The National System of Political Economy

Book II, Chapter XXVII
THE CUSTOMS SYSTEM AND THE POPULAR SCHOOL.

THE popular school does not discriminate (in respect of the operation of protective duties) between natural or primitive products and manufactured products. It perverts the fact that such duties always operate injuriously on the production of primitive or natural products, into the false conclusion that they exercise an equally detrimental influence on the production of manufactured goods.

The school recognises no distinction in reference to the establishment of manufacturing industry in a State between those nations which are not adapted for such industry and those which, owing to the nature of their territory, to perfectly developed agriculture, to their civilisation, and to their just claims for guarantees for their future prosperity, for their permanence, and for their power, are clearly qualified to establish such an industry for themselves.

The school fails to perceive that under a system of perfectly free competition with more advanced manufacturing nations, a nation which is less advanced than those, although well fitted for manufacturing, can never attain to a perfectly developed manufacturing power of its own, nor to perfect national independence, without protective duties.

It does not take into account the influence of war on the necessity for a protective system; especially it does not perceive that war effects a compulsory prohibitive system, and that the prohibitive system of the custom-house is but a necessary continuation of that prohibitive system which war has brought about.

It seeks to adduce the benefits which result from free internal trade as a proof that nations can only attain to the highest degree of prosperity and power by absolute freedom in international trade; whereas history everywhere proves the contrary.

It maintains that protective measures afford a monopoly to inland manufacturers, and thus tend to induce indolence; while, nevertheless, all the time internal competition amply suffices as a stimulus to emulation among manufacturers and traders.

It would have us believe that protective duties on manufactured goods benefit manufacturers at the expense of agriculturists; whereas it can be proved that enormous benefits accrue to home agriculture from the existence of a home manufacturing power, compared to which the sacrifices which the former has to make to the protective system are inconsiderable.

As a main point against protective duties, the popular school adduces the expenses of the custom-house system and the evils caused by contraband trade. These evils cannot be denied; but can they be taken seriously into account in comparison of measures which exercise such enormous influence on the existence, the power, and the prosperity of the nation? Can the evils of standing armies and wars constitute an adequate motive for the nation to neglect means of defence? If it is maintained that protective duties which far exceed the limit which offers an assured remuneration to smuggling, serve merely to favour contraband trade, but not to benefit home manufactures, that can apply only to ill-regulated customs establishments, to countries of small extent and irregular frontiers, to the consumption which takes place on the frontiers, and only to high duties on articles of luxury of no great aggregate bulk.

But experience everywhere teaches us that with well-ordered customs establishments, and with wisely devised tariffs, the objects of protective duties in large and compact states cannot be materially impeded by contraband trade.

So far as regards the mere expenses of the customs system, a large portion of these would, if it were abolished, have to be incurred in the collection of revenue duties; and that revenue duties can be dispensed with by great nations, even the school itself does not maintain.

Moreover, the school itself does not condemn all protective duties.

Adam Smith allows in three cases the special protection of internal industry: firstly, as a measure of retaliation in case a foreign nation imposes restrictions on our imports, and there is hope of inducing it by means of reprisals to repeal those restrictions; secondly, for the defence of the nation, in case those manufacturing requirements which are necessary for defensive purposes could not under open competition be produced at home; thirdly, as a means of equalisation in case the products of foreigners are taxed lower than those of our home producers. J. B. Say objects to protection in all these cases, but admits it in a fourth case—namely, when some branch of industry is expected to become after the lapse of a few years so remunerative that it will then no longer need protection.

Thus it is Adam Smith who wants to introduce the principle of retaliation into commercial policy—a principle which would lead to the most absurd and most ruinous measures, especially if the retaliatory duties, as Smith demands, are to be repealed as soon as the foreign nation agrees to abolish its restrictions. Supposing Germany made reprisals against England, because of the duties imposed by the latter on German corn and timber, by excluding from Germany English manufactured goods, and by this exclusion called artificially into existence a manufacturing power of her own; must Germany then allow this manufacturing industry, created at immense sacrifice, to come to grief in case England should be induced to reopen her ports to German corn and timber? What folly! It would have been ten times better than that if Germany had submitted quietly to all measures of restriction on the part of England, and had discouraged the growth of any manufacturing power of her own which might grow up notwithstanding the English import prohibitions, instead of stimulating its growth.

The principle of retaliation is reasonable and applicable only if it coincides with the principle of the industrial development of the nation, if it serves as it were as an assistance to this object.

Yes, it is reasonable and beneficial that other nations should retaliate against the English import restrictions on their agricultural products, by imposing restrictions on the importation of manufactured goods, but only when those nations are qualified to establish a manufacturing power of their own and to maintain it for all times.

By the second exception, Adam Smith really justifies not merely the necessity of protecting such manufactures as supply the immediate requirements of war, such as, for instance, manufactories of arms and powder, but the whole system of protection as we understand it; for by the establishment in the nation of a manufacturing power of its own, protection to native industry tends to the augmentation of the nation's population, of its material wealth, of its machine power, of its independence, and of all mental powers, and, therefore, of its means of national defence, in an infinitely higher degree than it could do by merely manufacturing arms and powder.

