Protection or Free Trade
1.  Lecture before the students of the University of California, on the "Study of Political Economy," April, 1877.
2.  That protectionist writers are themselves conscious of this absurdity is to be seen in their constant effort to suggest the idea, too preposterous to be broadly stated, that nations instead of being purely arbitrary political divisions of mankind, are natural, or divinely appointed, divisions. Thus, not to multiply instances, Professor Robert Ellis Thompson (Political Economy, p. 34) defines a nation as "a people speaking one language, living under one government, and occupying a continuous area. This area is a district whose natural boundaries designate it as intended for the site of an independent people." This definition is given in large type, while underneath is appended in small type: "No one point of this definition is essential save the second." Yet in spite of this admission that the "nation" is a purely arbitrary political division, Professor Thompson endeavors throughout his book to suggest a different impression to the mind of the reader, by talking of "the existence of nations as parts of the world's providential order," the "providential boundaries of nations," etc.
3.  "This, then, is our position respecting commerce * * * that it should interchange the productions of diverse zones and climates, following in its trans-oceanic voyages lines of longitude oftener than lines of latitude."—HORACE GREELEY, Political Economy, p. 89.
"Legitimate and natural commerce moves rather along the meridians than along the parallels of latitude."—PROF. ROBERT ELLIS THOMPSON, Political Economy, p. 217.
4.  "In my conception, the chief end of a true political economy is the conversion of idlers and useless exchangers and traffickers into habitual, effective producers of wealth."—HORACE GREELEY, Political Economy, p. 29.
The trader "adds nothing to the real wealth of society. He neither directs and manages a vital change in the form of matter as does the farmer, nor a chemical and mechanical change in form as does the manufacturer. He merely transfers things from the place of their production to the place of demand."—PROF. R. E. THOMPSON, Political Economy, p.198.
5.  The octroi, or municipal tariff on produce brought into a town, is still levied in France, though abolished for a time by the Revolution. It is a survival of the local tariffs once common in Europe, which separated province from province and town from country. Colbert, the first Napoleon, and the German Zollverein did much in reducing and abolishing these restrictions to trade, producing in this way good results which are sometimes attributed by protectionists to external tariffs.
6.  Just now (1886) the interests concerned in keeping up indirect taxation are urging a worse than useless scheme for spending enormous sums on iron-clad coast defences.
7.  "Tariffs for revenue should have no existence. Interferences with trade are to be tolerated only as measures of self-protection."—H. C. CAREY, Past, Present and Future, p. 472.
"Taxes for the sake of revenue should be imposed directly, because such is the only mode in which the contribution of each individual can be adjusted in proportion to his means."—PROF. E. P. SMITH, Political Economy, pp. 265-8.
"Duties for revenue * * * are highly unjust. They inflict all the hardship of indirect and unequal taxation without even the purpose of benefiting the consumer."—PROV. R. E. THOMPSON, Political Economy, p. 232.
8.  In certain cases where an import duty, levied in one country on the produce of another, has the effect of reducing price in the exporting country at the expense of rent, it may, in some part, fall upon foreign land-owners. John Stuart Mill (Chap. III., Book V., Political Economy), further maintains that taxes on imports fall in part, not on the foreign producer of whom we buy, but on the foreign consumer to whom we sell—since they increase the cost of products we export. But this is only to say that the injury which we do ourselves by protection must in some part fall upon those with whom we trade. And even if import duties do, in such ways, somewhat increase the cost to foreigners of what they get from us, and thus, in some degree, compel them to share our loss, yet they also handicap us when we come into competition with them. Thus, assuming that our tariff upon imports may at times, to some slight extent, have increased the price which English consumers have had to pay for our cotton, wheat or oil, the increased cost of production in the United States has certainly operated far more strongly to give English producers an advantage over American producers in markets in which they compete, and to enable England to take the lion's share of the ocean-borne commerce of the world.
The minute tracing of the actions and reactions of taxation upon international trade is, however, more a matter of theoretical nicety than of practical interest, since the general conclusion will be that stated in the text, that while we cannot injure ourselves without injuring others, the taxing power of a Government is substantially restricted to its territorial limit. The clearest exception to this is in the case of export duties on articles of which the country levying the export duty has a monopoly, as Brazil has of India-rubber and Cuba of the Havana tobacco.
