Front Page Titles (by Subject) CHAPTER VII: ARGUMENTS FOR FISCAL REFORM - The Comedy of Protection
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CHAPTER VII: ARGUMENTS FOR FISCAL REFORM - Yves Guyot, The Comedy of Protection 
The Comedy of Protection, trans. M.A. Hamilton (London: Hodder and Stoughton, 1906).
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ARGUMENTS FOR FISCAL REFORM
I. The Argument from authority—II. Cobden’s optimism—III. Free Trade, Free Imports—IV. Mr. Chamberlain and the Frankfort Treaty—V. Balfourian Retaliation—VI. Against French Automobiles—VII. Imports and home industry—VIII. English workmen and Protection—IX. Dumping—X. The drain of gold—XI. Living on our capital—XII. London.
The Argument from Authority.
All the old Protectionist lumber has reappeared, decked out with tinsel and coats of fresh paint to make it look new. When Mr. Chamberlain and his friends can find a single phrase in the books of independent economists which seems to support their views, they quote it with alacrity, and invoke “the eminent authorities” whom they usually treat with profound contempt. They rely on the old scholastic method, which cut short all questions with two lines from Aristotle. Mr. Chamberlain has perfected the “argument from authority” he has invented an anonymous authority. In his speech of October 6, 1903, he declared that “one of the highest authorities of this country” had told him that “the incidence of a tax depends upon the proportion between the free production and the tax production—in this case the free production being the home production and the production of the Colonies, the taxed productions the production of the Colonies. “This gentleman” is of opinion that if, for instance, the foreigner supplies, as he does in the case of meat, two-ninths of the production, the consumer only pays two-ninths of the tax. If he supplies, as he does in the case of wheat, something like three-fourths of the consumption, then the consumer pays three-fourths of the tax. If, as in dairy produce, he supplies half of the production, then the consumer pays half the tax. I do not know who this “high authority” is who persists in remaining anonymous, nor do I know if Mr. Chamberlain has accurately expressed his views; but anyhow he has not explained how there can be two market prices for the same goods, one price for foreign wheat and one for that grown at home and in the Colonies. If this were the incidence of the tax, preferential tariffs would be of no avail, since they would not raise the price of home or colonial products. Mr. Chamberlain wisely adds, “This is a theory like any other. . . . ” It is not a theory like any other: it is at variance with all known facts.
In January, 1841, Cobden had committed the crime of saying at Manchester, “Europe has been corrupted by the detestable example of England. I believe that if you abolish the Corn Law and establish Free Trade, in five years’ time there will not be a Customs tariff which has not been changed after our example.”
Cobden was mistaken in the date, but not in the effect produced by English policy. If England had not adopted Free Trade the 1860 treaties would never have been signed: they abolished prohibitions which have never been re-established, and lowered duties which have never since been raised to their former height. Mr. Chamberlain blames Cobden and the Free Traders for the non-adoption of Free Trade by other nations, and for the economic reaction since 1879; and demands that England should give it up to punish Cobden and the Free Traders for the fact that all foreign nations have not seen its advantages. Since other nations are loaded with duties which increase the expenditure of effort necessary to everything they produce, Mr. Chamberlain endeavours to induce his countrymen to renounce economy of effort: since other nations have set their Customs system in opposition to that progress in science, industry, commerce, banking which has continuously operated to lower the price of goods and facilitate exchange, to keep down frontiers and Customs tariffs by lowering prices (for example, in the case of chemicals): therefore forsooth England is to give up a fiscal system suited to the processes of industrial evolution.
Free Trade and Free Imports.
“I am a Free Trader,” said Mr. Chamberlain at the beginning of his campaign. “I am as much of a Free Trader as any one, but we have not got Free Trade; we have only Free Imports.”
He forgets that no one buys to please the seller, be he a fellow-countryman or a stranger, but always to please himself. When a Government puts an obstacle between him and the seller, it forces him to make an effort proportionate to the obstacle to get what he wants. Of course the obstacle inconveniences the seller, and since his desire to sell is greater than the buyer’s desire to buy, his inconvenience is the greater; but the buyer is forced to have recourse to things which are not exactly what he wants, and which, if the tax is prohibitive, cost him more; he has to pay more dearly for all taxed goods, and consequently his purchasing power is diminished by every rise in duties.