The same must be said of Adam Smith's third exception. If the burden of taxation to which our productions are subjected, affords a just ground for imposing protective duties on the less taxed products of foreign countries, why should not also the other disadvantages to which our manufacturing industry is subjected in comparison with that of the foreigner afford just grounds for protecting our native industry against the overwhelming competition of foreign industry?

J. B. Say has clearly perceived the contradictory character of this exception, but the exception substituted by him is no better; for in a nation qualified by nature and by its degree of culture to establish a manufacturing power of its own, almost every branch of industry must become remunerative under continued and powerful protection; and it is ridiculous to allow a nation merely a few years for the task of bringing to perfection one great branch of national industry or the whole industry of the nation; just as a shoemaker's apprentice is allowed only a few years to learn shoemaking.

In its eternal declamations on the immense advantages of absolute freedom of trade, and the disadvantages of protection, the popular school is accustomed to rely on the examples of a few nations; that of Switzerland is quoted to prove that industry can prosper without protective duties, and that absolute liberty of international commerce forms the safest basis of national prosperity. The fate of Spain is quoted to exhibit to all nations which seek aid and preservation in the protective system, a frightful example of its ruinous effects. The case of England, which, as we have shown in a former chapter, affords such an excellent example for imitation to all nations which are capable of developing a manufacturing power, is adduced by these theorists merely to support their allegation that capability for manufacturing production is a natural gift exclusively peculiar to certain countries, like the capability to produce Burgundy wines; and that nature has bestowed on England, above all other countries of the earth, the destiny and the ability to devote herself to manufacturing industry and to an extensive commerce.

Let us now take these examples more closely into consideration.

As for Switzerland, it must be remarked in the first place that she does not constitute a nation, at least not one of normal magnitude which can be ranked as a great nation, but is merely a conglomeration of municipalities. Possessing no sea-coast, hemmed in between three great nations, she lacks all inducement to strive to obtain a native commercial marine, or direct trade with tropical countries; she need pay no regard to the establishment of a naval power, or to founding or acquiring colonies. Switzerland laid the foundation of her present very moderate degree of prosperity at the time when she still belonged to the German Empire. Since that time, she has been almost entirely free from internal wars, her capital has been permitted to increase from generation to generation, as scarcely any of it was required by her municipal governments for discharging their expenses. Amid the devastations occasioned by the despotism, fanaticism, wars, and revolutions, with which Europe was perturbed during the last centuries, Switzerland offered an asylum to all who desired to transfer their capital and talents to another country than their own, and thus acquired considerable wealth from abroad. Germany has never adopted strong commercial restrictions against Switzerland, and a large part of the manufactured products of the latter has obtained a market in Germany. Moreover, the industry of Switzerland was never a national one, one comprising the production of articles of common use, but chiefly an industry in articles of luxury, the products of which could be easily smuggled into the neighbouring countries or transported to distant parts of the world. Furthermore, her territory is most favourably situated for intermediate trade, and in this respect is in some measure privileged. Again, their excellent opportunity of becoming acquainted with the languages, laws, institutions, and circumstances of the three nations which adjoin her must have given the Swiss important advantages in intermediate commerce and in every other respect. Civil and religious liberty and universal education have evoked in the Swiss, activity and a spirit of enterprise which, in view of the narrow limits of their country's internal agriculture, and of her internal resources for supporting her population, drove the Swiss to foreign countries, where they amassed wealth, by means of military service, by commerce, by industries of every kind, in order to bring it home to their fatherland. If under such special circumstances they managed to acquire mental and material resources, in order to develop a few branches of industry for producing articles of luxury, if these industries could maintain themselves without protective duties by sales to foreign countries, it cannot thence be concluded that great nations could follow a similar policy under wholly different circumstances. In her small national expenditure Switzerland possesses an advantage which great nations could only attain if they, like Switzerland, resolved themselves into mere municipalities and thus exposed their nationality to foreign attacks.

That Spain acted foolishly in preventing the exportation of the precious metals, especially since she herself produced such a large excess of these articles, must be admitted by every reasonable person. It is a mistake, however, to attribute the decline of the industry and national well-being of Spain to her restrictions against the importation of manufactured goods. If Spain had not expelled the Moors and Jews, and had never had an Inquisition; if Charles V. had permitted religious liberty in Spain; if the priests and monks had been changed into teachers of the people, and their immense property secularised, or at least reduced to what was actually necessary for their maintenance; if, in consequence of these measures, civil liberty had gained a firm footing, the feudal nobility had been reformed and the monarchy limited; if, in a word, Spain had politically developed herself in consequence of a Reformation, as England did, and if the same spirit had extended to her colonies, a prohibitive and protective policy would have had similar effects in Spain as it had in England, and this all the more because at the time of Charles V. the Spaniards were more advanced than the English and French in every respect, and the Netherlands only (of all countries) occupied a more advanced position than Spain, whose industrial and commercial spirit might have been transferred to Spain by means of the protective policy, provided that the institutions and conditions of Spain were such as would have invited foreign talents and capital to her shores, instead of driving her own native talents and capital into foreign countries.

