_Good government chief._—The productive energy of any country is
encouraged chiefly by what we call good government. This means especially
security of property rights by prevention of frauds and robbery of every
kind, and free interchange of ideas, as well as of products of industry,
and general public intelligence. It is not enough that individuals
throughout a community be fairly intelligent, but they must have
sufficiently mutual ground of intelligence in common purposes and common
interests in everyday work to bring without effort a perfectly mutual
confidence. Where these essentials are absent no devices can operate
extensively for the encouragement of energy in production. Where they are
present it is always possible to add extra incentives, to give direction
at least to the energies of the people, and perhaps to increase those
energies. Some of these incentives are too important to be overlooked.
_Premiums._—The most simple means of encouraging enterprise is found in
premiums of various kinds offered by individuals, local societies or
municipal authority. These operate by adding to the natural advantage of
energetic labor some special reward in recognition of its accomplishment.
Illustrations are familiar in connection with so-called fairs of all kinds
where prizes are distributed for the largest product of a kind, the most
profitable crop, the best article for any purpose, the greatest variety of
crops or stock, or for any conceivable device which seems to add to the
producing power of the community. Governments often offer premiums for
plans of public buildings, and sometimes for offensive weapons. All of
these operate upon the one principle of arousing special energy by
superior advantage given to the successful competitor. Its advantages are
evident. Its disadvantages sometimes outweigh advantages. It encourages
somewhat the spirit of gambling, resulting in devices for winning the
prize through false representation. It exaggerates the importance of showy
qualities for the sake of notoriety, and it fosters those jealousies which
too constantly interfere with the welfare of communities.
Both advantages and disadvantages are well illustrated in agricultural
fairs. These have proved a most admirable stimulant to better agriculture,
where clear-headed, intelligent judges have judiciously distributed prizes
of such a nature as to have their chief use in establishing the quality of
the product shown without catering too distinctly for the enthusiasm of
the crowd or for individual profit. The chief end of all such incentives
is rightly found in the educational influence from comparison of products
and the establishment of standards which the whole mass of the people may
be led to accept.
_Bounties._—A less common but extensively used incentive is in bounties.
These are advantages of various kinds, frequently in money, given by local
or general authority for peculiar services or special enterprises. A
familiar illustration is seen in the bounty of late years offered by
different states for the production of sugar, especially sugar from beets
or from sorghum. The object is evidently to arouse the energies of a
community in a special direction, with the expectation that the
establishment of a new industry will, in the nature of exchange, promote
the welfare of all. Some countries have stimulated foreign exchange by a
bounty upon exports, such as Germany now pays upon the beet sugar exported
to other countries. Of the same nature are the gifts made by local
communities for the establishment of mills, factories, railroads,
irrigating ditches, all of which are supposed to bring profit to the
community in general in much larger proportion than the special
enterprises have received. The principle is the same when bounties are
offered for the destruction of wolves, foxes and other vermin, or when
standing rewards are given for the arrest of criminals.
There can be no question of the right of a community to offer this extra
stimulant to particular exertions, but the wisdom is doubtful. In the
first place, bounties are liable to withdraw capital and labor from more
certain methods of production to more uncertain methods. Indeed, the chief
object of the bounty is to entice into experiments those who would
otherwise hesitate. The advantage of the bounty is very liable to be
overestimated. People hasten in steps to secure bounty without careful
study of the business they undertake. This is especially true of bounties
for establishment of factories in new locations. They attract the least
experienced and most speculative men, without consideration of the far
more important elements of immediate market and convenient employment of
labor. Railroads are built for the bonds voted without care for future
profit. Enterprises of this kind, promoted by bounties, are especially
liable to failure. The history of development in the west gives
overwhelming evidence of their weakness. Even when the bounty is offered
for reduction of vermin, it is often misapplied. Numerous cases are on
record where the bounty became a stimulant to enterprise in raising the
very animals to be destroyed. Even rewards for the arrest of criminals
seem sometimes to create a body of men who thrive by fostering a criminal
class, with a hope of sometime getting a profit from arrests. As a means
of stimulating general industry they are too unstable to be satisfactory.
Most probably political parties are in constant contention over the
maintenance of the bounty. No more insidious enemy to the purity of
politics can be found than the selfish interest aroused by special
bounties.
