Front Page Titles (by Subject) BOOK VIII: GERMAN NATIONAL ECONOMY - The Comedy of Protection
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BOOK VIII: GERMAN NATIONAL ECONOMY - Yves Guyot, The Comedy of Protection 
The Comedy of Protection, trans. M.A. Hamilton (London: Hodder and Stoughton, 1906).
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GERMAN NATIONAL ECONOMY
NATIONAL POLITICAL ECONOMY
Friedrich List—Colbert redivivus—National entity and the suppression of the individual—Against Adam Smith—His principles—Schmoller’s Orthodoxy—Failure.
In 1841, Friedrich List, a German who had for long resided in England and the United States, published a book entitled “A National System of Political Economy.” When no one paid any attention to it, he killed himself.
List revived the old Colbertism. According to him buying and selling is not done by separate individuals, but by nations. Anticipating the Collectivists, he made a single entity of the millions of men that form a nation, and set up this idea in opposition to the individualist school of economists who say that it is not the Government which creates the taxpayers, but the taxpayers who support the Government. He accused Adam Smith of cosmopolitanism when he asserted that the laws of exchange do not alter at every frontier; of materialism when he freed economic science from political and other considerations; of individualism when “he failed to understand the nature of social effort.” He himself formulated a principle that certainly was not new: “A nation should be self-sufficient: its statesmen should protect its industries against the competition of those of more developed nations.”
His imitation of Colbert made List a great man in Germany: since 1879 his spirit has governed its Government and inspired its professors. Schmoller, in his inaugural address as Rector of Berlin University, took care to warn the professors that “disciples of Adam Smith were no use there: if they did not wish to resign their chairs, their science must conform to the exigencies of politics.” At the Berlin International Statistical Institute, I heard Wagner, in a lecture on the incidence of Customs duties, speak of Bismarck as an infallible authority to whom every statistician must bow the knee. And what are the results of this national political economy, which is an instrumentum regni, and not a search for truth? what are the results of its axioms and the means employed to realise them?
In 1879 Bismarck embarked on a fiscal policy which led to the shipwreck of his political enterprise: until 1890 the Emperor William II. was faithful to his plans, only to throw them overboard; by a more than Swiftian irony the measures employed to assist national as a matter of fact assisted foreign industry: and all this forces us to the conclusion that the national Political Economy was but a will-o’-the-wisp: its pompous title a glittering covering for the old fallacies.
TWO CONTRADICTORY FISCAL SYSTEMS
I. Complaints of the agrarians—II. Bismarck fights against Socialism and helps it to expand—Milk-and-water Socialism v. Democratic Socialism—The Caprivi Treaties—Division of the population according to occupations—Back to the land. Taxes on food—III. North, East, and South Germany against Westphalia and the Rhenish provinces—Changed outlook—Posadowsky—Wheat and rye—Incidence of duties—IV. Small and large holdings—Calculation of incidence—Mr. Arnold White on reality and political institutions.
In 1894, when France raised the duty on corn to 2s. 10d., Germany lowered it to 1s. 11d. per cwt. The agrarians complained that they were being sacrificed to the manufacturers: they, the solid foundation of Europe in general and Prussia in particular. The aim of the Chancellor, Caprivi, was to open markets to German manufactures; the aim of the Emperor in introducing the 1902 tariff was to close Germany to agricultural competition. The 1902 tariff is an attempt to check the flow of the population to the industrial centres and keep it on the land.
When Bismarck tried to stamp out Socialism in 1879, he attempted to do it by imposing Customs duties which acted as a hothouse for industry, and spread Socialism far and wide; the logical completion of this delightfully illogical policy was the establishment of the Imperial Insurance Bureau as a soothing poultice in the form of bureaucratic Socialism, under whose application he imagined that the Social Democrats would melt away.
The result was that they polled three million votes at the 1904 election.