9.  The effect of protection upon profits in the protected industries will be more fully examined in Chapter XVII.
10.  For instance, to cite only one case, the last Tariff Act, which went into effect in July, 1883, raised the duty on the fabric used in the manufacture of ruiching and rufflings from 35 to 125 per cent., while leaving the duty of the finished article at 35 per cent. Previous to this, say the manufacturers of these goods, in a memorial addressed to the Secretary of the Treasury, they not only supplied the American market, but sold hundreds of thousands of dollars' worth every year to Canada, the West Indies and other countries, the labor-saving machinery which they had in use giving them an advantage which, in spite of the 35 per cent. tax on their material, enabled them to successfully compete with European factories. But the 125 per cent. duty has not only cut off this export trade completely, but has led to such an importation of British goods that, as the memorial declares, thousands of hands have lost their employment, and three-fourths of the manufacturers engaged in the business have been utterly ruined. This, of course, was not intended by Congress. The ruffling industry is only one of the many minor industries that were thrown down and trampled upon in the last tariff scramble.
11.  The Secretary of the Treasury states that there are now (February, 1886) over 2,300 tariff cases pending in the Southern District of New York alone.
12.  "Whoever will consult Alexander Hamilton's Report on Manufactures, the writings of Matthew Carey, Hezekiah Niles and their compeers, with the speeches of Henry Clay, Thomas Newton, James Tod, Walter Forward, Rollin C. Mallary, and other forensic champions of protection, with the messages of our earlier Presidents, of Governors Simon Snyder, George Clinton, Daniel D. Tompkins, De Witt Clinton, etc., cannot fail to note that they champion not the maintenance, but the creation of home manufactures".—HORACE GREELEY, Political Economy, p.34.
13.  In the next paragraph Adam Smith goes on to carry this proposition to an unconscious reductio ad absurdum. He says:
"A capital therefore employed in the home trade will sometimes make twelve operations, or be sent out and returned twelve times, before a capital employed in the foreign trade of consumption has made one. If the capitals are equal, therefore, the one will give four-and-twenty times more encouragement and support to the industry of the country than the other."
This is just such a proposition as that an innkeeper who only permits his guests to stay with him one day can, with equal facilities, furnish twelve times as much entertainment to man and beast as can the innkeeper who permits each guest to stay with him twelve days.
14.  In Dublin in 1882 I several times met the secretary of one of the great banking institutions whose branches ramify through Ireland. Each time he asked my opinion of the crop prospects in the United States, as though that were uppermost in his mind whenever he met an American. Finally I said to him, "I suppose poor crops in the United States would be to your advantage, as it would increase the value of the agricultural products that Ireland exports." "Oh, no"; he replied, "we are greatly interested in having the American crops good. Good crops mean good times, and good times in the United States mean large remittances from the Irish in America to their families at home, and these remittances are more important to business here than the prices we get for our own products."
15.  The Chicago Tribune of January 25, 1886, contains a long account of the American estates of an Irish landlord, William Scully. This Scully, who was one of the most notorious of the rack-renting and evicting Irish landlords, owns from 75,000 to 90,000 acres of the richest land in Illinois, besides large tracts in other States. His estates are cut up into farms and rented to tenants who are obliged to pay all taxes and make all improvements, and who are not permitted to sell their crops until the rent is paid. A "spy system" is maintained, and tenants are required to doff their hats when they enter the "estate office." The Tribune describes them as reduced to a condition of absolute serfdom. The houses in which they live are the poorest shanties, consisting generally of a room and a half and the whole district is described as blighted. Scully got most of his land at nominal prices, ranging as low as seventy-five cents per acre. He lives in London, and is said to draw from his American estates a net income of $400,000 a year, which means, of course, that American produce to that value is exported every year without any imports coming back. The Tribune closes its long account by saying: "Not content with acquiring land himself, Scully has induced a number of his relatives to become American landlords, and their system is patterned on his own."
16.  For instance, Professor Thompson writing where and when, save for subsidiary tokens, paper money was exclusively used, and so conscious of its ability to perform all the functions of money that he declares it to be as much superior to coin as the railway is to the stage-coach (Political Economy, p. 152), goes on subsequently (p.223) to contend that protective duties are necessary to prevent the poorer country being drained of its money by the richer country, thus tacitly assuming that gold and silver alone are money—since neither he nor any one else would pretend that one country could drain another of its paper money.
