Some Aspects of the Tariff Question

The exports of iron and steel fall into two classes. First, those of the more highly manufactured articles, very various, and made by many and scattered producers. These began to go out even before 1870, and continued to be sent to foreign countries through the whole period. The trade expanded steadily though slowly in 1870-1890, and very rapidly after 1890. Second, the exports of the heavier and less highly manufactured forms, such as steel in ingots, and shapes, wire, rails and structural material. These went out in considerable quantities during the latter part of the decade 1890-1900, and in still greater quantities after 1900. They have been largely sold to the foreigners by the great Steel Corporation. Moreover, many of them have been deliberately and steadily sold at lower prices than those for the domestic market. They have been “dumped,” and they raise the general questions connected with dumping.

The first group contains, as already intimated, a varied and miscellaneous set of commodities. Among them are builders’ hardware, saws and tools, machinery, cash registers, typewriters, sewing machines, electrical machinery and apparatus, locomotives. In the same group belong (though not included among “iron manufactures” in the Treasury statistics) agricultural implements and machinery, of which the exports in the decade 1900-1910 ranged from 20 to 30 millions. All these articles have been sold to foreigners, year in and year out, through several decades. They have not been deliberately dumped; neither have they been sold sporadically, or under exceptional conditions. They have been exported continuously in large quantities by many competing manufacturers.
*56

For this sort of trade there can be only one explanation. The things are made cheaper by Americans than by their foreign competitors, and therefore sold cheaper. In them we have a comparative advantage. Though paying higher wages than European competitors, the American manufacturers, by producing more effectively, turn out their goods at lower money price. The variety of the causes of effectiveness in this case illustrates what was said in the introductory Part 1
*57 on the intricacies of the principle of comparative cost. Mechanical skill and ingenuity among the inventors and technical directors; organizing and managing capacity among the business leaders; steady and intelligent operation of the machinery on the part of the rank and file in the workshops,—all these count. I suspect that mechanical ingenuity is the most important factor. Much also is due to the marked ability of the American business man in managing a well-devised plant and turning out steadily a large quantity of uniform, standardized, perfected articles. It is significant that tools and implements of all kinds, made in turn with much use of other tools and implements, form the largest items in these exports.

These things are cheaper in the United States than in foreign countries; this explains why they are exported. But cheapness may mean, not absolutely lower price, but better quality,—price low, having regard to quality. American sewing machines and agricultural implements may not be lower in price than foreign, but they are more advantageous at the sane price or even at a higher price. Such I suspect to be the case with the American locomotives, which are sent out in such considerable quantities. Our own geographical and industrial situation, and the skill which our people have long shown in adapting transportation methods to long hauls and thin traffic, have caused locomotives to be developed which are fitted for use in other countries where the traffic conditions are similar. But it does not matter what form the superiority of the American article takes, whether that of absolute cheapness or of cheapness relatively to quality. In either case there is proof of effectiveness in the application of American labor. To repeat, there is a comparative advantage.

During the period before 1895 the exports of these manufactures were impeded in some degree by the fact that the most important materials used—the crude iron and steel—were dearer in the United States than in competing countries. That the exports went on notwithstanding this obstacle is in itself striking proof of the superiority developed by the American producers who made the articles from these dearer materials. As we have seen, crude iron and steel became cheaper in the United States after 1895; often quite as cheap as in foreign countries, and, if dearer at all, only by an excess small as compared with that of the previous period. It is natural, therefore, that these exports should have grown rapidly. No doubt, other causes also contributed to the growth,—still further development in invention and organization, and the general economic causes which have led to a check in the exports of agricultural produce and to an increase in those of manufactures. The increase at all events was striking, and confirms beyond question the conclusion that these exports rest on a well-established superiority in the effectiveness of American industry.

