SUNDRY FALLACIES OF PROTECTIONISM
108. I can now dispose rapidly of a series of current fallacies
put forward by the protectionists. They generally are fanciful or
far-fetched attempts to show some equivalent which the taxpayer gets
for his taxes.
(_A_) THAT INFANT INDUSTRIES CAN BE NOURISHED UP TO INDEPENDENCE AND
THAT THEY THEN BECOME PRODUCTIVE.
109. I know of no case where this hope has been realized, although
we have been trying the experiment for nearly a century. The weakest
infants to-day are those whom Alexander Hamilton set out to protect in
1791. As soon as the infants begin to get any strength (if they ever do
get any) the protective system forces them to bear the burden of other
infants, and so on forever. The system superinduces hydrocephalus on
the infants, and instead of ever growing to maturity, the longer they
live, the bigger babies they are. It is the system which makes them so,
and on its own plan it can never rationally be expected to have any
other effect. (See further, under the next fallacy, §§ 111 ff.)
110. Mill[20] makes a statement of a case, as within the bounds of
conceivability, where there might be an advantage for a young country
to protect an infant industry. He is often quoted without regard to
the limitation of his statement, as if he had affirmed the general
expediency of protection in new countries and for infant industries.
It amounts to a misquotation to quote him without regard to the
limitations which he specified. The statement which he did make is
mathematically demonstrable.[21] The doctrine so developed is very
familiar in private enterprise. A business enterprise may be started
which for some years will return no profits or will occasion losses,
but which is expected later to recoup all these. _What are the limits
within which such an enterprise can succeed?_ It must either call for
sinking capital only for a short period (like building a railroad or
planting an orange grove), or it must promise enormous gains after it
is started (like a patented novelty). The higher the rate of interest,
as in any new country, the more stringent and narrow these conditions
are. Mill said that it was conceivable that a case of an industry might
occur in which this same calculation might be applied to a protective
tax. If, then, anybody says that he can offer an industry which meets
the conditions, let it be examined to see if it does so. If protection
is never applied until such a case is offered, it will never be applied
at all. A thing which is mathematically conceivable is one which is
not absurd; but a thing which is practically possible is quite another
thing. For myself, I strenuously dissent from Mill’s doctrine even as
he limits it. In the first place the state cannot by taxes work out
an industrial enterprise of a character such that it, as any one can
see, _demands the most intense and careful oversight by persons whose
capital is at stake in it_, and, in the second place, the state would
bear the loss, while it lasted, but private interests would take the
gain after it began.
(_B_) THAT PROTECTIVE TAXES DO NOT RAISE PRICES BUT LOWER PRICES.
111. To this it is obvious to reply: what good can they then do
toward the end proposed? Still it is true that, under circumstances,
protective taxes do lower prices. The protectionist takes an infant
industry in hand and proposes to rear it by putting on taxes to ward
off competition, and by giving it more profits than the world’s market
price would give. This raises the price. But the consumer then raises
a complaint. The protectionist turns to him and promises that by and
by there will be “overproduction,” and prices will fall. This arrives
in due time, for every protected industry is organized as a more or
less limited monopoly, and a monopoly which has overproduced its
market, _at the price which it wants_, is the weakest industry possible
(§ 24). The consumer now wins, but a wail from the cradle calls the
protectionist back to the infant industry, which is in convulsions from
“overproduction.” Some of the infants die. This gives a new chance to
the others. They combine for more effective monopoly, put the prices
up again by limiting production, and go on until “overproduction”
produces a new collapse. This is another reason why infants never win
vitality. The net result is that the market is in constant alternations
of stringency and laxity, and nothing at all is gained.
112. Whenever we talk of prices _it should be noticed that our
statements involve money_--the rate at which goods exchange for money.
If then we want to raise prices, we must _restrict the supply_ of
goods, so that on the doctrine of money also we shall come to the same
result as before, that protective taxes lessen production and diminish
wealth.
113. The problem of managing any monopoly is to dose the market with
just the quantity which it will take at the price which the monopolist
wants to get. In a qualified monopoly, that is, one which is shared
by a number of persons, the difficulty is to get agreement about the
management. They may not have any communication with each other and may
compete. If so they will overdose the market and the price will fall.
Then they meet, to establish communication; form an “association,” to
get harmonious action, and agree to divide the production among them
and limit and regulate it, to prevent the former mistake and restore
prices (§ 24).
(_C_) THAT WE SHOULD BE A PURELY AGRICULTURAL NATION UNDER FREE TRADE.
