Source: This article first appeared in the Dictionnaire d'Économie Politique, ed. Guillaumin and Charles Coquelin (Paris: Guillaumin, 1852) and was translated into English and included in Lalor's Cyclopedia of Political Science, Political Economy, and of the Political History of the United States by the best American and European Authors, ed. John J. Lalor (Chicago: M.B. Carey, 1899) in Vol 3 Oath - Zollverein Chapter: PROTECTION. RESTRICTIONS UPON FREEDOM OF EXCHANGE
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Gustave de Molinari (1819-1912) was born in Belgium but spent most of his working life in Paris, becoming the leading representative of the laissez-faire school of classical liberalism in France in the second half of the nineteenth century. His liberalism was based upon the theory of natural rights (especially the right to property and individual liberty), and he advocated complete laissez-faire in economic policy and the ultraminimal state in politics. During the 1840s he joined the Société d’économie politique and was active in the Association pour la liberté des échanges. During the 1848 revolution he vigorously opposed the rise of socialism and published shortly thereafter two rigorous defenses of individual liberty in which he pushed to its ultimate limits his opposition to all state intervention in the economy, including the state's monopoly of security. During the 1850s he contributed a number of significant articles on free trade, peace, colonization, and slavery to the Dictionnaire de l'économie politique (1852-53) before going into exile in his native Belgium to escape the authoritarian regime of Napoleon III. He became a professor of political economy at the Musée royale de l'industrie belge and published a significant treatise on political economy (Cours d'économie politique, 1855) and a number of articles opposing state education. In the 1860s Molinari returned to Paris to work on the Journal des debats, becoming editor from 1871 to 1876. Toward the end of his long life Molinari was appointed editor of the leading journal of political economy in France, the Journal des économistes (1881-1909). Some of Molinari’s more important works include Les Soirées de la rue Saint-Lazare (1849), L'Évolution économique du dix-neuvième siècle: Théorie du progrès (1880), and L'Évolution politique et la révolution (1884).
PROTECTION. RESTRICTIONS UPON FREEDOM OF EXCHANGE. I. Fiscal Duties or Duties for Revenue only. Notwithstanding the evident advantages of freedom of exchange, it has been restricted by two kinds of measures, fiscal and prohibitory ones. We shall first consider the former.
—It is easy to conceive how exchanges came to be restricted with a view to the wants of the treasury. As soon as avenues of communication began to be opened and exchanges to multiply governments began to perceive that it was both possible and profitable to tax articles which found a market through the new ways. At first the tax was a simple toll for meeting the expense of maintaining the roads worn by the transportation of merchandise: soon it served also to reimburse the treasury for other public services, among which may be counted the security afforded those making the exchanges. But, in imposing a tax of this kind, the end in view was not the restriction of trade, it was simply to procure as much money as possible for the treasury, and this fiscal end could not be attained without trade being hampered thereby.
—Unfortunately, a good financial course was rarely adopted. In the middle ages, for example, every country was divided up into a multitude of little seignories or chatellanies, whose proprietors arrogated to themselves the right of taxing the exchanges within their territorial limits. These artificial obstacles, being interposed in addition to the natural obstacle of distance, resulted in such an interception of the exchanges as prevented the extension of trade. Consequently, the industries, being confined to the chatellany or the commune for a market, long remained in an undeveloped state. As the means of production could not be developed, wealth and civilization made no progress, save on the seacoasts and along the great rivers, where fewer obstacles impeded free circulation.
—Later, the feudal system having disappeared, the number of tolls was diminished, and there was at the same time augmented security of communication. The sphere of the exchanges at once became enlarged, a better division of labor became possible, and public wealth developed as if by enchantment. The establishment of the uniform tariff of Colbert in France, and the abolition of internal customs duties by the constituent assembly, contributed greatly to these results.
—In our day the octroi and excise duties, river tolls, tonnage duties, etc., in Europe, which directly affect the circulation of supplies, have a purely fiscal character. Until better means have been found for providing for the public expenses, or until the offices for which the tax furnishes the salaries are by degrees relegated to the domain of private industry, it will be difficult to find a substitute for these taxes. It is only to be regretted that they have become so numerous and are so exorbitant; for, by their excess, they hinder the growth of trade, retard progress in the division of labor, and consequently prevent, in no small degree, an increase of revenue to the treasury.
—Notwithstanding the hindrance to the development of trade, resulting from the establishment of fiscal taxes, the principle of these taxes can not be assailed. If they restrict the sphere of the exchanges, it is inevitable; but their object is not to restrict.
—II. Protective or Prohibitory Duties. Their character and effects. Protective or prohibitory duties have an entirely different character. These are established with direct view to limiting the sphere of exchange. They restrict in order to restrict. The governments which have persistently imposed them, apparently with the idea that the organization and development of the exchanges could not be safely left to the rule of Providence, have interposed "to regulate the matter." We shall see whether these organizers of the exchanges were well inspired. But let us first ascertain what are the defenses of the protective system.
—Considered as a whole, the protective or prohibitory system includes two kinds of impediments, viz., prohibitions or protective duties on the importation of merchandise, and prohibitions on its export. It includes also premiums awarded to the exporters or importers of certain classes of supplies. Finally, it has served as a basis for the colonial system, as well as for tariff agreements or commercial treaties.
—Prohibitions or protective duties imposed on imported merchandise, have for their object to favor the development of certain branches of national production at the expense of the same industries in foreign countries.
—Prohibitions against exporting are sometimes imposed in order to keep certain supplies, essential to the industries or to national consumption, at a low price, or to restrict foreign industries or foreign consumption.
—Premiums on export are pecuniary encouragement awarded to certain branches of national industry at the expense of other branches. Sometimes their object is to hasten the development of an industry deemed necessary, or to counteract the protective duties imposed by foreign countries. Sometimes, again, they are imposed simply as a remedy for a sudden panic. The drawbacks are premiums to reimburse the exporter of a manufactured product, for the tax paid on the raw materials imported. Premiums on importation are ordinarily of a transient character, in past times they were sometimes employed in cases of dearth, for example, to encourage the importation of food supplies.
