CHAPTER I

DEFINITIONS: STATEMENT OF THE QUESTION TO BE INVESTIGATED

(_A_) THE SYSTEM OF WHICH PROTECTION IS A SURVIVAL.

1. The statesmen of the eighteenth century supposed that their business was the art of national prosperity. Their procedure was to form ideals of political greatness and civil prosperity on the one hand, and to evolve out of their own consciousness grand dogmas of human happiness and social welfare on the other hand. Then they tried to devise specific means for connecting these two notions with each other. Their ideals of political greatness contained, as predominant elements, a brilliant court, a refined and elegant aristocracy, well-developed fine arts and _belles lettres_, a powerful army and navy, and a peaceful, obedient, and hard-working peasantry and artisan class to pay the taxes and support the other part of the political structure. In this ideal the lower ranks paid upward, and the upper ranks blessed downward, and all were happy together. The great political and social dogmas of the period were exotic and incongruous. They were borrowed or accepted from the classical authorities. Of course the dogmas were chiefly held and taught by the philosophers, but, as the century ran its course, they penetrated the statesman class. The statesman who had had no purpose save to serve the “grandeur” of the king, or to perpetuate a dynasty, gave way to statesmen who had strong national feeling and national ideals, and who eagerly sought means to realize their ideals. Having as yet no definite notion, based on facts of observation and experience, of what a human society or a nation is, and no adequate knowledge of the nature and operation of social forces, they were driven to empirical processes which they could not test, or measure, or verify. They piled device upon device and failure upon failure. When one device failed of its intended purpose and produced an unforeseen evil, they invented a new device to prevent the new evil. The new device again failed to prevent, and became a cause of a new harm, and so on indefinitely.

2. Among their devices for industrial prosperity were (1) export taxes on raw materials, to make raw materials abundant and cheap at home; (2) bounties on the export of finished products, to make the exports large; (3) taxes on imported commodities to make the imports small, and thus, with No. 2, to make the “balance of trade” favorable, and to secure an importation of specie; (4) taxes or prohibition on the export of machinery, so as not to let foreigners have the advantage of domestic inventions; (5) prohibition on the emigration of skilled laborers, lest they should carry to foreign rivals knowledge of domestic arts; (6) monopolies to encourage enterprise; (7) navigation laws to foster ship-building or the carrying trade, and to provide sailors for the navy; (8) a colonial system to bring about by political force the very trade which the other devices had destroyed by economic interference; (9) laws for fixing wages and prices to repress the struggle of the non-capitalist class to save themselves in the social press; (10) poor-laws to lessen the struggle by another outlet; (11) extravagant criminal laws to try to suppress another development of this struggle by terror; and so on, and so on.

(_B_) OLD AND NEW CONCEPTIONS OF THE STATE.

3. Here we have a complete illustration of one mode of looking at human society, or at a state. Such society is, on this view, an artificial or mechanical product. It is an object to be molded, made, produced by contrivance. Like every product which is brought out by working up to an ideal instead of working out from antecedent truth and fact, the product here is haphazard, grotesque, false. Like every other product which is brought out by working on lines fixed by _a priori_ assumptions, it is a satire on human foresight and on what we call common sense. Such a state is like a house of cards, built up anxiously one upon another, ready to fall at a breath, to be credited at most with naïve hope and silly confidence; or, it is like the long and tedious contrivance of a mischievous schoolboy, for an end which has been entirely misappreciated and was thought desirable when it should have been thought a folly; or, it is like the museum of an alchemist, filled with specimens of his failures, monuments of mistaken industry and testimony of an erroneous method; or, it is like the clumsy product of an untrained inventor, who, instead of asking: “what means have I, and to what will they serve?” asks: “what do I wish that I could accomplish?” and seeks to win steps by putting in more levers and cogs, increasing friction and putting the solution ever farther off.