17.  A conclusion frequently carried by protectionists to the most ridiculous lengths, as, for instance, in the recent declaration of a Protectionist Senator (Wm. M. Evarts, of New York), that he would be ready for free trade "when protection had so far developed all our industries that the United States could sell in competition with all the world, and at the same time be free from the necessity of buying anything from all the world."
18.  The higher rate of interest in the United States than in Great Britain has until recently been one of the stock reasons of American protectionists for demanding a high tariff. We do not hear so much of this now that the rate in New York is as low as in London, if not lower, but we hear no less of the need for protection. It is hardly necessary in this discussion to treat of the nature and law of interest, a subject which I have gone over in Progress and Poverty. It may, however, be worth while to say that a high rate of interest where it does not proceed from insecurity, is not to be regardded as a disadvantage, but rather as evidence of the large returns to the active factors of production, labor and capital—returns which diminish as rent rises and the land owner gets a larger share of their produce for permitting labor and capital to work.
19.  In point of fact there is no country which as to all branches of production can be said to have superior advantages. The conditions which make one part of the habitable globe better fitted for some productions, unfit it for others, and what is disadvantage for some kinds of production, is generally advantage for other kinds. Even the lack of rain which makes some parts of the globe useless to man, may, if invention ever succeeds in directly utilizing the power of the sun's rays, be found to be especially advantageous for certain parts of production. The advantages and disadvantages that come from the varying density of population, the special development of certain forms of industry, etc., are also largely relative. The most positive of all advantages in production—that which most certainly gives superiority in all branches, is that which arises from that general intelligence which increases with the increase of the comfort and leisure of the masses of the people, that is to say, with the increase of wages.
20.  Protectionist arguments frequently involve the additional assumption that the "home producer" and "home consumer" are necessarily close together in point of space, whereas, as in the United States, they may be thousands of miles apart.
21.  For want of a better term I have here used the word "producers" in that limited sense in which it is applied to those whi control capital and employ labor engaged in production. The industries protected by our tariff are (with perhaps some nominal exceptions) of the kind carried on in this way.
22.  This disposition is, of course, largely augmented by the greater cost of machinery under our protective tariff, which not only increases the capital required to begin, but makes the constant discarding of old machinery and purchase of new, required to keep up with the march of invention, a much more serious matter. Cases have occurred in which British manufacturers, compelled by competition to adopt the latest improvements, have actually sold their discarded machinery to be shipped to the United States and used by protected Americans.It was his coming across a case of this kind that led David A. Wells, when he visited Europe as Special Commissioner of Revenue, to begin to question the usefulness of our tariff in promoting American industry.
23.  When, after the great fire in Chicago a bill was introduced in Congress permitting the importation free of duty of materials intended for use in the rebuilding of that city, the Michigan timber land barons went to Washington in a special car and induced the committee to omit lumber from the bill.
24.  A striking illustration of the way American industry has been encouraged by a duty which enabled the stockholders in a couple of copper mines to pay dividends of over a hundred per cent. is afforded by the following case: Some years ago a Dutch ship arrived at Boston having in her hold a quantity of copper with which her master proposed to have her resheathed in Boston. But learning that in this "land of liberty" he would not be permitted to take the copper from the inside of his ship and employ American mechanics to nail ot on the outside, without paying a duty of forty-five per cent. on the new copper put on, as well as a duty of four cents per pound on the old copper taken off, he found it cheaper to sail in ballast to Halifax, get his ship re-coppered by Canadian workmen, and them come back to Boston for his return cargo.