114. A purely agricultural nation covering a territory as large as that
of the United States is inconceivable. The distribution of industries
now _inside_ the United States is a complete proof that no such thing
would come to pass, for we have absolute free trade inside, and
manufactures are growing up in the agricultural states just as fast
as circumstances favor, and just as fast as they can be profitably
carried on. Under free trade there would be a subdivision of cotton,
woolen, iron and other industries, and we should both export and
import different varieties and qualities of these goods. The southern
states are now manufacturing coarse cottons in competition with New
England. The western states manufacture coarse woolens, certain grades
of leather and iron goods, etc., in competition with the East. Here
we see the exact kind of differentiation which would take place under
free trade, and we can see the mischief of the tariff, whether on the
one hand it strikes a whole category with the same brutal ignorance,
or tries, by cunning sub-classification, to head off every effort to
save itself which the trade makes.[22] If, however, it was conceivable
that we should become a purely agricultural nation, the only legitimate
inference would be that our whole population could be better supported
in that way than in any other. If there was a greater profit in
something else some of them would go into it.
(_D_) THAT COMMUNITIES WHICH MANUFACTURE ARE MORE PROSPEROUS THAN THOSE
WHICH ARE AGRICULTURAL.
115. This is as true as if it should be said that all tall men are
healthy. It would be answered that some are and some are not; that
tallness and health have no connection. Some manufacturing communities
are prosperous and some not. The self-contradiction of protectionism
appears in one of its boldest forms in this fallacy. We are told that
manufactures are a special blessing. The protectionist says that he
is going to give us some. Instead of that he makes new demands on us,
lays a new burden on us, gives us nothing but more taxes. He promises
us an income and increases our expenditure; promises an asset and gives
a liability; promises a gift and creates a debt; promises a blessing
and gives a burden. The very thing which he boasts of as a great
and beneficial advantage gives us nothing, but takes from us more.
Prosperity is no more connected with one form of industry than another.
If it were so, some of mankind would have, by nature, a permanently
better chance than others, and no one could emigrate to a new, that is
agricultural country, without injuring his interests. The world is not
made so.
(_E_) THAT IT IS AN OBJECT TO DIVERSIFY INDUSTRY, AND THAT NATIONS
WHICH HAVE VARIOUS INDUSTRIES ARE STRONGER THAN OTHERS WHICH HAVE NOT
VARIOUS INDUSTRIES.
116. It is not an object to diversify industry, but to multiply and
diversify our satisfactions, comforts, and enjoyments. If we can do
this by unifying our industry, in greater measure than by diversifying
it, then we should do, and we will do, the former. It is not a question
to be decided _a priori_, but depends upon economic circumstances. If
a country has a supremacy in some one industry it will have only one.
California and Australia had only one industry until the gold mines
declined in productiveness, that is, until their supreme advantage
over other countries was diminished: they began to diversify when
they began to be less well off. The oil region of Pennsylvania has a
chance of three industries, the old farming industry, coal, and oil. It
will have only one industry so long as oil gives chances superior to
those enjoyed by any other similar district. When it loses its unique
advantage by nature it will diversify. The “strongest” nation is the
one which brings products into the world’s market which are of high
demand, but which cost it little toil and sacrifice to get; for it will
then have command of all the good things which men can get on earth at
little effort to itself. Whether the products which it offers are one
or numerous is immaterial. All the tariff has to do with it is that
when the American comes into the world’s market with wheat, cotton,
tobacco, and petroleum, all objects of high demand by mankind and
little cost to him, it forces him to forego a part of his due advantage
(§§ 125, 134).
(_F_) THAT MANUFACTURES GIVE VALUE TO LAND.
117. This doctrine issued from the Agricultural Bureau. It has been
thought a grand development of the protectionist argument. It is a
simple logical fallacy based on some misconstrued statistics. The
value of land depends on supply and demand. The demand for land is
population. Hence where the population is dense the value of land is
great. Manufactures can be carried on only where there is a supply of
labor, that is, where the population is dense. Hence high value of land
and manufacturing industry are common results of dense population. The
statistician of the Agricultural Bureau connected them with each other
as cause and effect, and the New York _Tribune_ said that it was the
grandest contribution to political economy since “the fingers of Horace
Greeley stiffened in death”; which was true.
118. If manufactures spring up spontaneously out of original
strength, and by independent development, of course they “add value
to land,” that is to say, the district has new industrial power and
every interest in it is benefited; but if the manufactures have to
be protected, paid for, and supported, they do not do any good as
manufactures but only as a device for drawing capital from elsewhere,
as tribute. In this way, protective taxes do alter the comparative
value of land in different districts. This effect can be seen under
some astonishing phases in Connecticut and other manufacturing
states. The farmers are taxed to hire some people to go and live
in manufacturing villages and carry on manufacturing there. This
displacement of population, brought about at the expense of the rural
population, diminishes the value of agricultural land and raises that
of city land right here within the same state. The hillside population
is being impoverished, and the hillside farms are being abandoned on
account of the tribute levied on them to swell the value of mill sites
and adjoining land in the manufacturing towns (§§ 120, 137).