4. Of course such a notion of a state is at war with the conception of a state as a seat of original forces which must be reckoned with all the time; as an organism whose life will go on anyhow, perverted, distorted, diseased, vitiated as it may be by obstructions or coercions; as a seat of life in which nothing is ever lost, but every antecedent combines with every other and has its share in the immediate resultant, and again in the next resultant, and so on indefinitely; as the domain of activities so great that they should appall any one who dares to interfere with them; of instincts so delicate and self-preservative that it should be only infinite delight to the wisest man to see them come into play, and his sufficient glory to give them a little intelligent assistance. If a state well performed its functions of providing peace, order, and security, as _conditions_ under which the people could live and work, it would be the proudest proof of its triumphant success that it had nothing to do--that all went so smoothly that it had only to look on and was never called to interfere; just as it is the test of a good business man that his business runs on smoothly and prosperously while he is not harassed or hurried. The people who think that it is proof of enterprise to meddle and “fuss” may believe that a good state will constantly interfere and regulate, and they may regard the other type of state as “non-government.” The state can do a great deal more than to discharge police functions. If it will _follow_ custom, and the growth of social structure to provide for new social needs, it can powerfully aid the production of structure by laying down lines of common action, where nothing is needed but _some_ common action on conventional lines; or, it can systematize a number of arrangements which are not at their maximum utility for want of concord; or, it can give sanction to new rights which are constantly created by new relations under new social organizations, and so on.

5. The latter idea of the state has only begun to win way. All history and sociology bear witness to its comparative truth, at least when compared with the former. Under the new conception of the state, of course liberty means breaking off the fetters and trammels which the “wisdom” of the past has forged, and _laissez-faire_, or “let alone,” becomes a cardinal maxim of statesmanship, because it means: “Cease the empirical process. Institute the scientific process. Let the state come back to normal health and activity, so that you can study it, learn something about it from an observation of its phenomena, and then regulate your action in regard to it by intelligent knowledge.” Statesmen suited to this latter type of state have not yet come forward in any great number. The new radical statesmen show no disposition to let their neighbors alone. They think that they have come into power just because they know what their neighbors need to have done to them. Statesmen of the old type, who told people that they knew how to make everybody happy, and that they were going to do it, were always far better paid than any of the new type ever will be, and their failures never cost them public confidence either. We have got tired of kings, priests, nobles and soldiers, not because they failed to make us all happy, but because our _a priori_ dogmas have changed fashion. We have put the administration of the state in the hands of lawyers, editors, _littérateurs_, and professional politicians, and they are by no means disposed to abdicate the functions of their predecessors, or to abandon the practice of the art of national prosperity. The chief difference is that, whereas the old statesmen used to temper the practice of their art with care for the interests of the kings and aristocracies which put them in power, the new statesmen feel bound to serve those sections of the population which have put them where they are.

6. Some of the old devices above enumerated (§ 2) are, however, out of date, or are becoming obsolete.[1] Number 3, taxes on imports for other than fiscal purposes, is not among this number. Just now such taxes seem to be coming back into fashion, or to be enjoying a certain revival. It is a sign of the deficiency of our sociology as compared with our other sciences that such a phenomenon could be presented in the last quarter of the nineteenth century, as a certain revival of faith in the efficiency of taxes on imports as a device for producing national prosperity. There is not a single one of the eleven devices mentioned above, including taxes on the exportation of machinery and prohibitions on emigration, which is not quite as rational and sound as taxes on imports.

I now propose to analyze and criticize protectionism.

(_C_) DEFINITION OF PROTECTIONISM--DEFINITION OF “THEORY.”

7. By protection_ism_ I mean the doctrine of protective taxes as a device to be employed in the art of national prosperity. The protectionists are fond of representing themselves as “practical” and the free traders as “theorists.” “Theory” is indeed one of the most abused words in the language, and the scientists are partly to blame for it. They have allowed the word to come into use, even among themselves, for _a conjectural explanation_, or _a speculative conjecture_, or _a working hypothesis_, or _a project which has not yet been tested by experiment_, or _a plausible and harmless theorem about transcendental relations_, or _about the way in which men will act under certain motives_. The newspapers seem often to use the word “theoretical” as if they meant by it imaginary or fictitious. I use the word “theory,” however, not in distinction from fact, but, in what I understand to be the correct scientific use of the word, to denote _a rational description of a group of coördinated facts in their sequence and relations_. A theory may, for a special purpose, describe only certain features of facts and disregard others. Hence “in practice,” where facts present themselves in all their complexity, he who has carelessly neglected the limits of his theory may be astonished at phenomena which present themselves; but his astonishment will be due to a blunder on his part, and will not be an imputation on the theory.