Among the curiosities of tariff experiences is the attitude which the manufacturers of these exported articles often take toward the tariff. It is nothing less than a curiosity. One would expect them to be at the least indifferent to the protective system. Yet commonly enough they appear among its advocates. Many of them are found to join the procession of persons who appear before tariff committees and commissions and plead for the retention of high duties. The main explanation probably is the general state of trepidation engendered by a long-continued policy of protection,—the constant proclaiming of the dangers of foreign competition, and the parading of the pauper labor argument, which always seem to strike a chill of terror into employers as well as employed. Mere ignorance of what is really the situation in other countries, and lack of capacity or training for seeing anything but the surface phenomena, play no small part. Competition of any sort is unwelcome enough; competition from foreigners seems always to be regarded with peculiar dread. Even though domestic producers in fact have nothing to fear from it, the constant vaunting about the dangers from foreign competition leads to a demand for the retention of supposed safeguards. One of the unfailing concomitants of a long-established protective tariff is that though duties may be needlessly high for the exclusion of foreign competitors, reductions will be vehemently resisted; and that even when the duties are of no effect at all,—nothing more than empty phrases inscribed on the statute-book,—their abolition will be no less vehemently resisted. Such we shall find to be the case with some of the duties on textiles, presently to be considered. Such was the case with duties on grain and other agricultural products. The same state of vague apprehension goes far to explain the opposition of the manufacturers who export tools and implements to the pruning of duties on their products.

A typical situation is that with regard to “machine tools,”
i.e., tools for working metals. They are invented and perfected in the United States beyond the stage attained elsewhere, and are steadily exported in large quantities. The makers of such tools accepted without opposition a reduction in the rate of duty in the tariff act of 1909 (from the previous duty of 45 per cent to one of 30 per cent in 1909) but protested against further reductions in later years, nay even intimated a regret at having accepted the reduction of 1909. Though the imports were insignificant, and the exports considerable, the domestic manufacturers were fearful of the consequences of free admission. In part they seem to have been influenced by a fear that their tools, after being exported, would be imitated abroad, and then sent back at lower prices, to plague their very inventors. But their own testimony was that the American makers continued to keep steadily in the van, and to forge ahead as rapidly as foreign rivals pressed on behind them. No better illustration could be found of the non-physical causes of a comparative advantage. The superiority of the Americans rests solely on ingenuity, skill, constant progress. It is at once an effect and a cause of the machine-using bent in the community at large. This bent has aroused a demand for machines for making machines,
i.e., for these metal-working tools; and the high quality and comparative cheapness of these tools has in turn promoted the cheapness and the wide use of the most various sorts of labor-saving implements. And yet, notwithstanding the clear superiority of the domestic producers, shown not only by the large exports, but by the pride of the producers in their position in the international market, these very persons showed themselves uneasy at the prospect of open competition with the foreigners.
*58

An examination of the details in particular cases often shows that here also there are cross-currents; that some tools or machines are imported, while others are exported; and that the superiority of the American producer does not always extend through the whole range of the particular industry. And yet these apparent exceptions will usually be found not to run counter to the principle of comparative costs, but rather to illustrate it.

Thus, while sewing machines are exported in great quantities, some sewing machines are imported. The familiar machine for domestic use is made in the United States more cheaply than in foreign countries, even though the machinery and the methods in the latter seem to be quite the same and money wages and expenses are lower.
*59 But certain special machines,—for embroideries and for factory work,—continue to be imported. The explanation seems to be that few of any particular kind are wanted; the processes of manufacture cannot be standardized; the turning out of interchangeable parts by the thousand is not feasible. Handwork is called for in greater degree. Under such conditions the special advantage of the American producer disappears. The situation is a familiar one. Where ingeniously perfected machinery can be applied in large-scale operations, the American is likely to hold his own; but where handicraft skill is needed for a special article, he cannot compete with a country where such skill is as great and where current wages are lower.
*60

Similarly, knitting machines are both imported and exported. A circular automatic machine has been perfected in the United States, and is widely made here and used for the commoner and cheaper grades of cotton knit goods; it is even exported. But a very elaborate German machine for knitting full-fashioned goods continues to be imported; because the fabrics for which it is used are more expensive, less quantities are bought, and hence fewer of the knitting machines are used. Made as they are in comparatively small quantities, the machines are turned out more cheaply in Germany, and most of them are imported; and yet none of the widely used circular machines are imported.
*61