To what causes England owes her manufacturing and commercial supremacy, we have shown in our fifth chapter.

It is especially owing to her civil, mental, and religious liberty, to the nature and excellence of her political institutions, that the commercial policy of England has been enabled to make the most of the natural riches of the country, and fully to develop the productive powers of the nation. But who would deny that other nations are capable of raising themselves to the same degree of liberty? Who would venture to maintain that nature has denied to other nations the means which are requisite for manufacturing industry?

In the latter respect the great natural wealth in coal and iron which England possesses has often been adduced as a reason why the English are specially destined to be a manufacturing nation. It is true that in this respect England is greatly favoured by nature; but against this it may be stated that even in respect of these natural products, nature has not treated other countries merely like a stepmother; for the most part the want of good transport facilities is the chief obstacle to the full utilisation of these products by other nations; that other countries possess enormous unemployed water power, which is cheaper than steam power; that where it is necessary they are able to counterbalance the want of coal by the use of other fuels; that many other countries possess inexhaustible means for the production of iron, and that they are also able to procure these raw materials from abroad by commercial exchange.

In conclusion, we must not omit here to make mention of commercial treaties based on mutual concessions of duties. The school objects to these conventions as unnecessary and detrimental, whereas they appear to us as the most effective means of gradually diminishing the respective restrictions on trade, and of leading the nations of the world gradually to freedom of international intercourse. Of course, the specimens of such treaties which the world has hitherto seen, are not very encouraging for imitation. We have shown in former chapters what injurious effects the Methuen Treaty has produced in Portugal, and the Eden Treaty has produced in France. It is on these injurious effects of reciprocal alleviation of duties, that the objections of the school to commercial treaties appear principally to be founded. Its principle of absolute commercial liberty has evidently experienced a practical contradiction in these cases, inasmuch as, according to that principle, those treaties ought to have operated beneficially to both contracting nations, but not to the ruin of the one, and to the immense advantage of the other. If, however, we investigate the cause of this disproportionate effect, we find that Portugal and France, in consequence of those conventions, abandoned in favour of England the progress they had already made in manufacturing industry, as well as that which they could expect to make in it in the future, with the expectation of increasing by that means their exportation of natural products to England; that, accordingly, both those nations have declined, in consequence of the treaties thus concluded, from a higher to a lower standpoint of industrial development. From this, however, it merely follows that a nation acts foolishly if it sacrifices its manufacturing power to foreign competition by commercial treaties, and thereby binds itself to remain for all future time dependent on the low standpoint of merely agricultural industry; but it does not in the least follow from this, that those treaties are also detrimental and objectionable whereby the reciprocal exchange of agricultural products and raw materials, or the reciprocal exchange of manufactured products, is promoted.

We have previously explained that free trade in agricultural products and raw materials is useful to all nations at all stages of their industrial development; from this it follows that every commercial treaty which mitigates or removes prohibitions and restrictions on freedom of trade in such articles must have a beneficial effect on both contracting nations, as e.g. a convention between France and England whereby the mutual exchange of wines and brandies for pig-iron and coal, or a treaty between France and Germany whereby the mutual exchange of wine, oil, and dried fruit, for corn, wool, and cattle, were promoted.

According to our former deductions, protection is only beneficial to the prosperity of the nation so far as it corresponds with the degree of the nation's industrial development. Every exaggeration of protection is detrimental; nations can only obtain a perfect manufacturing power by degrees. On that account also, two nations which stand at different stages of industrial cultivation, can with mutual benefit make reciprocal concessions by treaty in respect to the exchange of their various manufacturing products. The less advanced nation can, while it is not yet able to produce for itself with profit finer manufactured goods, such as fine cotton and silk fabrics, nevertheless supply the further advanced nation with a portion of its requirements of coarser manufactured goods.

Such treaties might be still more allowable and beneficial between nations which stand at about the same degree of industrial development, between which, therefore, competition is not overwhelming, destructive, or repressive, nor tending to give a monopoly of everything to one side, but merely acts, as competition in the inland trade does, as an incentive to mutual emulation, perfection, and cheapening of production. This is the case with most of the Continental nations. France, Austria, and the German Zollverein might, for instance, anticipate only very prosperous effects from moderately low reciprocal protective duties. Also, between these countries and Russia mutual concessions could be made to the advantage of all sides. What they all have to fear at this time is solely the preponderating competition of England.

Thus it appears also from this point of view, that the supremacy of that island in manufactures, in trade, in navigation, and in her colonial empire, constitutes the greatest existing impediment to all nations drawing nearer to one another; although it must be at the same time admitted that England, in striving for this supremacy, has immeasurably increased, and is still daily increasing, the productive power of the entire human race.