—Customs agreements and commercial treaties are partial and temporary breaches of prohibitory tariffs, in favor of certain nations with which it is desired to maintain especially friendly relations.
—Prohibitions or protective taxes on importation constitute the principle weapon of the system. To obtain a clear idea of the manner in which they operate, let us take an example. Suppose the nation A annually furnishes the nation B a thousand tons of spun cotton. Why does B buy this cotton of A instead of spinning it itself? Because the manufactories of A are so situated and organized as to produce spun cotton in better quality and at lower price than manufactories in B could possibly do: because the nation A is more advantageously situated in respect to the conditions for the manufacture of cotton. If it were not so, cotton would be manufactured in B as well as in A. But here a statesman of B persuades himself that it would be useful to "ravish" this industry from the foreigner, and that the importation of cotton thread should be interdicted. Suppose this statesman can prevent the people of B from receiving the thousand tons of cotton which had been annually furnished them by A, as is possible if the frontier is easy to guard, and is provided with a sufficient number of proved and well-paid officers. Suppose he also promotes the erection of a certain number of mills in B for spinning cotton. Can he place these spinning mills under conditions of production as favorable as those of the mills of A? Can he cause cotton to be spun as well and as economically as in A? No; for he is not master of the natural conditions of cotton production: these he can not change. All he can do, is to prevent cotton which has been spun at low cost from entering B. There his power stops. The nation B now ceases to be "invaded" (this is the consecrated term of the prohibitionist's vocabulary) by the thousand tons of spun cotton from A. It makes its own cotton; but this cotton costs more than that of A, and is of a poorer quality; and less of it is consequently consumed. Before prohibition, the consumption of B took a thousand tons of spun cotton; after prohibition, it no longer takes more than six or seven tenths of this quantity; whence results a diminution, by this difference, in the total production of cotton. Suppose, now, that the nation A imitates the course of B, and prohibits, for example, the importation of spun flax, which it formerly received in exchange for its supplies of cotton. Flax will begin to be spun in A; but as it will be spun at greater cost than in B, and not so well, the total production of linen will in turn be diminished. Less will be produced by both nations, though with as great or greater expenditure of effort than before; and one country will not be as well provided with linen, and the other with cotton.
—At the time when this mischievous policy became the law in international relations, and every nation was trying to "ravish" manufactures from foreigners, a very spirited pamphlet was published in England, under the title "Monkey Economists." A vignette representing a barrack of monkeys served as a frontispiece. Half a dozen monkeys, placed in separate compartments, were coming to receive their regular allowance; but, instead of each one peaceably consuming the portion allotted him by his keeper, these animals were each maliciously attempting to "ravish" the portions of their neighbors, without perceiving that the latter were engaged in the same operation. Thus every one exerted himself to the utmost to obtain by stealth that which could have been easily found directly before him; and the common fund of subsistence was diminished by all that was wasted or lost in the scramble.
—Exactly such has been the conduct of governments which have adopted the errors of the prohibitory system. They have neglected the wealth which Providence bestowed upon them, to purloin that which had been allotted to their neighbors. They have, by their mischievous jealousy, rendered production more difficult and less abundant: they have retarded the growth of prosperity among the people. A statesman who imposes a prohibitory or protective duty, acts precisely the reverse of an inventor who discovers a new process for rendering production more economical and more perfect: he invents a way to render production more expensive and not so good: he invents a process which compels people to forsake fertile lands and productive mines, to cultivate bad lands and work poor mines. He is the reverse of an inventor: he is the agent of barbarism, as an inventor is the agent of civilization.
—This becomes still more evident when we examine the influence of the prohibitory régime on progress in the industries. Division of labor is the chief element of a low-priced market; the more labor is divided, the more the expense of production is reduced, and the more, consequently, prices are reduced. The demonstrations of Adam Smith on this point have become classical. But on what conditions can labor become more and more subdivided? On condition that it can find a continually widening market. "As it is the power of exchanging," said Adam Smith ("Wealth of Nations," book i., chap. iii.), "that gives occasion to the division of labor, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of market. * * It is impossible that there should be such a trade as that of a nailer in the remote and inland parts of the highlands of Scotland. Such a workman at the rate of a thousand nails a day, and three hundred working days in a year, will make three hundred thousand nails in a year. But in such a situation, it would be impossible to dispose of one thousand, that is, of one day's work, in a year." Division of labor, then, can be extended only as the market is increased. Hence everything that narrows the market must inevitably retard division of labor and industrial progress. Now, by systematically taking away from the most favored industries a part of their market, the prohibitory system compels manufacturers to reduce their scale of production, and to divide labor less. In cotton manufacture, for example, it would oblige the spinners to spin coarse and fine numbers at the same time, instead of confining themselves to a few numbers or to one alone. Thus production would become more costly and less perfect. It is true, however, that if prohibition contracts the business of the established firms, it gives rise to new ones. But what is the situation of these? Placed, relatively to their rivals, in unfavorable condition of production, they can not create a sale for their products outside of their own country. Now, this market is limited. An effort is made, it is true, to remedy its insufficiency by establishing premiums on exports, which will permit the protected industries to compete in the markets of their rivals. But, this proceeding being extremely costly and manifestly unjust, it can be employed only to a limited degree. On the one side, then, the industry situated under favorable natural conditions is injured; and on the other, establishments which prohibition has made to spring up artificially, find themselves so situated that they can not extend their market without imposing the most onerous sacrifices on the nation. Thus the artificial breaking up of the markets, occasioned by the prohibitory régime, has everywhere retarded division of labor, diminished progress in the industries, and at the same time perpetuated high prices.
