it can only get them by taking them from those who have made them, that is by subtracting them from the wages of somebody else. Taking all the wages class into account, then the tax cannot possibly increase, but is sure by waste and loss to decrease wages.
How Taxes Do Act on Wages.
98. If taxes are to raise wages they must be laid not on goods but on men. Let the goods be abundant and the men scarce. Then the average wages will be high, for the supply of labor will be small and the demand great. If we tax goods and not men, the supply of labor will be great, the demand will be limited, and the wages will be low. Here we see why employers of labor want a tariff. For it is an obvious inconsistency and a most grotesque satire that the same men should tell the workmen at home that the tariff makes wages high, and should go to Washington and tell Congress that they want a tariff because the wages are too high. We have found that the high wages of American laborers have independent causes and guarantees, outside of legislation. They are provided and maintained by the economic circumstances of the country. This is against the interest of those who want to hire the laborers. No device can serve their interest unless it lowers wages. From the standpoint of an employer the fortunate circumstances of the laborer become an obstacle to be overcome (§65). The laborer is too well off. Nothing can do any good which does not make him less well off. The competition which troubles the employer is not the “pauper labor” of Europe.
99. “Pauper labor” had a meaning in the first half of this century, in England, when the overseers of the poor turned over the younger portion of the occupants of the poorhouses to the owners of the new cotton factories, under contracts to teach them the trade and pay them a pittance. Of course the arrangement had shocking evils connected with it, but it was a transition arrangement. The “pauper laborers” children, after a generation, became independent laborers; the system expired of itself, and “pauper laborer” is now a senseless jingle.
100. The competition which the employers fear is the competition of those industries in America which can pay the high wages and which keep the wages high because they do pay them. These draw the laborer away. These offer him another chance. If he had no other way of earning more than he is earning, it would be idle for him to demand more. The reason why he demands more and gets it is because he knows where he can get it, if he cannot get it where he is. If, then, he is to be brought down, the only way to do it is to destroy, or lessen the value of, his other chance. This is just what the tariff does.
101. The taxes which are laid for protection must come out of somebody. As I have shown (§§ 32 ft.) the protected interests give and take from each other, but, if they as a group win anything, they must win from another group, and that other group must be the industries which are not and cannot be protected. In England these were formerly manufactures and they were taxed, under the corn laws, for the benefit of agriculture. In the United States, of course, the case must be complementary and opposite. We tax agriculture and commerce to benefit manufactures. Commerce, i.e., the ship-building and carrying trade, has been crushed out of existence by the burden (§86). But the burden thus thrown on agriculture and commerce lowers the gains of those industries, lessens the attractiveness of them to the laborer, lessens the value of the laborer's other chance, lessens the competition of other American industries with manufacturing, and so, by taking away from the blessing which God and nature have given to the American laborer, enable the man who wants to hire his services to get them at a lower rate. The effect of taxes is just the same as such a percentage taken from the fertility of the soft, the excellence of the climate, the power of tools, or the industrious habits of the people. Hence it reduces the average comfort and welfare of the population, and with that average comfort it carries down the wages of such persons as work for wages.
Perils or Statistics, Especially of Wages.
102. Any student of statistics will be sure to have far less trust in statistics than the uninitiated entertain. The bookkeepers have taught us that figures will not lie, but that they will tell very queer stories. Statistics will not lie, but they will play wonderful tricks with a man who does not understand their dialect. The unsophisticated reader finds it difficult, when a column of statistics is offered to him, to resist the impression that they must prove something. The fact is that a column of statistics hardly ever proves anything. It is a popular opinion that anybody can use or understand statistics. The fact is that a special and high grade of skill is required to appreciate the effect of the collateral circumstances under which the statistics were obtained, to appreciate the limits of their application, and to interpret their significance. The statistics which are used to prove national prosperity are an illustration of this, for they are used as absolute measures when it is plain that they have no use except for a comparison. Sometimes the other term of the comparison is not to be found and it is always ignored (§ 52).