Illustrations are abundant; at the risk of being tedious, I will mention a few more. Anvils continued to be imported through the period of high protection, notwithstanding a heavy specific duty. The imported anvils, made largely from scrap-iron, are hand-welded. Unless so made, they do not give an easy rebound, and the blacksmith who uses steadily one of a different kind finds his arm stiffening (a “glass arm”). Cast-iron anvils are made in the United States, turned out in quantities from well-designed models. They serve well enough when only occasional use is called for. Wrought anvils are also made in the United States, but of cheaper quality and in the lighter weights. For steady blacksmith’s work the imported anvils are preferred; and they have continued to be imported, under high duties as well as under low.
*62 Files, on the other hand, are equally good whether turned out by hand in small quantities or by machine in great quantities. The machine-made files have displaced the hand product, except where a few files of special kinds are wanted. Files are not only made with success in the United States, but are exported on a large scale; while a few hand-made files of special sizes or shapes continue to be imported.
*63

Some kinds of cutlery, again, are steadily imported; others are not imported at all. Pocket knives are brought in from England and from Germany, and one of the curious manifestations of extreme protectionist spirit during the period 1890-1909 was in the elaborate duties on this article.
*64 Table cutlery, on the other hand, is supplied by the domestic manufacturer without competition from the foreigners; hence there was no attempt to levy particularly high duties on this kind of hardware. The explanation of the difference between the two groups is clear. Table cutlery, and more especially table knives, are made in great quantities of a single pattern. Automatic machinery, interchangeable parts, standard patterns, mass production,—here the Americans can outstrip the foreigners. Pocket knives, on the other hand, are little standardized. There is a bewildering variety of patterns; comparatively small numbers of any one can be put on the market. A similar situation is found in the case of carving knives. The Sheffield manufacturer of these (a petty producer compared to the American table knife concern) can hold his own in the American market even in face of high duties; so can the German “manufacturer,” who is in the main a middleman conducting an industry still in the stage of the domestic system. Hence it is that carving knives, unlike table knives, continue to be imported, vying with the protected American article. And for the same reasons, certain kinds of pocket knives and carvers nevertheless have complete command of the domestic market, and were not affected at all by the marked reductions of duty made by the tariff act of 1913,—namely, those of a standardized and staple sort, made in quantities, and affording opportunity for the methods of production in which the American is proficient.
*65

The second group of iron and steel products,—steel rails, pipe, sheet iron, corrugated iron, structural steel, wire, and the like, have been exported since the decade 1890-1900. It was then that the revolution in the American iron trade was accomplished; and it was during the severe depression of 1893-96, and in consequence of the low prices then ruling in the United States, that the exports of these comparatively heavy products set in. The causes which led to their cheapening and which made it possible to sell them in foreign markets have been sufficiently explained in the preceding chapters,—rich and accessible mines, transportation at low rates, efficient organization of production on a great scale, technical advances. They differ in some respects from the causes that explain the exports of machinery and tools. Ingenuity and nicety in the finished product tell less, organization of the processes of production tells more. Yet in both cases the source of the comparative advantage has been chiefly in the human factors, and among these again in the ability and enterprise of the business leaders.

In the second group, however, still another factor has been of influence: persistent and systematic development of the foreign market by the dominant Steel Corporation. In that development, again, dumping has played a large part,—deliberate and continuous sales to the foreigner at lower prices than those charged to the domestic purchaser. Dumping alone would not explain the phenomenon. Even with the special concessions, sales to the foreigner could hardly take place unless the usual price of the article were close to the export level. But the concessions may just make the difference; without them, the exports might not be possible; and they raise the whole question whether a country gains from foreign sales brought about in this way.