Caprivi, rightly judging that a protective policy which encourages production without providing for commercial expansion naturally leads to crises, pursued the Bismarckian policy in the commercial treaties of 1891, and with success, as the German census returns testify. In 1871 the rural population living in groups of less than 2,000 inhabitants was 64 per cent. and the urban population 36 per cent. of the whole; in 1898 they were equal. Now, whereas the urban population is more than 54 per cent., the rural has fallen to 46 per cent. The division into occupations was as follows, according to the 1896 census:—
The Emperor, whose speeches at Essen and Breslau in 1902 showed his hatred of the Socialists, saw that it was suicidal for a Government, such as he intended to maintain, to encourage the growth of an industrial population in Germany: reversing the political traditions of the last quarter of a century he aimed at an agrarian policy. But it is certain that taxes on food have never operated to send workmen from factories and mines back to the land; nor does any better success attend the policy of artificially retaining on the soil the labourers who are anxious to leave it, by means of taxes which make the town workers dependent on the agricultural interest. The 1902 tariff contained a minimum tariff for cereals which narrowed the field of possible treaties of commerce. The duty on rye and oats was raised to 2s. 6d. per cwt. (a rise of 43 per cent. on the first and 78 per cent. on the second); that on wheat to 2s. 10d. (a rise of 57 per cent.); that on brewing barley to 2s. (a rise of 100 per cent.); while the duty on other barley was 7d. The duty on beef was raised to 6s. per cwt., the average weight of an ox being reckoned in Germany as 12 cwt., of which 58 per cent. can be used as food. When Von Bülow laid the commercial treaties before the Reichstag on February 1, 1905, he took care, in order to curry favour with the agrarians, to announce a rise in the duty on bacon from 2s. 6d. to between 6s. and 7s. The trebling of the duty was greeted by violent protests from the Extreme Left. “You protest against the increase in Customs on foodstuffs? Follow the example of the Radical majority in the French Republic. They passed a duty of 2s. 10d. on wheat—higher than ours, that is. In 1903 they raised the duties on live stock to 8s. per cwt., making the tax on meat 14s., and raised the duties on pork to 6s. and 10s. What have you to complain of when they pay more than you will have to do?” Von Bülow was right. French fiscal policy was as incoherent as the German; but there is no logic in imitating some one else’s want of logic.
Naturally, the proposers of such an imposition make it quite small, which in itself condemns it. The preamble declared that the average duty on the German tariff was 9·4 per cent., that on the French 9·6 per cent., and the Italian 13·7 per cent. The new tariff represented an increase of 2·26 per cent., but M. Posadowski added that the commercial treaties would involve a farther rise of from 1 to 11/3 per cent., affecting 241 out of 946 items—a quarter of the whole. The tariff was strongly opposed by the Socialists, Liberals, the Liberal League, and the Southern Democrats, and of course the agrarians found it inadequate, since, if they wanted to prevent other people from eating, they are always greedy enough on their own account. Von Bülow, addressing the Reichstag, declared that he considered that it was of first-rate importance to preserve the agricultural population in the north, east, and south of Germany as the granary of Germany and the recruiting ground for the army. The Emperor allowed himself to dream that a few shillings on corn, rye, beef and bacon could alter the movements of the population.
There is a tendency in Germany for the centre of gravity to shift westwards. Lübeck still keeps some of the glory of the old days when it was head of the Hanseatic league, but it has now but 82,000 inhabitants. Two lines can be drawn across the map to indicate the maximum density of population: one from Aix-la-Chapelle to Breslau goes from the foot of the mountains to the centre of Germany, the other follows the Rhine Valley from the Swiss frontier to the mouth of the Rühr. Berlin has 1,888,000 inhabitants, Hamburg 705,000, Munich 500,000, Dresden 476,000, Leipsig 456,000, Breslau 422,000. Breslau is the only town east of Berlin with more than 400,000 inhabitants; of eight towns with more than 200,000, Stettin is the only eastern one. Berlin stands midway between the eastern and western frontiers of Germany, but the living forces are all to the west; the Emperor, regarding them with suspicion, tried to counteract them and prevent their expansion.
The agrarian policy of the Government was expounded by Posadowski, the Home Secretary, at a meeting of the Reichstag, on February 23, 1905, as intended to balance the impatient and “hysteria” of German public and political life by the agricultural interest which he called “the solid anchor of the ship of state”; the stable element of agriculture was to act as a counterpoise to the floating population of the towns which formed the unprecedentedly large Radical majority in the Reichstag. He admitted that such a policy, aimed against the representatives of trade and manufacture involved an increase in the cost of living; and though he did not say that the Government imagined that such a result would enlist support, he did, like Mr. Chamberlain at Glasgow, affirm categorically that it would raise wages.
