Online Library of Liberty

A collection of scholarly works about individual liberty and free markets. A project of Liberty Fund, Inc.

Advanced Search

Molinari’s 7th Evening

Gustave de Molinari, Les Soirées de la rue Saint-Lazare: entretiens sur les lois économiques et défense de la propriété (Evenings on Saint Lazarus Street: Discussions on Economic Laws and the Defence of Property) (1849)

[A Draft of Liberty Fund's new translation]
[May 17, 2012]

[7th Evening]

[SUMMARY: Right to trade, continuation. – International trade – Protectionism. – Its purpose. – M. de Bourrienne’s Aphorisms. – Origin of Protectionism. – Mercantilism. –Arguments for protection. – Currency depletion. – Independence from other countries. – Increase in domestic production. – That Protectionism has reduced overall output. – That it has made production precarious and distribution unfair. ]

Molinari_1849LesSoireesRSL-TP300.jpg MolinariObitB-300
Title Page of the original 1849 edition
The photo of Molinari (1819-1912) which accompanied his obituary in the Journal des économistes

Introduction

Related Links:
Related Links:
  • ToC of Les Soirés

Molinari's book Les Soirées de la rue Saint-Lazare; entretiens sur les lois économiques et défense de la propriété. (Paris: Guillaumin, 1849) is being translated by Liberty Fund. The translation was done by Dennis O'Keeffe and it is being edited by David M. Hart. The critical apparatus of foontnotes and glossary entries, and introduction are being provided by David Hart. We welcome feedback from Molinari scholars to ensure that this edition will be a great one and thus befitting Molinari in his centennial year.

This page has a detailed Table of Contents and links to other Chapters.

 

The Seventh Evening

SUMMARY: Right to trade, continuation. – International trade – Protectionism. – Its purpose. – M. de Bourrienne’s Aphorisms. – Origin of Protectionism. – Mercantilism. –Arguments for protection. – Currency depletion. – Independence from other countries. – Increase in domestic production. – That Protectionism has reduced overall output. – That it has made production precarious and distribution unfair.

THE ECONOMIST.

The free trade in products[224] is even more restricted than the free trade in labor. The commerce in real-estate is subject to bothersome and costly formalities, and moveable property is hampered or totally blocked by various indirect taxes, notably by city tolls and by customs.[225]

Let me leave aside, for the moment, restrictive laws whose purpose is to raise taxes, and busy myself with those whose purpose is mainly obstruction.

I want to talk about customs.[226]

THE CONSERVATIVE.

Were not customs set up with taxation in mind? [p178]

THE ECONOMIST.

Sometimes, but rarely. For the most part, customs were set up solely to put barriers in the way of trade.

THE SOCIALIST.

This is the protectionist system.

THE ECONOMIST.

Well, protectionism prevails in all civilized countries, perhaps with the exception of England and the United States, where they tend to become purely fiscal in function.[227] [228]

Fiscal customs,[229] those whose sole function is to fill the coffers of the Treasury, are everywhere violently attacked by the supporters of protectionism. The latter want to exclude the interests of the Treasury from the issue of customs, so that they can busy themselves exclusively with what they call the interests of industry.

THE CONSERVATIVE.

So are these two interests contradictory?

THE ECONOMIST.

If we take the protectionist point of view, yes. In 1822, M. de Bourrienne,[230] the author of the Report of the Commission looking into the the customs law regarding the importation of foreign iron, identified clearly and fully endorsed that opposition.

“Any country”, he said, “where customs duties had no purpose other than a fiscal one, would be walking at top speed to its perdition. If the interest of the Treasury carries the day over the general interest, the result would be no more than a brief advantage, to be paid for dearly one day.

A country can have great prosperity with very little revenue from the Customs. It could have huge Customs receipts and yet be failing financially, in a state of [p179] of decline; perhaps it could be proved that the latter fact is a result of the former. Customs duties are not a tax but rather an incentive for agriculture, trade and industry, and the laws which set them up have sometimes to be political in intent, must always offer protection and can never pursue fiscal purposes.

Since the duties do not serve the interests of the Treasury, the tax which results from the duty is only incidental.

One proof that the customs tax is only incidental is that the duty on exports is almost nil and that legislators when they impose an import tax on certain objects, have the intention that they shall not enter, or enter as little as possible. The increase or decrease in tax revenue must never stop this tax.

…If the law you are subject to leads to a fall in the revenue from customs tax, you ought to congratulate yourself. This will be proof that you have attained the purpose proposed, of slowing down dangerous imports and favoring useful exports”.

The purpose of which M. de Bourrienne speaks has been perfectly attained in France. Our tariffs are aimed essentially at protection. Our customs laws were established in such a way as to prevent as far as possible, the entry of foreign goods to France. Well, goods which do not enter do not pay duty, as M. Bastiat, author of Economic Sophisms has wittily shown.[231] A protective tariff must be the least productive possible to attain the purpose proposed.[232]

A fiscal tariff on the contrary must be as productive as possible.

THE CONSERVATIVE.

If, however, a protective tariff harms on the one hand the interests of the Treasury, it does much better on the other hand in its protecting the nation’s industry against foreign competition. Protection fills the gap which exists naturally between the market prices of certain domestic products and the prices of comparable foreign goods.

THE ECONOMIST.

This is M. de Bourrienne’s doctrine. We will very soon see if it fulfills its purpose. First I will observe, however, that the Customs were established in the last three centuries, neither to swell the coffers or the Treasury, nor to bring the market price of domestic products into line with those of foreign products.

