The National System of Political Economy

Book II, Chapter XXVI
CUSTOMS DUTIES AS A CHIEF MEANS OF ESTABLISHING AND PROTECTING THE INTERNAL MANUFACTURING POWER.

IT is not part of our plan to treat of those means of promoting internal industry whose efficacy and applicability are nowhere called in question. To these belong e.g. educational establishments (especially technical schools), industrial exhibitions, offers of prizes, transport improvements, patent laws, &c.; in short, all those laws and institutions by means of which industry is furthered, and internal and external commerce facilitated and regulated. We have here merely to speak of the institution of customs duties as a means for the development of industry.

According to our system, prohibitions of, or duties on, exports can only be thought of as exceptional things; the imports of natural products must everywhere be subject to revenue duties only, and never to duties intended to protect native agricultural production. In manufacturing states, articles of luxury from warm climates are chiefly subject to duties for revenue, but not the common necessaries of life, as e.g. corn or fat cattle; but the countries of warmer climate or countries of smaller population or limited territory, or countries not yet sufficiently populous, or such as are still far behind in civilisation and in their social and political institutions, are those which should only impose mere revenue duties on manufactured goods.

Revenue duties of every kind, however, should everywhere be so moderate as not essentially to restrict importation and consumption; because, otherwise, not only would the internal productive power be weakened, but the object of raising revenue be defeated.

Measures of protection are justifiable only for the purpose of furthering and protecting the internal manufacturing power, and only in the case of nations which through an extensive and compact territory, large population, possession of natural resources, far advanced agriculture, a high degree of civilisation and political development, are qualified to maintain an equal rank with the principal agricultural manufacturing commercial nations, with the greatest naval and military powers.

Protection can be afforded, either by the prohibition of certain manufactured articles, or by rates of duty which amount wholly, or at least partly, to prohibition, or by moderate import duties. None of these kinds of protection are invariably beneficial or invariably objectionable; and it depends on the special circumstances of the nation and on the condition of its industry which of these is the right one to be applied to it.

War exercises a great influence on the selection of the precise system of protection, inasmuch as it effects a compulsory prohibitive system. In time of war, exchange between the belligerent parties ceases, and every nation must endeavour, without regard to its economical conditions, to be sufficient to itself. Hence, on the one hand, in the less advanced manufacturing nations commercial industry, on the other hand, in the most advanced manufacturing nation agricultural production, becomes stimulated in an extraordinary manner, indeed to such a degree that it appears advisable to the less advanced manufacturing nation (especially if war has continued for several years) to allow the exclusion which war has occasioned of those manufactured articles in which it cannot yet freely compete with the most advanced manufacturing nation, to continue for some time during peace.

France and Germany were in this condition after the general peace. If in 1815 France had allowed English competition, as Germany, Russia, and North America did, she would also have experienced the same fate; the greatest part of her manufactories which had sprung up during the war would have come to grief; the progress which has since been made in all branches of manufacture, in improving the internal means of transport, in foreign commerce, in steam river and sea navigation, in the increase in the value of land (which, by the way, has doubled in value during this time in France), in the augmentation of population and of the State's revenues, could not have been hoped for. The manufactories of France at that time were still in their childhood; the country possessed but few canals; the mines had been but little worked; political convulsions and wars had not yet permitted considerable capital to accumulate, sufficient technical cultivation to exist, a sufficient number of really qualified workmen or an industrial and enterprising spirit to have been called into existence; the mind of the nation was still turned more towards war than towards the arts of peace; the small capital which a state of war permitted to accumulate, still flowed principally into agriculture, which had declined very much indeed. Then, for the first time, could France perceive what progress England had made during the war; then, for the first time, was it possible for France to import from England machinery, artificers, workmen, capital, and the spirit of enterprise; then, to secure the home market exclusively for the benefit of home industry, demanded the exertion of her best powers, and the utilisation of all her natural resources. The effects of this protective policy are very evident; nothing but blind cosmopolitanism can ignore them, or maintain that France would have, under a policy of free competition with other nations, made greater progress. Does not the experience of Germany, the United States of America, and Russia, conclusively prove the contrary?

If we maintain that the prohibitive system has been useful to France since 1815, we do not by that contention wish to defend either her mistakes or her excess of protection, nor the utility or necessity of her continued maintenance of that excessive protective policy. It was an error for France to restrict the importation of raw materials and agricultural products (pig-iron, coal, wool, corn, cattle) by import duties; it would be a further error if France, after her manufacturing power has become sufficiently strong and established, were not willing to revert gradually to a moderate system of protection, and by permitting a limited amount of competition incite her manufacturers to emulation.

In regard to protective duties it is especially important to discriminate between the case of a nation which contemplates passing from a policy of free competition to one of protection, and that of a nation which proposes to exchange a policy of prohibition for one of moderate protection; in the former case the duties imposed at first must be low, and be gradually increased, in the latter they must be high at first and be gradually diminished.

