there any gain in international trade? answers, unequivocally, yes. Would it be a loss of wealth to the community to have the goods formerly bought abroad now produced at home? The answer is, certainly it would. But here it has been ably urged by intelligent writers that a state has other ends to gain than the accumulation of mere riches; that it must aim to secure the greatest moral, social, and elevating influences possible for the working-classes; and that while free exchange of goods may add to wealth, it may injure the social and political well-being of a nation. So far as these are social and political questions they do not belong to Political Economy. But the commonest form of argument is that, under free exchange, the United States would become purely an “agricultural” country, its social horizon would become narrowed, and a lower standard of industrial activity would then ensue; instead of which, it is said, we should, by protection, keep in existence diversified industries by which the national mind may be better stimulated, and greater enterprise may be encouraged in all branches of industry. This argument for “diversity of industries,” however, is not merely a sociological question; it can only be fully discussed from an economic stand-point, and deserves even more than the brief attention we can give it here.
In the first place, as soon as any purely agricultural country gains even a slight density of population—a density only such as to warrant the introduction of the principle of division of labor—there comes an inevitable differentiation of pursuits, wholly outside of legislation, and through the operation of natural causes. Not all of any population is required in agriculture to provide the whole with food. By a division of labor, one man in agriculture can produce the sustenance of himself and many others. “The United States have at the present time but five persons engaged in agriculture for each square mile of settled area.” By the side of the farm must early spring up a wide circle of industries—the shoemaker, the carpenter, the blacksmith, the wagon-maker, the painter, the builder, the mason, and all the ordinary employments which arise in any small community from the earliest division of labor. Moreover, “agriculture” is often used in a too limited sense as confined to producing food alone (although even in that limited sense employing nearly one half of the total number of our laborers). In a new country the natural field of employment is found in the “extractive industries,” which include the preparation for the market not only of food, but also of all ores, coal, minerals, oils, hides, leather, wool, lumber, and the industries intimately connected with them; all the employments which transport these from one part of the country to another (employing at present over one ninth of all our laborers); and professional and personal services of an extended variety. Even, therefore, if we were obliged to forego manufactures entirely, the “extractive industries” would necessarily involve a very extensive diversity of employments.
The real question, however, for most persons, centers in the next stage of the industrial evolution—that of the manufactures of these above-mentioned products of the “extractive industries.” It will be remembered, here, that a country does not possess an equal ability in producing each of these or any commodities: the timber formerly near great rivers may vanish into the interior; the oil-sources may be more or less fertile; or the ore-deposits may be more or less rich, more or less accessible, than those of other countries. This being understood, then, as soon as the demand in the country calls for an increased quantity of a particular article, the cost may increase under the law of diminishing returns until a foreign country—having inferior agents of production as compared with our best—may be able to send supplies into our markets. It all depends on whether the United States wants more articles than can be produced on grades of natural agents superior to those possessed by foreigners, taking cost of carriage to this country into consideration. Even though foreign competition appears when we reach poorer grades of natural agents, it does not follow that some of the particular articles will not be produced. What ought to be clear is, that untrammeled exchange between countries will not prevent the existence of various industries, but only limit production to those grades of agents which are its best. This may be better seen by a simple diagram: Iron and Coal: United States 4 3 2 1 England may have seven different grades of productiveness in her iron and coal supplies, of which her grades 1, 2, and 3 are superior to the best grade of the United States, while grades 1, 2, 3, and 4 in the United States may compare only with grades 4, 5, 6, 7 of England. So long as England can supply herself and the United States also with coal and iron from the three superior grades, the United States can not work grade 1 at home. But if the supply for England and the world requires grade 5 to be worked, then the United States can begin the industry on her best grade, although that is far inferior to the best grade in England.
Likewise, if the United States has three grades of wheat-land superior to England’s best grade, the ability of England to grow wheat depends on whether the United States can, or can not, supply both herself and England from grades 1, 2, and 3. If we must resort to grade 4, then England can begin to grow wheat as well as we. In short, under a system of free exchange, as great a diversity as under protection is probably possible, but only in such a way that the best possible advantages in each particular industry are employed. Smaller amounts in some branches, and greater amounts in others, may be produced under a free than under a restrictive system, but with all the greater gain which arises from a proper and healthy adjustment of trade. The most poorly endowed enterprises in each occupation would be given up, but not the whole industry itself. No class of persons feel the competition of rivals more than English farmers since American wheat has come into English markets, and yet it does not follow that England can not grow a bushel of wheat. The fact is, merely, that some kinds of lands were thrown out of cultivation, and a readjustment made, to the benefit of those wanting cheaper food.