—This is not all. High prices are not the only evil which the prohibitory régime has perpetuated, if not engendered. To this evil may be added another not less disastrous, viz., instability. The industries which prohibition makes spring up under unfavorable economic conditions, are continually exposed to fatal lesions. Let the prohibitory duty which permits their existence become lowered, or surveillance be less guarded on the frontiers, and they will infallibly be deprived of a part of their trade. They then suffer all the disasters which are consequent on industrial panics, and their very existence is compromised. They resemble those hot-house plants which perish as soon as one ceases to supply them with the fuel necessary to maintain their artificial existence. The condition of the national industries is no longer secure. They have nothing to fear, it is true, for their home market, for they are so situated as to defy foreign competition; but the markets they have been able to create abroad are essentially precarious. At any moment prohibition may take from them these markets, on which their existence in part depends. The prohibitory régime, then, causes production to be accompanied by risk, and this inevitably has a disastrous effect on the growth of industries as well as on the condition of the workman.
—Prohibitory taxes on exports are generally less important than others, but their effects are no more salutary. When recourse has been has to them, it has usually been in order to prevent or to restrict the exportation of articles of subsistence and certain raw materials essential to the industries of a country. Let us see how they operate. Two cases may occur: 1st, where the production of the article whose export is interfered with, is limited by nature; 2d, where it may be indefinitely increased. In the former case, which is the more rare, prohibition acts at first simply as a tax levied upon certain producers for the benefit of certain consumers. Suppose, for example, the French government should prohibit the export of the choicest French wines. What would result? It is not probable that a smaller quantity of these would be produced; but the producers, obliged henceforth to offer their whole vintage of these choice wines in the home market, would no longer derive as much profit from them. They would suffer for the benefit of a certain class of French consumers. Such would be the near effect of the imposition of the prohibitory duty. But the consumers would have to suffer in their turn. The best wines being taxed for the benefit of home consumers, the production of fine wines would be discouraged. No attempt would be made to improve the inferior wines, lest they should also be taxed. The home consumers would obtain, it is true, the best wines at a lower price; but they would have to renounce the advantages they might have received from an improvement in the inferior wines. The final result of it all would be that they would be more poorly provided with fine wines, and would have to pay more for them.
—In the second case, i.e., where production may be indefinitely increased, prohibition on export would be at once followed by diminished production of the prohibited article. If the latter were, for example, wheat or any other article of food, or silk, flax, or raw hemp, the production of these articles would be gradually reduced until it was proportioned to the market. Prices would doubtless fall greatly in the meantime; but they would again rise. In fact, the diminished market would compel producers to restrict their operations; and those who produced on a small scale, no longer being able to divide their labor so efficiently, would eventually be driven from the market, because production would have become more costly to them. The remaining producers then having the monopoly, might raise prices so that the consumer would in the end suffer from a measure originally intended for his benefit. But if the object of the prohibition is to deprive a rival industry of its necessary material, this selfish measure will result in encouraging the production of a similar article abroad. Thus England, by putting a high export duty on coal, contributed to the development of mineral production in Belgium.
—To sum up, then, high prices on the one hand, and instability on the other, result from the prohibitory régime; the high prices arising from the bad conditions of production in which this régime places the industries, and the obstacle in interposes to division of labor, when it does not cause a monopoly; and the instability resulting from modifications in the tariffs, which continually produce panics in the markets.
—III. Causes which have led to the establishment of the Protective or Prohibitory Régime. It must seem astonishing that a system so clearly disastrous to the people, so opposed to progress in wealth and civilization, could have become established. Its origin must be principally attributed to certain circumstances inherent in the condition of barbarism and war in the midst of which it arose. Nations, which had been from their commencement hostile to each other, and almost continually at war, could not exchange their products in any permanent or regular manner. Each was obliged to provide for itself most of the articles of its consumption. War then acted as an artificial obstacle added to the natural obstacle of distances. When peace succeeded war, this artificial obstacle disappeared. Unfortunately, its removal was only accidental and temporary: a new war soon arose, when the obstacle reappeared at once. Let us endeavor to obtain an idea of the precise effect which sudden changes of this sort might have on the state of production. Suppose two nations, C and D, the first supplying the second with woolen goods while receiving in exchange silk goods. A war arises, and exchanges are immediately interrupted. The consumers of D can no longer receive the woolen goods which the producers of C had been accustomed to furnish them. The consumers of C are deprived, in their turn, of the silk goods they were having from D. Meanwhile, the demand continues, on the one side for wool goods, on the other for silk. This, then, is what will probably happen. The manufacturers of woolen goods in C, whom the war has deprived of their market, will begin to produce silks, and the manufacturers of silks in D will set about producing woolen goods. Each nation will thus succeed in obtaining as before the war, the goods it needs. To be sure, the conditions will be less favorable. The silks which C will manufacture will probably be dearer and not so good as those with which it provided itself in D. The wool goods which D will make will probably be inferior to those it procured in C; but, on both sides, it will be found more advantageous to employ the capital and the labor whose market the war has cut off, than to leave them idle; on both sides, also, people will prefer to pay a higher price for the goods they need, then to do without them. The war, as we see, compels a change of place of certain industries, to their injury. It ruins the most vigorous branches of production, those which had been able to create an outside market, to substitute for them artificial industries which only the interruption of international communication can make subsist. But peace comes in time: and the protection which the war gave C in the manufacture of silks, and D in the manufacture of woolen goods, at once vanishes. It is evident that these war industries must succumb, unless an equivalent obstacle is substituted for the war, in order to protect them. If the condition of the world is such that the peace can be lasting, it will most assuredly be better to let them succumb, and thus permit production, to resume its natural place; but if war is the natural condition of communities, if peace intervenes only as a short truce, perhaps it will be preferable to renounce relations whose precarious existence is a continual occasion of disastrous perturbations. Prohibition will then appear as a veritable insurance premium granted the industries to which war has given rise, and whose maintenance it was rendered necessary.