Von Bülow’s argument against the Socialists from the example of France was really brilliant. “They tax wheat,” he said, “and yet wheat is a much more important item of diet in France than it is in Germany.” As a matter of fact, the German wheat crop in 1903 was only 70 million cwt., an allowance of 124 cwt. per 100 inhabitants, while in France it was 440 cwt. per 100. Germany imported 44 million cwt., or 62 per cent. of the total consumption, while the export was negligible in amount; and this made an allowance of little more than 1 cwt. per head. Adding a quarter to arrive at the ordinary ration of the French soldier, and allowing for the lower diet of women, children, and old people, the German allowance of bread is only 275 lb. instead of nearly 790 lb., the normal French allowance.
Wheat, which does not grow at all in the north, is a luxury in Germany. For a long time the staple food of Central Europe was oats, now it is rye in Germany, which can be grown on the poor land and bare hillsides which are not fit for wheat, but even of that there is not a sufficient supply. Germany imported 8,800,000 metric tons in 1902-3, and 3 millions tons in 1903-4.
Potatoes, difficult to transport, are used for distilling as well as for food; they are grown over 11/2 million acres, an area twice as large as that devoted to them in France. Germany is not self-sufficing. In 1903 the import of agricultural produce was 154 million cwt., worth £51,050,000, and in 1904, 146 million cwt., worth £50,900,000; while the export was only some 20 to 24 million cwt., worth £7,000,000 to £8,000,000; i.e., 14 per cent. of the imports. Mr. Noel said: “Germany’s herds have improved, for imports have declined.” As a matter of fact, there might be many other causes for a decline in the imports, which have, however, as a matter of fact, not declined: between 1892-1902 they increased from £950,000 to more than £3,650,000.
The incidence of Customs duties received some attention in Germany: from a comparison between corn prices in London and Berlin, Professor Conrad, of the latter university, established an excess of the Berlin prices as follows:—
The price of rye on arrival at Dantzig rose as follows when placed on the German market:—
Of course, in Germany, as in France, it is said that the consumer of bread does not feel the Customs dues on corn or flour: but Professor Hirschfeld, in a monograph on the prices paid for flour and rye-bread in Berlin between 1886-1895, and Dr. Paul Mombert, in a book called “The Annual Burden laid on the Workman by the Corn Taxes,” have proved that the price of the product depends on the price of its raw material. A tax on rye of 35s. per ton takes 4·5 per cent. from the income of a workman’s family of ten, and the figures prove that duties on food are a bounty on small families.
Of course, only the great landowners have an interest in Customs duties. The Vossische Zeitung asks how they can benefit the small owners who have no corn to sell. A small farmer produces 10 tons of rye and sells 1 ton; supposing that he gets the full profit of the duty of 2s. 6d. per cwt., the tariff gives him 50s., which, spread over his 10 tons, leaves him a profit of 3d. per cwt. The great owner producing 2,000 cwts. can sell 1,800 of them; Protection gives him £225, a profit on his total production of 2s. 3d. a cwt. Thus the small farmers cannot buy at a profit; they must buy at a loss.
The following table summarises the burden that would be imposed upon Germany by the rise in duties:—
That is, a total for the landed proprietors of £56,800,000, and for the State of £10,275,000. Subtracting about one-third to cover the farmers’ expenditure, and adding their gains from other forms of agricultural produce, one would not be far out in assessing the total at £40,000,000 for them, and more than £10,000,000 for the State—a total of about 50 millions, or an increase of 25 millions on existing burdens.
Much, indeed, would be gained if the Emperor, instead of running off on schemes for sanatoria, would allow his subjects wheat and rye enough to eat; if the Socialists of the chair of the type of Mr. Schmoller would turn their philanthropy from the service of Imperial paternalism to defending the great majority of the poor from his hunger tax. As a matter of fact the population, “protected” by Customs duties which make it the slaves of the rich, is in a condition which has been described by Mr. Arnold White, former United States Ambassador to Berlin: “The food of the poorer classes in Germany is wretched; in many of the great industrial centres human beings live like animals. The condition of the peasants in Prussia, Silesia, and Thuringia is fearful. This terrible misery is hidden by the humanitarian political institutions which deceive the superficial foreign inquirer, but they are the merest disguise for the all-directing state, and already falling into ruins.”