25.  The royalty paid by iron miners for the privilege of taking the ore out of the earth in many cases equals an in some cases exceeds the cost of mining it. The royalties of the Pratt Iron and Coal Company of Alabama are said to run as high as $10,000 per acre. In the Chicago Inter-Ocean, a staunch protectionist paper, of October 11, 1885, I find a description of the Colby Iron Mine at Bessemer, Michigan. This mine, it is said, is owned by parties who got it for $1.25 per acre. They lease the privilege of taking out ore on a royalty of 40 cents per ton to the Colbys, who sub-lease it to Morse & Co. for 52½ cents per ton royalty, who have a contract with Captain Sellwood to put the ore on the cars for 87½ cents per ton. Sellwood sub-lets this contract for 12½ cents per ton, and the sub-contractors are said to make a profit of 2½ cents per ton, as the work is done by a steam shovel. Deducting transportation, etc., the ore brings $2.80 per ton, as mined, of which only 12½ cents goes to the firm who do the actual work of production. The output is 1,200 tons per day, which, according to the Inter-Ocean correspondent, gives to the owners a net profit of $480 per day; to the Colbys, $150 per day; Morse & Co., $1,680; Captain Sellwood, $90 per day; and the sub-contractors who do the work of mining $30 per day, "a total net profit from the mine, over and above what profit there may be in the labor, of $3,240 per day." The account concludes by saying: "As the product will be at least doubled during the coming year, you see there will be some fortunes made out of the Colby mine." To these fortunes our protective duty on foreign ore undoubtedly contributes, but how much does it in this case encourage production?
In Lebanon County, Pennsylvania, is a hill of magnetic iron ore nearly pure, which has merely to be quarried out. It is owned by the Coleman heirs, and has made them so enormously wealthy that these are said by some to be the richest people in the United States. They are producers of iron, smelting their own ore, as well as railway owners and farmers, owning and cultivating by superintendents great tracts of valuable land. They, doubtless, have been much encouraged by the duty on iron which we have maintained for "the protection of American labor," but this encouragement comes to them as owners of this rich gift of Nature to—Mr.Coleman's heirs. The deposit of iron ore would be worked were there no duty, and was worked, I believe, before any duty on iron was imposed.
26.  By way of consolation for the manner in which protectionism has driven American ships from the ocean, Professor Thompson (Political Economy p. 216) says:
"If there were no other reason for the policy that seeks to reduce foreign commerce to a minimum, a sufficient one would be found in its effect upon the human material it employs. Bentham thought the worst possible use than could be made of a man was to hang him; a worse still is to make a common sailor of him. The life and the manly character of the sailor has been so admired in song and prose, and the real excellences of individuals of the profession have been made so prominent that we forget what the mass of this class of men are, and what representatives of our civilization and Christianity we send out to all lands in the tenants of the forecastle".
There is some truth in this, but what there is is due to protectionism in its broader sense. There is no reason in the nature of his vocation why the sailor should not be as well fed, well paid and well treated, as intelligent and self-respecting, as any mechanic. That he is not is at bottom due to the paternal interference of maritime law with the relations of employer and employed. The law does not specifically enforce contracts for services on shore, and for any breach of contract by an employee the employer has only a civil remedy. He cannot restrain the employed of his liberty, coerce him by violence or duress, or, should he quit work, call on the law to bring him back, and thus the personal relations of employer and employed are left to the free play of mutual interest. For services requiring vigilance and sobriety, and where great loss or danger would result from a sudden refusal to go on with the work, the employer must look to the character of the men he employs, and must so pay and treat them that there will be no danger of their wishing to leave him. But what on shore is thus left to the self-regulative principle of freedom is, as to services to be performed on shipboard, attempted to be regulated on the paternal principle of protectionism. Here the law steps in to compel the specific performance of contracts, and not only gives the employer or his representative the right to restrain the employed of his personal liberty, and by violence or duress to compel his performance of services he has contracted for, but if the employed leave the ship the law may be invoked to arrest, imprison, and force him back. The result has been on the one hand largely to destroy the incentive to proper treatment of their crews on the part of owners and masters of ships, and on the other to degrade the character of seamen. Crews have been largely obtained by a system of virtual impressment or kidnapping called in 'long-shore vernacular "shanghaing", by which men are put on board ship when drunk or even by force, for the sake of their advance wages or a bonus called "blood-money", which the power of keeping the men on board and compelling them to work enables the ship-owners safely to pay. The power that must be intrusted to the master of a ship, on whose skill and judgment depends the safety of all on board, is necessarily despotic, but while the abuse of this power has, under a system which enables a brutal captain to get crews with as much or almost as much facility as a humane one, been little checked by motives of self-interest, it has been stimulated by the degradation which such a system inevitably produces in the character of the crews. Various attempts have been made to remedy this state of things; but nothing can avail much that does not go to the root of the difficulty and leave the sailor, no matter what contract he may have signed or what advances have been paid to or for him, as free to quit a vessel as any mechanic on shore is free to quit his employment. Theoretically the law may guard the rights of one party to a contract as well as those of the other; but practically the poor and uninfluential are always at a disadvantage in appealing to the law. This is a vice which inheres in all forms of protectionism, from that of absolute monarchy to that of protective duties.