103. A congressional committee in the winter of 1883–1884, dealing with the tariff, took up the census and proceeded to reckon up the wages in steel production by adding all the wages from the iron mine up. Then they took bar iron and added all the wages from the bottom up again, in order to find the importance of the wages element in that, and so on with every stage of iron industry. They were going to add in the same wages six or eight times over.
104. The statistics of comparative wages which are published are of no value at all.1 It is not known how, or by whom, or from what selected cases, they were collected. It is not known how wide, or how long, or how thorough was the record from which they were taken. The facts about various classifications of labor in the division of labor, and about the rate at which machinery is run, or about the allowances of one kind and another which vary from mill to mill and town to town are rarely specified at all. Protected employers are eager to tell the wages they pay per day or week, which are of no importance. The only statistics which would be of any use for the comparison which is attempted would be such as show the proportion of wages to total cost per unit. Even this comparison would not have the force which is attributed to the other. Hence the statistics offered are worthless or positively misleading. In the nature of the ease such statistics are extremely hard to get. If application is made to the employers, the inquiry concerns their private business. They have no interest in answering. They cannot answer without either spending great labor on their books (if the inquiry covers a period), or surrendering their books to some one else, if they allow him to do the labor. If inquiry is made of the men, it becomes long and tedious and full of uncertainties. Do United States Consuls take the trouble involved in such an inquiry? Have they the training necessary to conduct it successfully?
105. The fact is generally established and is not disputed that wages are higher here than in Europe. The difference is greatest on the lowest grade of labor — manual labor, unskilled labor. The difference is less on higher grades of labor. For what the English call “engineers,” men who possess personal dexterity and creative power, the difference is the other way, if we compare the United States and England. The returns of immigration reflect these differences exactly (§ 122, note). The great body of the immigrants consists of farmers and laborers. The “skilled laborers” are comparatively a small class, and, if the claims of the individuals to be what they call themselves were tested by English or German trade standards, the number would be very small indeed. Engineers emigrate from Germany to England. Men of that class rarely come to this country, or, if they come, they come under special contracts, or soon return. Each country, spite of all taxes and other devices, gets the class of men for which its industrial condition offers the best chances. The only thing the tariff does in the matter is to take from those who have an advantage here a part of that advantage.
protectionism is socialism
106. Simply to give protectionism a bad name would be to accomplish very little. When I say that protectionism is socialism I mean to classify it and bring it not only under the proper heading but into relation with its true affinities. Socialism is any device or doctrine whose aim is to save individuals from any of the difficulties or hardships of the struggle for existence and the competition of life by the intervention of “the State.” Inasmuch as “the State” never is or can be anything but some other people, socialism is a device for making some people fight the struggle for existence for others. The devices always have a doctrine behind them which aims to show why this ought to be done.
107. The protected interests demand that they be saved from the trouble and annoyance of business competition, and that they be assured profits in their undertakings, by “the State,” that is, at the expense of their fellow-citizens. If this is not socialism, then there is no such thing. If employers may demand that “the State” shall guarantee them profits, why may not the employees demand that “the State” shall guarantee them wages? If we are taxed to provide profits, why should we not be taxed for public workshops, for insurance to laborers, or for any other devices which will give wages and save the laborer from the annoyances of life and the risks and hardships of the struggle for existence? The “we” who are to pay changes all the time, and the turn of the protected employer to pay will surely come before long. The plan of all living on each other is capable of great expansion. It is, as yet, far from being perfected or carried out completely. The protectionists are only educating those who are as yet on the “paying” side of it, but who will certainly use political power to put themselves also on the “receiving” side of it. The argument that “the State” must do something for me because my business does not pay, is a very far-reaching argument. If it is good for pig iron and woolens, it is good for all the things to which the socialists apply it.
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 today 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 ff.)