So with us: we should not, by the free exchange, be forced to give up the iron and coal industries entirely; for the best mines would still keep that occupation in existence to “diversify” the others.
So far the explanation covers the “extractive industries” only, or those industries affected by the law of diminishing returns when a larger quantity is demanded. The real question arises as to the manufactures of these materials. But we count upon larger industrial rewards, in the form of wages, and profits, here than in England; we must get more from an industry than England in order to satisfy us. Our grades of occupations, therefore, must be more productive to a certain extent, grade for grade, than English grades, in order to allow of their remaining free from competition. But we have this superiority, as regards our home market, owing to natural causes: (1) cheap raw materials (if we except wool and other commodities whose price is raised by the tariff); (2) advantage over England in cost of transportation of raw products; and (3) in the cost of transportation, again, of the finished goods in reaching our markets. Now, the processes of manufacture which do not put much labor upon the materials, especially where the articles are bulky, are conducted in this country without fear of foreign competition. And the range of this class of manufactures is surprisingly large. It includes the manufactures of iron, such as stoves, and the common utensils of every-day life; of hides, such as leather, harnesses, etc.; and of wood, such as all the furniture of common use. The list is too long to be fully stated here. These industries are not kept in existence by the tariff; and a diversity as wide as this would arise under a system of free exchange, as well as of restriction.
Indeed, if duties were removed from so-called “raw materials,” it is altogether probable that a wider diversity would exist than ever before.
And yet, it will be said, there are some things we can not produce in free competition with England. Of course there are; and it is to be hoped it will long continue so. If there are not some kinds of commodities which foreigners can produce to better advantage than we, then there will be no possibility of any foreign trade whatever; since, if they can send us nothing, they can take nothing from us. To deny this position, is to say that the export and import trade of the United States (amounting in 1883 to more than $1,500,000,000) is of no profit, and had best be entirely destroyed, in order that a few industries in which we have no natural advantages (and which employ less than one seventeenth of the laborers in the United States) should be continued at a loss to the general productiveness of our labor and capital, and so to a general diminution of wages and profits.
§ 7. —on the ground that it lowers prices.
The argument—heard less frequently now than formerly—has been advanced, drawn inductively from statistics, that protection does not raise prices; because, after duties are put on, a larger quantity is produced, the advantages of large production are reaped, and then the price of the manufactured commodity falls lower here than it was before the duty was imposed. The position is then held that protection does not raise prices. It is, of course, understood to mean the prices of protected commodities—a necessary precaution, because we find our own agricultural (unprotected) commodities cited to show that prices are lower here than in England.
No one, however, will deny that there has been a fall in the prices of textile fabrics and manufactured goods. That is the result of a general law of value, and of the tendencies of a progressive state of industry.(372) The causes of this acknowledged fall would be at work, no matter whether tariffs existed or not. It is the result of the general forward march of improvements, as evidenced in the application of new inventions and the display of skill and ingenuity in new processes. To say that it comes because of a tariff, is a complete _non sequitur._ How true this is may be seen by observing that a country like England, without tariffs, shares in the general fall of prices of manufactured goods equally with the country which has heavy customs-duties. The causes must be wider than tariffs, if they are seen working alike in tariff and non-tariff countries.
But the fact itself can not be gainsaid that protection does raise the prices of the protected goods in the home market. The comparison is not to be made between prices as they now are in this country and as they were twenty or forty years ago also in this country, for this would show only the general march of improvements in this country; but a comparison is to be made between prices in this country to-day and present prices in foreign countries. Does, for instance, the tariff increase the price of woolen goods and clothing to every consumer far beyond what the price would be if the duty on imported woolens were removed? The very existence of a protecting duty is the answer to this. If the duty does not raise the price, then why does the woolen industry wish a continuance of the duties? If goods can be sold as cheaply here as the foreign goods, why do protectionists want any duties? The duties are intended to keep foreign goods out of our markets; and they would be unnecessary if our goods could be sold as cheaply as the foreign wares.