Free Imports enable the Englishman to buy what he wants at the lowest price. When other buyers present themselves at a disadvantage because of the uncertainty and burdensomeness of the Customs policy of their respective countries, they find that the English, safe in the freedom of their goods, have already supplied themselves. Since Free Trade makes the British Isles a free port, prices are fixed in its markets, and its merchants profit thereby.
Mr. Chamberlain and the Frankfort Treaty.
To justify the establishment of Customs tariff which should permit tariff wars, Mr. Vince, the General Secretary of the Imperial Tariff Commission, declared, “There is going to be a revision of the commercial treaty between France and Germany, and the French negotiators are bent on acquiring a German market for French silks and wines.”
Mr. Chamberlain as well as Mr. Vince represents France as negotiating with Germany for concessions on wines. They both forget that Art. XI. of the Frankfort Treaty assures to both nations most favoured nation treatment; and were there any question of a revision it would not turn upon wines.
Mr. Balfour has loaded Mr. Chamberlain with flowers, but never accepted his programme. One point alone he has accepted and worked out—retaliation. “We are unarmed,” said Mr. Balfour. As a matter of fact nothing prevented Sir Michael Hicks-Beach from using countervailing duties to ensure the success of the Brussels Convention, which proves that the Ministry is not unarmed. But, on the other hand, would Parliament ever grant a general mandate for the use of retaliatory measures?
In the Economic Notes on Insular Free Trade, which Mr. Balfour addressed to his colleagues in the Ministry, published in September, 1903, apparently logical deductions are put together with consummate skill; but it is all really a mere card-house.
In regard to France, Mr. Balfour is mistaken on a matter of fact. He estimates that English imports pay on an average 30 per cent.: here he is confusing the maximum and minimum tariffs. In return for her policy of the open door England receives most favoured nation treatment; and in 1902, the year which Mr. Balfour takes as the basis of his calculations, our exports to France were assessed by the English Customs House at £15,587,000, and by the French at £22,680,000—the duty amounted to 9 per cent. on the English and less than 61/2 per cent. on the French assessment.
Stripping Mr. Balfour’s arguments of their somewhat pedantic dogmatism, they amount to this: Other countries shut their door; let us shut ours, so that the others may be forced to knock at it if they want to get in their goods. It is the policy of the shut against the open door. This sort of tit for tat is hardly the policy one would expect from a philosopher like Mr. Balfour; one can understand it coming from a manufacturer who, according to Mr. Balfour, sees his goods kept out by 130 per cent. duties in Russia, 72 per cent. in the United States, 32 per cent. in Austria, 27 per cent. in Italy, 25 per cent. in Germany, 16 per cent. in Canada, 13 per cent. in Belgium. But this manufacturer, before he can sell any of his products, is a consumer of plant and raw material, and, through his workmen, of goods, and his consumption is in proportion to the importance of his factory. Every turnstile at the frontier raises the price of the goods which he needs, either directly or indirectly, and consequently his cost of production. Since dearness either restricts or closes the market, to punish other countries for not opening the door to his goods he begins by himself diminishing their sale.
Supposing that England were to try this policy against the United States, what class of goods would be chosen for the experiment: the 117 million dollars’ worth of cotton imported in 1902; the 86 million dollars’ worth of corn and meal; the 120 million dollars’ worth of live stock; the 22 million dollars’ worth of petrol; the 11 million dollars’ worth of copper, or the 16 million dollars’ worth of leather? Mr. Balfour has always declared a tax on food to be out of the question. He must, therefore, intend to obtain a reduction of duties by attacking manufacturers—the 2 million dollars’ worth of boots and shoes!
Tariff wars are most dangerous to the nations with the most highly developed trade and shipping. England can best preserve “the product of the areas valid for export” by leaving the door open: the shut door prevents going out as much as coming in, and the open door if it allows coming in also allows going out. Commercial activity is not encouraged by the methods of the gaol.
Against French Automobiles.
It is strange to hear an English Prime Minister speaking like Colbert and M. Méline: “I had rather give my money to our own workmen than to strangers.” Partisans of Fiscal Reform are neither more nor less than Colbertists!