For a long time it was very widely believed that wealth resided solely in gold or silver. Each country therefore strove to discover means of attracting foreign gold, and having attracted it, of preventing its leaving. They had the idea of encouraging the export of domestic commodities and blocking the way to the importation of foreign ones. According to the theorists of these arrangements any difference would inevitably be paid in gold or silver. The larger this difference the more was the country enriching itself.

When exports exceeded imports (or at least when it was thought they did) people said that they had a favorable balance of trade.[233]

The system was called the mercantilist system.[234]

[p181]

THE CONSERVATIVE.

You take a high and mighty position. Let me tell you then that today the supporters of protectionism repudiate, just as you do, illusions about the balance of trade. In England you will never find the advocates of protection basing their case on the balance of trade. If we confused protectionism with mercantilism, would we then be making a distinction between similar and non-similar products? If our intended purpose was to attract precious metals into the country and to prevent their ever leaving, would we not be indiscriminately denying ourselves all manner of foreign products, in order to receive in exchange only gold and silver? – We are happy, as you know, to concentrate our attacks on similar products, and even then not on them all. We are happy to let in products which are inferior to our own.

THE ECONOMIST.

Do admit that your generosity is not very great. I did not say that the mercantilist system is the same as protectionism, but rather that it was its point of departure. It began with the blocking of the imports of foreign goods, in order to import more gold and silver. Later people came to think that this purpose would be even more rapidly attained if the development of the export industries were stimulated. As a result, through a combination of prohibitions and subsidies, this category of industries was favored. The same methods were used to set up new industries in the country.

THE CONSERVATIVE.

That’s right.

[p182]

THE ECONOMIST.

The wish was to free the nation from the tribute it paid to foreigners for the products of these industries. It was Colbert who protected and developed mercantilism in this way.[235]

THE CONSERVATIVE.

The great Colbert, the restorer of French industry!

THE ECONOMIST.

I would more happily call him the destroyer of French industry. So you realize that mercantilism engendered protectionism. More often than not, in truth, the theory of the balance of trade was invoked only as pretext. While protectionism impoverished the masses, it enriched certain producers…

THE SOCIALIST.

That is well understood. If the prices of goods rise in geometric progression while supply diminishes in arithmetic progression,[236] the producers who obtained exclusion of the products of their foreign competitors, must realize sizeable profits.

THE ECONOMIST.

They do indeed realize them. The consequence is that most of our great industrial fortunes date from the establishment of the principal protectionist duties.[237]

THE CONSERVATIVE.

According to you, then, our producers owe their wealth solely to the protection of the law, with their work apparently deserving no remuneration.

[p183]

THE SOCIALIST.

Their work deserved the return it obtained quite naturally before the establishment of protectionist duties. We do not attack legitimate gains; we attack those acquired by improper methods, fraudulently by way of protectionist duties.

THE CONSERVATIVE.

Fraudulently?

THE ECONOMIST.

The word is too strong.[238] The producers who invoked the theory of the balance of trade were probably hardly concerned at all with the general conclusions of that theory. They had little in mind beyond the particular advantages which they could derive from it.

THE CONSERVATIVE.

Would you tell us what you know about it? [p184]

THE ECONOMIST.

I will let you be judge. Would you ever consider pressing for a law which did not favor your particular interest?

THE CONSERVATIVE.

Probably not. No more would I solicit, however, for a law which favored my individual interest rather than the general interest.

THE ECONOMIST.

I quite sure of that. This is why I reject this word “fraudulently”. Producers of yesteryear demanded protectionist duties with a view to increasing their profits; but did not mercantilism, in recommending protection, put them in conformity with their beliefs?

THE SOCIALIST.

Would the mass of the people be any less exploited[239] if the mercantilist system was false?

THE ECONOMIST.

My goodness! How many people would be exploited if the theories of socialism were put into effect? Yet there are very honest men among the Socialists.

THE SOCIALIST.

I do not accept your comparison. The producers who invoked the sophisms of mercantilism[240] were concerned solely with their private interest; in their eyes the notion of the general interest was only a pretext or an empty formula. We socialists, on the contrary, have only the general interest in mind.

THE ECONOMIST.

If this is true, if it is only the interest of humanity which [p185] drives you to demand measures whose application would be fatal to humankind, you are, indeed, more excusable than the producers in question. Would you really dare to claim, however, that you are never motivated by the stirrings of vanity, pride, ambition or hatred? Are all your followers equally mild and humble of heart?

The producers who demanded the establishment of protectionist duties based themselves on mercantilism. If we abandon this system, are we not agreeing thereby that they were in error?

THE CONSERVATIVE.

Let us understand one another. In fact I condemn mercantilism. I do not believe in the balance of trade, an old economic error. But does it really follow that the producers were wrong to demand protectionist duties?

THE ECONOMIST.

The conclusion seems logical to me. If these producers crying out for protectionism had good reasons to put forward, why would they have used a bad one?

THE SOCIALIST.

Quite right!

THE CONSERVATIVE.

Careful! I do not accept mercantilism with all its excesses, but does not this system also embody some truths? No doubt money is not the whole of wealth, but is it not an important part of it? Does not a nation expose itself to appalling catastrophes when it lets all its cash be depleted? Protectionism shelters it [p186 ] from these menacing disasters when it prevents the over-importation of foreign goods.

According to you, protectionism has the sole effect of allowing domestic producers to sell very profitably goods which they previously sold very unprofitably. You have forgotten to say, however, that by establishing new industries in the country, protectionism strengthens national independence and permits fruitful use of previously idle capital and labor. You have forgotten to say that protectionism increases the power and wealth of a country.