Such are the results of German Protection from the point of view of the food and “general well-being of the working classes.”
GERMAN FOREIGN TRADE
Customs statistics worthless up to 1880—Inclusion of the free towns after 1889—Statistics from 1889-1904—Export—Payment of debt—Iron—Imports increase in spite of efforts to restrain them.
Nevertheless a great deal has been made of the industrial development of Germany, and although her imports exceed her exports, those who weigh the balance of commerce are never tired of admiring the increase at each end of the scale; they even go as far as to compare the trade of Germany in 1870 with that of 1904, although since the German Empire only came into existence in 1871 any calculations up to 1880 are quite worthless. Hamburg and Bremen did not enter the Imperial Customs Union (Zollverein) till 1888. Customs statistics before 1888 cannot be compared with that of to-day; those who undertake such a comparison may obtain some very striking percentages, but all their conclusions are nullified by their mistaken premises. Glancing over the statistics for German imports and exports since 1889, we find:—
The increase in exports from 1895 on is due to Caprivi’s policy of commercial treaties, which, however, the Emperor did not hesitate to sacrifice to agrarians. The increase of exports in 1902-3 is not due to prosperity, but to the liquidation of the stock incurred at the time of the crisis of 1902, as the following table of the production and trade in iron proves—(·000 tons):—
If the prosperity of an industry were measurable by its exports the metal trade in Germany would never have been so prosperous as in 1902 and 1903. This was due to the crisis when the impossibility of selling at home forced goods on to the foreign market. Business looked up; there was an increase in home consumption, as is shown by the fall in exports. In spite of the two years of crisis and a persistent attempt to extend exportation, its total only reached 30 per cent. over the four years, and in 1904, when there was a maximum output of iron, the export of iron actually diminished, which only proves that more was consumed at home, and that this accounted for the increased industrial activity. The sworn believers in the balance of commerce had to see here the ruin of Germany, since imports continued in excess of exports in spite of the Cartels and export bounties. The average importation between 1900-1904 was £290,000,000, while that of exportation was £240,000,000—£50,000,000 less. And yet—oh, irony!—all the efforts of the national system of political economy were directed to the encouragement of exports.
EXPORT BOUNTIES AND CARTELS
Bounties in sugars and alcohol—Military organisation of industry—Export bounties to the mining and metal Cartels; an advantage to foreigners—“Giving work to foreign workmen”—“The National System of Political Economy” subordinates German industry to the foreigner and gives him presents—Cartels develop into trusts—Industrial confusion—Constitution of an industrial oligarchy—Ineffectual effort to fix prices—The Campanile of Venice and industry on stilts.
Up to September 1, 1903, there was a bounty on the export of sugar, and alcohol has still a bounty of 81/2d. per gallon. Other bounties were granted by Cartels, associations of producers which marshalled industry under the benevolent eye of the Government, on the military system of the “flogging corporal.” Raffalovich’s recent work on “Trusts and Cartels” gives the truly wonderful results of this system. In 1891 the mine and metal Cartels agreed to give bounties on exportation in order to clear the home market, the amount of the bounty being calculated with reference to the distance of the factory from the frontier; those factories which wished to share in the benefits had to submit their books to the distributing official. In 1901 the mines of the Ruhr were over-productive; the theoretical reduction of output which was 15 per cent. in October, was carried to 20 per cent. It was found necessary to stimulate export, and the Syndicate raised the margin reserved for covering losses on export from 3 per cent. in 1900 to 6 per cent. in 1901-2. The bounty paid by the mines producing more than this specified tonnage and the indemnity allowed to those producing less was raised from 6d. to 1s. Cartels could increase home consumption by lowering prices, but that was not their aim; they reserved all their favours for the foreigner: the price of blast furnace coke was only lowered from 17s. to 15s. a ton, and that of coke from 10s. to 9s. 6d. a ton, although the sales in 1901 were 13 per cent. lower than those in 1900. The coke sold at home at 15s. was sold by the Cartel in France, Luxembourg, and Belgium at 12s. 6d., and a contract has been produced referring to a sale to a factory in Bohemia at 11s.