In 1903, soon after the publication of Mr. Chamberlain’s manifesto, a prominent Protectionist said to me in a tone of conviction—
“Our yearly import of automobiles from France is more than £4,000,000.”
“To begin with, your facts are incorrect. Last year the import was only £225,000.”
“This year it is higher.”
As a matter of fact the import for 1903 was £1,995,000, and for 1904 £2,636,000. At the time of our conversation my interlocutor could not have been acquainted with the second total, and even if he had his statement exaggerated it by more than 40 per cent. I mention this as an example of the methods employed by the leaders of the Fiscal Reform party, even to their own supporters. This gentleman had been given the figure; he repeated it in good faith without troubling to verify it.
“Anyhow it does not matter,” I said. “You complain of the importation of automobiles. Well make them yourselves.”
“We can’t make them unless we are protected.”
“That’s to say your automobiles would be more expensive and not so good as those you buy from France. Then it is to your interest to buy them in France.”
“Oh, I should go on buying mine from France. But what does it matter paying a little more for them? It will give employment to our workers.”
“Not on your purchases, since you go on buying them in France!”
“That’s true. But with the help of Protection our workmen would learn to make them just as well, and then they would get work.”
“But without the help of Protection they can get the steel, wood, and leather needed for construction cheaper than in France, and you pay less for your coal. Then England has a real protection, which Protection would take away: Customs tariffs, far from increasing would remove her advantages. How do you imagine they are going to give your workmen a skill which they do not now possess?”
“Our mechanics are as good as the French.”
“Then they could make as good automobiles as the French workmen.”
“No doubt English workmen are capable of constructing the machinery of a motor car as well as the French. If they do not do so, as you say, Free Trade is not the cause of that, it is because English builders, engineers, and manufacturers have not yet taken up the industry.”
“Yes, and why? Because they are not protected. If they were protected, they would have felt safe in sinking capital in it.”
“That is not why the automobile industry has not developed in England: in reality it is not an industry yet, but a sport. Look how fast different makes appear and disappear: at no one time are 500 cars turned out of the same type, with the same cylinders, pins, and interchangeable parts. There is a perpetual change. I know amateurs who buy a new one every year. They want the latest, which has won a prize at some race or other. French roads are the best in the world for record-breaking. When automobilism becomes an industry, turning out every year numbers of cars of the same unvarying pattern, then England will have in this, as every other industry, the advantages of Free Trade. But do you think that the motor car was invented in France, thanks to Protection? That that has developed its construction? On the contrary, it has hindered it by hindering the supply of raw materials; and thus it makes the selling price higher.”
“Well, we import your cars; it would be better if we made our own.”
“Do you imagine that Mr. Chamberlain’s 10 per cent. duty will effect that? If it produced its full effect, it would raise 10 per cent. the price of iron, steel, and all raw materials: the price of the car would be higher and the number of buyers smaller. What a strange idea it is to pay duties as a way of extending your market! It is the markets and not the duties which give employment. Wages are only advanced by employers: they are paid by the consumers; and the dearer they pay the lower is their purchasing power.
Imports and Home Industry.
Speaking at Newcastle, October 20, 1903, Mr. Chamberlain said, “In thirty years the total imports of manufactures, which could just as well be made in this country, has increased eighty-six millions, and the total exports have decreased six millions. We have lost ninety-two millions, the balance; that is to say, ninety-two millions of trade that we might have done here has gone to the foreigner. The Board of Trade tells you that you may take one-half of the exports as representing wages. We, therefore, have lost £46,000,000 a year in wages during the thirty years; that would give employment to nearly 600,000 men at 30s. per week, continuous employment that would give a fair subsistence for these men and their families amounting to three million persons.”
I have reproduced this clap-trap argument in full. Mr. Chamberlain might have completed it by saying, “Machinery takes work away from men, women, and children: down with machinery!” All Mr. Chamberlain’s arguments against foreign imports are equally valid against machinery.
If increased exports had destroyed home industry, wages would have gone down since 1860; but they have risen. The demand for labour has been greater than the supply.