THE ECONOMIST.

You have just expounded the three main arguments for the protectionist system. Please allow me to put the first to one side; I will take it up again when we discuss money.[241] As for the argument about dependence on foreigners, it is one which can easily be seen through. You yourself, if you reject the balance of trade argument, if you accept that products are bought with other products,[242] must you not accept too that when two nations trade with each other, their dependence is mutual?

THE CONSERVATIVE.

We have to take account of the nature of the goods exchanged. Is it prudent, for example to depend on foreigners for a product that is of primary necessity?

THE ECONOMIST.

England is, you will agree, an essentially prudent nation. She has voluntarily exposed herself, however, to dependence on Russia and the United States, her two great rivals, for her [p187] supplies of wheat.[243] Apparently she does not consider the argument about dependence on foreign sources truly convincing. I think it pointless to dwell on this issue.[244]

I now turn to your third argument, which has much more weight and is much more difficult to refute. You say that protectionism, by bringing about the introduction of certain new industries to the country, has increased the use of capital and labor, and thus augmented national wealth.

THE CONSERVATIVE.

This seems to me incontestable, and since you are fond of examples I am going to give you one. In the past, England drew her cotton goods from India. One day the idea came to her of keeping these Indian goods out.[245] What happened? The market finding itself without the greater part of its ordinary requirements, production and sale of [p188] domestically produced cotton goods immediately benefitted hugely. Capital and labor migrated en masse to this production. England which had produced scarcely more than a few thousand yards of cotton fabric, now made thousands of millions. Instead of a few hundred spinners and weavers working from home, she now had thousands operating in immense manufactories. Her wealth and power suddenly increased enormously. Do you make so bold as to claim, in view of these facts, that the prohibition of cotton yarn and cotton goods from India was not beneficial to England?

THE SOCIALIST.

Yet on the other hand the Indians who lost the English outlet were ruined. Millions of men on the banks of the Indus and the Ganges found themselves deprived of work while the manufacturers of Manchester established the basis of their colossal fortunes, and while workers were attracted by unusually high wages, and flooded into this new metropolis of cotton production, the workshops of India fell away into [p189] ruin, and the Hindu workers were swept away in a tide of poverty and famine.

THE ECONOMIST.

That is a fact. The outlets for the spinners and weavers of India becoming blocked, these workers were obliged to fall back on other branches of production. Unfortunately the latter were already sufficiently supplied with labor. The wage level in India therefore fell below the production costs of labor, that is to say below the sum necessary for the worker to keep himself and perpetuate himself. It fell…until poverty, famine and the epidemics which are their inseparable companions, having performed their function, equilibrium between the supply of and the demand for labor began to re-establish itself and wages to rise.[246]

THE SOCIALIST.

So the prosperity of the English manufacturers had for its stepping stones the corpses of Indian workers.

THE CONSERVATIVE.

What do you expect? The profit of the one spells the loss of the other, as Montaigne said.[247]

THE SOCIALIST.

If protectionism cannot establish itself without this funereal cortège of ruin and poverty, it is an immoral and odious system and I repudiate it.

THE CONSERVATIVE.

Good heavens! If Providence had made of all humanity only a single nation, then a system which thrust down certain members of this huge nation in order to raise up other members, which ruined the Hindus in order to enrich the English, could, indeed, be called [p190] immoral and odious. Providence has not, however, put one, single people into the world; rather she has sown the nations like so many grains of wheat, telling them to grow and prosper. It is a misfortune that the interests of these various nations are now diverse or opposite; but what is to be done about it? Each people must naturally devote itself to increasing its power and wealth. Protectionism is one of the most powerful and surest ways of achieving this double result. So, we resort to protectionism. It certainly is unfortunate that foreign workers are deprived of their means of sustenance. Should not the interests of the home labor force take precedence over the rest, however? If a simple legislative measure serves to provide employment and bread to the home workforce, is not the lawmaker obliged to pass this measure without inquiring whether the inhabitants of the banks of the Ganges or the Indus are going to suffer because of it? Should not each person concern himself with his own poor people before fretting about those of others? And if this example is universally pursued, if each nation pursues that legislation which best suits its individual interests, will not all things move, in the final analysis, in the best possible direction? Will not all the nations come to enjoy all the prosperity of which they are capable?...So you see that protectionism is odious and immoral only when you examine it superficially. And you also see that statesmen would be profoundly wrong to adopt your false cosmopolitanism.

THE ECONOMIST.

Mr Huskisson[248] once uttered the following remarkable words in the English parliament: “Protectionism [p191] is an invention whose patent is close to expiry. It has already lost much of its value now that all the nations have seized upon it”.[249] All I need to do to destroy your objections, is to enlarge upon these comments by one of England’s most illustrious supporters of free trade.

What happened, actually, when England had brutally replaced the work of the weavers of Surat, Madras and Bombay, in order to benefit the manufacturers of Manchester and their workers? What happened was that all the other nations, seduced by this apparent advantage, wanted likewise to replace foreign industries. France, which produced only a part of the cotton, wool, iron and pottery needed for domestic consumption, wanted to produce all she could possibly consume in the way of these goods. Germany and Russia did likewise. There was nowhere, not even the smallest countries – Belgium, Holland, and Denmark – in which the aim was not to replace foreign industries with their own. In a word the drive towards protectionism was general.