(_G_) THAT THE FARMER, IF HE PAYS TAXES TO BRING INTO EXISTENCE A
FACTORY, WHICH WOULD NOT OTHERWISE EXIST, WILL WIN MORE THAN THE TAXES
BY SELLING FARM PRODUCE TO THE ARTISANS.
119. This is an arithmetical fallacy. It proposes to get three pints
out of a quart. The farmer is out for the tax and the farm produce and
he can not get back more than the tax because, if the factory owes its
existence to the protective taxes, it cannot make any profit outside of
the taxes. The proposition to the farmer is that he shall pay taxes to
another man who will bring part of the tax back to buy produce with it.
This is to make the farmer rich. The man who owned stock in a railroad
and who rode on it, paying his fare, in the hope of swelling his own
dividends, was wise compared with a farmer who believes that protection
can be a source of gain to him.
120. Since, as I have shown (§ 101), protective taxes act like a
reduction in the fertility of the soil, they lower the “margin of
cultivation,” and raise rent. They do not, however, raise it in
favor of the agricultural land owner, for, by the displacement just
described, they take away from him to give to the town land owner. Of
course, I do not believe that the protective taxes have really lowered
the margin of cultivation in this country, for they have not been able
to offset the greater richness of the newest land, and the advance in
the arts. What protection costs us comes out of the exuberant bounty of
nature to us. Still I know of very few who could not stand it to be a
great deal better off than they are, and the New England farmer is the
one who has the least chance, and the fewest advantages, with which to
endure protection.
(_H_) THAT FARMERS GAIN BY PROTECTION, BECAUSE IT DRAWS SO MANY
LABORERS OUT OF COMPETITION WITH THEM.
121. Since the farmers pay the taxes by which this operation is
supposed to be produced, a simple question is raised, _viz._, how
much can one afford to pay to buy off competition in his business? He
cannot afford to pay anything unless he has a monopoly which he wants
to consolidate. Our farmers are completely open to competition on every
side. The immigration of farmers every three or four years exceeds all
the workers in all the protected trades. Hence the farmers, if they
take the view which is recommended to them, instead of gaining any
ground, are face to face with a task which gets bigger and bigger the
longer they work at it. If one man should support another in order to
get rid of the latter’s competition as a producer, that would be the
case where the taxpayer supports soldiers, idle pensioners, paupers,
etc. A protected manufacturer, however, by the hypothesis, is not
simply supported in idleness, but he is carrying on a business the
losses of which must be paid by those who buy off his competition in
their own production. On the other hand, when farmers come to market,
they are in free competition with several other sources of supply.
Hence, if they did any good to agricultural industry by hiring the
artisans to go out of competition with them, they would have to share
the gain with all their competitors the world over while paying all the
expense of it themselves.
122. The movement of men over the earth and the movement of goods
over the earth are complementary operations. Passports to stop the
men and taxes to stop the goods would be equally legitimate. Since it
is, once for all, a fact that some parts of the earth have advantages
for one thing and other parts for other things, men avail themselves
of the local advantages either by moving themselves to the places, or
by trading what they produce where they are for what others produce
in the other places. The passenger trains and the freight trains are
set in motion by the same ultimate economic fact. Our exports are
all bulky and require more tonnage than our imports. On the westward
trip, consequently, bunks are erected and men are brought in space
where cotton, wheat, etc., were taken out. The tariff, by so much as
it lessens the import of goods, leaves room which the ship owners
are eager to fill with immigrants. To do this they lower the rates.
Hence the tariff is a premium on immigration. The protectionists have
claimed that the tariff does favor immigration. But nine-tenths of the
immigrants are laborers, domestic servants, and farmers.[23] Probably
more than one-third of the total number, including women, find their
way to the land. As we have seen, the tariff also lowers the profits
of agriculture, which discourages immigration and the movement to the
land. Therefore, if the farmer believes what the protectionist tells
him, he must understand that the taxes he pays bring in more people,
and raise the value of land by settling it, and that they also bring
more competition, which the farmer must buy off by lowering the profits
of his own (the farming) industry. Then, too, so far as the immigrants
are artisans, the premium on immigration is a tax paid to increase the
supply of labor, that is, to lower wages, although the protectionists
say that the tariff raises wages. Hence we see that when a tax is laid,
in our modern complicated society, instead of being a simple and easy
means or method to be employed for a specific purpose, its action and
reaction on transportation, land, wages, etc., will produce erratic,
contradictory, and confused effects, which cannot be predicted or
analyzed thoroughly, and the protectionist, when he pleads three or
four arguments for his system, is alleging three or four features of
it which, if properly analyzed and brought together, are found to be
mutually destructive, and cumulative only as to the mischief they do
(see §§ 29, 101).