If increased imports had taken work from British workmen, they would have exported themselves. The annual emigration to British possessions between 1854-1860 was, on an average, 134,000, or 48 per 10,000 inhabitants; for 1895-1899, 55,000, or 13 per 10,000; between 1901-1903 it rose to 106,000, or 21 per 10,000.
If increased exports had diminished the demand for labour, pauperism would have increased. Excluding casual paupers, the number of adult able-bodied paupers was—
Opposition of the Working Classes to Protection.
The question of Fiscal Policy was discussed in September, 1903, at the Trades Union Congress at Leicester. A resolution strongly condemning the Chamberlain programme was introduced by Mr. Sexton, of Liverpool, on behalf of the National Dock Labourers, supported by Mr. Holmes, of Cardiff, representing the Railway Servants, and Mr. Michaels, of London, for the Cabdrivers’ Association. This condemnation was not confined to the representatives of the powerful Trades Unions of the Dock Labourers and Railwaymen. The adhesion to the Conservative programme of Mr. Macdonald, the secretary of the London Trades Union Council, gave a momentary encouragement to the Protectionists, which was freely exploited by the Birmingham Tariff Committee. He did not appear at Leicester to defend his views, and they were violently attacked by several speakers, notably by Mr. Harvey, of the Miners’ Federation. With the exception of Mr. Mosses, of Leeds, and one or two other timid speakers, who professed themselves in favour of an inquiry, there was a general recognition of the benefits of Free Trade. Where, but from protected countries, do the poor foreigners come who carry on the sweating system? In what Protectionist country is the workman’s condition as good as in England? In the days of dear bread, wages were 50 per cent. below their present standard, and the price of food has gone down 30 per cent. A national protest against Preferential Tariffs was signed by 960 of the most prominent Trades Union and Co-operative representatives. Twelve out of the thirteen Labour M.P.’s had signed it. The signatures of the officials of the Co-operative Societies represented 2,022,000 members, with a capital of £26,600,000, and a working capital in 1902 of £55,319,000. At the 1905 Trades Union Congress the question was again raised, and the Chamberlain programme thrown out by 1,256,000 to 26,000.
Some of the Board of Trade tables have not been of a sort to attract the English workmen to Mr. Chamberlain’s side.
This table shows that wages have risen more rapidly in England than in the United States, though less rapidly than in Germany. The respective rates of wages are as follows:—
Thus German wages are more than a third lower in the towns and 43 per cent. in the capital. The English workman knows that, thanks to Free Trade, he can get manufactured goods and food at the lowest prices. He sees no reason for giving up Free Trade, he had rather go to his Co-operative Society.
When Mr. Chamberlain has once got hold of an argument he sticks to it, however often it has been refuted. At St. Helens on June 3, 1905, he waxed enthusiastic over the condition of the cotton operatives in protected countries, and expressed the hope of seeing English workers similarly placed. Almost the next day the Report of the Tariff Commission on cotton declared “That in these countries the conditions of labour are poor and the wages low.” And they count on the lowness of their wages to enable them to compete with England. Inquiries made in connection with the Chamberlain programme have confirmed the following axioms:—
Wages are high in proportion to the cheapness of raw materials. Their rise is conditioned by efficiency of plant and cheapness of transport.
Free Trade is the policy of cheapness, and therefore of high wages, since on the same selling price they can rise to the full extent of the share that would have been taken by Protection.1
The Memorandum has attempted to ascertain the share of export trade in wages. Wages may be estimated as between 40 and 60, say 50 per cent. in exported manufactures, of which the annual average for 1900-4 was £232,000,000—i.e., £116,000,000 in wages; 10 per cent. may be added for repair, secondary labour, &c.; in round numbers wages may be counted as £120,000,000 to £130,000,000. According to the inquiries the total wages of industry in the United Kingdom may be estimated at between £700,000,000 and £750,000,000; consequently wages of the export trade are less than 20 per cent., or a fifth of the whole, and Mr. Chamberlain is thus attempting to upset the whole of English trade to increase, perhaps by a tenth, a fifth of the total wages. It is always the same, this wonderful system of sacrificing the majority to the minority, risking the normal conditions of industry for hazardous advantages.