—Thus, for example, the prohibitory system became considerably extended in Europe and America at the close of the continental war. During the war the general interruption of communication had led to the establishment of a certain number of industries under bad economic conditions. When the war ceased, the manufacturers loudly demanded that the impediment of prohibition be substituted for that of war, to protect them. Governments hastened to defer to their demand. This was unquestionably a great mistake; for, at a time when peace has become the normal condition of communities, prohibition is no longer anything but a costly anachronism. In this new situation it costs less to suffer the perturbations which a temporary war may cause in international relations, than to pay a heavy war premium for twenty or thirty years to avoid them. However, one can conceive how the prohibitory régime should have come to prevail to a certain degree at the close of a war which convulsed the world for a quarter of a century, and made communities retrograde toward barbarism. On the other hand, it is more difficult to comprehend how this was régime could have been extended and made worse, as it was, long after peace had become established. This is connected with certain effects of prohibition, of which it is important to take account.
—We have spoken above of a statesman who should establish prohibitions or protective duties as the reverse of an inventor. Let us pursue the comparison, and we shall discover the motives which have contributed to extend and make more burdensome the prohibitory régime in time of peace. Suppose that an inventor discovers a process which permits a saving of 10 per cent, in the cost of production of a certain article: by lowering the price of that article 5 per cent, he will obtain an advantage over his competitors, and realize besides a good profit. This profit is the difference between the saving effected and the amount by which the price has been lowered, and constitutes the remuneration for the invention. Now, what takes places when a prohibitory duty is imposed? An artificial deficit is immediately produced in the market, and this deficit brings about an increase in the price. A certain article which was procured at an average price of twenty cents, for example, can no longer be obtained under thirty cents. This is an artificial enhancement by one-half, and is caused by the rupture of communication between the foreign producers and the home consumers. Suppose the prohibited article could be produced in the country at an average price of twenty-two cents: capital would be invested in that new industry; for it would receive, besides the ordinary profits of other branches of production, an extraordinary premium equal to eight cents. This premium would result from the difference between the price at which the article can be produced in the country, and the artificial price which prohibition has created. It is then manifest that if the profits of invention are based on the lowering of prices, those of prohibition are based in just the same way on their enhancement.
—But is the extraordinary premium arising from prohibition lasting? Must not the profits in the protected industries finally fall to the level of those in other branches of production, as a result of home competition? That will depend on the nature of the protected industry. If the industry is one whose essential elements are not limited in the country, the premium will have only a temporary character; for new manufactories will be established with a view of obtaining the premium as long as it shall continue. Home competition will then lower prices so much as to destroy the premium. Sometimes even the increase of the protected industry will not stop at its necessary limit, and prices will suddenly fall below the expenses of production. The result will be a panic, which will swallow up a good part of the profits from the premium which enhanced prices. Prices will afterward rise again; but the protected industry will have ceased to realize profits greater than those of other branches of production. Its patent will have expired, to use an apt phrase of Mr. Huskisson. It will be otherwise if the protected industry is not capable of unlimited extension; if it is, for example, grain culture in a country where land adapted to raising wheat is scarce, or the production of coal, iron, or lead, in countries where mineral deposits are rare. In such cases, the enhanced price may be obtained for any length of time. If prohibition has increased the price from twenty to thirty, the supply will be sufficiently small not only to maintain this price, but even to increase it gradually with the increase of population and public wealth. Then the holders of natural protected monopolies, such as land or mines, will see their profits increase every year; they will continually grow rich without having to take the least trouble.
—But, whether the premium which enhances prices be lasting or temporary, the allurement of that premium is sufficient, and more than sufficient, to multiply prohibitions. What more tempting, in fact? While money is so difficult to win under the abominable law of competition, here is a process discovered, by the aid of which one can grow rich by turning over his hand. Who would not hasten to use and to abuse so marvelous a process? Who would not manage to work the machine to manufacture premiums, until the exhaustion of the material? To be sure, these premiums can be obtained only at the cost of the ruin or impoverishment of others; they constitute a manifest spoliation, a veritable brigandage. But does one stop for such slight considerations when a fortune is in question? Besides, is not this spoliation legal? Is not this brigandage consecrated by the practice of all civilized nations? Is it not universally admitted that one may confiscate, by means of a simple statute, the trade of a foreign industry, and impose on the "protected nation" an extra tax to enhance the price, payable into the hands of the beneficiaries of the confiscated trade?
—Meanwhile, theorists are taking it into their head to denounce so unjust and disastrous a violation of property rights. They demand liberty of the exchanges, invoking justice and urging the interests of the masses. But there is no embarrassment in replying to these theorists. In the first place, they are accused of propounding a theory; and, in the eyes of many people, the accusation is enough to condemn them. Then, search is made in the old arsenal of popular errors and favorite prejudices, for all sorts of redoubtable weapons which people use to crush so pernicious a theory. By the same reasoning that caused inventors in former times to be persecuted and derided, the promoters of freedom of the exchanges are treated as dangerous dreamers, while the supporters of the prohibitory régime are considered as benefactors of humanity.
—The list is long of the sophisms which have been employed to disguise the true motives for the raising of custom house barriers since the establishment of a general peace. Often, it is true, these sophisms were employed in good faith by persons who thought, that, by enriching themselves by means of the international depredations of prohibition, they were contributing to the greatness and prosperity of their native land. Almost always, too, ignorance of sound economic nations has been so general, that the act of profiting by premiums which raised prices while establishing an industry contrary to nature, was considered, even by the victims of prohibition, as a work of patriotic devotion. We do not intend to take up all the sophisms which have been forged to justify prohibition and glorify the prohibitionists. This would be an endless task. We shall confine ourselves to a review of those most frequently employed.
