In a sense, there are new fiscal "circumstances." But I can assure my
young friends that they are just the kind of circumstances which were
foreseen by their seniors in pre-war days as sure to arise when any
attempt was made to apply tariffist principles to British industry. As a
German professor of economics once remarked at a Free Trade Conference,
it is not industries that are protected by tariffs: it is firms. When a
multitude of firms in various industries subscribed to a large Tariff
Reform fund for election-campaign purposes, they commanded a large
Conservative vote; but when for platform tariff propaganda, dealing in
imaginative generalities and eclectic statistics, there are substituted
definite proposals to meddle with specified interests, the real troubles
of the tariffist begin. You might say that they began as soon as he met
the Free Trader in argument; but that difficulty did not arise with his
usual audiences. It is when he undertakes to protect hides and hits
leather, or to protect leather and hits boot-making, or to help shipping
and hits shipbuilding that he becomes acutely conscious of difficulties.
Now he is in the midst of them. The threat of setting up a general
tariff which will hit everybody alike seems so far to create no alarm,
because few traders now believe in it. Still, it would be very unwise to
infer that the project will not be proceeded with. It served as a party
war-cry in Opposition for ten years, and nearly every pre-war
Conservative statesman was committed to it--Earl Balfour and Lord
Lansdowne included. Even misgivings about Lancashire may fail to deter
the tariffist rump.
Some of the people who even yet understand nothing of Free Trade
economics are still found to argue that, if only the duty on imported
gloves is put high enough, sufficient gloves will be made at home to
absorb all the yarns now exported to German glove-makers. They are still
blind, that is to say, to the elementary fact that since Germany
manufactures for a much larger glove-market than the English, the
exclusion of the German gloves means the probable loss to the
yarn-makers of a much larger market than England can possibly offer,
even if we make all our own gloves. In a word, instead of having to
furnish new Free Trade arguments to meet a new situation, we find
ourselves called upon to propound once more the fundamental truths of
Free Trade, which are still so imperfectly assimilated by the nation.
So far as I can gather, the circumstances alleged to constitute a new
problem are these; the need to protect special industries for war
purposes; and the need to make temporary fiscal provision against
industrial fluctuation set up by variations in the international money
exchanges. Obviously, the first of these pleas has already gone by the
board, as regards any comprehensive fiscal action. One of the greatest
of all war industries is the production of food; and during the war some
supposed that after it was over, there could be secured a general
agreement to protect British agriculture to the point at which it could
be relied on to produce at least a war ration on which the nation could
subsist without imports. That dream has already been abandoned by
practical politicians, if any of them ever entertained it. The effective
protection of agriculture on that scale has been dismissed as
impossible; and we rely on foreign imports as before. Whatever may be
said as to the need of subsidising special industries for the production
of certain war material is nothing further to the fiscal purpose,
whether the alleged need be real or not. The production of war material
is a matter of military policy on all fours with the maintenance of
Government dockyards, and does not enter into the fiscal problem
properly so called. But to the special case of dyes, considered as a
"key" or "pivotal" industry, I will return later.
How then stands the argument from the fluctuations of the exchanges? If
that argument be valid further than to prove that _all_ monetary
fluctuations are apt to embarrass industry, why is it not founded on for
the protection of _all_ industries affected by German competition? The
Prime Minister in his highly characteristic speech to the Lancashire
deputation, admitted that the fall of the mark had not had "the effect
which we all anticipated"--that is, which he and his advisers
anticipated--and this in the very act of pretending that the _further_
fall of the mark is a reason for adhering to the course of taxing
fabric gloves. All this is the temporising of men who at last realise
that the case they have been putting forward will bear no further
scrutiny. The idea of systematically regulating an occasional tariff in
terms of the day-to-day fluctuations of the exchanges is wholly
chimerical. A tariff that is on even for one year and may be off the
next is itself as disturbing a factor in industry as any exchange
fluctuations can be.
Nor is there, in the nature of things, any possibility of continuous
advantage in trade to any country through the low valuation of its
currency. The Prime Minister confesses that Germany is _not_ obtaining
any export trade as the result of the fall. Then the whole argument has
been and is a false pretence. The plea that the German manufacturer is
advantaged because his wages bill does not rise as fast as the mark
falls in purchasing power is even in theory but a statement of one side
of a fluctuating case, seeing that when the mark rises in value his
wages bill will not fall as fast as the mark rises, and he is then, in
the terms of the case, at a competitive disadvantage.
But the worst absurdity of all in the tariffist reasoning on this topic
is the assumption that in no other respect than wage-rates is German
industry affected by the fall of the mark. The wiseacres who point
warningly to the exchanges as a reason for firm action on fabric gloves
never ask how a falling currency relates to the process of purchasing
raw materials from abroad. So plainly is the falling mark a bar to such
purchase that there is _prima facie_ no cause to doubt the German
official statement made in June, that foreign goods are actually
underbidding German goods in the German markets, and that the falling
exchange makes it harder and harder for Germany to compete abroad. We
are dealing with a four-square fallacy, the logical implication of which
is that a bankrupt country is the best advantaged for trade, that
Austria is even better placed for competition than Germany, and that
Russia is to-day the best placed of all.