The part played by the Steel Corporation has been surprisingly large. Great as is the scale of operations by some of the other iron and steel enterprises, no one of them has undertaken to cultivate the foreign field with the same enterprise and tenacity. Before the Steel Corporation was formed some of its constituent companies,—the Carnegie, the Federal Steel, the American Wire companies,—had established foreign agencies and had begun export sales. In 1903,—a year of depression and low prices in the iron trade,—a special subsidiary company of the Steel Corporation, the United States Steel Products Company, was formed for handling all of its foreign business. The business done by that Company has been by the million. It had (in 1912) some fifty-eight foreign offices, and large warehouses in England, South America, Australia, South Africa; it possessed a line of steamships of its own, and operated others under charter. Its export sales included steel rails, structural steel, pipe, wire, sheet-iron, and in recent years tin plate. Some of these articles were exported by other companies also, such as steel rails and structural steel; but none operated on a scale comparable to that of the Steel Corporation.
*66 Some goods were sold abroad at prices no less than those at home,—
i.e., were not dumped at all. Among those were fencing wire, especially barbed wire,—a peculiarly American product, comparable to the iron and steel manufactures of our first class. But it seems that ordinarily the sales to foreigners were at reductions from the current domestic rates. One curious form of dumping was that of “allowances” to domestic manufacturers who bought material from the Steel Corporation for use in making articles which those manufacturers later exported, such as machinery, boilers, agricultural implements, or “containers” (
e.g., tin plate for canned goods). Such manufacturers, on proof of actual export,—of the sort required by the government before granting a drawback for import duties paid, were given rebates from the usual domestic prices.

Two sorts of questions present themselves: one, whether a country gains by dumping or loses by being dumped on; the other, how it comes about that dumping takes place at all.

On the first question, the drift of protectionism and mercantilism is naturally in favor of dumping. It is in accord with protectionist reasoning to regard exports and devices for increasing exports with favor. Imports are thought presumably harmful to a country, exports presumably beneficial. The Steel Corporation’s representatives, when testifying before Congressional committees and before the courts, have not failed to parade with pride this part of their operations, confident that they would be thought herein to have deserved well of the country. The average man beyond question would approve, and so would the average writer on financial and economic topics.

It is part of the same general attitude that, conversely, dumping is resisted by the countries into which the articles are sent, at least when there are in those countries competing industries. The protectionist approves when his own country dumps, but is alarmed and indignant when the foreigner resorts to the same practice. Our government laid a countervailing duty on sugar during the period when the countries of continental Europe gave bounties on the export of sugar. Canada embodied an antidumping clause in her tariff legislation of 1904 and 1907.
*67 Our own tariff act of 1909 contained a sweeping section levying additional duties equal to any and every export allowance or bounty by foreign countries: and the same provision was made in the act of 1913.

On the principles involved in this first question, I am unable to do better than repeat what I have said elsewhere:
*68—

” ‘Dumping’ I take to mean the disposal of goods in foreign countries at less than normal price. It can take place, as a long-continued state of things, only where there is some diversion of industry from the usual conditions of competition. It may be the result of an export bounty, enabling goods to be sold in foreign countries at a lower price than at home. It may be the result of a monopoly or effective combination, which is trying to keep prices within a country above the competitive point. Such a combination may find that its whole output cannot be disposed of at these prices, and may sell the surplus in a free market at anything it will fetch,—always provided it yields the minimum of what Professor Marshall happily calls ‘prime cost.’

“Now, if this sort of thing goes on indefinitely, I confess that I am unable to see why it can be thought a source of loss to the dumped country; unless, indeed we throw over all our accepted reasoning on international trade and take the crude protectionist view
in toto. If one country chooses to present goods to another for less than cost; or lets its industrial organization get into such condition that a monopoly can levy tribute at home, and is then enabled or compelled by its own interests to present foreign consumers with goods for less than cost,—why should the second country object? Is not the consequence precisely the same, so far as that other country is concerned, as if the cost of the goods had been lowered by improvements in production or transportation, or by any method whatever? Unless there is something harmful
per se in cheap supply from foreign parts, why is this kind of cheap supply to be condemned?

“The answer to this question seems to me to depend on the qualification stated above—
if this sort of thing goes on indefinitely. Suppose it goes on for a considerable time, and yet is sure to cease sooner or later. There would then be a displacement of industry in the dumped country, with its inevitable difficulties for labor and capital; yet later, when the abnormal conditions ceased, a return of labor and capital to their former occupations, again with all the difficulties of transition. It is the temporary character of dumping that gives valid ground for trying to check it.