The panegyrists of the German Cartels would lead one to suppose that they worked in perfect harmony without the slightest friction; as a matter of fact, some of the Cartels tyrannised over those which used their raw materials. In 1899, for example, the Rehmschied canal builders bought sheet-iron at the Essen dock for 200s. per ton, which was sold to a Dutch timber-yard for 180s., and the Manchester cutlers got their iron cheaper than those in Solingen. The Rheinish-Westphalian Cartel sold iron at home for 95s. which they sold abroad for 80s., and 72s. in September, 1902. The English and Belgian rolling mills fixed their selling price in relation to the lowest cost at which they could get German iron; and the German rolling mills, which exported 60 per cent. of their output, had to sell abroad at this price, although they paid 18 and 20 per cent. more for their raw materials. A Cartel which sells semi-manufactured goods with a bounty to foreigners is robbing the industry of its own country of these goods, and especially in giving labour in proportion to the degree of finish of the product. Far from protecting “national labour,” Cartels give work to foreign workmen.
Here is a striking example of the different phases through which a Cartel may pass: In 1900 the Paper Syndicate raised the price of paper 33 per cent.; this rise naturally produced its normal effect—increased output, creation of new works, installation of new machinery. The competition of factories outside the Syndicate compelled it to lower its output to 45 per cent. The members submitted to this reduction only on condition that it applied solely to the qualities of paper included in their agreement, and then devoted all their energy to the production of the other qualities, the result being over-production. To clear the home market the Syndicate forced exportation; paper was offered abroad at 10 to 15 per cent. reduction; the Hamburg wholesale dealers paid 2d. or 21/4d. for goods that cost the home consumer 21/2d. or 23/4d. Since some of these consumers were manufacturers of paper goods, exporting half their output, their position with regard to foreign competitors was one of marked inferiority.
In September, 1904, the Association for the Defence of Steel Consumers protested against the action of the Syndicate in selling them couplings at 5s. 6d. and plates at 4s. above the selling price in England, and demanded the reduction of the price of partly manufactured steel to 5s. As ground for their refusal the Syndicate alleged the 15s. bounty.
The export bounties made it possible to throw partly-manufactured goods on the foreign market much below the German selling price. Many of these products of German origin, for example coke and iron, enable England to compete with Germany in the market for finished goods, not only abroad but in Germany itself. Hotbed German industries count on getting rid of their surpluses in foreign markets, and are therefore dependent on them. List’s system of national economy subordinates German industry to the foreigner, and gives him presents.
To listen to the admirers of the Cartel system one would imagine that a Cartel has only to establish itself to kill all competition. It has been shown above that it provokes it, and it does so in another way also.
The metal factories wanted to shake off the tyranny of the Mining Cartel: those who were able worked their own mines, and the output from the non-Syndicate mines grew steadily—11,900,000 tons in 1899, it was 12,600,000 in 1900 and 13,100,000 in 1901. Meanwhile, the factories that were subject to the Cartel found themselves at a disadvantage compared to those which provided their own raw material. The heads of the Cartel had, of course, taken care to repeat that they must be distinguished from a Trust, that they would not destroy moderate or small producer; of course the exact reverse is the case. In the Ruhr basin the Coal Syndicate had one competitor, the State coal mines. It carried the subordination of the metal industry to such a pitch that a high-power furnace could only be worked in conjunction with its own coal mine. Having crushed a combined steel factory and rolling mill, they established the principle that every establishment must contain in itself blast furnace and steel manufactory. This is the effect of the trust tyranny, confusing industry instead of specialising it according to the law of the division of labour. Thus, out of nineteen independent businesses at Rote Erde coal mines—blast furnaces and iron mines—sixteen have been absorbed by three companies, Gelsenkirchen, Schalke, and Aachener Hutten.