—IV. Review of the Sophisms of Protectionists. 1. That a nation should not allow itself to become dependent on foreign countries, especially for articles of prime necessity. This argument was the most important of those which were brought forward by English prohibitionists against the free traders who advocated the repeal of the corn laws. "Is is not," they said, "renouncing our political independence, to put ourselves under the necessity of having recourse to foreigners for the means of subsistence? Would not a nation from which its enemies cut off supplies be obliged to surrender at discretion?" But what more chimerical than such an apprehension? When two nations effect exchanges, is not the dependence which results from them mutual? If England depends for the means of subsistence on Russia, France and the United States, do not these three countries in their turn depend upon England for their supplies of iron, coal, cotton goods, wool fabrics, etc.? Besides, even if England should become embroiled with most of the nations which supply her with grain, could she not, for a small advance in price, supply the deficit from other nations? Did not the gigantic folly of the continental blockade demonstrate the impossibility of commercially isolating a powerful nation? And as to a small nation, do not the commercial relations which such a nation establishes abroad furnish it with new guarantees of independence, by attaching to its cause all the interests which it has been able to conjoin to its own?
—One of the most brilliant orators of the anti-corn law league in England, Mr. W. J. Fox, shows up with marvelous skill the superannuated character of the argument for independence of foreigners, in the following celebrated passage: "Independence of foreigners," he says, "is the favorite theme of the aristocracy. But surely the squire is not consistent when he exclaims against foreign supplies. Let us examine his life. A French cook dresses his dinner, and a Swiss valet dresses him for his dinner. The lady whom he hands from the drawing room, is adorned with pearls which never grew within the shell of a British oyster, and the feathers which nod in her plume belonged to no barnyard fowl. The viands of his table come from Belgium, his wines from the Rhine or the Rhone. His eyes are delighted with flowers from South America, and his nose with a leaf from North America. His horse is Arabian, and his favorite dog of the St. Bernard breed. His gallery is enriched with Flemish paintings and Greek statues. Does he seek diversion? He goes to hear Italian singers, singing German music, all followed by a French ballet. Does he rise to judicial honors? The ermine which decorates his shoulders was never before on the back of a British beast. His mind even is a picnic of exotic contributions. His philosophy and poetry come from Greece and Rome, his geometry from Alexandria, his arithmetic from Arabia, and his religion from Palestine. His infant teeth were pressed on coral from the Indian ocean; and when he dies, sculptured marble from the quarries of Carrara will adorn his tomb! And this is the man who says, 'Let us be independent of foreigners!'"
—2. That a nation should avoid large purchases from foreign countries, in order to prevent an exhaustion of its stock of money. Here we see the old sophism of balance of trade. This sophism, formerly on every one's lips, is now much less employed, English protectionists, in particular, seeming ashamed of using it. That an argument, formerly so general, should have become thus discredited, is due to several causes: in the first place, to the deadly war the economists have waged against the doctrine of balance of trade; then, to the decrease in the relative importance of importations and exportations of money in transactions between people of different nations; finally, to experience, which successively demonstrated that the suppression of custom house barriers between the different provinces of France, between England and Ireland, and between the states of the Zollverein, was followed by none of the monetary disasters predicted by the advocates of the mercantile theory. However, the prejudice has not disappeared; and so long as the laws of monetary circulation are not commonly understood, it will be possible to stir up the masses against freedom of exchange, by alarming them with the phantom of an exhaustion of the supply of money. (See BALANCE OF TRADE.)
—3. That it is necessary to have protective duties, as a compensation for the taxes imposed on home industries. If the English protectionists made little use of the sophism about the exhaustion of money, they made, on the other hand, abundant use of that on compensatory duties. "The English farmers," they said, "bear taxes more numerous and more severe than those of Russian farmers. Is it not just to make compensation for the difference, by a protective duty? Is it not just to equalize the conditions of home production with those of the foreign?" Now, in the first place, do these differences in the figures of the taxes always signify what they seem to signify? It was certainly true that the English farmers did pay more taxes that their Russian competitors. But did they not also enjoy more complete security and freedom? Were they not better protected against spoliation and despotism? and was not this greater liberty and security fully an equivalent for the greater taxes they had to pay? In the second place, can protection really compensate for the burdens which excessive taxation imposes on production? Protect home agriculture in a country like England, under the pretext that it is more encumbered by taxes than its rivals, and you will doubtless provide a compensation to farmers, by permitting them to increase the price of their products. But upon whom will fall the burden from which you have relieved them? Upon all the other branches of production, which will pay more dearly for their raw materials and the means of subsistence for their workmen. What is gained on one side is lost on another. Unless a way can be found by which a tax which enters the treasury can be paid by nobody, compensatory duties can not relieve production. Now, if they can neither destroy nor diminish the evil necessarily connected with the existence of every tax, of what use is it to change the place of the evil?
—4. That home labor must be protected, to prevent the number of employments diminishing in consequence of foreign competition, and thus to guarantee the means of subsistence to the workmen. This sophism is worthy of notice, because it gives prohibition the attractive appearance of philanthropy. If landholders and manufacturers loudly demand prohibitory legislation, it is not a realize extraordinary profits at the expense of their rivals; O no! it is only to secure work and good wages for the workmen of their country; it is to keep the laboring classes from the sad results of unlimited competition, etc., etc. But if such were the only aim of the prohibitionists, would they confine themselves to interdicting products from abroad? Would they not prohibit, above all, the importation of foreign workmen who come into competition with their own? Do we, however, observe that they abstain from employing foreign workmen, even at the times when they most energetically plead the necessity of protecting "home labor"? No: they have no scruples of this sort. There is a striking contradiction between their argument and their conduct. (See EMIGRATION.) Now, is it true that the prohibitory system increases the number of places in which men can be employed, in the country? Let us see. We have observed that prohibitions have just the opposite effect on prices from that produced by new machines; that by inducing certain industries to put themselves in bad economic conditions, and by impeding progress in division of labor, they bring about increase of prices, while new machines cause reduced prices. Now, do machines diminish the number of men employed in production? Does not experience, on the contrary, attest that their final result has been to increase it, by the general increase of consumption? Are there not to-day, for instance, more men employed in the cotton industry, than there were before the steam engine and the mule jenny had transformed that industry? A man who should propose to break the spinning machines and the looms of to-day, to replace them by the spinning wheel and the hand loom, in order to give more chances for employing workmen, would justly be deemed insane. But if new machines result at last in an increase in the number of persons employed, must not prohibition diminish the number? If we took at the interests of the working classes, in what respect are the errors of the prohibitionists better than those of the destroyers of machines?