8. Now free trade is not a theory in any sense of the word. _It is only a mode of liberty_; one form of the assault (and therefore negative) which the expanding intelligence of the present is making on the trammels which it has inherited from the past. Inside the United States, absolute free trade exists over a continent. No one thinks of it or realizes it. No one “feels” it. We feel only constraint and oppression. If we get liberty we reflect on it only so long as the memory of constraint endures. I have again and again seen the astonishment with which people realized the fact when presented to them that they have been living under free trade all their lives and never thought of it. When the whole world shall obtain and enjoy free trade there will be nothing more to be said about it; it will disappear from discussion and reflection; it will disappear from the text-books on political economy as the chapters on slavery are disappearing; it will be as strange for men to think that they might _not_ have free trade as it would be now for an American to think that he might not travel in this country without a passport, or that there ever was a chance that the soil of our western states might be slave soil and not free soil. It would be as reasonable to apply the word “theory” to the protestant reformation, or to law reform, or to anti-slavery, or to the separation of church and state, or to popular rights, or to any other campaign in the great struggle which we call liberty and progress, as to apply it to free trade. The pro-slavery men formerly did apply it to abolition, and with excellent reason, if the use of it which I have criticized ever was correct; for it required great power of realizing in imagination the results of social change, and great power to follow and trust abstract reasoning, for any man bred under slavery to realize, in advance of experiment, the social and economic gain to be won--_most of all for the whites_--by emancipation. It now requires great power of “theoretical conception” for people who have no experience of the separation of church and state to realize its benefits and justice. Similar observations would hold true of all similar reforms. Free trade is a revolt, a conflict, a reform, a reaction and recuperation of the body politic, just as free conscience, free worship, free speech, free press, and free soil have been. It is in no sense a theory.

9. Protectionism is not a theory in the correct sense of the term, but it comes under some of the popular and incorrect uses of the word. It is purely dogmatic and _a priori_. It is desired to attain a certain object--wealth and national prosperity. Protective taxes are proposed as a means. It must be assumed that there is some connection between protective taxes and national prosperity, some relation of cause and effect, some sequence of expended energy and realized product, between protective taxes and national wealth. If then by theory we mean a speculative conjecture as to occult relations which have not been and cannot be traced in experience, protection would be a capital example. Another and parallel example was furnished by astrology, which assumed a causal relation between the movements of the planets and the fate of men, and built up quite an art of soothsaying on this assumption. Another example, paralleling protectionism in another feature, was alchemy, which, accepting as unquestionable the notion that we want to transmute lead into gold if we can, assumed that there was a philosopher’s stone, and set to work to find it through centuries of repetition of the method of “trial and failure.”

10. _Protectionism, then, is an_ ISM; that is, it is a doctrine or system of doctrine which offers no demonstration, and rests upon no facts, but appeals to faith on grounds of its _a priori_ reasonableness, or the plausibility with which it can be set forth. Of course, if a man should say: “I am in favor of protective taxes because they bring gain to me. That is all I care to know about them, and I shall get them retained as long as I can”--there is no trouble in understanding him, and there is no use in arguing with him. So far as he is concerned, the only thing to do is to find his victims and explain the matter to them. The only thing which can be discussed is the doctrine of national wealth by protective taxes. This doctrine has the forms of an economic theory. It vies with the doctrine of labor and capital as a part of the science of production. Its avowed purpose is impersonal and disinterested--the same, in fact, as that of political economy. It is not, like free trade, a mere negative position against an inherited system, to which one is led by a study of political economy. It is a species of political economy, and aims at the throne of the science itself. If it is true, it is not a corollary, but a postulate, on which, and by which, all political economy must be constructed.