(_I_) THAT OUR INDUSTRIES WOULD PERISH WITHOUT PROTECTION.
123. Those who say this think only of manufacturing establishments as
“industries.” They also talk of “our” industries. They mean those we
support by the taxes we pay; not those from which we get dividends. No
industry will ever be given up except in order to take up a better one,
and if, under free trade, any of our industries should perish, it would
only be because the removal of restrictions enabled some other industry
to offer so much better rewards that labor and capital would seek the
latter. It is plain that, if a man does not know of any better way to
earn his living than the one in which he is, he must remain in that, or
move to some other place. If any one can suppose that the population
of the United States could be forced, by free trade, to move away, he
must suppose that this country cannot support its population, and that
we made a mistake in coming here. This argument is especially full of
force if the articles to be produced are coal, iron, wool, copper,
timber, or any other primary products of the soil. For, if it is said
that we cannot raise these products of the soil in competition with
some other part of the earth’s surface, all it proves is that we have
come to the wrong spot to seek them. If, however, the soil can support
the population under an arrangement by which certain industries support
themselves, and those which do not pay besides, then it is plain that
the former are really supporting the whole population--part directly
and part indirectly, through a circuitous and wasteful organization.
Hence the same strong and independent industries could certainly still
better support the whole population, if they supported it directly.
124. I have been asked whether we should have had any steel works in
this country, if we had had no protection. I reply that I do not know;
neither does anybody else, but it is certain that we should have had a
great deal more steel, if we had had no protection.
125. “But,” it is said, “we should import everything.” Should we import
everything and give nothing? If so, foreigners would make us presents
and support us. Should we give equal value in exchange? If so, there
would be just as much “industry” and a great deal less “work” in that
way of getting things than in making them ourselves. The moment that
ceased to be true we should make and not buy. Suppose that a district,
A, has two million inhabitants, one million of whom produce a million
bushels of wheat, and one million produce a million hundredweight of
iron; and suppose that a bushel of wheat exchanges for a hundredweight
of iron. Now, by improved transportation and emigration, suppose that
a new wheat country, B, is opened, and that its people bring wheat to
the first district, offering two bushels for a hundredweight of iron.
Plainly they must offer more than one bushel for one hundredweight,
or it is useless for them to come. Now the people of A, by putting
all their labor and capital in iron production, produce two million
hundredweight. They keep one million hundredweight, and exchange one
million hundredweight of iron for two million bushels of wheat. The
destruction of their wheat industry is a sign of a change in industry
(unifying and not diversifying) by which they have gained a million
bushels of wheat. Such is the gain of all trade. If the gain did not
exist, trade would not be a feature of civilization.
(_J_) THAT IT WOULD BE WISE TO CALL INTO EXISTENCE VARIOUS INDUSTRIES,
EVEN AT AN EXPENSE, IF WE COULD THUS OFFER EMPLOYMENT TO ALL KINDS OF
ARTISANS, ETC., WHO MIGHT COME TO US.
126. This would be only maintaining public workshops at the expense
of the taxpayers, and would be open to all the objections which are
conclusive against public workshops. The expense would be prodigious,
and the return little or nothing. This argument shows less sense of
comparative cost and gain than any other which is ever proposed.
(_K_) THAT WE WANT TO BE COMPLETE IN OURSELVES AND SUFFICIENT TO
OURSELVES, AND INDEPENDENT, AS A NATION, WHICH STATE OF THINGS WILL BE
PRODUCED BY PROTECTION.
127. I will only refer to what I have already said about China and
Japan (§ 69) as types of what this plan produces. If a number of
families from among us should be shipwrecked on an island, their
greatest woe would be that they could not trade with the rest of the
world. They might live there “self-contained” and “independent,”
fulfilling the ideal of happiness which this proposition offers, but
they would look about them to see a surfeit of things which, as they
know, their friends at home would like to have, and they would think
of all the old comforts which they used to have, and which they could
not produce on their island. They might be contented to live on there
and make it their home, if they could exchange the former things for
the latter. If now a ship should chance that way and discover them and
should open communication and trade between them and their old home, a
protectionist philosopher would say to them: “You are making a great
mistake. You ought to make everything for yourselves. The wise thing to
do would be to isolate yourselves again by taxes as soon as possible.”