110. Mill1 makes a statement of a case, as within the bounds 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.2 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, anybody 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 cannot 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 isat 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, woolen, 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 woolens, 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.1 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 a 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 hillside population is being impoverished, and the hillside 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 cannot 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 cannot afford to pay anything 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 taxpayer 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.1 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 cannot 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 cannot 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 cannot 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 anybody 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 everything.” Should we import everything 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 hundredweight of iron; and suppose that a bushel of wheat exchanges for a hundredweight 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 hundredweight of iron. Plainly they must offer more than one bushel for one hundredweight, 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 hundredweight. They keep one million hundredweight, and exchange one million hundredweight 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 everything 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 op 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.
159. 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 cannot 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 everything; 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 cannot afford to be honest unless everybody 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 cost more thought and skillful labor than to invent machines. Hence Congress cannot 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 anything 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 ft.). 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.1 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 anybody else could. England takes 60 per cent of all our exports. We sell, first, wheat and provisions, prime articles of food; second, cotton, the most important raw material now used by mankind; third, tobacco, the most universal luxury and the one for which there is the intensest demand; fourth, 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 anything in the world which anybody else has got and 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 millstone 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 an 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.1 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 d 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 anything, 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.2 It is a noteworthy 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) taxpayers, 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.1 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.1 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 a 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 instance 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 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 consumes 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 cents on 50 yards). In the second place, the foreigner sells at $1.02½ (net 97½) the silk which he used to sell for $1. He therefore gets back from the consumers 2½ cents 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 cents 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 cannot 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 subclassification 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,1 If it was true in general, or in any limited number of eases, 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.
summary and conclusion
147 I have now examined protectionism impartially on its own grounds, assuming them to be true, and adversely from ground taken against it, and have reviewed a series of the commonest arguments put forward in its favor. If now we return, with all the light we have obtained, to test the assumptions which we found in protectionism, that the people would not organize their industry wisely under liberty, and that protective taxes are the correct device for bringing about a better organization, we find that those two assumptions are totally false and have no semblance of claim upon our confidence. At every step the dogmas of protectionism, its claims, its apparatus, have proved fallacious, absurd, and impracticable. We can now group together some general criticisms of protectionism which our investigation suggests.
148. We have taken the protectionist's own definition of a protective duty, and have found that such a duty, instead of increasing national wealth, must, at every step, and by every incident of its operation, waste labor and capital, lower the efficiency of the national industry, weaken the country in trade, and consequently lower the standard of comfort of the whole population. We have found that protected industries, according to the statement of the protectionists, do not produce, but consume. If then these industries are the ones which make us rich, consumption is production and destruction produces. The object of a protective duty is “to effect the diversion of a part of the capital and labor of the people out of the channels in which it would run otherwise, into channels favored or created by law” (§ 13). We have seen that the channels into which the labor and capital of the people are to be diverted are offered by the industries which do not pay. Hence protectionism is found to mean that national prosperity is to be produced by forcing labor and capital into employments where the capital cannot be reproduced with the same increase which could be won by it elsewhere. If that is so, then capital in those employments will be wasted, and the final outcome of our investigation, which must be made the primary maxim of the art of national prosperity under protectionism, is that Waste makes Wealth. Such is its outcome when regarded as an economic philosophy.
149. As regards the social and jural relations which are established between citizen and citizen, protectionism is proved by a half-dozen independent analyses of it to be simply a device for forcing us to levy tribute on each other. If the law brings a cent to A it must have taken it from B, or else it must have produced it out of nothing, that is, it must be magic. Every soul pays protective taxes. If, then, anybody gets anything from them, he needs to remember what they cost him, and he should insist on castingup both sides of the account. If anybody gets nothing from them, then he pays the taxes and gets no equivalent.
