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Subject Area: Economics
Topic: Free Trade

CHAPTER III: PROTECTION AND INDUSTRIAL ADVANCE - Yves Guyot, The Comedy of Protection [1906]

Edition used:

The Comedy of Protection, trans. M.A. Hamilton (London: Hodder and Stoughton, 1906).

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CHAPTER III

PROTECTION AND INDUSTRIAL ADVANCE

Increased consumption not due to Protection—Protection diminishes purchasing power—The metal trade in America—Development in response to demand.

To prove the inherent virtue of Protection it must be proved that increased consumption is due to it. The tariff could not have assisted railway development; by raising the selling price it rather restrained it, otherwise for the same cost more lines could have been laid and heavier rails. Protective duties can only increase consumption at the cost of over-production, which sends prices down, as has been the case at crises in American commercial history, when capital is wasted and loses its purchasing powers. Its normal effect is not to encourage but to diminish consumption by reducing the purchasing power of buyers in compelling them to pay 20, 30, 50 per cent. for the things they need above their natural prices. It is a mistake to attribute the increased consumption of iron and steel in America to the Customs duties, which have rather hindered than helped it. Mr. David A. Wells, a former Revenue Commissioner, responsible for the Civil War Settlement, deals in his work, “Recent Economic Changes,” with the position of the American metal trade between 1878-1887: “The world’s average annual production of pig-iron was, in round numbers, 20,800,000 net tons of 2,000 lbs. each; the average product of the United States was 4,758,000 tons. The average annual import was 1,100,000, to which 225,000 net tons may be added for machinery, hardware, &c. The aggregate excess of cost of iron and steel in these ten years to the consumers of the United States above that paid in Great Britain was 560 million dollars, an average of 56 million dollars a year; for the single year 1887 the disparity in price for the United States was 80 million dollars, while the revenue derived for that year was only 20,783,000 dollars. According to the 1880 census, 300,000 workmen were employed in iron and steel plants at an average wage of 400 dollars a year (about 30s. per week), making a total of 120 million dollars, on which the United States paid 80 million excess.”1

Some one is sure to say, “That proves that Customs duties improve employment.” Leaving out of account for the moment the effect of the duties in lowering the wages and diminishing the demand for the labour of the workmen, who, though not producing raw materials, are dependent on its producers, although Mr. Atkinson estimates at 100 million dollars the loss caused during this period of the restraint placed by the high prices of steel and iron on the manufacture of high-class goods, the question is, Would there have been no furnaces and no production of steel and iron in America without the duties? During this period the output of Great Britain averaged 7,559,000 tons of 2,000 lbs. The United States’ consumption, 6,000,000 tons, represented more than three-quarters of this total. But England and Germany could not have continued to satisfy the United States’ demands; the price of iron and steel would have risen so high in England as to make the establishment of metal works of their own of the first importance for the States; and arising out of the natural order of things, they would have escaped the intermittent crises caused by the over-production encouraged by high Customs tariffs. Since 1892 the pig-iron trade fluctuated as follows:—

Tons metric.
18929,150,000
18937,124,000
18946,657,000
18959,446,000
18968,623,000
18979,652,000
189811,773,000
189913,620,000
190013,789,000
190115,878,000
190217,821,000
190318,009,000
190416,000,000

Pig-iron rose from $12 to $24 per metric ton from 1900-1903, and steel from $16 to $35. Production, encouraged beyond bounds by Protection, had to be restricted: from 415,400 tons a week in June, 1904, it fell to 250,000 in December; in summer the price of iron fell to $12·75 and steel bars to $19. Later, when the price rose again to $28, large orders were made by the railway companies, and the weekly output again increased to 375,000 tons. In 1902 and 1903 even this supply did not meet the demand. America imported 158,000 tons from England and Germany in 1902, and 956,000 in 1903. The United States’ consumption was 18,000,000 tons in 1902, and 18,700,000 in 1903; that of England being 7,875,000, Germany 9,758,000 tons, France 2,749,000, Russia 2,457,000—thus equal to England and Germany together.

Supplies from England and Germany could not have met the American demand. America had great natural advantages for the development of the metal trade at Pittsburg, Chicago, St. Louis, and the Western regions. There was natural gas at Pittsburg, coal and ore near Lake Superior; and the selling price must be lower than that of coal coming across the sea to ports far distant from the interior. Therefore, though its immediate expansion might not, unassisted, have been so striking, any loss would certainly have been compensated for in the freedom from duties and the enormous prices which they involved; and America need not, any more than England, have been confronted with the problem of trusts. The fallacy of regarding increased consumption as due to Protection is obvious: it increased in spite of Protection, not by its aid, and led in its turn to the development of one industry after another, a development due not to Protection, but to a higher standard of comfort which was the cause of that industrial expansion which Protection, instead of assisting, has hindered and continues to hinder. American modesty is mistaken in attributing prosperity to a tariff which retards it.

[1]Recent Economic Changes, 1889,” pp. 468-74.