The facts, however, are at hand to show that the statement of principle as made above is corroborated by the statistics. In 1883, although average weekly wages in Massachusetts were over 77 per cent higher than in England, the American laborer had to pay more for the articles entering into his real wages; and to that extent lost the advantage of his higher reward in this country.
This is to be seen in the following figures,(373) which show, in percentages, whether prices are higher or lower here than in England: Classes of Articles. Higher Percent. Lower Percent.
Groceries 16 Provisions, including meat, 23 eggs, butter, and potatoes Dry goods (all grades) 13 Boots, shoes, and slippers 62 Clothing 45 And yet, in spite of the high prices, 31 per cent of the Massachusetts workman’s expenditure represents more comfort and better home surroundings than is enjoyed by the English workman.
If the American could purchase at English prices, he would have no less than 37 per cent of a surplus for additional enjoyments (after making due allowance for the higher rents paid here than in England). In other words, higher prices cut off the American laborer from reaping all the superiority in comfort which might be expected from knowing that he had an advantage over the English laborer of 77 per cent in the money wages received.
In order that the reader may easily find the arguments of the protectionists, he is referred to the following books: Carey’s “Principles of Social Science” (3 vols.). The form of argument is, briefly, that all industries should be kept going within the bounds of a country so as to avoid foreign trade. The change of form into the finished commodity should, he holds, take place near the spot where the raw materials are produced, so that not so great a share should go to the mere middle-men, or transporters.
Bowen’s “Political Economy,” Chap. XX, advocates protection on the ground that it is needed to secure diversity of industries, and that it lowers the prices of imported goods.
Sir J. B. Byles’s “Sophisms of Free Trade” is an answer to Bastiat’s “Sophisms of Protection,” the latter having been translated into English by Horace White.
Erastus B. Bigelow’s “The Tariff Question.” This is one of the ablest discussions, from the protectionist point of view, based on statistical tables and comparisons of the policy of England and the United States.
Stebbins’s “Protectionists’ Manual” is a brief and handy statement.
Ellis H. Roberts’s “Government Revenue” is the form into which he has thrown his lectures at Cornell University (1884) on protection, and is the latest statement emanating from that side of the discussion. He goes at length into the history of taxes in various countries; holds that wages are higher here than in England because of protection; that our manufactures are more flourishing than our agriculture, etc.
Frederick List’s “National Economy” is the German statement of protection, much on Carey’s own grounds.
“The Congressional Globe” contains numerous speeches of members of Congress on the tariff; and the Iron and Steel Association of Philadelphia send out pamphlets explaining the protectionist position.
The free-trade arguments may be found also in W. M. Grosvenor’s “Does Protection Protect?” He studies the results of the various tariffs of the United States, and gives many very valuable tables and collections of statistics bearing upon this question.
W. G. Sumner’s “History of Protection in the United States” is a very vigorous account of the evils of the various tariffs and the protective system.
D. A. Wells’s “Reports” as Special Commissioner of the Revenue, and his numerous pamphlets (see Putnams’ publisher’s catalogue), are full of facts, and give the results of special study of the subject as affecting the United States.
Henry Fawcett’s “Free Trade and Protection” explains the causes which have retarded the more general adoption of free trade.
the ablest discussion of the economic principles involved in the question which has yet been offered to the reader. Moreover, almost all our systematic writers on political economy (excepting, perhaps, Bowen and R. E. Thompson) give the system of free exchange their support on economic grounds.
APPENDIX I. BIBLIOGRAPHIES.
A Brief Bibliography Of The Tariffs Of The United States.
Legislation of the United States” contains useful extracts from debates of Congress, and also valuable tables of duties; in the Index, p. cciii, under “Tariff Act,” will be found references to, and dates of, all acts to 1870. See, also, Sumner’s “History of American Currency,” and his study is E. J. James’s “Studien über den Amerikanischen Zoll tariff.” For of the United States,” vol. ii, Bk. i, chap. v, Bk. iii, chaps. iii to x; II. _Earlier Periods._—H. C. Adams’s “Taxation in the United States, Hamilton, Madison, Jefferson, Webster, and Clay; “The Statesman’s Manual”; and of course the Debates in Congress, etc. See, also, Bristed’s “Resources of the United States”; Pitkin’s “Statistical View of the Commerce of the United States”; Seybert’s “Statistical Annals” (1818); and Works, ii, pp. 192-284, or American State Papers, Finance, i, 123-144.