150. During the anti-corn-law campaign in England, a writer in the Westminster Review illustrated protectionism by the story of the monkeys in a cage, each of whom received for his dinner a piece of bread. Each monkey dropped his own piece of bread and grabbed his neighbor's. The consequence was that soon the floor of the cage was strewn with fragments, and each monkey had to make the best dinner he could from these. It is a good and fair illustration. I saw a story recently in a protectionist newspaper about the peasants in the Soudan. Each owns pigeons, and at evening, when the pigeons come home, each tries to entice as many of his neighbors' pigeons as he can into his own pigeon house. “All of them do the same thing, and therefore each gets caught in his turn. They know this perfectly well, but no Egyptian fellah could resist the temptation of cheating his neighbor.” They ought to tax each other's pigeons all around. Then they would put themselves at once on the level of free and enlightened Americans. The protectionist assures me that it is for the good of the community and for my good that he should tax me. I reply that, in his language, “these are fine theories,” but that whether it is good for the community or not, and whether it is good for me or not, that he should tax me, I can see that it is for his good that he should tax me. Then he says: “Now you are abusive.”
151. If protectionism is anything else than mutual tribute, then it is magic. The whole philosophy of it comes down to questions like this: How much can I afford to pay a man for hiring me? How much can I afford to pay a man for trading with me? How much can I afford to pay a man to cease to compete with me in my production? How much can I afford to pay a man to go and compete with those who supply me my consumption? It is only an expensive way toget what we could get foe nothing if it was worth having (§ 89). It is admitted that one man cannot lift himself by his boot straps. Suppose that a thousand men stand in a ring and each takes hold of the other's boot straps reciprocally and they all lift, can the whole group lift itself as a group? That is what protection comes to just as soon as we have drawn out into light the other side, the cost side of it. Whatever we win on one side, we must pay for by at least equal cost on another. The losses will all be distributed as net pure injury to the community. The harm of protection lies here. It is not measured by the tax. It is measured by the total crippling of the national industry. We might as well say that it would be a good thing to put snags in the rivers, to fell trees across the roads, to dull all our tools, as to say that unnecessary taxation could work a blessing. Men have argued that to destroy machines was to do a beneficial thing, and I have recently read an article in a Boston paper, quoting a Massachusetts man who thinks that what we need is another war in the United States. Such men may believe that protective taxes work a blessing, but to those who will see the truth, it is plain that, when the whole effect of the protective system is distributed, it benefits nobody. It is a dead weight and loss upon everybody, and those who think that they win by it would be far better off in a community where no such system existed, but where each man earned what he could and kept what he earned.
152. There is a school of political science in this country in whose deed of foundation it is provided that the professors shall teach how “by suitable tariff legislation, a nation may keep its productive industry alive, cheapen the cost of commodities, and oblige foreigners to sell to it at low prices, while contributing largely toward defraying the expenses of the government.” 1 Is not that a fine thing? Those professors ought to likewise provide us a panacea, the philosopher's stone, a formula for squaring the circle, and all the other desiderata of universal happiness. It would be only a trifle for them. The only fear is that they may write the secret which they are to teach in books, and that other nations to whom we are “foreigners,” may learn it. Then while Englishmen, Frenchmen, and Germans work for us at low prices and pay our taxes, we shall be forced to work for them at low prices and pay their taxes, and the old somber misery will settle down upon the world again the same as ever.
153. Some years ago we were told that protection was necessary because we had a big debt to pay. Well, we have paid the debt until we have reduced it from $78.25 per head to $28.41 per head. We, the people, have also raised our credit until the annual debt charge has been reduced from $4.29 per head to 95 cents per head. Now it is necessary to keep up the debt in order to keep up the taxes, and protectionism is now most efficient in forcing wasteful and corrupting expenditures to get rid of revenue, lest a surplus should furnish an argument for reducing taxation. This is right on the doctrine that waste makes wealth.