A nation which has been formerly insufficiently protected by customs duties, but which feels itself called upon to make greater progress in manufactures, must first of all endeavour to develop those manufactures which produce articles of general consumption. In the first place the total value of such industrial products is incomparably greater than the total value of the much more expensive fabrics of luxury. The former class of manufactures, therefore, brings into motion large masses of natural, mental, and personal productive powers, and gives—by the fact that it requires large capital—inducements for considerable saving of capital, and for bringing over to its aid foreign capital and powers of all kinds. The development of these branches of manufacture thus tends powerfully to promote the increase of population, the prosperity of home agriculture, and also especially the increase of the trade with foreign countries, inasmuch as less cultivated countries chiefly require manufactured goods of common use, and the countries of temperate climates are principally enabled by the production of these articles to carry on direct interchange with the countries of tropical climates. A country e.g. which has to import cotton yarns and cotton goods cannot carry on direct trade with Egypt, Louisiana, or Brazil, because it cannot supply those countries with the cotton goods which they require, and cannot take from them their raw cotton. Furthermore, these articles, on account of the magnitude of their total value, serve especially to equalise the exports of the nation tolerably well with its imports, and always to retain in the nation the amount of circulating medium which it requires, or to provide it with the same. Thus it is by the prosperity and preservation of these important branches of industry that the industrial independence of the nation is gained and maintained, for the disturbance of trade resulting from wars is of little importance if it merely hinders the purchase of expensive articles of luxury, but, on the other hand, it always occasions great calamities if it is attended by scarcity and rise in price of common manufactured goods, and by the interruption of a previously considerable sale of agricultural products. Finally, the evasion of customs duties by smuggling and false declarations of value is much less to be feared in the case of these articles, and can be much more easily prevented than in the case of costly fabrics of luxury.

Manufactures and manufactories are always plants of slow growth, and every protective duty which suddenly breaks off formerly existing commercial connections must be detrimental to the nation for whose benefit it is professedly introduced. Such duties ought only to be increased in the ratio in which capital, technical abilities, and the spirit of enterprise are increasing in the nation or are being attracted to it from abroad, in the ratio in which the nation is in a condition to utilise for itself its surplus of raw materials and natural products which it had previously exported. It is, however, of special importance that the scale by which the import duties are increased should be determined beforehand, so that an assured remuneration can be offered to the capitalists, artificers, and workmen, who are found in the nation or who can be attracted to it from abroad. It is indispensable to maintain these scales of duty inviolably, and not to diminish them before the appointed time, because the very fear of any such breach of promise would already destroy for the most part the effect of that assurance of remuneration.

To what extent import duties should be increased in the case of a change from free competition to the protective system, and how much they ought to be diminished in the case of a change from a system of prohibition to a moderate system of protection, cannot be determined theoretically: that depends on the special conditions as well as on the relative conditions in which the less advanced nation is placed in relation to the more advanced ones. The United States of North America e.g. have to take into special consideration their exports of raw cotton to England, and of agricultural and maritime products to the English colonies, also the high rate of wages existing in the United States; whereby they again profit by the fact that they can depend more than any other nation on attracting to themselves English capital, artificers, men of enterprise, and workmen.

It may in general be assumed that where any technical industry cannot be established by means of an original protection of forty to sixty per cent. and cannot continue to maintain itself under a continued protection of twenty to thirty per cent. the fundamental conditions of manufacturing power are lacking.

The causes of such incapacity can be removed more or less readily: to the class more readily removable belong want of internal means of transport, want of technical knowledge, of experienced workmen, and of the spirit of industrial enterprise; to the class which it is more difficult to remove belong the lack of industrious disposition, civilisation, education, morality, and love of justice on the part of the people; want of a sound and vigorous system of agriculture, and hence of material capital; but especially defective political institutions, and want of civil liberty and of security of justice; and finally, want of compactness of territory, whereby it is rendered impossible to put down contraband trade.

Those industries which merely produce expensive articles of luxury require the least consideration and the least amount of protection; firstly, because their production requires and assumes the existence of a high degree of technical attainment and skill; secondly, because their total value is inconsiderable in proportion to that of the whole national production, and the imports of them can be readily paid for by means of agricultural products and raw materials, or with manufactured products of common use; further, because the interruption of their importation occasions no important inconvenience in time of war; lastly, because high protective duties on these articles can be most readily evaded by smuggling.

Nations which have not yet made considerable advances in technical art and in the manufacture of machinery should allow all complicated machinery to be imported free of duty, or at least only levy a small duty upon them, until they themselves are in a position to produce them as readily as the most advanced nation. Machine manufactories are in a certain sense the manufacturers of manufactories, and every tax on the importation of foreign machinery is a restriction on the internal manufacturing power. Since it is, however, of the greatest importance, because of its great influence on the whole manufacturing power, that the nation should not be dependent on the chances and changes of war in respect of its machinery, this particular branch of manufacture has very special claims for the direct support of the State in case it should not be able under moderate import duties to meet competition. The State should at least encourage and directly support its home manufactories of machinery, so far as their maintenance and development may be necessary to provide at the commencement of a time of war the most necessary requirements, and under a longer interruption by war to serve as patterns for the erection of new machine factories.

Drawbacks can according to our system only be entertained in cases where half-manufactured goods which are still imported from abroad, as for instance cotton yarn, must be subjected to a considerable protective duty in order to enable the country gradually to produce them itself.

Bounties are objectionable as permanent measures to render the exports and the competition of the native manufactories possible with the manufactories of further advanced nations in neutral markets; but they are still more objectionable as the means of getting possession of the inland markets for manufactured goods of nations which have themselves already made progress in manufactures. Yet there are cases where they are to be justified as temporary means of encouragement, namely, where the slumbering spirit of enterprise of a nation merely requires stimulus and assistance in the first period of its revival, in order to evoke in it a powerful and lasting production and an export trade to countries which themselves do not possess flourishing manufactures. But even in these cases it ought to be considered whether the State would not do better by making advances free of interest and granting special privileges to individual men of enterprise, or whether it would not be still more to the purpose to promote the formation of companies to carry into effect such primary experimental adventures, to advance to such companies a portion of their requisite share capital out of the State treasury, and to allow to the private persons taking shares in them a preferential interest on their invested capital. As instances of the cases referred to, we may mention experimental undertakings in trade and navigation to distant countries, to which the commerce of private persons has not yet been extended; the establishment of lines of steamers to distant countries; the founding of new colonies, &c.