—By making the cost greater, the prohibitory system diminishes consumption, and consequently production, and the number of opportunities for employment. This is how it protects home labor. But does it not, at least, tend to give it more stability? Does it not afford security to the work man against industrial panics, as the prohibitionists affirm? or is the contrary the case? We have already seen that the prohibitory system, by putting industries at the mercy of the changing opinions of legislators, has introduced a constant condition of instability in all branches of production: we have seen that tariff changes are likely to engender industrial panics. Must not the dreadful crises which have so painfully affected the subsistence of workmen, be attributed to the incessant perturbations which the prohibitory system has occasioned in the markets? The history of modern industry gives us strange lessons on this subject. One may read on its every page of the cruel evils which this system for "protecting national labor" has brought upon the laboring classes. (See PAUPERISM.)
—5. That nationality should be made the basis of the system of exchanges. This argument was the basis of Dr. List's national system of political economy. But in studying the history of the formation of states, and examining into the elements which constitute them, one readily perceives that nationality can not serve as a basis to a system of exchanges. States have been formed, for the most part, by conquest, and enlarged either by royal alliances, by wars, or by diplomacy. No economic consideration has controlled their formation. When the map of Europe was made over at the congress of Vienna, for example, did any one consult the interests of the industries and the commerce of the peoples whose nationality they were changing? Did any one ask whether the situation of the Rhine provinces and of the other countries which were then separated from the French empire, rendered that separation advantageous or injurious to the countries concerned? No: the question was not even mooted. Political considerations and diplomatic intrigues alone decided the new configuration of the states. Why should an attempt he made to establish a national system of exchanges based on pretended economic necessities, in states whose formation was controlled by no economic views, states of which the chances of war and of alliances alone decided the boundaries? Is it not the height of absurdity to transform these boundaries, which the hazard of events has alone determined, and which it may enlarge or contract to-morrow, into rational limits of the exchanges? Is not an economic system founded on a political basis and politically modifiable, a monstrosity which good sense objects?
—6. If the protective system did not exist, it would perhaps be well not to invent it; but to attempt to destroy it to-day would be to pronounce a death sentence on a multitude of industries, to occasion ruinous displacements of capital and of labor, etc., etc. We have pointed out above the striking analogy between the setting up of a new machine and the suppression of a prohibition. The result of each is to substitute a good market for a high-priced one, and abundance for penury. But all progress, from whatever source, is accompanied by some disturbance. Must we renounce a permanent advantage, to avoid this transient disturbance? Must we give up new machines, new methods, new ideas, under pretense that they disturb the old machines, the old methods, the old ideas? Shall we immobilize humanity, to prevent some change of employments? Let us hear Dr. Bowring on this subject, in his speech at the congress of economists, at Bruxelles, in 1847, where he admirably refuted this paralytic objection: "The displacement of capital," he said, "the displacement of capital! Why, it is a sign of progress. Has not the plow displaced the spade? What became of the copyists after the invention of printing? * * We formerly had thousands of little boats on the Thames: what has become of them, now that the Thames is furrowed by hundreds of steamboats? But are not the interests of the workman himself subserved by so rapid and economical means of transportation? The first time I ever went to London I had to pay four shillings to go from one part of the city to the other: to-day I make the same trip fox six pence; and if you ask how this has been brought about, I answer: by the displacement of labor and capital. This displacement may be found everywhere. I was born in a town which figures in the commercial history of my country. I have seen there, at Exeter, an entire industry, the woolen industry, abandoned. I have seen, in the port of that city, ships from all countries, and have heard my ancestors speak of their relations with most distant lands. But so soon as steam was introduced into manufactories, fuel being dear in that part of the country, the industry removed to where it was cheap. Well, capital was displaced; but the population has nevertheless increased. When I left Exeter the population was 25,000 inhabitants; now it is 40,000. The workmen have taken up other employments. But what has displaced labor? What has displaced capital? What has displaced industries? What has put them on a false basis? What has built upon sand? Prohibition. What, we ask, is to found the industries on a rock which can not be moved?"
—But do the displacements which the substitution of free exchanges for prohibition may occasion, occur on so large a scale as has been attributed to them? Would the advent of free trade become the signal for the ruin of a multitude of industries? Would one see entire countries deserted for others, as the prohibition pessimists affirm? Observation and experience agree in contradicting these gloomy predictions. The London exposition convinced the most prejudiced minds that the great industries of the various countries of Europe were in a nearly equal state of advancement, and that no people possessed a decidedly marked superiority over their rivals. "The crystal palace," says Michel Chevalier, in his interesting letters on the London exposition, "is a good place to prove this similarity, this fraternity, this equality of the industries of the principal nations of western civilization It is manifest there, it forces itself upon our attention. When I go from the English department to the French, thence to that occupied by the Zollverein, or to the Swiss, or the Belgian, or the Dutch, I find articles of nearly equal merit, which give evidence of nearly the same aptitude and experience, and at nearly the same prices. This is more especially manifest in regard to England and France, especially if we take the trouble to complete our exhibit at London by recalling the articles we had in Marigny Square in 1849, of which the abused producers refused to send specimens to London. In thus speaking of equality, I do not mean that the productions of the principal nations are identical, on the contrary, they are diverse, they have their peculiar stamp. They reveal special industrial aptitudes, a distinct originality, but they manifest a nearly equal degree of advancement. If one is surpassed in one kind of articles, it is first in another, perhaps similar and equally difficult: and we can not doubt, that, with a little incentive, each nation could equal the one which excels it in any particular product. If prime materials were equally cheap everywhere (and they would be if the legislators of certain countries would abolish the wholly artificial causes of high prices which it has pleased them to multiply), the expense at which the manufactured articles could be produced would be nearly the same, and the several countries would have markets about equally low priced."