M. Gothein, a member of the Reichstag, and the Commission on Cartels, declares that the great combinations have crushed the little firms—for example, the rolling mills, which received no benefit from Protection. And yet, he said, no country is capable of producing such cheap coal as Germany. Protection, therefore, does not assure the success of its mining industry, but it does create that industrial oligarchy which ruins the small and middling manufacturer.
According to M. Oppenheimer, English Consul at Stuttgart, “the Syndicate’s price policy is in the interest of capitalists producing their own partly-manufactured goods and owning their own mines and blast furnaces, since, producing his material at a reasonable cost, he can compete favourably in his output of finished goods with those who have to go to the Syndicate for their raw material.” The ideal of all Protectionists is to fix prices; it is one of the objects of the Cartels; but the price of different mineral products shows that they have not been more successful in attaining this than any other of their objects.
The Syndicate thus failed either to fix prices or keep them to the high standard of 1890.
Protectionists and Socialists agree in denouncing the middleman; the Stuttgart Chamber of Commerce, in its Memorandum on Cartels, recognises the value of his services as a buffer between producer and consumer; Cartels try to suppress him or restrain his liberty of action with regard to the price, quantity, and quality of goods. In times of crisis, which the example of Germany proves that they stimulate rather than prevent, Cartels delay the recovery of the market and the re-establishment of equilibrium of supply and demand.
Mr. Chamberlain threatened a downfall for English industry like that of the Campanile in Venice—an inapplicable comparison, for while the fabric of English trade, without Cartels or export bounties, stands firm in a position which can be gauged by the market returns, that of Germany shows cracks, at times like the crisis of 1902-1903, which foreshadow a fate like that of the Campanile for an artificial trade, not resting upon solid foundations, but founded upon piles.
FRANCE AND THE NEW TARIFF
I. The alarmists and the new tariff—Exception of special goods—What we buy from Germany and what we sell to Germany—Difference in price between exported and imported goods—II. Commercial treaties of February, 1905—III. Clause 11 of the Frankfort Treaty—“The vigilant attention of the public authorities.”
In France, of course, there was a great throwing about of ink. The alarmists, always sure of commanding a ready hearing, immediately began to scream like eagles, calling for the vigilance of the public authorities. The German tariff was conceived in the rigid spirit of the Prussian bureaucracy, with the intention of evading some of the consequences of the most favoured nation clause of the Frankfort Treaty, as it affected France, by so raising the Customs tariff as to exclude from the commercial treaties specialities which France sends to Germany. Such measures were certainly not likely to assist the expansion of French trade, but an examination into the nature of our commerce proves that they could have no very far-reaching effect upon it. What do we sell to Germany, and what do we buy from her? Taking Mr. Noel’s report:—
I admit that these figures do not exactly tally with those of the German Customs tariff returns:—
It would be interesting to be given some explanation by Mr. Noel for his use in a Parliamentary Paper of figures given first by the French and then by the German Customs House.
Confining ourselves to the French Commercial Table,1 and giving amount as well as price, our imports from Germany fall into nine classes, at more than £600,000 for each class:—
Our exports are less concentrated. There are only six classes of goods whose value is above £600,000: wool and woollen waste, £2,960,000; fur and leather (undressed), £1,200,000; and raw cotton, £600,000.
Over and above the raw materials above there are three classes of characteristically French goods:—
The rest of our exports is composed of small units. Mr. Noel declares, “German competition seriously threatens our charcoal, machinery, paper, books, and engraving.” Since charcoal is a raw material of which our mines cannot supply the necessary quantity, we have no reason to complain of its importation. If machinery is imported it is presumably for use; and if it is imported in spite of duties the probable cause is that those who wish to use it cannot get it in France. As for paper, the Report of the Customs Commissioners declares that the importation of paper is increased 40 per cent. to 50 per cent. by duties in the consuming country. In printing, lithography, and engraving we do not suffer from lack of talent; it must be that what is produced is too expensive, and it is worth while examining the cause of this, which Protectionists neglect to do. We import some £5,000,000 of chemicals and only send Germany £625,000 worth. Germany has certainly made extraordinary progress in an industry for which her industrial skill seems pre-eminently adapted. Utilising the aid of science, she has gone to the laboratories to reinforce her practice with theory. But the chemicals that we buy are raw materials, and since we sell to Germany an amount almost equal to a quarter of our total import, Germany certainly possesses no monopoly there.