We sent some sages to the Japanese to induct them into the ways of
civilization, who, as a matter of fact, did tell them that the first
step in civilization was to adopt a protective tariff and shut up again
by taxes the very ports which they had just opened.
(_L_) THAT PROTECTIVE TAXES ARE NECESSARY TO PREVENT A FOREIGN MONOPOLY
FROM GETTING CONTROL OF OUR MARKET.
128. It is said that English manufacturers once combined to lower
prices in order to kill out American manufactures, and that they then
put up their prices to monopoly rates. If they did this, why did not
their other customers send to the United States and buy the goods here
in the first instance, and why did not the Americans go and buy the
goods of the Englishmen’s other customers in the second instance? If
the Englishmen put down their prices for their whole market in the
first instance, why did they not incur a great loss? and, if they
raised it for their whole market in the second instance, why did they
not yield the entire market to their competitors? The Englishmen are
said to be wonderfully shrewd, and are here credited with the most
stupid and incredible folly.
129. The protective system puts us certainly in the hands of a home
monopoly for fear of the impossible chance that we may fall into the
hands of a foreign monopoly. Before the war we made no first quality
thread. We got it at four cents a spool (retail) of an English
monopoly. Under the tariff we were saved from this by being put into
the hands of a home monopoly which charged five cents a spool. In the
meantime the foreign monopoly lowered thread to three cents a spool
(retail) for the Canadians, who were at its mercy. Lest we should have
to buy nickel of a foreign monopolist, Congress forced us to buy it of
the owner of the only mine in the United States, and added thirty cents
a pound to any price the foreigner might ask.
(_M_) THAT FREE TRADE IS GOOD IN THEORY BUT IMPOSSIBLE IN PRACTICE;
THAT IT WOULD BE A GOOD THING IF ALL NATIONS WOULD HAVE IT.
130. That a thing can be true in theory and false in practice is
the most utter absurdity that human language can express. For, if a
thing is true in practice (protectionism, for instance) the theory
of its truth can be found, and that theory will be true. But it was
admitted that free trade is true in theory. Hence two things which
are contradictory would both be true at the same time about the same
thing. The fact is, that _protectionism is totally impracticable_. It
does not work as it is expected to work; it does not produce any of the
results which were promised from it; it is never properly and finally
established to the satisfaction of its own votaries. They cannot let
it alone. They always want to “correct inequalities,” or revise it one
way or another. It was they who got up the Tariff Commission of 1882.
Their system is not capable of construction so as to furnish a normal
and regular status for industry. One of them said that the tariff would
be all right if it could only be made stable; another said that it
ought to be revised every two years. One said that it ought to include
everything; another said that it would be good “if it was only laid on
the right things.”
131. If all nations had free trade, no one of them would have any
special gain from it, just as, if all men were honest, honesty would
have no commercial value. Some say that a man cannot afford to be
honest unless everybody is honest. The truth is that, if there was one
honest man among a lot of cheats, his character and reputation would
reach their maximum value. So the nation which has free trade when the
others do not have it gains the most by comparison with them. It gains
while they impoverish themselves. If all had free trade all would be
better off, but then no one would profit from it more than others. If
this were not true, if the man who first sees the truth and first acts
wisely did not get a special premium for it, the whole moral order of
the universe would have to be altered, for no reform or improvement
could be tried until unanimous consent was obtained. If a man or a
nation does right, the rewards of doing right are obtained. They are
not as great as could be obtained if all did right, but they are
greater than those enjoy who still do wrong.
(_N_) THAT TRADE IS WAR, SO THAT FREE TRADE METHODS ARE UNFIT FOR IT,
AND THAT PROTECTIVE TAXES ARE SUITED TO IT.
132. It is evidently meant by this that trade involves a struggle
or contest of competition. It might, however, as well be said that
practicing law is war, because it is contentious; or that practicing
medicine is war, because doctors are jealous rivals of each other. The
protectionists do, however, always seem to think of trade as commercial
war. One of them was reported to have said in a speech, in the late
campaign, that nations would not fight any more with guns but with
taxes. The nations are to boycott each other. One would think that
the experience our Southerners made of that notion in the Civil War,
upon which they entered in the faith that “cotton is king,” would
have sufficed to banish forever that antique piece of imbecility, a
commercial war. If trade is war, all the tariff can do about it is
to make A fight B’s battles, although A has his own battles to fight
besides.
(_O_) THAT PROTECTION BRINGS INTO EMPLOYMENT LABOR AND CAPITAL WHICH
WOULD OTHERWISE BE IDLE.