Dumping is the Chamberlainists’ favourite argument. The slang term is used to describe the export by a protected industry of goods at or below cost price, which it sells at a much higher price in the home market. Dumping has been employed by the German cartels, but, as Raffalovich has shown in his book on Trusts, Cartels, and Syndicates, at a severe cost to their countrymen. It was said that when the great American trusts found their home markets restricted they would inundate Europe with their products; but this has not been the case. When the United States Steel Corporation became depressed, it did not invade England.
England, say the Protectionists, is the dumping-ground of all nations; but the relative proportion of manufactures to total imports gives them the lie. When the French cotton spinners from the Vosges dumped their cottons in Manchester, they did it to their own loss, and they recognised that a repetition of the process would be their ruin. Mr. Chamberlain and his satellites have all repeated Mr. Byng’s dumping theory, but they have either cited no fact or cited them incorrectly. A typical instance—Mr. Alexander F. Acland Hood, Conservative Whip, said at a Unionist meeting at Wellington, at the end of November, 1903: “One of my friends has done a lot of business in the glass trade. Now in France there is a tariff against him. The State Railways carry glass free from Paris to Calais.”
As a matter of fact the railway from Paris to Calais does not belong to the State, the tariff is 22 francs per metric ton, and the State gives no bounties on the export of glass.
The Drain of Gold and the Balance of Trade.
In 1902, Mr. Seddon, the Australian Prime Minister, made himself famous by the following statement in a speech he made in London: “The excess of your imports costs you yearly 200,000,000 gold sovereigns.”
The facts are so well known that this delightful statement caused an outburst of laughter. Even during the Transvaal War England imported more gold than she exported:—
And yet the old Protectionist shibboleths of beneficent exports and ruinous imports were uttered again. Taking the calculation1 of the Balance of Commerce made by Mr. Robert Barclay, former President of the Manchester Chamber of Commerce, allowing 20 per cent. to cover insurance and freightage on English exports, and subtracting 10 per cent. from imports, we find:—
England gains by imports as well as exports, consequently, far from wanting them to decline, she should desire their advance.
England Living on its Capital.
Protectionists represent England as a young prodigal who spends without counting till he is ruined. As a matter of fact England’s position to foreign nations is quite different: far from being a prodigal, she is an old usurer. England’s revenues from foreign countries have gone on increasing:—
The example of the Argentine Republic, cited by the Financial Reform Almanac, is decisive. Between 1888 and 1890 England invested a large capital in South American railway construction. For five years, between 1886 and 1890, England’s exports to Argentina exceeded her imports, £38,177,000 to £12,628,000. Then the railways began to succeed; the balance changed: from 1891 to 1895 English exports fell to £25,300,000, and imports rose to £28,100,000. Between 1896 and 1901 England had only to draw in profit on the railways; exports rose to £37,114,000, imports to £59,000,000.
If foreign purchases were ruining England and depressing trade returns, the Income Tax schedule would bear traces of it. As a matter of fact it proves the contrary. Taking the most prosperous years:—
“England does not live on its capital, but in part on the interest and profit from capital exported to all parts of the world.”
Position of London.
External trade does not consist solely of goods recorded in the Customs statistics. Mr. Felix Schuster, President of the Union Bank and Vice-President of the Institute of Bankers, has shown with great clearness that Mr. Chamberlain and his friends, in their passion for the unity of the British Empire, forget London, the centre. London is not only the financial centre of the Empire, but of the world. The Chinese merchant who sells tea to Russia or Germany, silk to America or France, sells bills on London to his local bank; and the German merchant who sells his camlet to China does the same. The coffee sent from Brazil to France and Italy, the cotton sent from New Orleans to Poland, the sulphur sent from Sicily to the United States, the agricultural implements sent from the United States to La Plata, are all paid through the City.
Bills on London are the recognised medium of international exchange. The Bank follows trade. Do Mr. Chamberlain and his friends imagine that the means by which they propose to restrict trade will not affect the Bank? If they imagine it, Lombard Street is under no such illusion. Not a single great City banker ranged himself on Mr. Chamberlain’s side at the Guidhall, whereas a few days afterwards Lord Avebury and Lord Hillingdon proposed a vote of thanks to the Duke of Devonshire.
Yves Guyot, “L’Économie de l’Effort,” cap. viii.
“Financial Reform Almanac.”