What came of it you know. The outcome was that those destroyers of entire industries found themselves having their own labor destroyed in turn.[250] England which had stolen the cotton goods industry from India, lost, along with a part of this same industry, several of its other branches of production. France, which following the English example, had destroyed several industries in foreign countries, found a part of her own destroyed in turn as well. Most notably Germany protected herself as a form of reprisal against French silks, fashionable goods, and wines….You steal some of your neighbor’s outlets and he steals [p192] some of yours. This was universal pillaging.

At the time when this pillaging of foreign industries was at its most active, a very clever pamphlet was published in England. The frontispiece carried a cartoon showing a cage of monkeys. Half a dozen monkeys, lodged in separate compartments, had their daily meal in front of them. But instead of eating in peace the portion which the zoo-keeper had generously given them, every one of these wicked animals was doing his best to steal his neighbors’ share, without noticing that the latter were doing the same to him. Each one of them was working hard to steal from his neighbors his livelihood which he could reach easily just in front of him, and a lot of food was being wasted in the scuffle.[251] [252]

THE CONSERVATIVE.

But were not the strongest bound to have the advantage in the struggle? Could they not grab the share of others and still keep their own?

THE ECONOMIST.

With monkeys that is possible; but it is not so with nations. No nation is strong enough to say to others: “I will protect my production against your industries, but I forbid you to do the same against mine; I will make off with some of your outlets, but I forbid you to touch mine. If a nation dared to employ such language, all the others would unite to rule that nation out of bounds, and the coalition would be left the stronger.

THE SOCIALIST.

In such a way, that all in all no one gains from these mutual depredations, and that the pillagers [p193] gain proportionately less as the pillaging becomes more general.

THE ECONOMIST.

Precisely.

THE CONSERVATIVE.

But when one country has adopted protectionism, are not the others obliged to adopt it too? Must they leave their industries to be pillaged without resorting to reprisals?

THE ECONOMIST.

This is a subject for debate.

I must first of all, however, give you a full demonstration of the way in which protectionism has been harmful to the general development of production.

So let us look first at what happened at the time when protectionism was first established. Each nation procured some of the goods it needed for production from its neighbors and furnished them in turn with other products.

What products did it supply and what did it receive?

It supplied those products which the nature of its soil and the particular talents of its producers allowed it to produce with the least effort. It received those things it would not have been able to produce without devoting more effort to them.

In truth, does this not tell you what international trade must have been like before the advent of protectionism?[253]

THE SOCIALIST.

This is the natural way in which things develop.

[p194]

THE ECONOMIST.

What did protectionism do? Did it increase the total sum of production? No more than did the pillaging monkeys in the English pamphlet increase their food supply, when they stole each other’s scraps. Judge for yourselves.

England stole the cotton industry from India. If her production increased accordingly, India’s fell in the same proportion. France stole part of the English linen industry; if France produced that much more, England produced that much less. Germany too from France part of its silk production; if Germany produced more thereby, France produced less by the same amount… Protectionism therefore did not and could not have the effect of increasing the general level of production.

I will now add that protectionism has, and is bound to have, the effect of reducing the overall level of production.

This is how it happens:

Why did England protect herself against Indian cottons, French silk and Belgian cloth? Because these goods were invading part of her market. Why did they penetrate it? Because, allowing for differences in quality, they were cheaper than their English counterparts. If they had not been cheaper, they would not have got into England.

That being so, what was the first result of the law which forbade these goods access to the English market? It was to create an artificial deficit in domestic [p195] supply. The larger this deficit, the more the prices of indigenous goods were naturally bound to rise.

Before the establishment of protectionism,[254] the annual purchases of cloth in England amounted, I suppose, to some twenty millions ells,[255] with half the total coming from abroad.

THE SOCIALIST.

How could England supply the rest, if foreign cloth was so much cheaper than her own?

THE ECONOMIST.

There are many varieties of the same good. There are, for example, a very large number of grades of cloth. England produces certain of these grades more cheaply than Belgium, while Belgium makes some grades of cloth cheaper than England does.

Let me resume. Foreign cloth comes to be banned in England. Supply having been halved, how much will the price rise? It will rise in geometric progression. If it had been at 15 fr an ell, it could reach 60 fr.

When the price of a product rises suddenly, however, what happens? Unless the product happens to be of prime necessity, in which case there is no way it could ever fall noticeably, the rise in price will introduce a more or less marked contraction in consumption, according to the nature of the product. If the demand for cloth was twenty million ells when price stood at 15 fr., it would scarcely get to four or five millions ells at 60 fr. With price falling at this point, demand will again start to rise. These fluctuations will continue almost indefinitely. Having ranged across the whole scale taking in both its extremities, however, [p196] these fluctuations will converge successively on a central point, which represents the total production costs of cloth in England.

You already know why the price of a product cannot stay very long either above or below its production costs.

The production costs of English cloth, however, are higher than those of foreign cloth. They are and must be, otherwise protection would be entirely pointless. When one can sell at a lower price than one’s competitors, one does not need protection to drive them from the market; they remove themselves. I take it that if the production costs of foreign cloth are at 15 fr. the costs of English production will be some 18 fr. This, then, is the level towards which the price of cloth will gravitate from now on in England. At the price of 18 fr., however, people will purchase less cloth than would be the case at 15 fr. If people bought twenty million ells in the free trade years, they will buy only sixteen or seventeen million after the exclusion of foreign goods.

THE CONSERVATIVE.

Maybe so! Will not the increase in national production, however, which will have climbed from ten million ells to seventeen million, compensate, and more, for the slight decline in consumption?

THE ECONOMIST.

For the moment, that is not the issue. Does protectionism[256] result in a diminution or increase in general production, that is the question? Well, if the production of English cloth has grown by seven million, by contrast that of foreign cloth has fallen [p197] by ten million, which clearly means, I think, a reduction of three million in general production.