11. But then, lo! if the dogma which constitutes protectionism--_national wealth can be produced by protective taxes and cannot be produced without them_--is enunciated, instead of going on to a science of political economy based upon it, the science falls dead on the spot. What can be said about production, population, land, money, exchange, labor and all the rest? What can the economist learn or do? What function is there for the university or school? There is nothing to do but to go over to the art of legislation, and get the legislator to put on the taxes. The only questions which can arise are as to the number, variety, size, and proportion of the taxes. As to these questions the economist can offer no light. He has no method of investigating them. He can deduce no principles, lay down no laws in regard to them. The legislator must go on in the dark and experiment. If his taxes do not produce the required result, if there turn out to be “snakes” in the tariff which he has adopted, he has to change it. If the result still fails, change it again. Protectionism bars the science of political economy with a dogma, and the only process of the art of statesmanship to which it leads is eternal trial and failure--the process of the alchemist and of the inventor of perpetual motion.

(_D_) DEFINITION OF FREE TRADE AND OF A PROTECTIVE DUTY.

12. What then is a protective tax? In order to join issue as directly as possible, I will quote the definitions given by a leading protectionist journal,[2] of both free trade and protection. “The term ‘free trade,’ although much discussed, is seldom rightly defined. It does not mean the abolition of custom houses. Nor does it mean the substitution of direct for indirect taxation, as a few American disciples of the school have supposed. It means such an adjustment of taxes on imports as will cause no diversion of capital, from any channel into which it would otherwise flow, into any channel opened or favored by the legislation which enacts the customs. A country may collect its entire revenue by duties on imports, and yet be an entirely free trade country, so long as it does not lay those duties in such a way as to lead any one to undertake any employment, or make any investment he would avoid in the absence of such duties: thus, the customs duties levied by England--with a very few exceptions--are not inconsistent with her profession of being a country which believes in free trade. They either are duties on articles not produced in England, or they are exactly equivalent to the excise duties levied on the same articles if made at home. They do not lead any one to put his money into the home production of an article, because they do not discriminate in favor of the home producer.”

13. “A protective duty, on the other hand, has for its object to effect the diversion of a part of the capital and labor of the people out of the channels in which it would run otherwise, into channels favored or created by law.”

I know of no definitions of these two things which have ever been made by anybody which are more correct than these. I accept them and join issue on them.

(_E_) PROTECTIONISM RAISES A PURELY DOMESTIC CONTROVERSY.

14. It will be noticed that this definition of a protective duty says nothing about foreigners or about imports. According to this definition, a protective duty is a device for effecting a transformation in our own industry. If a tax is levied at the port of entry on a foreign commodity which is actually imported, the tax is paid to the treasury and produces revenue. A protective tax is one which is laid to act as a bar to importation, in order to keep a foreign commodity out. It does not act protectively unless it does act as a bar, and is not a tax on imports but an obstruction to imports. Hence a protective duty is a wall to inclose the domestic producer and consumer, and to prevent the latter from having access to any other source of supply for his needs, in exchange for his products, than that one which the domestic producer controls. The purpose and plan of the device is to enable the domestic producer to levy on the domestic consumer the taxes which the government has set up as a barrier, but has not collected at the port of entry. Under this device the government says: “I do not want the revenue, but I will lay the tax so that you, the selected and favored producer, may collect it.” “I do not need to tax the consumer for myself, but I will hold him for you while you tax him.”

(_F_) “A PROTECTIVE DUTY IS NOT A TAX.”