133. If there is any labor or capital which is idle, that fact is a
symptom of industrial disease; especially is this true in the United
States. If a laborer is idle he is in danger of starving to death. If
capital is idle it is producing nothing to its owner, who depends on
it, and is suffering loss. Therefore, if labor or capital is idle,
some antecedent error or folly must have produced a stoppage in the
industrial organization. The cure is, not to lay some more taxes,
but to find the error and correct it. If then things are in their
normal and healthy condition, the labor and capital of the country are
employed as far as possible under the existing organization. We are
constantly trying to improve our exchange and credit systems so as
to keep all our capital all the time employed. Such improvements are
important and valuable, but to make them cost more thought and skillful
labor than to invent machines. Hence Congress cannot do that work by
discharging a volley of taxes at selected articles, and leaving those
taxes to find out the proper points to affect, and to exert the proper
influence. It takes intelligent and hard-working men to do it. The
faith that anything else can do it is superstition.
(_P_) THAT A YOUNG NATION NEEDS PROTECTION AND WILL SUFFER SOME
DISADVANTAGE IN FREE EXCHANGE WITH AN OLD ONE.
134. The younger a nation is the more important trade is to it (cf. §§
127 ff.). The younger a nation is the more it wins by trade, for it
offers food and raw materials which are objects of greatest necessity
to old nations. The things England buys of us are far more essential
to her than what she buys of France or Germany. The strong party in an
exchange is not the rich party, or the old party, but the one who is
favored by supply and demand--the one who brings to the exchange the
thing which is more rare and more eagerly wanted.[24] If a poor woman
went into Stewart’s store to buy a yard of calico, she did not have to
pay more because Stewart was rich. She paid less because he used his
capital to serve her better and at less price than anybody else could.
England takes 60 per cent of all our exports. We sell, first, wheat and
provisions, prime articles of food; second, cotton, the most important
raw material now used by mankind; third, tobacco, the most universal
luxury and the one for which there is the intensest demand; fourth,
petroleum, the lighting material in most universal use. These are
things which are rare and of high demand. We are, therefore, strong in
the market. Protection only robs us of part of our advantage (§ 116).
(_Q_) THAT WE NEED PROTECTION TO GET READY FOR WAR.
135. We have no army, or navy, or fortifications worth mentioning. We
are wasting more by protective taxes in a year than would be necessary
to build a first-class navy and fortify our whole seacoast. It is said
that, in some way, the taxes get us ready for war, and yet in fact
we are not ready for war. It is plain that this argument is only a
pretense put forward to try to cover the real motives of protection. If
we prefer to go without army, navy, and fortifications, as we now do,
then the best way to get ready for war, consistently with that policy,
is _to get as rich as we can_. Then we can count on buying anything in
the world which anybody else has got and which we need. Protection,
then, which lessens our wealth, is only diminishing our power for war.
(_R_) THAT PROTECTIONISM PRODUCES SOME GREAT MORAL ADVANTAGES.
136. It is a very suspicious thing when a man who sets out to discuss
an economic question shifts over on the “moral” ground. Not because
economics and morals have nothing to do with each other. On the
contrary, they meet at a common boundary line, and, when both are
sound, straight and consistent lines run from one into the other.
Capital is the first requisite of all human effort for goods of any
kind, and the increase of capital is therefore the expansion of
_chances_ that intellectual, moral, and spiritual good may be won. The
moral question is: How will the chances be used? If, then, the economic
analysis shows that protective taxes lessen capital, it follows that
those taxes lessen the regular chances for all higher good.
137. It is argued that hardship disciplines a man and is good for him;
hence, that the free traders, who want people to do what is easiest,
would corrupt them, and that protectionists, by “making work,” bring in
salutary discipline for the people. This is the effect upon those who
pay the taxes. The counter-operation on the beneficiaries of the system
I have never seen developed. Bastiat said that the model at which the
protectionist was aiming was Sisyphus, who was condemned in Hades to
roll a stone to the top of a hill, from which, as soon as he got it
there, it rolled down again to the bottom. Then he rolled it up again,
and so on to all eternity. Here then was infinity of effort, zero of
result; the ultimate type to which the protectionist system would come.
Somebody pitied Sisyphus, to whom he replied: “Thou fool! I enjoy
everlasting hope!” If Sisyphus could extract moral consolation from his
case, I am not prepared to deny but that a New England farmer, ground
between the upper millstone of free competition, in his production,
with the Mississippi Valley, and the nether millstone of protective
taxes on all his consumption, may derive some moral consolation from
his case. There are a great many people who are apparently ready
to inflict salutary chastisement on the American citizen for his
welfare--and their own advantage.