THE CONSERVATIVE.

Yes, but that reduction is only temporary. The growth of an industry in a country always leads to a perfecting of manufacturing procedures. Where the market price was 18 fr. it soon falls to 17, 16, 15 fr. or even lower. Consumption rises in this eventuality to the level which obtained before the import controls, or even ends up exceeding it.

THE ECONOMIST.

Meanwhile, I find that there has been an increase in the price, associated with a fall in consumption, and consequently a fall in the level of general production. I note further that protectionism has had, and was bound to have, as its first outcome, a fall in general production. Henceforth this will be taken for granted in the discussion.

I claim, furthermore, that the general lowering of production is not accidental or temporary…I maintain that it is permanent…and let us get it straight, it will last as long as protection itself.

Why did the English manufacturers not produce themselves the twenty million ells of cloth purchased in their country? Because foreigners produced at a better price, at lower cost, half of these twenty million ells.

What is the reason for this difference in the production costs of the same good as between one country and another? It lies in natural differences in climate, soil, and national aptitudes. Well, I ask you, can import laws suppress these national differences? Will decrees to the effect [p. 198] that Belgian and French cloth will no longer have access to the English market, somehow endow English producers with the means of producing as well and as cheaply, these particular kinds of cloth? Will the law have supplied the climate, the water, the soil, the workers themselves, with the qualities or capabilities necessary for this particular kind of production? …But if the import laws have not brought about this miraculous transformation, will not the kinds of cloth which England obtained in France, be dearer to make and worse made in England?

THE CONSERVATIVE.

Often these differences are hardly noticeable. In such a case, the progress resulting from the instantaneous development of an industry in the homeland itself, is more than sufficient to compensate for them.

THE ECONOMIST.

Let us see how things work out in practice.

A certain category of foreign goods can without much ado be forbidden to the home market. Germany, for example, establishes a prohibitive duty on Parisian bronzes and ironmongery. The casters of bronze and ironmongers of Germany consequently begin to produce articles they have never been involved with before. Before they complete their apprenticeship with respect to this new manufacture, they set up a lot of schools of instruction and provide consumers with imperfect and expensive products. Years pass before they reach the standard of foreign production, if they ever do reach it.

Let us imagine, for a moment, that prohibition had never [p199] been established. Would Parisian ironmongery and bronzes have remained just the same as before?

What was the effect of the German customs restrictions on these two Parisian industries? By cutting back their market, this legislation caused them to retrogress, or at least, it slowed down their progress. You know of course how industrial progress happens. It happens through the division of labor. The greater the division of labor, the greater are the perfecting and multiplication of products.

When an outlet comes to be closed, when the extent of the market comes to be reduced, few manufacturers stop work completely, but most reduce their production. Reducing their output means they can no longer benefit from division of labor; they are forced to use less economic procedures.

The progress in hardware production and the bronze industry therefore slowed down in France. Did it become more vigorous in Germany, in such a way as to make up for the loss in the general level of production? Let us have a look at this. Several years passed before the hardware merchants and the makers of bronzes in Germany reached the level attained by their French rivals at the time the protection was established. During these years the French industry would have continued to make progress. Naturally more favored than its rival, would it not have made more progress, much to the advantage of general consumption?

Perhaps you would like a final argument, by way of proof.

Protectionism has been in force everywhere [p. 200] for half a century.[257] Certainly the industries enlarged by tariff protection have had time to equal and surpass their former rivals. Have they surpassed them? Have they even equaled them? Are they in condition to stand up to foreign competition? Ask their opinion and see what they say.

THE SOCIALIST.

Oh! They will say unanimously, what they said in 1834 – that they need protection more than ever.[258]

THE ECONOMIST.

This means that after half a century of protection, they still cannot achieve the quality and low prices of their rivals.

By displacing a host of industries, in the teeth of what nature dictated should happen, protectionism has had the result, as it was bound to have, of pushing up the production costs of everything, or, which comes to the same thing, of holding up the natural lowering of these costs.

Now it is a law of nature that the market price of things, tends to align itself to the costs of production, and it is another law that consumption diminishes as price rises.

I have already shown you, mathematically, I think, that protectionism has increased the costs of production. That increases in the cost of production lead to increases in prices, which in turn lead to a reduction in consumption, is just as clearly established. I am therefore justified in concluding that protectionism has diminished the general wealth of the world.

[p201]

THE CONSERVATIVE.

Your argument, I have to confess, seems to me difficult to refute. In the event, however, general wealth may have been reduced, and the individual wealth of certain countries may have increased. Given this eventuality, were not the favored countries in the right to adopt protectionism?

THE ECONOMIST.

But the eventuality of which you speak can scarcely be taken as acceptable, let us agree on this. If adopting protectionism has inevitably caused this diminution, a loss in the collective wealth of the nations, this general loss must also necessarily have registered itself in individual losses. If everybody has lost, it is difficult to imagine how some may have gained.

England, which you have in mind, has undoubtedly destroyed many foreign industries, but foreign countries have also destroyed many of hers too. If England had not adopted protectionism, she would have perhaps have produced less wheat, fewer cotton goods and silks, but she would have produced more iron, more steel, more tin, more machinery etc. Her share of the general dividend would perhaps be relatively smaller, but the dividend itself being larger, her share would be actually larger.

Protectionism, however, has not only diminished the abundance of wealth, it has also rendered production inevitably unstable, and its distribution necessarily iniquitous.