“A striking case of this sort has always seemed to me to be that of the European export bounties on sugar which for so long a period caused continental sugar to be dumped in Great Britain. These bounties were not established of set purpose. They grew unexpectedly, in the leading countries, out of a clumsy system of internal taxation. They imposed heavy burdens on the exchequer, as well as on the domestic consumer, in the bounty-giving countries; and they were upheld by a senseless spirit of international jealousy. Repeated attempts to get rid of them by international conferences show that the cheap supply to the British consumer, and the embarrassment of the West Indian planter and the British refiner, rested not on the solid basis of permanently improved production, but on the uncertain support of troublesome legislation. It might well be argued that these conditions would come to an end sooner or later. The longer the end was postponed, the worse was the present dislocation of industry and the more difficult the eventual return to a settled state of things. No doubt these were not the only considerations that in fact led Great Britain, the one great dumping ground, to serve notice that she would impose import duties equal to the bounties, unless these were stopped. Perhaps this decisive step would have been taken even if it had appeared that the bounties were to continue as a permanent factor in the sugar trade. But it is in their probably temporary character that the sober economist finds justification for the policy that led to their abolition. At all events there is tenable ground for arguing that Great Britain, in causing them to be stamped out, acted not only in the interest of the much-abused consumers of sugar on the Continent, but in the permanent interests of her own industrial organization.”

These principles should be borne in mind, and at the same time may be subject to qualification, when we turn from the simplest case,—that of dumping in consequence of export bounties or the like,—to the more complicated case where goods are sold abroad at lower prices quite without public subsidy. Here it is not so easy to answer our second question,—how does it happen that sales are made to foreign purchasers at lower prices than to domestic? How explain the phenomenon?

The precise phenomenon now under consideration, it must be remembered, is the disposal of part of a supply at a lower price than is got for the bulk of it. It is quite different from another phenomenon, common enough, and often called “dumping,”—throwing the whole of a supply on the market and disposing of it for whatever it will fetch. It is the discrimination in price which calls for explanation, and especially the discrimination in favor of foreigners. This again seems to be of two kinds: sporadic and irregular, or continuous and deliberate. The explanation would seem to be different according as it is of the one kind or the other.

Sporadic dumping commonly takes place by the disposal of part of a supply in some out-of-the-way market, while yet the accustomed price is maintained in the usual markets. It is part of the halting process by which the equilibrium of demand and supply is brought about; one of many instances to show that the results which the economist thinks probable or certain come to pass not smoothly or promptly but by slow and irregular steps. “Fair prices” and “square dealing” play a larger part in everyday transactions than is apt to be admitted by the economist, skeptical as he is about the pseudo-morals of trade. A manufacturer thinks it “fair” to treat his regular customers with equality, and not to sell to one at lower rates than to another; and conversely the customers expect him to treat them “right.” Moreover, the prices of many goods, more particularly of specialties and articles having a brand or trade-mark, are much influenced by tradition and custom. The producer of such an article strives with all his might to maintain the traditional price, even though it proves difficult to sell the whole of his output at that price. Hence when there is a hitch in disposing of the entire current supply, he will welcome a chance to “dump” in some unfamiliar market. The temptation to do so comes the more frequently and pressingly under the conditions, usual in modern industry, of large plant and heavy overhead charges. If the prime cost (“direct” or “productive” expense) is got back at these low-price sales, and if total cost or “fair price” can be maintained in the usual sales, there is a net gain from this sort of dumping. It may take place within a country as well as through the export trade; but it seems to be more likely in the latter. Where indeed exports take place regularly and on a considerable scale, there is no greater probability of special concessions to the foreigners than to out-of-the-way domestic purchasers. But where the export is occasional and irregular, it affords a tempting opportunity for sporadic dumping. The market at home—the main one—is not “spoiled.” All this will not prevent an eventual collapse of the traditional domestic prices, if the supply is steadily larger than can be sold at those prices; but it staves off the collapse, and if the condition of oversupply is but temporary, may serve to tide over a period of depression without “breaking” the market. Shrewd business men have questioned whether it is good policy;
*69 but there seems to be a strong recurrent temptation to relieve the general market in this way.