—A well-known French manufacturer, Jean Dolfus, corroborated the statements of Chevalier, and showed how the prohibitory régime had resulted in preventing the cotton industry in France from adopting improvements in machinery. "We do not," he says, "keep pace with England in industrial progress. Ten years ago they commenced there to substitute machines which twist the thread on the pirn without the aid of a workman for the old spinning machines: today, for certain numbers, no other machines exist. All have been obliged to adopt the improvement. With us, on the contrary, people still make money while using very antiquated machines; and the sum appropriated to compensate for the annual depreciations, at least in the spinning of cotton, is scarcely necessary, for it is not generally employed to improve the machines. Why have not the improvements adopted in England become necessary in France? Because all remain in the old way, and continue to make spun goods that could be manufactured at much less expense, by a little additional outlay. My house has a spinning mill of 25,000 spindles, 20,000 of which are for calico: it could, by replacing its looms, a part of which are nearly forty years old, spin a kilogramme twenty centimes cheaper than it does to-day: but home competition is not sufficient to compel them to do it. Is not this conclusive? Who pays the twenty centimes? The consumer, the country. The committee for the protection of national labor did not think it best to change our looms, because many spinners might thus be thrown out of employment. But can we with impunity resist progress thus? On this principle we should return to the spinning wheel, and regret all the mechanical progress realized for the last fifty years. If spinning can be done more economically, consumption will increase; more cotton goods will be sold, more machines will be constructed, and more labor will be needed." (See the corroborative testimony of D. A. Wells, when a special tariff commissioner of the United States government, showing how the protective tariff has operated in the United States to keep in use inferior machines long since discarded in England.
—E. J. L.)
—Thus, in the view of manufacturers themselves, the prohibitory régime retards production. Let this régime be abolished, and every industry which is located under favourable natural conditions will inevitably become considerably extended. It will doubtless then be necessary to exercise more intelligence, activity and energy, in order to preserve and increase one's trade; for freedom of exchange is not so easy a couch as prohibition. Every industry would be at once obliged to employ every new improvement to keep up with its rivals. But would not humanity as a whole profit by the great impulse production would have received? Would not people be more abundantly provided with all things, and their minds kept active by necessity, become more accessible to light? Necessity is a powerful incentive to progress, and the chief result of freedom of exchange will be to render progress more and more necessary. Look for example, at British agriculture. How many times the prohibitionists had predicted that it could not endure the competition of the United States, Poland and Russia! How many times they had depicted its fields devastated, its laborers ruined and dispersed by the storm of free trade, and old England, deprived of this main-stay of her power, disappearing from the list of nations! Well, the corn laws have been abolished, free trade is enthroned, and what has become of British agriculture? Has it sunk in the storm? Has its capital been destroyed, and its fields submerged by the "deluge of foreign grain"? Have proprietors and farmers carried into effect their threat to emigrate to America, abandoning their fields to the thorn and the briar? No. Scarcely had the corn laws been repealed, when the agriculturists, redoubling their efforts, made improvement the order of the day on every hand. The old instruments and the old methods were abandoned; and agriculture, so long given over to routine, took rank among the most progressive industries. Thus transformed under the strong pressure of foreign competition, it now laughs at the phantom which formerly gave it apprehension. And this was an industry which was to be infallibly ruined by free trade!
—Observing, then, as Chevalier and Blanqui did at the universal exposition at London, the condition of the industries of the civilized world, and investigating carefully the results already obtained by tariff reforms, one becomes convinced that the ruinous displacements of production, the destruction of protected industries, and so many other calamities, which, according to the prohibitionists, were inevitably to accompany the advent of liberty of the exchanges, were vain phantoms. One also acquires the conviction, that the adoption of free trade would strengthen and develop industries, instead of compromising and ruining them.
—Here we terminate our review of the sophisms of the prohibitionists, although the subject is far from exhausted. But these unsound arguments have been refuted by all the economists in succession since Adam Smith and Turgot. An especially lively and satirical refutation of them will be found in Bastiat's Sophismes Economiques, to which we refer our readers.
—V. Conclusion. Freedom of exchanges tends to produce a cheaper market and to favor stability. Should it become permanently established, the industries, having no restriction as to market, would have all the development of which they are capable. At the same time they would acquire a maximum of stability, by ceasing to be based on a precarious foundation. To the high prices and instability inherent in the artificial régime, would succeed a return to the order instituted by Providence. Now, is it chimerical to count on progress so beneficent? Is free trade an economic ideal which we are interdicted from attaining? Is it a pure utopia, a humanitarian dream, as the defenders of prohibition affirm? Observe the signs of the times, and then reply. Is not one of the most absorbing interests of our time, the improvement of means of intercommunication? Are not all civilized nations multiplying railroads, electric telegraphs, and other means of intercourse? Are not steam and electricity having a constantly increasing effect in diminishing the natural obstacle of distance? Now, what is the economic result of all this? It is to extend the sphere of the exchanges. Railroads, steamboats, electric telegraphs, are powerful instruments in destroying distance, to the profit of the exchanges from city to city, and from people to people. But lo! while nations are imposing on themselves gigantic sacrifices to multiply the ways which facilitate the exchanges, they are, on the other hand, maintaining the prohibitory system, which interrupts them! They would stimulate exchange with one hand, and cut it off with the other! Such a flagrant contradiction must eventually impress all minds. Either steam locomotion and the electric telegraph must be abandoned, or else the prohibitory system must fall; for the simultaneous existence of these agents of civilization and of this relic of barbarism is absurd. But there is small likelihood that steam locomotion and the electric telegraph will be abandoned. The prohibitory régime, however, has received severe blows. Governments have finally perceived that prohibitory duties brought them nothing, and that it would be an excellent operation to substitute for them revenue taxes. Sir Robert Peel took this position as the starting point of his financial policy, and the budget of Great Britain, whose accounts showed a continual deficit before the reforms of Peel, afterward presented a regular surplus revenue. A similar reform in the United States gave like results in 1851. Under reduced tariff duties, exports doubled, and the revenue was increased $50,000,000. Financial necessities thus combine with economic necessities and the progressive tendencies of our age, to put an end to the prohibitory régime. Prohibitions may be compared to the chains which were used in the middle ages to bar the streets. In our day they are a vestige of a system of defense which the progress of civilization has rendered useless and superannuated. Before long, we trust, the frontiers will cease to be barred, as the streets have ceased to be so: and, despite those utopists whose ideal is in the past, liberty will at last become the law in human affairs.