If these arrangements were fully applied everywhere, in an unchanging way, if an impassable barrier forever separated each nation from its neighbors, we might perhaps succeed in avoiding the disturbances in these unchanging markets. [p202] Protectionism however is nowhere applied in a stable and complete way, nor could it be. All nations have foreign dealings and they cannot dispense with them.

Now, these indispensable relations are daily troubled by modifications to the Customs arrangements of the forty to fifty nations which maintain Customs. Sometimes it concerns a duty being increased, sometimes a duty being reduced, sometimes a subsidy being increased, sometimes one being withdrawn. What is the result of these endless modifications of tariffs? A fall in employment on the one hand, an increase in employment on the other. Any law which closes or contracts openings for employment takes away the means of existence for hundreds or thousands of workers, by building colossal fortunes elsewhere…And these laws can be counted in their thousands since the establishment of protectionism.

Subject to these endless disturbances, production becomes intrinsically precarious. Considerable capital has been committed to setting up cloth or silk manufacture. Hundreds of workers are enabled to earn a living. Suddenly, the raising of a foreign tariff closes the outlet. The workers have to be dismissed and the machinery left to rust or sold off for scraps. The bad effects do not stop there, however. When a factory closes all the industries supplying it are hit in their turn. Once they are affected they spread around them the contagion of misfortune. The perturbation which arose in an isolated place, stretches out in successive waves across the whole industrial world [p205]. People get hit and more often than not, do not even know where the blow came from.

If a tariff is lowered and general production is increased, there is a very marked economic gain; if a tariff is raised, however, there is, likewise, a very marked diminution in profits and wages. The capitalist loses his capital, the worker loses his job. The former faces ruin, the latter death.

THE SOCIALIST.

It is frightful.

THE ECONOMIST.

While producing results like these on the one hand, on the other the law swiftly rewards, as if on the throw of a dice, the producers who have become masters of the market. In truth their prosperity does not last long. Capital and labor rush en masse towards the protected industries. Often indeed, they hurry there on an excessive scale. More disruptions and more people ruined!

Under this regime, production is nothing more than a game of chance, in which some become rich and others are ruined, according to fortune’s whims, in which the hard-working entrepreneur, formerly a worker, suddenly sees the fruits of a lifetime of working and saving vanish away, while elsewhere rich capitalists see their capital double or treble.

People never murder their fellow human beings with impunity however. A long cry of bitterness and anger rang out one day in the ears of the few beneficiaries of this system. Unfortunately those who uttered it and those who echoed it, did not perceive the cause of the ill. M.de Sismondi[259][p204], who was the first to explain in eloquent terms this universal cry, did not know that he should go back to the source of so many disastrous disturbances. The Socialists who succeeded him did worse still. They attributed the ill to apparent causes which were precisely opposite to the real ones. They imputed to property, ills which arose precisely from assaults made on people’s being free to use or dispose of their property as they wish.

THE SOCIALIST.

Yes, these arrangements were bound to cause great ills, and we have not perhaps taken sufficient account of them.

THE CONSERVATIVE.

We would have been better off doing without them, I agree. But since they have been adopted, is it not best to retain them? Most of our industries have grown big under the wing of protectionism, let us not forget this. Would it not be imprudent to take it away from them?

THE ECONOMIST.

If protectionism is bad, it should obviously be abandoned. England has already given us the example of returning to free trade. Let us imitate her.[260] [261] [262] [263]

THE SOCIALIST.

With what would you replace protective tariffs?

[p205]

THE CONSERVATIVE.

Perhaps by fiscal tariffs.

THE SOCIALIST.

From the point of view of stability of production, fiscal tariffs are scarcely preferable to the other ones. They are modified just as frequently. Moreover a fiscal tariff is always more or less protectionist.

THE ECONOMIST.

I am not unaware of this. So I would not accept a fiscal tariff other than as a last resort. It is less bad than a protectionist tariff, but it is still bad. If we want to endow production with all possible fecundity and stability, we have to achieve the suppression of every kind of tariff, full liberty of exchange and absolute respect for the right to trade.

Note well moreover, that this result cannot be fully achieved without the total abolition of all Customs. As long as one Customs Office remains standing, it will be the occasion of disruption and ruin across the entire production arena.

Let the main industrial nations, however, renounce these old instruments of war, and improvement will already be noticeable.

THE SOCIALIST.

How many reforms remain!

THE ECONOMIST.

Yes, how many real reforms!

 

Molinari’s Long Footnote on William J. Fox, the Anti-Corn Law League, and Dependency on Foreign Markets

One of the eminent members of the Anti-Corn Law League, Mr W. J. Fox, has admirably refuted this argument about foreign dependency.[264] Although this passage has been quoted often, I will give in to the temptation to reproduce it again. It is a little masterpiece:[265]

[William Fox’s original speech:]

... It is a favourite theme, this independence of foreigners. One would imagine that the patriotism of the landlord’s breast must be most intense. Yet he seems to forget that he is employing guano to manure his fields; that he is spreading a foreign surface over his English soil, through which every atom of corn is to grow; becoming thereby polluted with the dependence upon foreigners which he professes to abjure.