_Monopoly privileges._—Government monopolies have been a favorite method
in past ages of fostering particular enterprises. These are in the nature
of an exclusive privilege, granted to individuals or corporations for the
manufacture or sale of particular commodities, and occasionally for
special public services. These were once a method of showing royal favor,
and the word monopoly has in its very nature the idea of inequality. Hence
they are unpopular under all circumstances, except when permanent and
universal advantage is secured.
_License._—The monopoly of service is secured by the issue of a license.
If granted through official favoritism, the wrong is easily appreciated;
if granted to all who conform to necessary requirements for the general
welfare, as in showing qualifications for teaching, compounding of drugs,
or practice of medicine, the license is recognized as useful. In fact, it
seems to furnish security for satisfactory governmental service, and is
the basis of all promised reform in civil administration.
_Patent and copyright._—The chief illustrations of a genuine monopoly
maintained by government authority are found in the patent upon inventions
and the copyright upon publications. A patent is conferred upon the
inventor of “any new and useful art, machine, manufacture or composition
of matter, or any improvement thereof,” upon proof that the invention is
original, not previously in use anywhere, and likely to be beneficial
rather than detrimental. This patent secures to the inventor the sole
right to make, use or exchange articles manufactured after the pattern
described, or upon the principle involved in construction. This monopoly
is limited usually to a term of years supposed to be sufficient to secure
to the inventor a reward for his exertion. The patent laws of the United
States protect the rights of an inventor for seventeen years, entitling
him to damages upon proof in the proper court of infringement upon his
patent. Such protection extends, of course, only throughout the territory
under the same government. It may be secured, however, in foreign nations
under special regulation, so as to cover the most of the civilized world.
The copyright serves the same purpose, and is limited in much the same
way, for securing to the products of thought or of taste a proper reward
for the powers exerted. It gives to an author control over publication of
his thoughts during a period of twenty-eight years, in order that the
users of his thoughts may actually pay what they are worth. This, too, is
confined to the limits of the government issuing it, unless by agreement
an international copyright is provided by the laws of the several
countries.
_Franchises._—A still more noticeable monopoly is granted by
municipalities under what is called a franchise for the establishment and
maintenance of water supply, public means of artificial lighting and
heating, or means of public transportation. These are under government
control usually in cities, because they employ the public streets for
carrying on the enterprise. The franchise is really an extension of the
license in particular directions. This is usually issued with the
expectation of great public benefit from a large investment of capital
which would not be made without relief from competition, because not
immediately profitable. The franchise usually carries with it certain
restrictions as to use of public highways and limitation to a term of
years. It necessarily involves the right of government inspection and
control for the general welfare.
_Difficulties from monopoly privileges._—All of these monopolies are
granted for the purpose of conferring upon the whole community benefits
that could not otherwise be secured. They are wise only so far as they
secure this result. If the patent right system wastes the energies of
inventors in contrivance of useless devices, there is loss; if it builds
up a class of mere speculators, there is waste; if it fosters monopoly
beyond the giving of a fair reward for invention, it is robbery. The exact
limit of time during which a patent is good stimulates to the utmost
exertion for wide introduction of its benefits, and at the same time
prevents the burden of lasting monopoly. The dangers are chiefly in the
administration of patent laws, from the careless issue of undeserved
patents, or in a combination under a series of patents to maintain a
constant monopoly. It is a safe rule to issue patents only for particular
applications of scientific principles and not for the discovery of the
principle, which can be protected in publication by copyright. Departures
from this rule cut off the possibility of more perfect contrivances and
fair competition in devices and methods. There can be no question of the
general advantage of protecting a genuine inventor from the trespass of
others to secure him a fair compensation. No other plan for a fair
exchange of such services has even been suggested. The unsettled question
is the proper limit of time for a patent to run.
The advantages and disadvantages of copyright are essentially the same in
character, though the dangers are less. Since the large part of the reward
of an author or an artist is in the repute he may secure, there is little
danger of fostering an unfair spirit of monopoly. The franchise is subject
to the same principles, but its dangers in practice are very great. So
long as the advantages to the corporation securing the franchise may be
enormous, if it is sufficiently extended, there is great temptation to
bribery, both in the original issue and in the maintenance of inspection
and municipal control. Nothing has so interfered with good government of
cities as the manipulation of franchises. These abuses underlie the
popular call for municipal ownership of water works, lighting plants and
street railways.