Dallas, Treasury Report of 1816, American State Papers, Finance, iii, 87-91.
A report which is of the greatest importance and weight is Albert Gallatin’s “Memorial in Favor of Tariff Reform” (1832). Printed separately. Unfortunately, not in his collected works.
Walker’s Report, see Finance Report, December 3, 1845.
No. 481.
Senate Documents, second session, Thirty-ninth Congress, vol. i, No. 2; 1868, House Executive Documents, second session, Fortieth Congress, vol.
ix, No. 81; 1869, House Executive Documents, third session, Fortieth Congress, vol. vii, No. 16; 1869, House Executive Documents, second session, Forty-first Congress, vol. v, No. 27; and his paper in the Cobden Club Essays (second series).
“Report of the Tariff Commission,” 1882 (two vols). H. R. Miscellaneous Documents, No. 6, Part I, Forty-seventh Congress, second session.
IV. _Pauper-Labor Argument._—See Taussig, “Protection to Young Fifteenth Annual Report of the Massachusetts Bureau of Statistics (1884), V. _View of Early Manufactures._—Bishop, “History of American Manufactures”; Batchelder’s “Introduction and Early Progress of the Cotton Manufacture in the United States”; N. Appleton, “Origin of Lowell”; G. S.
White, “Memoir of Samuel Slater”; B. F. French, “History of the Rise and Progress of the Iron Trade of the United States for 1621-1857”; H.
Scrivenor, “History of the Iron Trade”; “Bulletin of the National Association of Woolen Manufactures,” ii, pp. 479-488. Tench Coxe, “Statement of the Arts and Manufactures of the United States for 1810” (1814).
VI. _Later View of Manufactures_: (1.) THE IRON MANUFACTURE.—See Swank’s “Reports of Iron and Steel 1876; J. S. Newberry, for an excellent article in “International Review,” i, pp. 768-780.
For Bessemer steel, Swank, “Census Report,” 1880, pp. 149-153; and Schoenhof, “Destructive Influences of the Tariff,” chap. vii. A. S.
Hewett, Speech in Congress, May 16, 1882. Separately printed.
(2.) WOOL, WOOLENS, AND COTTONS.—Production and importation of wool, see Production and importation of woolens, see “Bulletin of Woolen Prosperity of woolen manufacturers after 1867, see Wells, “Wool and the Robinson, article of December, 1872, in “Bulletin of Woolen Manufacturers,” iii, p. 354. Edward Harris, “Memorial of the Manufacturers of Woolen Goods to the Committee of Ways and Means,” Washington, 1872.
John L. Hayes, “The Fleece and the Loom.”
Production and importation of cottons, see “Commerce and Navigation Reports”; Census Report of 1880.
Wyckoff, “Silk Manufacture in the United States” (1883) for recent history, pp. 42-51. Wyckoff, “The Silk Goods of America” (1880), on methods of manufacture, chaps. ii, iv, vi.
pp. 319-335; and “The Sugar Industry of the United States and the Tariff” (1878).
contains all acts in force to date of publication, and gives all acts since the year 1861 in full. It is used by the United States officials.
“Imports Duties from 1867 to 1883 inclusive” (House of Representatives, Miscellaneous Documents, No. 49, Forty-eighth Congress, first session) gives duties on each article by years, and reduces specific to _ad valorem_ rates.
“The Existing Tariff on Imports into the United States,” 1884 (Senate Document, Report, No. 12, Forty-eighth Congress, first session).
A Brief Bibliography Of Bimetallism.
“The Report of the International Monetary Conference, 1878” (p. 754), contains an extended bibliography on money, by S. Dana Horton. Chevalier’s third volume of his “Cours d’Économie politique,” entitled “Monnaie,” also gives a bibliography.
I. _Standard of Value._—See Jevons, “Money and the Mechanism of Exchange,” chaps iii, xxv; S. Dana Horton, “Gold and Silver,” chap. iv, p. 36; F. A.
of Political Economy,” book iii, chap. xv; Walras, “Journal des Bimetallism, and Land Reform,” p. 107; S. Bourne, “Trade, Population, and Food,” p. 227; Seyd, “The Decline of Prosperity,” and the various pamphlets of Cernuschi.