To what is he left, this disclaimer against foreigners and advocate of dependence upon home? Trace him through his career. This was very admirably done by an honourable gentleman, who just now addressed you, at the Salisbury contest. His opponent urged this plea, and Mr. Bouverie stripped him, as it were, from head to foot, that he had not an article of dress upon him which did not render him in some degree dependent upon foreigners. We will pursue this subject, and trace his whole life. What is the career of the man whose possessions are in broad acres? Why, a French cook dresses his dinner for him, and a Swiss valet dresses him for dinner; he hands down his lady, decked with pearls that never grew in the shell of a British oyster; and her waving plume of ostrich-feathers certainly never formed the tail of a barn-door fowl. The viands of his table are from all the countries of the world; his wines are from the banks of the Rhine and the Rhone. In his conservatory, he regales his sight with the blossoms of South-American flowers. In his smoking room, he gratifies his scent with the weed of North America. His favourite horse is of Arabian blood; his pet dog of the St. Bernard’s breed. His gallery is rich with pictures from the Flemish school, and his statues from Greece. For his amusements, he goes to hear Italian singers warble German music, followed by a French ballet. If he rises to judicial honours, the ermine which decorates his shoulders is a production that was never before on the back of a British beast. His very mind is not English in its attainments; it is a mere pic-nic of foreign contributions. His poems and philosophy are from Greece and Rome; his geometry is from Alexandria; his arithmetic is from Arabia; and his religion from Palestine. In  his cradle, in his infancy, he rubbed his gums with coral from Oriental oceans; and when he dies, his monument will be sculptured in marble from the quarries of Carrara.

And yet this is the man who says: “Oh! let us be independent of foreigners! Let us submit to taxation; let there be privation and want; let there be struggles and disappointments; let there be starvation itself; only let us be independent of foreigners!” I quarrel not with him for enjoying the luxuries of other lands, the results of arts which make it life to live. I wish that not only he and his order may have all the good that any climate or region can bear for them - it is their right, if they have wherewithal to exchange for it; what I complain of is, the sophistry, the hypocrisy, and the iniquity of talking of independence of foreigners in the article of food, while there is dependence in all these materials of daily enjoyment and recreation. Food is the article the foreigner most wants to sell; food is that which thousands of our operatives most want to buy; and it is not for him - the mere creature of foreign agency from head to foot - to interpose and say: “You shall be independent; I alone will be the very essence and quintessence of dependence.”We compromise not this question with parties such as these; no, nor with the legislature.[266]

[267]

 

 

Endnotes

[224] Molinari was actively involved, both intellectually and politically,  in the free trade movement in France, as his article "Liberté des échanges (Associations pour la)” (Free Trade Associations) in the DEP, vol. 2, pp. 45-49 makes clear. Modeled on the English Anti-Corn Law League founded in 1838 in Manchester, the Bourdeaux Free trade Association was founded in February 1846 quickly followed by a Paris Association in July 1846 to which Molinari was appointed deputy secretary. The following year Molinari published one of his earliest books, a 2 volume history of tariffs in France: Histoire du tarif (Paris: Guillaumin et cie, 1847). Molinari also wrote the long bibliographical entry on "Liberté du commerce” (Free Trade) in the DEP, vol. 2, pp. 49-63; and the article on “Tarifs de douane” (Tariffs) in the DEP, vol. 2, pp. 712-716. One  of the driving forces behind the French free trade movement was Frédéric Bastiat (1801-1850) who was a friend and colleague of Molinari’s. Bastiat also edited the Association's journal Le Libre-Échange and wrote one of the first histories of the Anti-Corn Law League and the crucial role of Richard Cobden: Cobden et la Ligue, ou l'agitation anglaise pour la liberté du commerce (Paris: Guillaumin, 1845). [See, the glossary entries for “The Anti-Corn Law League” and “The French Free Trade Association.]

[225] In 1849 the French state got 1.4 billion Francs in revenue from direct taxes (on land, personal property, the door and window tax, trading licences - 426 million or 30%), fees and levies (234 million or 16.6%), customs duties (including imported sugar and salt - 157 million or 11%), indirect taxes (on alcohol, domestic sugar, and the monopoly sale of tobacco - 288 million or 20%), and the Post Office (letter tax - 50 million or 4%). [See the Budget for 1848 and 1849 in the Appendix.]

[226] A good summary of the history of French customs and tariff policy can be found in Horace Say's (son of Jean-Baptiste) entry "Douane” (Customs) in the DEP, vol. 1, pp. 578-604. Say divides his history into three main periods: the abolition of internal French customs and the rationalization of external duties in the earliest phase of the French Revolution (November 1790); the turmoil of the Napoleonic period culminating in the Continental Blockade of 1806 which attempted to ban the entry of British goods into Europe; and the rivalry between the landowning aristocrats of the Restoration period (who wanted protection for grain production and wood products) and the growing manufacturing interests, which resulted in the high tariffs of 1822. Say describes the post-1830 period as one which saw the formation of “a veritable pact of resistance by a coalition of the great landowners, and the protected iron producers and manufacturers” (p. 586). Molinari described the tariff reforms of the Constituent Assembly during the Revolution as a kind of customs union which involved all the provinces of France. See Molinari, “Union douanière” (Customs Union) in the DEP, vol. 2, p. 788. See also Pierre Clément, Histoire du système protécteur en France depuis le ministère de Colbert, suivie de pièces, Mémoires et documents justicatifs (Paris: Guillaumin, 1854).