_Protective duties._—A still more widely extended method of stimulating
industry by special incentives is seen in what is called a protective
tariff. This is a system of duties upon articles produced in foreign
countries so levied as to check the natural competition by increasing
their cost to consumers. The increased cost of such articles, if not too
great to destroy the demand, increases the incentive to manufacture
similar articles within the country.
The schedule of tariffs becomes then a very important element in all
productive industry, and requires the nicest adjustment to the needs and
abilities of the nation. If associated, as is usually the case, with the
raising of government revenues, the adjustment becomes more difficult, and
requires the judgment of experts in commerce as well as in statistical
knowledge of industries and government necessities. While in any country
the existing tariff is presumed to have been established to meet public
need, the fact that there is necessarily a restriction upon freedom of
exchange makes it always open to question. The tariff laws, like all laws
restricting freedom of action, must always have evident reason for
existing. The burden of proof rests with the one who defends such laws.
This is especially true with reference to tariffs, because the trend of
civilization is certainly toward greater freedom of intercourse in all
directions. The barriers between nations are generally giving way before
the introduction of ready transportation and quick communication. The
statesman who maintains the necessity of restrictive tariff must always
stand ready to explain this obstacle to more complete association. For
this reason we have the constant agitation of tariff questions and the
impossibility of permanent settlement in any particular.
For the same reason there are always two phases of a tariff discussion.
The student of social science inquires chiefly as to the tendencies of
advancing society with reference to such restriction, and, seeing the
barriers becoming less and less, is likely to seek the final removal of
every such restriction. The statesman, busied with the immediate
conditions of the limited community whose interests he guards, is liable
to be for or against any particular restriction as it fosters or hinders
those interests. For this reason statesmen, of whatever party, are subject
to the bias of local interests, and have even been known to change their
views with a change of such interests. In our own country, when party
lines are drawn upon the tariff, it is quite possible that sectional lines
may also mark the party supremacy. In fact, it is possible for any man to
believe in freedom of trade as the ultimate condition to be sought, while
he favors in immediate practice restriction or even prohibition by a
definite tariff. The purpose in this chapter is to give a brief outline of
arguments for and against such tariff in general, leaving entirely to
practical statesmanship the decision of special questions.
_Reasons for protective tariff._—A system of restrictive tariffs is
thought to contribute to the welfare of an entire community by
artificially increasing the natural diversity of employments. If new
enterprises can be fostered, exchanges are greatly increased, all the
advantages of exchange are secured within the country, and the general
intelligence of the people is increased. With this comes the enormous
advantage of what is called a home market for the cruder products of
industry. This is especially to the interest of farmers raising bulky
products or those not likely to bear transportation. It is further thought
to foster a better agriculture by a more natural return to the soil of
elements removed in cropping, the nearer body of population making such
return possible. It is also thought to make at once available the natural
resources of a country in mines, quarries, water powers, etc., which might
otherwise long remain useless. It is contended for as a means of checking
unfair competition between a long established community with special
advantages for factory methods, either in large accumulations of capital
or low wages of laborers, and a newer country where capital is scarce and
wages are high. It is sometimes held to be a means of maintaining a high
standard of wages through the advantage actually conferred upon certain
lines of industry, upon a supposition that competition at home without
these favored industries would reduce the wages maintained in other
industries. If a tariff on wool calls into profitable use a large amount
of farm capital in sheep raising, every wheat raiser is at the same time
benefited by reduction of competition in the wheat market. If the capital
and labor employed are enticed from other countries, the effect is the
same by increasing the demand at home for the wheat. That this does not
operate so long as wheat raisers come to a market where a surplus must be
consumed in other countries does not destroy the argument, since the
tendency is to reduce the surplus. The system is also thought to
encourage, in lines of industry likely to prove productive, a rapid
development of labor-saving machinery and new methods of manufacture,
which may some time give to a nation superiority in the markets of the
world. To many there seems a much more important reason for restrictions,
in order to establish every needed form of production for the sake of
national independence. That nation which contains within its own borders
the means of supplying all the wants of its people is supposed to be more
capable of independent growth, and to be freed from hampering competitions
of trade, that may lead to wars and, perhaps, to extreme suffering in case
of foreign war.