Continuous and steady dumping is a different matter. And it does take place. Sales at lower prices are made to foreigners, not only sporadically, but for long periods and systematically. This phenomenon would seem to be explicable only on another ground,—that of monopoly. Where there are competing producers, no one of them will steadily accept lower prices than the others. Each will be desirous of selling in the most advantageous market. There will be dumping of the sporadic sort only, by one of the competitors or by several of them, at times when the total output is not easily carried off at remunerative prices. The more effective is competition, the more standardized the article, the less likely is even sporadic dumping. On the other hand, the more removed the conditions are from those of smooth-working competition,—to the degree that there is influence from brands, specialties, quasi-monopoly, complete monopoly,—the more is there likely to be departure from a uniform market price, and the more likely is it that discrimination and dumping will appear.

Dumping due to monopoly is simply one form of the discriminations in price which appear under monopoly conditions, and which are familiar to economic students.
*70 The monopolist sells at high prices where he can, and accepts lower prices where he must. If there are protective duties or other factors within the country (such as advantages of location) which prevent competition from foreigners, a higher price may be got by the monopolist at home than is secured in the foreign market where competition operates without restriction.

Such would seem to be the explanation of a large part of the export business of the Steel Corporation. Much of that business is secured by systematic dumping. Though part of the Corporation’s export is similar to that of the strictly competitive iron and steel articles, a substantial part is to be explained on the ground of monopoly. The monopoly is not an iron-clad one, nor is the price secured in the domestic market such as would appear under full monopoly. It is a quasi-monopoly price, not a strict monopoly price. But that price has been a profitable one, somewhat higher than could have been maintained under really effective competition. Much the same seems to be the situation in Germany, under the Stahlwerksverband. There, too, combination has kept the prices of many iron and steel products above the competitive range; though the combination has taken the form of the Kartell,—the strictly-enforced agreement of quasi-independent producers,—not that of the domination of the market by one great consolidated concern. There, too, export prices have been steadily lower than domestic prices. And in both countries the discrimination is approved by the protectionists: high prices within the country, and large exports stimulated by lower prices without, are alike welcome under their philosophy.

It is often maintained that lower prices to foreigners are in no way disadvantageous to the domestic consumers; they enable the business to be carried on continuously, keep the working force intact and employed, lessen the overhead charges per unit, and so on. The reasoning is specious, but not tenable. All these same desirable results would be attained if the reductions in price were made to favored domestic purchasers, not merely to foreigners. Yet if made to a special knot of domestic purchasers, the question would at once be asked, why not equally to all? Why not lower the price for everybody, to the extent needed in order to dispose of the whole output? Then there would also be continuous operation, steady employment of workmen, reduction of overhead charges, and so on. Lurking under the advocacy of this sort of dumping, there is almost always an express or implied premise of a mercantilist character,—that international trade is a thing quite by itself, and that exports cause an advantage of a special sort, not to be secured by any commonplace sales within the country.

The argument that monopoly conditions explain the case may be put in another way. The domestic price (higher than the export price) may or may not be a “fair” or normal price, that is, such a price as would bring the usual rate of profit, and would be maintained under competitive conditions. If it is a fair price, then the foreign price being lower, is less than fair. In the long run, the business as a whole then would prove a losing one; the domestic business just pays, the foreign business does not pay. Then surely the low foreign price would not be indefinitely maintained; such dumping could not go on. Or the foreign price may be not less than “fair,” but quite a sufficient one,—enough to bring the normal profit, overhead charges and all being reckoned in. In this case only will the dumping be steady and continuous. But in this case the domestic price, being higher, is necessarily
more than “fair”; and the permanent maintenance of a domestic price higher than normal indicates that competition is not free,—that there is some approach to monopoly conditions.