Germany buys £560,000 worth of silk from us and sells us £477,600 worth: probably the quality is not the same in each case, since pure black silks are valued at 38s., and on export at 60s., and cream silk at 54s., and 60s. on export. In clothes and underclothes we export £758,960 worth and get £205,800 worth from Germany; and here again it is probable that the same name covers a difference of quality and price. The richer Germany grows the greater will be her demand for our high-class wines and the articles of luxury and elegance in whose production we excel all other nations. In 1887 we sold her £529,320 worth of silk and £155,480 worth of clothes and made-up linen goods. Germany’s industrial progress has stimulated, and not repressed, our exportation. The commercial treaties concluded by the German Government with Italy, Belgium, Russia, Roumania, Servia, Switzerland, and Austria Hungary were passed in February, 1905; they take effect in 1906 and terminate on December 31, 1917.
The Protectionist crisis in Germany has not gone beyond the creation of commercial treaties; it changed the spirit of Caprivi’s policy while preserving his methods. It would have been interesting if Mr. Noel, in his historical sketch of German commercial progress, had shown the development of the Franco-German exchanges: he would then have seen that neither nation had any reason to complain of that eleventh clause of the Frankfort Treaty which imposed on each “a system of reciprocity on the basis of the most favoured nation clause.” The Paris Chamber of Commerce observed that this article only took into account six nations—England, Belgium, the Low Countries, Switzerland, Austria, and Russia—while Germany apparently extended it to cover more than 40: a horrible misfortune indeed!—including San Marino and Hawai; and that if Germany extended most favoured nation treatment to 34 nations over and above the six cited in the Frankfort Treaty, France would find herself in a position of inferiority. In proof of this the arrangement concluded between Germany and the United States on July 10, 1900, was brought forward. Certainly the United States was not included in Clause 11, but Clause 1 declares that Germany concedes to them the reduced duties granted to the nations enumerated in Clause 11. Mr. Noel calls the “attention of the authorities” to the tariff of the new treaty. Why? The new tariff might affect French fruit—that would certainly be annoying; but what use would there be in our attacking German fruit, which does not come into France? The new tariffs threatened our wines. Mr. Noel spoke of the arrangement concluded between Germany and Spain. That is all very well, but are we to imitate Spain in offering something to Germany? He proposes to retaliate by an increased duty on leather; apparently we are too well shod. We are free, of course, to make any tariffs we like, since we are not bound by the commercial treaties; but does Mr. Noel think that this sort of teasing policy is likely to open German and other markets? while it would affect all our international relations through the most favoured nation clause, which by an extraordinary piece of good fortune was inserted in the Frankfort Treaty by Bismarck and Pouyer-Quertier, without their foreseeing any of its results. No French Foreign Minister would ever dream of demanding any modification of Clause 11 as long as the treaty stands—the reason it is surely needless to state.
The German Government, entering in 1789 on a policy of Protection, created a hotbed of Social Democracy in the developing industrial centres. In entering in 1902 on an agrarian policy it strengthened the Socialists by providing them with new arguments; by encouraging the formation of Cartels it went a long way to justify Karl Marx’s theory of the concentration of Capital. When the Prussian Government bought mines and took shares in the Potassium Salt Syndicate and the Tube Syndicate it put in practice Marx’s theory of Collectivism, which it is part of its political creed to deny. Cartels are the active negation of freedom of labour facing every independent manufacturer with the Inquisition’s formula, “Compelle intrare.”
Price is the barometer of economics, indicating dearth or abundance. Protection attempts to check the fluctuations of the market; Cartels so falsify them that every one under their influence, whether as manager or victim, is far away from the truth. The German system of National Economy, directed to the development of national labour by the organisation of Cartels and bounties on export, ended by encouraging foreign labour and arousing competition not only in foreign markets, but even in the home market. Every export bounty is a present made at the expense of the country that gives it, just as every Customs duty is a private tax. A factitious increase in exports reduces a country to bankruptcy. It is the condition described in Article 585, paragraph 3, of the Commercial Code—“buying to sell at a lower price.”
Made for the Commission of Enquiry into Foreign Customs Tariffs, June 19, 1903.