138. The protectionist doctrine is that _if my earnings are taken from
me and given to my neighbor, and he spends them on himself, there will
be important moral gains to the community which will be lost if I keep
my own earnings, and spend them on myself_. The facts of experience are
all to the contrary. When a man keeps his own earnings he is frugal,
temperate, prudent, and honest. When he gets and lives on another man’s
earnings, he is extravagant, wasteful, luxurious, idle, and covetous.
The effects on the community in either case correspond.
139. The truth is that protectionism demoralizes and miseducates a
people (§§ 89, 153, 155). It deprives them of individual self-reliance
and energy, and teaches them to seek crafty and unjust advantages. It
breaks down the skill of great merchants and captains of industry,
and develops the skill of lobbyists. It gives faith in monopoly,
combinations, jobbery, and restriction, instead of giving faith in
energy, free enterprise, public purity, and freedom. Illustrations of
this occur all the time. Objection has been made to the introduction
of machines to stop the smoke nuisance because they would interfere in
the competition of anthracite and bituminous coal. People have resisted
the execution of ordinances against gambling houses because said houses
“make trade” for their neighbors. The theater men recently made an
attempt to get regulations adopted against skating rinks--purely on
moral grounds. The industries of the country all run to the form of
combinations.[25] Our wisdom is developed, not in the great art of
production, but in the tactics of managing a combination, and while we
sustain all the causes and all the great principles of this system of
business we denounce “monopoly” and “corporations.”
(_S_) THAT A “WORKER MAY GAIN MORE BY HAVING HIS INDUSTRY PROTECTED
THAN HE WILL LOSE BY HAVING TO PAY DEARLY FOR WHAT HE CONSUMES.
A SYSTEM WHICH RAISES PRICES ALL ROUND--LIKE THAT IN THE UNITED
STATES AT PRESENT--IS OPPRESSIVE TO CONSUMERS, BUT IS MOST
DISADVANTAGEOUS TO THOSE WHO CONSUME WITHOUT PRODUCING ANYTHING,
AND DOES LITTLE, IF ANY, INJURY TO THOSE WHO PRODUCE MORE THAN THEY
CONSUME.”
140. This is an English contribution to the subject dropped in passing
by a writer on economic history.[26] It is a noteworthy fact that the
“historical economists” and others who deride political economy as a
science do not desist from it, but at once set to work to make very
bad political economy of the “abstract” or “deductive” sort. The
passage quoted involves three or four fallacies already noticed, and an
assumption of the truth of protectionism as a philosophy. As we have
abundantly established, “workers” gain nothing by protection in their
production (§ 48). Also, “a system which raises prices all around” must
either lessen the demand and requirement for money, _i.e._, restrict
business and the supply of goods (§ 112), or it must increase the
amount of money. In the former case it could not but injure “workers”;
in the latter case we should find ourselves dealing with a greenback
fallacy. But passing by that, who are they who consume more than they
produce? I can think only of (1) princes, pensioners, sinecurists,
protected persons, and paupers, who draw support from taxes, and (2)
swindlers, confidence men, and others who live by their wits on the
produce of others. Those under (1), if they receive fixed money grants
or subsidies, find an advance in price most disadvantageous. So the
protected, of course, as consumers of others’ products, when they
spend what they have received by protection, suffer. Who are they who
produce more than they consume? I can think only of (1) taxpayers,
and (2) victims of fraud and of those economic errors which give one
man’s earnings to another’s use. Rise in price is just as advantageous
to this class as it was disadvantageous to the other, on the same
hypothesis, _viz_., if they pay fixed money taxes to the parasites, and
can sell their products for more money. Evidently the writer did not
understand correctly what his two classes consisted of, and he put the
protected “workers” in the wrong one. If in industry a person should
produce more than he consumes, he could give it away, or it would decay
on his hands. If he should consume more than he produced, he would run
in debt and become bankrupt.[27] Protection has nothing to do with
that.
(_T_) THAT “A DUTY MAY AT ONCE PROTECT THE NATIVE MANUFACTURER
ADEQUATELY, AND RECOUP THE COUNTRY FOR THE EXPENSE OF PROTECTING
HIM.”
141. This is Professor Sidgwick’s doctrine.[28] It has given great
comfort to our protectionists because it is put forward by an
Englishman and a Cambridge professor. It is offered under the “art”
of political economy. It is a new thing; an _a priori_ art. The “may”
in it deprives it of the character of a doctrine or dogma such as our
less cultivated protectionists give us--“Protective taxes come out of
the foreigner”--but it is not a maxim of art. It has the air of a very
astute contrivance (see § 3), and is therefore very captivating to many
people, and it is very difficult to dissect and to expose in a simple
and popular way. It has therefore given great trouble and done great
mischief. It is, however, a complete error. It is not possible in any
way or in any degree to use duties so as to make the foreigner pay for
protection.