154. They tell us that protection has produced prosperity, and when we ask them to account for hard times in spite of the tariff, they say that hard times are caused by the free traders who will not keep still. Therefore the prosperity produced by protection is so precarious that it can be overthrown by only talking about free trade. They denounce laissez-faire, or “let alone,” but the only question is when to let alone, when to keep still. They do not let the tariff alone if they want to revise it to suit them, or want to make it “equitable.” When they get it “equitable” they will let it alone, but that insures agitation, and makes sure that they will cause it, for an indefinite time to come. On the other hand the victims of the tariff will not keep still. Their time to “let alone” is when it is repealed. If the tariff did not hurt somebody somewhere it would not do any good to anybody anywhere, and the victims will resist.1 Mr. Lincoln used to tell a story about hearing a noise in the next room. He looked in and found Bob and Tad scuffling. “What is the matter, boys?” said he. “It is Tad,” replied Bob, “who is trying to get my knife.” “Oh, let him have it, Bob,” said Mr. Lincoln, “just to keep him quiet.” “No!” said Bob, “it is my knife and I need it to keep me quiet.” Mr. Lincoln used the story to prove that there is no foundation for peace save truth and justice. Now, in this case, the man whose earnings are being taken from him needs them to keep him quiet. Our fathers fought for free soil, and if we are worthy to be their sons we shall fight for free trade, which is the necessary complement of free soil. If a man goes to Kansas to-day and raises corn on “free soil,” how does he get the good of it, unless he can exchange that corn for any product of the earth that he chooses on the best terms that the arts and commerce of to-day can give him?
155. The history of civil liberty is made up of campaigns against abuses of taxation. Protectionism is the great modern abuse of taxation; the abuse of taxation which is adapted to a republican form of government. Protectionism is now corrupting our political institutions just as slavery used to do, viz., it allies itself with every other abuse which comes up. Most recently it has allied itself with the silver coinage, and it is now responsible, in a great measure, for that calamity. The silver coinage law would have been repealed three years ago if the silver mining interest had not served notice on the protectionists that that was their share of protection, and the price of their coöperation. The silver coinage is the chief cause of the “hard times” of the last two or three years. In a well-ordered state it is the function of government to repress every selfish interest which arises and endeavors to encroach upon the rights of others. The state thus maintains justice. Under protectionism the government gives a license to certain interests to go out and encroach on others. It is an iniquity as to the victims of it, a delusion as to its supposed beneficiaries, and a waste of the public wealth. There is only one reasonable question now to be raised about it, and that is: How can we most easily get rid of it?
February 4, 1884, Mr. Robinson of New York proposed, in the House of Representatives, an amendment to the Constitution, so as to allow Congress to lay an export duty on cotton for the encouragement of home manufactures. (Record, 862.)
Philadelphia American, August 7, 1884.
Taussig: “History of the Existing Tariff,” 78 ff.
The wool growers held a convention at St. Louis May 28, 1885, at which they estimated their loss by the reduction of the tax on wool in 1883, or the difference between what they got by this tax before that date and after, at ninety million dollars (New York Times, May 29). If that sum is what they lost, it is what the consumers gained. They are very angry, and will not vote for any one who will not help to re-subject the consumers to this tribute to them.
Broderick, “English Land and English Landlords,” p. 194.
Since the above was in type, I have, for the first time, seen an argument from a protectionist, that a tariff between our states is, or may become, desirable. It is from the Chicago Inter-Ocean, and marks the extreme limit reached, up to this time, by protectionist fanaticism and folly, although it is thoroughly consistent, and fairly lays bare the spirit and essence of protectionism:
“In the United States the present ominous and overshadowing strike in the iron trade, by which from 75,000 to 100,000 men have been thrown out of work, is an incisive example of the tendency of this country, also, to a condition of trade which will compel individual states and certain sections of the country to ask for legislation, in order to protect them against the cheaper labor and superior natural advantage of others.” The remedy for the harm done by taxes on our foreign trade is to lay some on our domestic trade. (See §§ 26, 95.)
Since the above was in type, a treasury order has subjected all goods from Canada to the same taxes as imported goods, although they may be going from Minnesota to England. Nature has made man too well off The inhabitants of North America will not simply use their chances, but they divide into two artificial bodies so as to try to harm each other. Millions are spent to cut an isthmus where nature has left one, and millions more to set up a tax-barrier where nature has made a highway.