For abundant examples in support of these various propositions, appeal is
made to the history of the world by comparing countries developed under a
restrictive tariff with less developed ones free from such restrictions.
The history of our own country, under the ups and downs of tariff
legislation, is also appealed to. Even the extra cost of certain articles
to the whole people, which is the sole basis of advantage to the fostered
interest, is thought to be more than compensated by the direct advantage
of increasing competition at home, where it will have the most wholesome
effect upon the market price. Proof of this, too, is sought in the rapid
development of iron and steel manufacture, where protective tariffs have
been most persistent.
_Reasons against protective tariff._—Against a system of protective
tariffs many strong arguments are not wanting. It is contended that a
tariff on iron goods, for instance, is just so much an added burden upon
all consumers of iron, and, since the bulk of consumption enters into the
cost of articles of universal use, the greater part of the burden is borne
by the poorer classes of people, who consume as much as the more wealthy.
If the restrictive tariff actually limits the introduction of foreign
goods, as must be the case if it acts as a stimulant in production, the
revenues received are far from being in due proportion with the cost to
the people, since essentially the same tariff is paid by the consumer
whether the article is imported or manufactured at home. Although it is
not true that in every instance the tariff is a tax, in so far as it
benefits the home manufacturer by advanced prices it must be. In so far as
it operates for protection of favored industries, it certainly fails to
serve the purposes of revenue. The diversity of employment evidently
fostered by tariff is said to be unnatural and likely to continue
expensive, and any advantages of market at home are sure to be
overestimated, especially with reference to staple products of the farm,
since the surplus necessarily forming a basis for prices must be sold in
foreign countries without the advantage of direct exchange for articles of
their own production. That is, if our tariff restrictions limit the market
of a foreign people, they also limit the ability of that people to
purchase the products which we are obliged to sell them. It is contended
further that a rapid development of varied industries, instead of
maintaining soil fertility, tends to more rapid exhaustion by making more
probable the consumption of cruder products of the farm in villages and
cities too remote for return of fertility, although within the same
country. The development of natural resources under stimulant of a tariff
is admitted by its opponents, but represented as a waste of effort, since
the tendency is to withdraw capital and labor from more productive
industries into less productive, and that, too, at the expense of the more
productive. If factories cannot give an equal profit with farming, it is
absurd to tempt capital away from the farms into factories. So, although
wealth may be accumulated in showy enterprises, the people, as a whole,
are less thrifty and bear unequal burdens. It is further contended that
the total labor of the community, when a part is used in unprofitable
development of resources, is made on the whole less productive, and
therefore the people are less able to buy their neighbors’ products, and
must live with diminished comforts. In that case all the haste in
developing natural resources is actual waste.
If, on the other hand, the restrictive tariff invites capital from abroad
for the sake of gaining the trade of a country, the diminished profit of
labor in some foreign country compels emigration, and such emigrants are
likely to follow the capital. Only the poorest of foreign laborers will be
compelled to help themselves by emigration, and only those will gain by
the change of location. Thus it is said a restrictive tariff encourages
the least desirable form of immigration. This is illustrated in the
development of the mining industry through the fostering effects of the
tariff.
There can be no question that any restriction upon trade may foster the
contrivance of combination to secure monopoly. Hence it is often claimed
that the existence of trusts is due in great measure to tariff
restrictions, preventing the competition natural in the commercial world.
It is certainly true that the restriction of a patent right may make
possible the abuses of a trust. If trusts were confined to protected
industries or to countries maintaining protective systems, the weight of
the argument would be stronger. It is certainly true, however, that the
wider the range of competition without restriction, the greater the
protection against combination for sake of monopoly. The monopoly in
kerosene oil would be a greater menace but for the possible check of
competition from abroad.
Such artificial restrictions, again, prevent the naturally rapid growth of
international commerce, which gives the surest foundation for more
permanent conditions of peace and greater extension of welfare over the
world. The tremendous interests of the commercial world are the strongest
safeguard against unnecessary warfare, and the best protection to any
nation is the fact that it makes itself needed by all the rest of the
world.