III. _Operation of Gresham’s Law._—Macaulay, chap. xxi for clipped coin of 1695; Jevons, ibid., pp. 80-85, also gives an example taken from the Japanese currency; for the case of France, see “Report of the Select Committee of the House of Commons on the Depreciation of Silver, 1876,” p.
xlii, and Appendix, pp. 86, 148; for the United States, see _supra_, book iii, chap. vii, § 3. See, also, Lord Liverpool’s “Treatise on the Coins of the Realm,” chap. xii, for changes in the coin of England.
IV. _Compensatory Effect of Two Standards._—Jevons, ibid., pp. 139, 140; 202.
V. _Effect of a League of States, or Law, on the Relative Value of Gold Economy,” p. 410, “Report of the International Monetary Conference, 1878,” “Report of the International Monetary Conference, 1878,” p. 741; Bourne, (1879), p. 314.
VI. _Production of Gold and Silver; Relative Value of the Two Metals._—Ad.
Soetbeer, Petermann’s “Mittheilungen,” No. 57; “House of Commons Report on Depreciation of Silver,” 1876, Appendix, pp. 11, 12, 24; Bourne, corrected by him to 1878; Spofford’s “American Almanac,” 1878, gives tables from the “Journal des Économistes”; the figures of Seyd, Hay, Jacob, and Tooke and Newmarch are in the “House of Commons Report,” above.
Also see, _supra_, book iii, chap. vi, for references.
The relative values of gold and silver since 1834, as given in Pixley and Abell’s (London) tables, are trustworthy. Previous to 1834 there is much uncertainty. Soetbeer, ibid., gives Hamburg quotations since 1687. Another table, probably incorrect in places, is that of White, see “Report of the VII. _Demonetization of Silver by Germany._—For copy of laws of 1871 and 1873, see “Report of Directors of the United States Mint, 1873,” p. 82; “House of Commons Report on Depreciation of Silver,” 1876, p. 18; “Allemagne.”
VIII. _Latin Union._—For treaty, see “Journal des Économistes,” May, 1866; “House of Commons Report,” ibid, xxxviii, Appendix, pp. 92, 98, 106-109, IX. _Flow of Silver to the East._—The figures of Sir Hector Hay after 1851, “House of Commons Report,” ibid., App., p. 24, are fullest, and should be combined with Pixley and Abell’s figures for years before 1851, 422; Waterfield, “House of Commons Report,” ibid., Appendix, pp. 171, 172, “Parliamentary Documents,” 1881, vol. xciii; “Report of the Director of the United States Mint,” 1880 (in the Finance Report, 1880, p. 194); J. B.
X. _Depreciation of Silver, 1876._—Causes, Bourne, ibid., pp. 206, 212, 222, 233; Wilson, ibid., p. 128; “House of Commons Report,” ibid.; Sumner, vol. vi (1879), p. 326; Cochut, “Revue des Deux Mondes,” i, December, 1883, p. 514; Cairnes, “Essays”; F. Bowen, “Minority Report of the United States Silver Commission,” 1878.
Supposed cause of panic of 1873, see Williamson, “Contemporary Review,” April 1879; Seyd, “Decline of Prosperity”; Bourne, ibid., pp. 226, 227.
36, started the theory for the period 1873-1879. Also see Bourne, the Institute of Bankers” (London), vol. iv, part vi, May, 1883; Patterson, “Statistical Journal,” vol. xliii, p. 1; for table of prices XII. _Bimetallism in the United States._—See _supra_, book iii, chap. vii; for a vast array of materials, see “Report of the International Monetary Reports of the United States; and Congressional Documents. For the coinage laws of 1792, 1834, 1853, 1873, 1878, see pamphlet, “Extracts from the Laws of the United States relating to Currency and Finance,” by C. F.
Dunbar. For detailed account of passage of Act of 1873, see “Report of the Comptroller of the Currency,” 1876, p. 170. Present situation, “Atlantic A Brief Bibliography Of American Shipping.