62, Niles's “Register,” 132.
Journal des Economistes, March, 1885, page 496.
Paris correspondent of the New York Evening Post, February 9, 1884.
Economist, Commercial Review, 1884, p. 15.
The Vienna correspondent of the Economist writes, June 15, 1885, “The representatives of the sugar trade addressed a petition to the Finance Minister, asking, above all things, that the premium on export should be retained, without which, they say, they cannot continue to exist, and which is granted in all countries where beet-root sugar is manufactured.”
Bradstreet's, July 25, 1885.
Economist, 1884, p. 1052.
A friend has sent me a report (Barbados Agricultural Report, April 24, 1885) of an indignation meeting at Bridgetown to protest because the English Government refused to ratify the commercial treaty with the United States. The islanders feel the competition of the “bounty-fed” sugar in the English market; a new complication, a new mischief.
Economist Commercial Supplement, February 14, 1885, p. 7.
Since the above was ill type, a report from the “South American Commission” has been received and published. This Commission submitted certain propositions to the President of Chili on behalf of the United States. The report says:
“The second proposition involved the idea of a reciprocal commercial treaty between the two countries under which special products of each should be admitted free of duty into the other when carried under the flag of either nation. This did not meet with any greater favor with President Santa Maria, who was not disposed to make reciprocity treaties. His people were at liberty to sell where they could get the best prices and buy where goods were the cheapest. In his opinion commerce was not aided by commercial treaties, and Chili neither asked from nor gave to other nations especial favors. Trade would regulate itself, and there was no advantage in trying to divert it in one direction or the other. So far as the United States was concerned, there could be very little trade with Chili, owing to the fact that the products of the two countries were almost identical. Chili produced very little that we wanted, and although there were many industrial products of the United States that were used in Chili, the merchants of the latter country must be allowed to buy where they sold and where they could trade to the greatest advantage. With reference to the provision that reduced duties should be allowed only upon goods carried in Chilian or American vessels, he said that Chili did not want any such means to encourage her commerce: her ports were open to all the vessels of the world upon an equality, and none should have especial privileges.” — (N. Y. Times, July 3, 1885.)
If this is a fair specimen of the political and economic enlightenment which prevails at the other end of the American Continent, it is a great pity that the “Commission” is not a great deal larger. They are like the illiterate missionaries who found themselves unawares in a theological seminary. We would do well to send our whole Congress out there.
This is the case for which the Inter-Ocean proposed the remedy described in §71 note.
I except those of Mr. Carroll Wright. He has sufficiently stated of how slight value his are.
Bk. V, ch. 10, § 1.
It has been developed mathematically by a French mathematician (Journal des Economistes, August and September, 1875, pp. 285 and 464).
See a fallacy under this head: Cunningham, “Growth of English Industry.” 410, note.
|Occupations not stated.......................||19,778||11,887||31,665|
See a fallacy under this point: Cunningham, “Growth of English Industry.” 410 note.
See an interesting collection of illustrations in an article on “Lords d 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 “Political Economy,” Bk. I, ch. 5, § 5. Cairnes, “Leading Principles,” ch. I, § 5.
“Political Economy,” 491–492.
I published a criticism of this case in the London Economist, December 1, 1883.
Quoted by Taussig: “History the Existing Tariff,” 73.
Illustrations of this are presented without number. Here is the most recent one: “The [silk] masters [of Lyons, France] look to the government for relief by a reduction of the duty on cotton yarn, or the right to import all numbers duty free for export after manufacture. With the present tariffs, they maintained, which is no doubt true, that they cannot compete with the Swiss and German makers. But the Rouen cotton spinners oppose the demand of the Lyons silk manufacturers, and protest that they will be ruined if the latter are allowed to procure their material from abroad. The Lyons weavers assert that they are being ruined because they cannot.” — (Economist, 1885, p. 815.) The cotton men won in the Chamber of Deputies, July 23, 1885.