27.  Here, for instance, taken from the New York Tribune during the last Presidential campaign (1884), is a sample of the arguments for protection which are manufactured about election times for the consumption of "the intelligent and highly paid American working-man."
"All workers know that labor in other countries is not paid as well as it is here. But this difference could not exist if the products of 50-cent labor in England or Germany or Canada could be sold freely in our market, instead of the production of $1 labor here. Hence, this country compels the employers of the 50-cent labor abroad to pay a duty for the privilege of selling their goods in this market. That duty is called a tariff. If it is made high enough to fit the difference in rate of wages, so that labor in this country cannot be degraded toward the level of similar labor in other countries, it is called a protective tariff. Such a tariff is a defense of American industry against direct competition with the underpaid labor of other countries."
28.  Although a great sum is raised in the United States every year to send the Bible to the heathen in foreign parts, we impose for the protection of the home "Bible manufacturer" a heavy tax upon the bringing of Bibles into our country. There have recently been complaints of the smuggling of Bibles across our northern frontier, which have doubtless inspired our custom-house officers to renewed vigilance, since, according to an official advertisement, the following property seized for violation of the United States revenue laws was sold at public auction in front of the Custom house, Detroit, on Saturday, February 6, 1886, at 12 o'clock noon: 1 set silver jewelry, 3 bottles of brandy, 7 yards astrachan, 1 silk tidy, 7 books, 1 shawl, 1 sealskin cloak, 4 rosaries, 1 woolen shirt, 2 pairs of mittens, 1 pair of stockings, 1 bottle of gin, 1 Bible.
29.  An exception is to be made in favor of Horace Greeley, who though a protectionist, did advocate an international copyright.
30.  I find this suggestive phrase in a protectionists newspaper. But it well expresses the attitude toward labor of many of the free trade writers also.
31.  The latest apology for protection, "Protection vs. Free Trade—the scientific validity and economic operation of defensive duties in the United States," by ex-Governor Henry M. Hoyt, of Pennsylvania (New York, 1886), is hardly below the average in this respect, yet in the very preface the author discloses his equipment for economic investigation by talking of value as though it were a measure of quantity, and supposing the case of a farmer who has $3,500 worth of produce which he cannot sell or barter. With this beginning it is hardly to be wondered at that the 420 pages of his work bring him to the conclusion, which he prints in italics, that "the nearer we come to organizing and conducting our competing industries as if we were the only nation on the planet, the more we shall make and the more we shall have to divide among the makers." An asteroid of about the superficial area of Pennsylvania would doubtless seem the most desirable of worlds to this protectionist statesman and philosopher.
32.  The getting of work, not the getting of the results of work, is assumed by protectionists writers to be the end at which a true national policy should aim, though for obvious reasons they do not dwell upon this notion. Thus, Professor Thompson says (p.211,Political Economy):
"The [free trade] theory assumes that the chief end of national as of individual economy is to save labor, whereas the great problem is how to employ it productively. If buying in the cheapest market reduce the amount of employment, it will be for the nation that does it, the dearest of all buying." Or again, (p.235): "The national economy of labor consists, not in getting on with as little as possible, but in finding remunerative employment for as much of it as possible."