15. There are some who say that “a tariff is not a tax,” or as one of them said before a Congressional Committee: “We do not like to call it so!” That certainly is the most humorous of all the funny things in the tariff controversy. If a tariff is not a tax, what is it? In what category does it belong? No protectionist has ever yet told. They seem to think of it as a thing by itself, a Power, a Force, a sort of Mumbo Jumbo whose special function it is to produce national prosperity. They do not appear to have analyzed it, or given themselves an account of it, sufficiently to know what kind of a thing it is or how it acts. Any one who says that it is not a tax must suppose that it costs nothing, that it produces an effect without an expenditure of energy. They do seem to think that if Congress will say: “Let a tax of ---- per cent be laid on article A,” and if none is imported, and therefore no tax is paid at the custom house, national industry will be benefited and wealth secured, and that there will be no cost or outgo. If that is so, then the tariff is magic. We have found the philosopher’s stone. Our congressmen wave a magic wand over the country and say: “Not otherwise provided for, one hundred and fifty per cent,” and, presto! there we have wealth. Again they say: “Fifty cents a yard and fifty per cent _ad valorem_”; and there we have prosperity! If we should build a wall along the coast to keep foreigners and their goods out, it would cost something. If we maintained a navy to blockade our own coast for the same purpose, it would cost something. Yet it is imagined that if we do the same by a tax it costs nothing.

16. This is the fundamental fallacy of protection to which the analysis will bring us back again and again. Scientifically stated, it is that _protectionism sins against the conservation of energy_. More simply stated, it is that _the protectionist either never sees or does not tell the other side of the account, the cost, the outlay for the gains which he alleges from protection, and that when these are examined and weighed they are sure vastly to exceed the gains, if the gains were real_, even taking no account of the harm to national growth which is done by restriction and interference.

17. There are only three ways in which a man can part with his product, and different kinds of taxes fall under different modes of alienating one’s goods. First, he may exchange his product for the product of others. Then he parts with his property voluntarily, and for an equivalent. Taxes which are paid for peace, order, and security, fall under this head. Secondly, he may give his product away. Then he parts with it voluntarily without an equivalent. Taxes which are voluntarily paid for schools, libraries, parks, etc., fall under this head. Thirdly, he may be robbed of it. Then he parts with it involuntarily and without an equivalent. Taxes which are protective fall under this head. The analysis is exhaustive, and there is no other place for them. Protective taxes are those which a man pays to his neighbor to hire him (the neighbor) to carry on his own business. The first man gets no equivalent (§ 108). Hence any one who says that a tariff is not a tax would have to put it in some such category as tribute, plunder, or robbery. In order, then, that we may not give any occasion for even an unjust charge of using hard words, let us go back and call it a tax.

18. In any case it is plain that _we have before us the case of two Americans_. The protectionists who try to discuss the subject always go off to talk English politics and history, or Ireland, or India, or Turkey. I shall not follow them. I shall discuss the case between two Americans, which is the only case there is. Whether Englishmen like our tariff or not is of no consequence. As a matter of fact, Englishmen seem to have come to the opinion that if Americans will take their own home market as their share, and will keep out of the world’s market, they (the Englishmen) will agree to the arrangement; but it is immaterial whether they agree, or are angry. The only question for us is: What kind of an arrangement is it for one American to tax another American? How does it work? Who gains by it? How does it affect our national prosperity? These and these only are the questions which I intend to discuss.

19. I shall adopt _two different lines of investigation_. First, I shall examine protectionism on its own claims and pretensions, taking its doctrines and claims for true, and following them out to see whether they will produce the promised results; and secondly, I shall attack protectionism adversely, and controversially. If any one proposes a device for the public good, he is entitled to candid and patient attention, but he is also under obligation to show how he expects his scheme to work, what forces it will bring into play, how it will use them, etc. The joint stock principle, credit institutions, coöperation, and all similar devices must be analyzed and the explanation of their advantage, if they offer any, must be sought in the principles which they embody, the forces they employ, the suitableness of their apparatus. We ought not to put faith in any device (_e.g._, bi-metalism, socialism) unless the proposers offer an explanation of it which will bear rigid and pitiless examination; for, if it is a sound device, such examination will only produce more and more thorough conviction of its merits. I shall therefore first take up protectionism just as it is offered, and test it, as any candid inquirer might do, to see whether, as it is presented by its advocates, it has any claims to confidence.