In all such discussion, we are confronted with the question,
is there a “fair” profit or a “normal” price? Is the notion applicable to such industries as the iron and steel manufacture of our day? Is there a representative firm or a representative outfit whose expenses of production can be said to be normal? How much allowance must be made, in an unbiased and careful process of cost measurement (say in an inquiry conducted by a government bureau) for depreciation, risk, obsolescence, the reward of capable management? The striking thing is that those engaged in the industries speak without hesitation about ascertainable cost and reasonable price. They aver, for example, that the price of twenty-eight dollars a ton so long maintained for steel rails was no more and no less than a fair price. The truth seems to be that they have in mind very much what the economist has in mind; not something which is ascertainable with strict accuracy,—even the most refined system of cost accounting gives at best a basis for inferences,—but a rough approximation. The cost figure is of service, so far as concerns matters of public policy, mainly in checking
marked deviations from a reasonable price. With reference to steel rails, for example, the manufacturer who maintained that under the conditions of the period 1900-1910, $28 was a fair price, would doubtless admit that $27 or $29 might with equal plausibility be considered fair. Who could say in advance how things would turn out in the long run? How much would have to be allowed for depreciation, running at half-time, contingencies of all sorts? What is the normal or reasonable rate of return in a manufacturing industry of this kind? A public body (say a Trade Commission) charged with ascertaining and fixing a fair price could not possibly do more than settle an approximate standard. Our manufacturer would probably admit at once that $35 would be clearly more than fair, and $20 clearly less than fair; and as to the figure of $28, would merely say that it was “about right.”

The steel rail situation, as it happens, illustrates in more ways than one the various possible phases of dumping and its concomitants; not only the connection between dumping and monopoly, and the difficulty of gauging the “fair” price, but the shifts in industrial conditions which necessarily affect the approximated reasonable price. That domestic price of $28 a ton, long maintained and unvarying:
was it “fair”? If so, the foreign price was less than fair; and then rail making as a whole was conducted at a loss. If the foreign price (less than $28) was itself fair, then the domestic price was more than fair, and rail making as a whole was more than sufficiently remunerative. For a large part of the period during which the fixed price was kept up, the latter probably was the case; the industry, though not exorbitantly profitable, yielded more than a normal competitive return. As the years went on, however, the situation shifted. With the general advance in prices, expenses of production rose, and profit became less. The consequent gradual shaving of the margin of gain appears to have proceeded so far by the close of the decade (about 1910) that the $28 price was but little more than fair, and the foreign perhaps something less than fair. The business as a whole was very likely stripped of any marked monopoly profits; the two sets of prices averaged “about right,” and were maintained at their divergent rates largely through inertia. The process by which this outcome was reached was insidious, and alike unexpected and unwelcome to the rail makers. Yet the established policy of a fixed domestic price, the fear of public discussion about a rise in price, the higgling of the market as regards foreign prices, a disposition to go slow and await a possible turn in the tide of rising expenses,—these might explain an acquiescence through a considerable period in a situation quite at variance with what had been expected from the dumping policy.

It must not be supposed that all of the export business done by the Steel Corporation was or is at reduced prices, or is explicable solely on the grounds just stated. Many of the articles are sold abroad because they are cheap at home also. This seems to be the case with wire and especially wire fencing, in which American ingenuity and adaptiveness play the same part as in tools and machines. So it seems to be, in part at least, with structural steel and bridge-work. Structural steel for buildings, for example, is not supplied by the Steel Corporation at lower price than those quoted by its competitors in foreign countries; but it is lighter and better designed, and preferred even at the same or a higher price.
*71 A considerable part is played by skill and persistence in merchandizing,—by steady and well-planned cultivation of the foreign market. Not a little is due to the economies from a great and varied business. In many foreign places it is worth while to maintain agencies and to make considerable shipments only where a variety in products enables considerable sales to be rolled up. Here are the advantages of large-scale production; advantages, to be sure, which can be secured not merely by size, but by skilful management. It is not to be denied that ability in management has played a large part in the development of this part of the Steel Corporation’s business. Here, as elsewhere, leadership and organization have been important factors in bringing about the conditions of comparative advantage.
*72

To conclude: The extraordinary growth of iron and steel exports since the beginning of the twentieth century seems explicable in the main on the ground of comparative advantage. No doubt, in some branches of trade it has been promoted by dumping. But most of the exports rest on a more solid basis,—effectiveness of labor, cheapness or high quality of the product. That effectiveness of labor, again, rests only in part on the rich natural resources of coal and iron. The most important factors are the qualities of the industrial leaders: mechanical ingenuity, skill in organization and management, the utmost utilization of the advantages of large-scale production.