142. Professor Sidgwick states the hypothetical instance which he
sets up to prove by illustration that there “may” be such a case, as
follows: “Suppose that a five per cent duty is imposed on foreign
silks, and that, in consequence, after a certain interval, half the
silks consumed are the product of native industry, and that the price
of the whole has risen 2½ per cent. It is obvious that, under these
circumstances, the other half, which comes from abroad, yields the
state five per cent, while the tax levied from the consumers on the
whole is only 2½ per cent; so that the nation, in the aggregate, is at
this time losing nothing by protection, except the cost of collecting
the tax, while a loss equivalent to the whole tax falls on the foreign
producer.”
143. It is necessary, in the first place, to complete the hypothesis
which is included in this case. Let us assume that the consumption of
silk, when all was imported, was 100 yards and that the price was $1
per yard. Then the following points are taken for granted, although not
stated in the case as it is put: (1) That the state needs $5 revenue;
(2) that it has determined to get this out of _the consumers of silk_;
(3) that the advance in price does not diminish the consumption; (4)
that the tax forces a reduction of price for the silk in the whole
outside market; (5) that the “_silk_” in question is the same thing
after the tax is laid as before. Of these assumptions, 3, 4, and 5 are
totally inadmissible, but, if they be admitted in the first instance,
and if the doctrine of the case which is put be deduced, it is this:
If the part imported multiplied by the tax is equal to the total
consumption multiplied by the advance in price, the consumers can
pay the latter in protection, for it is equal to the former, and the
former, which is paid to the government by the foreigner, is what the
consumers of silk must otherwise have paid.
144. Obviously this deduction is arithmetically incorrect, even on
the hypothesis. In the first place, the government has not obtained
$5 revenue which it needed, but $2.50 (5 cents on 50 yards). In the
second place, the foreigner sells at $1.02½ (net 97½) the silk which
he used to sell for $1. He therefore gets back from the consumers 2½
cents per yard on 50 yards, or $1.25 out of the $2.50 which he has paid
to the government. Also, the domestic silk to compete must be equal
to the dollar imported silk which now sells for $1.02½. Hence, the
consumers really pay in protection only 2½ cents on 50 yards, _i.e._
$1.25. This case, then, is, that the foreigner pays $1.25 revenue,
and the consumers pay $1.25 revenue and $1.25 protection. Hence the
result is not at all what is asserted, and there is no such operation
of the contrivance as was expected. But the government needs $2.50
more revenue, the operation of its tax having been interfered with by
protection. As there is no equivalence or compensation in the case as
it already stands, it is evident that the effect of any further tax,
instead of bringing about equivalence or compensation, will be to
depart from such a result still further.
145. It is, however, impossible to admit assumptions 3, 4, and 5 above,
or to deal with any economic problem by any arithmetical process. The
result above reached is totally incorrect and only serves to clear the
ground for a correct analysis. The producer may have to bear part of a
tax, if he is under the tax jurisdiction, or if he has a monopoly. If
he has no monopoly, and is not under the tax jurisdiction, and works
for the world’s market, he cannot lower his price in order to assume
part of the tax. What he does is that he differentiates his commodity.
This is the fact in the art of production which is established by
abundant experience. It is the explanation of the constant complaint,
under the protective system, of “fraud” and of the constant demand for
subclassification in the tariff schedules. The protected product never
is, at least at first, as good in quality as the imported article which
it aims to supersede. Hence the foreigner, if he desires to retain the
protected market, can prepare a special quality for that market. The
“silk” after the tax is laid is not the same silk as before. It nets to
the foreign producer 97½ cents, and pays him business profits at that
price. Therefore when he sells it at $1.02½ he gets back the whole tax
from the consumers. The domestic silk sold at $1.02½ is no better than
might have been obtained for 97½ cents. Hence the consumers are paying
a tax for protection which is full and equal to the revenue rate. The
fact that the price has fallen to $1.02½, and is not $1.05, evidently
proves that instead of disproving it, as many believe.
146. Thus this case falls to pieces. It gains a momentary plausibility
from the erroneous assumptions which are implicit in it. The foreign
producer may suffer a narrowing of his market and a reduction of his
aggregate profits, but there is no way to make him tributary (unless he
has a monopoly) either to the treasury or the protected interests of
the taxing country.[29] If it was true in general, or in any limited
number of cases, that a country which lays protective taxes can make
foreigners pay those taxes, then England, which has had no protective
taxes since (say) 1850, and has been surrounded by countries which have
had more or less protective taxes, must have been paying tribute to
them all this time and must have been steadily impoverished accordingly.