[227] Assessing the average rate of tariffs is very difficult given the huge variety or products, the manner in which they were taxed (by weight, volume, or price), and whether the tariff was for "fiscal" purposes (to raise revenue for the state) or protectionist purposes (to favour domestic producers at the expense of foreign producers). A useful comparative study of tariff rates in Britain, France, Germany, Italy, and Spain in the 19th century is provided by Antonio Tena Jungito who compares average tariff rates of all goods taxed as well as average tariff rates on only protected items (leaving out the usually low rates on items taxed for fiscal purposes only). From his data (Figure 6.3) we can conclude the following: British aggregate tariff rates (excluding fiscal goods) peaked at about 15% in 1836 and began dropping in 1840 reaching a low point of about 6% in 1847 (the abolition of the Corn Laws was announced in January 1846), and continuing to drop steadily throughout the rest of the century reaching a plateau of less than 1% between 1880 and 1903. France had a rate of about 12% in 1836 and it was still around 11% in 1848 before it began to drop steadily reaching 5% in 1857 before spiking briefly to 7.5% in 1858, then dropping steadily again to about 1.5% in 1870 (the Anglo-French Free Trade Treaty was signed in 1860), before again moving steadily upwards to about 8% in 1893. In 1849 when the Soirées were written the rates were about 6% in Britain and 10% in France. [See, Antonio Tena Jungito, "Assessing the protectionist intensity of tariffs in nineteenth-century European trade policy," in Classical Trade Protectionism 1815-1914, ed. Jean-Pierre Dormois and Pedro Lains (London: Routledge, 2005), pp. 99-120.]

[228] In the United States tariff rates fluctuated wildly as the protectionist North and the free trade South fought for control of the Federal government before the Civil War. In 1832 the Protectionist Tariff imposed an average rate of 33%; the Compromise Tariff of 1833 intended to lower rates to a flat 20%; and the 1846 Tariff created 4 tariff schedules for goods which imposed 100%, 40%, 30%, or 20% depending upon the particular kind of good. The average rate in the U.S. in 1849 was about 23% which is definitely a "protectionist" tariff and not a "fiscal" tariff according to Bastiat's definition (5%). [See, Frank Taussig, The Tariff History of the United States (New York: G.P. Putnam, 1914. 6th ed.), pp. 110-115.]

[229] Bastiat believed that the ideal rate of tariffs for strictly fiscal purposes was 5% on all imported goods and 5% on all exported goods. This would be sufficient to raise enough revenue to pay for the very limited functions he believed the state should undertake, namely internal police, external defence, and some public goods. Anything above this 5% rate he considered to be “protectionist”. [See “The Utopian” in Frédéric Bastiat, Economic Sophisms, trans. Arthur Goddard, introduction by Henry Hazlitt (Irvington-on-Hudson: Foundation for Economic Education, 1996). Chapter: Second Series, Chapter 11: The Utopian. </title/276/23396>.]

[230] Bourrienne, Louis-Antoine Fauvelet de (1769-1834) was a school mate of Napoleon who later become Napoleon's personal secretary and wrote a 10 volume Memoir of his relationship with the Emperor. During the Restoration he supported the Bourbon monarchy, was a Deputy representing l'Yonne, became a Minister in 1822, and was a member of the official commission examining the law on customs, for which he wrote the official report. He was an ardent protectionist. See Commisions du projet de loi des douanes (1822). Pierre Clément, Histoire du système protécteur en France depuis le ministère de Colbert, suivie de pièces, Mémoires et documents justicatifs (Paris: Guillaumin, 1854). See chapter VII for a discussion of tariff policy during the Restoration, pp. 113 ff, especially the 1822 debate in the Chamber.

[231] Frédéric Bastiat (1801-1850) rose to prominence in the mid-1840s as a gifted economic journalist who wrote in support of the free trade movement. He edited the Free Trade Association’s journal Le Libre-Échange and wrote a witty and devastating series of essays debunking protectionist arguments which were published as Economic Sophisms Series I (1846) and Series II (1848). [See the glossary entry for “Bastiat”.]

[232] There are many examples of Bastiat's witty criticisms of trade protection. Here is one that might fit Molinari's description which comes from the "Report of the Blacksmiths":

1. Every time we eat, drink, heat our homes, and buy clothing, the policy of protectionism imposes on us a tax that never reaches the treasury.

2. It imposes a similar tax on all our fellow citizens who are not blacksmiths; and since they have that much less money, most of them use wooden pegs for nails and a piece of string for a latch, which deprives us of employment.

3. It keeps iron at such a high price that it is not used on farms for plows, gates, or balconies; and our craft, which could provide employment for so many people who need it, does not provide us even with enough for ourselves.

4. The revenue that the tax collector fails to realize from duties on foreign goods that are not imported into the country is added to the tax we pay on salt and postage.

[See, Frédéric Bastiat, Economic Sophisms, trans. Arthur Goddard, introduction by Henry Hazlitt (Irvington-on-Hudson: Foundation for Economic Education, 1996). Chapter: Second Series, Chapter 4: Subordinate Labor Council. </title/276/23382/1574085>.]

[233] See, Clément and Coquelin, “Balance du commerce,” DEP, vol. 1, pp. 101-06.

[234] For a brief summary of the economists’ position and the important part played by the Physiocrats and Adam Smith in refuting the theory, see Joseph Garnier, “Système mercantile,” DEP, vol. 2, pp. 691-92.

[235] Jean-Baptiste Colbert (1619-1683) was the Comptroller-General of Finance under King Louis XIV from 1665 to 1683. He epitomized the policy of state intervention in trade and industry known as “mercantilism” whereby the state subsidized or established domestic industry in order to replace foreign imports, imposed high tariffs in order to reduce foreign imported goods, spent taxpayers’ money on lavish public works, and expanded France’s empire overseas. [See, Baudrillart, “Colbert,” DEP, vol. 1, pp. 390-92.]

[236] see the previous Soirée for Molinari’s exposition of this “law.”

[237] Molinari has in mind the great fortunes made in the iron and coal industries and the large land owners. In his 2 volume History of Tariffs (1847) he deals with how protection benefitted th

Last modified April 10, 2014