“New Discourse on Trade” (1671); Sir Matthew Decker, “Essay on the Causes of the Decline of Foreign Trade” (1744); Joshua Gee, “Trade and Navigation of Great Britain” (1730); Lindsay, “History of Merchant Shipping and Ancient Commerce”; McCulloch, “Dictionary of Commerce” (new edition), articles “Navigation” and “Colonial Trade”; ibid., edition of Adam Smith, note xii, p. 534; Huskisson, speeches, iii, 13, 351; Levi, “History of II. _Navigation Laws of the United States._—“United States Statutes at on the Commerce of the United States”; Pitkin, “Statistical View of the Commerce of the United States,” chap, i; D. A. Wells, “Our Merchant Statistics of America.”
III. _Growth of American Shipping._—Rapid growth, 1840-1856. Levi, “History of Merchant Shipping,” iii, p. 187; for ship-building, see Report of the United States Bureau of Statistics, “Commerce and Navigation,” 1881, p. 927; for tonnage, ibid., pp. 928-930; also, see “United States Statistical Abstract”; Dingley’s Report to House of Representatives, December 15, 1882, No. 1,827, Forty-seventh Congress, second session, pp.
5, 8, 254.
IV. _Steam and Iron Ships._—Preble, “History of Steam Navigation”; Colden, “Life of Fulton”; Porter, “Progress of the Nation,” section 3, chap. iv; Nimmo, “Report to the Secretary of the Treasury in Relation to the Foreign Commerce of the United States and the Decadence of American Shipping” Appendix ii, p. 208.
V. _Decline of American Shipping._—“Report on Commerce and Navigation” 934; Lynch, Report to House of Representatives on “Causes of the Reduction remission of duties, Revised Statutes of the United States (edition of Dingley’s Report; Nimmo, “Decadence of American Shipping” (which gives several charts), p. 17, “The Practical Workings of our Relations of Maritime Reciprocity” (1871); Kelley, ibid.; Reports of the New York Chamber of Commerce; Sumner, “Shall Americans own Ships?” in “North American Review,” June, 1880; Codman, “Free Ships”; for high-rate profit in the United States, Dingley’s Report, p. 4.
wages, Revised Statutes, sections 4,561, 4,578, 4,580-4,584, 4,600; consular fees, Dingley’s Report, p. 9; pilotage, taxation, Wells, p. 172, _et seq._; see also Act of 1884, abolishing many of these burdens.
APPENDIX II. EXAMINATION QUESTIONS.
The following problems and questions have been arranged to indicate to the reader the character of examinations set by English(374) and American universities. They have been taken in each case from papers actually given. It is hardly necessary to state, perhaps, that these questions do not exhaust the subject, and are only some of a kind of which many more might be added: DEFINITIONS.
1. Define briefly, Fixed Capital; Unproductive Consumption; Law of Diminishing Returns; Effective Desire of Accumulation; Law of Increase of Labor; Communism; Wages Fund; Wages of Superintendence; Real Wages; Value; Price; Demand; Medium of Exchange; Gresham’s Law.
2. Explain carefully the following terms: Productive Consumption, Effectual Demand, Margin of Cultivation, Cost of Production, Value of Money, Cost of Labor, Wealth, and Abstinence.
3. Explain the following terms: Real Wages, Fixed Capital, Allowance System, Margin of Cultivation, Price, Demand, Medium of Exchange, Seignorage, Value of Money, and Bill of Exchange.
4. Define Supply, Value of Money, Productive Consumption, Cost of Production, Cost of Labor, Exchange Value, Law of Production from Land, Rate of Profit, Capital, and Gresham’s Law.
5. Define Political Economy: State the parts into which it may be divided, and show how they are mutually related.
LABOR.
6. Distinguish between direct and indirect labor, and give an illustration of the distinction.
7. Apply the distinction between productive and unproductive labor, and productive and unproductive consumption, respectively, to each of the following persons: a tailor, an architect, an annuitant, a sailor, and a brick-layer.
8. Is an actor to be classed as a productive laborer? The inventor of a machine? A confectioner?
9. In which of the two classes of laborers, productive and unproductive, would you place the following?
(1.) The officers of our Government.
(2.) The maker of an organ.
(3.) An organist.
(5.) An artist.
(6.) He who makes an article for which there is no use.
10. Classify as productive or unproductive the following laborers: a