33.  The growth of the protective spirit as social development goes on, which has been very obvious in the United States, is generally attributed to the influence of the manufacturing interests which begin to arise. But observation has convinced me that this cause is inadequate, and that the true explanation lies in habits of thought engendered by the greater difficulties of finding employment. I am satisfied, for instance, that protection is far stronger in California than it was in the earlier days of that State. But the California industries that can be protected by a national tariff are yet insignificant as compared with industries that cannot be protected. But when tramps abound and charity is invoked for relief works, one needs not go far to find an explanation of the growth of a sentiment which favors the policy of "keeping work in the country." Nothing can be clearer than that our protective tariff adds largely to the cost of nearly everything that the American farmer has to buy, while adding little, if anything, to the price of what he has to sell, and it has been a favorite theory with those who since the war have been endeavoring to arouse sentiment against protection that the attention of the agricultural classes only needed to be called to this to bring out an overwhelming opposition to protective duties. But with all the admirable work that has been done in this direction, it is hard to see any result. The truth is, as may be discovered by talking with farmers, that the average farmer feels that "there are already too many people in farming," and hence is not ill-disposed toward a policy which, though it may increase the prices he has to pay, claims to "make work" in other branches of industry.
34.  For a fuller examination of the effects of machinery see my Social Problems.
35.  The largest owners of Pittsburgh land are an English family named Schenley, who draw in ground rents a great revenue, thus (to the gratification of Pennsylvania protectionists) increasing our exports over our imports, just as though they owned so many Pennsylvanians
36.  The term "socialism" is used so loosely that it is hard to attach to it a definite meaning. I myself am classed as a socialist by those who denounce socialism, while those who profess themselves socialists declare me not to be one. For my own part I neither claim nor repudiate the name, and realizing as I do the correlative truth of both principles can no more call myself an individualist or a socialist than one who considers the forces by which the planets are held to their orbits could call himself a centrifugalist or a centripetalist. The German socialism of the school of Marx (of which the leading representative in England is Mr. H. M. Hyndman, and the best exposition in America has been given by Mr. Laurence Gronlund), seems to me a high-purposed but incoherent mixture of truth and fallacy, the defects of which may be summed up in its want of radicalism—that is to say, of going to the root.
37.  The great source of confusion in regard to such matters arises from the failure to attach any definite meaning to terms. It must always be remembered that nothing that can be classed either as labor or as land can be accounted capital in any definite use of the term, and that much that we commonly speak of as capital—such as solvent debts, government bonds, etc—is in reality not even wealth—which all true capital must be. For a fuller elucidation of this, as of similar points, I must refer the reader to my Progress and Poverty.
38.  There is no reason why at least the bulk of the revenues needed for the national government under our system should not be collected from a percentage on land values, leaving the rest for the local governments, just as state, county and municipal taxes are collected on one assessment and by one set of officials. On the contrary there is, over and above the economy that would thus be secured, a strong reason for the collection of national revenues from land values in the fact that the ground values of great cities and mineral deposits are due to the general growth of population.
But the total abolition of the tariff need not await any such adjustment. The issuance of paper money, a function belonging properly to the General Government, would, properly used, yield a considerable income; while independent sources of any needed amount of revenue could be found in various taxes, which though not economically perfect, as is the tax on land values, are yet much less objectionable than taxes on imports. The excise tax on spirituous liquors ought to be abolished, as it fosters corruption, injuriously affects many branches of manufacture and puts a premium on adulteration; but either by a government monopoly, or by license taxes on retail sales, a large revenue might be derived from the liquor traffic with much greater advantage to public health and morals than by the present system. There are also some stamp taxes which are comparatively uninjurious and can be collectected easily and cheaply.
But of all methods of raising an independent Federal revenue, that which would yield the largest return with the greatest ease and least injury is a tax upon legacies and successions. In a large population the proportion of deaths is as regular as that of births, and with proper exemptions in favor of widows, minor children and dependent relatives, such a tax would bear harshly on no one, and from the publicity which must attach to the transfer of property by death or in view of death it is easily collected and little liable to evasion. The appropriation of land values would of itself strike at the heart of overgrown fortunes, but until that is accomplished, a tax of this kind would have the incidental advantage of interfering with their transmission.
Of all excuses for the continuance of any tariff at all, the most groundless is that it is necessary to secure Federal revenues. Ever the income tax, bad as it is, is in all respects better than a tariff.
39.  Author of Property and Taxation, etc., and a warm supporter of the movement for the restoration of their land to the British people. Mr. Briggs was one of the Manchester manufacturers active in the Anti-Corn Law movement, and, regarding that victory as a mere beginning, has always insisted that Great Britain was yet under the blight of protectionism, and that the struggle for trus free trade was yet to come.