Thus inter-dependence of nations rather than independence is the essential
aim of those who seek the world’s welfare. An alliance of two peoples for
commercial purposes is the best guaranty of mutual support of national
institutions.
In proof of all these statements, the experience of the world in widely
varying regions is appealed to. The natural breaking down of prohibitory
tariffs has given opportunity for observation. Especially has the commerce
between states of the Union, where it is absolutely free, shown the
general advantage of such freedom in rapid development of wealth and
welfare. While these states have a common interest in government, they are
nevertheless widely distinguished in peculiarities of local government and
in characteristics of people. While, therefore, there is possible doubt as
to the wisdom of rapid removal of restrictions, there is every probability
that such restrictions will gradually be outgrown. Even the temptation to
make retaliatory duties, where other governments restrict against our
products, is growing less with increasing experience of the true advantage
in exchanges. The world is gradually coming to see that the better market
any region of country affords for the rest of the world, the better market
the rest of the world affords for it.
_Incidental tendencies from tariff._—The incidental effects of restrictive
tariffs, and especially of the necessary instability of restrictive
legislation, are too interesting to pass by, though very limited space can
be afforded them. In the first place they contribute to a speculative
enterprise which leads to waste of wealth in unpromising undertakings
because of a necessary over-estimate of the advantage given. On the other
hand, a reduction of the same tariff after a series of years is almost
sure to bring panic in that line of industry previously fostered. So the
fluctuations of tariff laws are one element in periodic expansion and
contraction of business. The tariff laws are certain, also, to involve the
worst element of influence through the lobby upon legislative bodies. Even
though the charge of bribery be utterly false, the general respect for
legislative bodies is lowered by charges and countercharges for political
effect. As an occasion for such charges scarce any other form of
legislation serves as well. Even the people themselves are easily assumed
by their neighbors to weigh their opinions upon a tariff measure by their
personal interests.
The indirect influence of a new tariff law upon the industries of a
country can scarcely be foreseen. So interlocked are all the varieties of
manufacture and trade that a change in price of any one article of
commerce may affect hundreds of others, sometimes much more than the
article restricted. It is easily seen that a duty upon iron of a
particular shape or quality may actually prohibit the use of that iron in
some product which already touches the margin of profit. These incidental
effects can scarcely be foreseen by even the wisest statesman. The
practical adjustment of conflicting interests in the framing of tariff
laws should be the work of experts. If all parties could unite in
establishing a bureau of commerce, domestic and foreign, as dignified as
the Supreme Court of the United States, and as independent of party
interference, such a body might frame a consistent tariff law, gradually
perfecting it in adjustment to all interests and explaining its bearings
to all parties. Such a body could take account of the great interests of
agriculture in the commerce of the world, and weigh properly the indirect
influence of restrictions. The marked influence of fluctuating tariff upon
sheep raising, so familiar to all farmers, might then be fairly
appreciated. Under present methods it is very certain that any tariff law
is largely a compromise, with limited judgment, between agitating
conflicts of interested promoters. The farmers, of all people, can afford
to be conservative of all interests, and should favor such methods as will
work toward enlargement of commerce without destruction of industries. If
possible, they will wisely seek the removal of tariff questions from
practical politics.
In concluding this subject, it is wise to suggest that the true principle
of regulations for national industry are the same as those for true family
economy. The family should so plan its work and ways as to make the best
possible use of the powers of every member. It is no economy to buy cheap
things unless the members of the family can be better occupied than in
making them. It is poor economy to make those things which cost more time
and effort than would be used in making something else for exchange. Home
production is best when this makes the home labor more effectual, but
worst when it interferes with the profit of labor. The farmer who stops
harvesting to mend his harness when he might employ the harness-maker is
wasteful; but if he mends it on a rainy day he saves time which would
otherwise be less profitably used. So the nation whose capital and labor
are not well employed may do wisely in developing new industries, even at
a considerable expense for introducing the new industries. But if all the
nation’s energies are profitably employed, the costly development of
resources may wisely wait for future capital and labor. So all special
incentives require a constant inquiry as to beneficial results supposed to
follow, and the policy of the government must conform to the needs of
general welfare. Even vested rights are subject to the law of welfare
involved in the original act establishing special privileges. Public use,
not private interest, is the true reason for the existence of any such
privileges or protection.