—BIBLIOGRAPHY. Adam Smith, Wealth of Nations, book iv., chaps. iv. and v., Restraints on the importation from foreign countries of such goods as can be produced at home—also chaps. iv. and v., On drawbacks and bounties; J. B. Say, Political Economy, chap. xvii., The effect of government regulations intended to influence production, (trans. from the French), Philadelphia, 1832 and 1850; Jas. Mill, Elements of political Economy, chap. iii., sec. 17, Bounties and prohibitions, 2d ed., London, 1824; J. A. Blanqui, History of Political Economy, chaps. xvi., xx. and xxix., Results of free trade in the Hanse towns, in Venice, and in Holland—Contrasting policy of Chas. V. given in chap. xxi., (trans.), New York, 1880; Wm. Roscher, Political Economy, app. iii., sec. i, The industrial protective system and international free trade, (trans.), New York, 1878; Amasa Walker, The Science of Wealth, chaps, ii. and iii., Obstructions to trade, fallacies of the protective theory, 7th rev. ed., Boston, 1874; W. G. Sumner, History of Protection in the United States, New York, 1877; J. E. Cairnes, Leading Principles of Political Economy, newly expounded, part iii., chap. iv., Free trade and protection, New York, 1874; A. L. Perry, Elements of Political Economy, chap. xiii., Foreign trade and the mercantile system—also chap. xv., On American tariffs, New York, 1866 and 1873; F. A. Walker, Political Economy, part vi., chap. xiii., Protection vs. Freedom of production, New York, 1883; J. S. Mill, Some Unsettled Questions of Political Economy, chap. i., The laws of interchange between nations, 3d ed., London, 1877; John McDonell, Survey of Political Economy, chap. xxviii., Protectionism, Edinburgh, 1871; Edmund About, Handbook of social Economy, chap. vi., Liberty, (trans. from the French), New York, 1873; Frédéric Bastiat, Sophisms of Protection, (trans.), New York, 1877, 12mo, 397 pp.; S. S. Cox, Free Land and Free Trade, 16mo, 126 pp., New York, 1880; Henry Fawcett, Free Trade and Protection, 12mo, 173 pp., London, 1878; W. F. Marriott, Grammar of Political Economy, chap. xxv., Free trade and protection, London, 1874; Emil Walter, What is Free Trade? 12mo, 158pp., New York, 1867. To the above list may be added the following popular tracts, which, with others, are circulated by the New York Free Trade Club: David A. Wells, The Creed of Free Trade, 8vo, 21 pp., New York, 1875—The Results of Protection in the United States, 12mo, 31 pp., 1873—How Congress and the Public deal with a great Revenue and Industrial Problem, 8vo, 26 pp., New York, 1880—Freer Trade essential to Future National Prosperity and Development, 51 pp., New York, 1882—Why we Trade, and How we trade, 8vo, New York; Abraham L. Earle, Our Revenue System and Civil Service, 8vo, 47 pp., New York, 1878; Abram S. Hewitt, Labor, Wages, and the Tariff, Speech in House of Representatives, March 30, 1882; S. S. Cox, Reciprocal Brigandage of the Tariff, Speech in House Representatives, May, 1882; E. P. Wheeler Crude Materials, Testimony before Tariff Commission, July, 1882, 19 pp.; J. B. Sargent, (a New Heaven, Conn., manufacturer), Reduction of Duties, Testimony before Tariff Commission, Aug., 1882; J. Schoenhoff, The Tariff on Wool and Woolens, 14 pp., New York, 1883; W. G. Sumner, Protection and Revenue in 1877; Graham McAdam, The Protective System: What it costs the American Farmer,. 37 pp., New York, 1880—What is Free Trade? 3 pp.
—The Tariff in American Politics, 3 pp.
—Protection and Wages; H. J. Philpott, Free Trade vs Protection; Horace White, The Tariff Question; E. J. Donnell, Slavery and Protection, 69 pp., New York, 1882—The Impending Crisis, 32 pp.; Review of the Tariff Commission Report, by the Ex. Com. of Brooklyn Revenue club, New York, 1882; Free trade the best Protection to American Industry, (12 tracts, of one page each), New York, 1883; The Tariff Question: A few questions to intelligent voters, one page; Thos. G. Shearman, Free Trade the Only Road to Manufacturing Prosperity and High wages, 22 pp., New York, 1883. Of protectionist writers, Henry C. Carey, of Philadelphia, has been the most noted. His Principles of Social Science, (3 vols., Phila, 1858), give an exposition of his views on this subject. Prof. Francis Bowen, of Harvard College, in his American Political Economy, chap. xx., treats of the doctrine of international exchanges, and the limits of free trade and the protective system. Geo M. Weston, of New York, has also well presented the arguments of Protectionists in his Refutation of Some Current Errors in Respect to Foreign Commerce, (8vo, 33 pp., Cambridge, Mass., 1883), and argument read before the tariff commission.
E. J. L., Tr.
G. DE MOLINARI.
Last modified April 13, 2016