WHAT IS FREE TRADE?
An Adaptation of Frederick Bastiat's "Sophismes Economiques" Designed for the American Reader
EMILE WALTER A Worker
New York: G. P. Putnam & Son, 661 Broadway
The New York Printing Company, 81, 83, And 85 Centre Street, New York
CHAPTER I. Plenty and Scarcity
CHAPTER II. Obstacles to Wealth and Causes of Wealth
CHAPTER III. Effort—Result
CHAPTER IV. Equalizing of the Facilities of Production
CHAPTER V. Our Productions are Overloaded with Internal Taxes
CHAPTER VI. Balance of Trade
CHAPTER VII. A Petition
CHAPTER VIII. Discriminating Duties
CHAPTER IX. A Wonderful Discovery
CHAPTER X. Reciprocity
CHAPTER XI. Absolute Prices
CHAPTER XII. Does Protection raise the Rate of Wages?
CHAPTER XIII. Theory and Practice
CHAPTER XIV. Conflict of Principles
CHAPTER XV. Reciprocity Again
CHAPTER XVI. Obstructed Rivers plead for the Prohibitionists
CHAPTER XVII. A Negative Railroad
CHAPTER XVIII. There are no Absolute Principles
CHAPTER XIX. National Independence
CHAPTER XX. Human Labor—National Labor
CHAPTER XXI. Raw Material
CHAPTER XXII. Metaphors
CHAPTER XXIII. Conclusion
Years ago I could not rid my mind of the notion that Free Trade meant some cunning policy of British statesmen designed to subject the world to British interests. Coming across Bastiat's inimitable Sophismes Economiques I learnt to my surprise that there were Frenchmen also who advocated Free Trade, and deplored the mischiefs of the Protective Policy. This made me examine the subject, and think a good deal upon it; and the result of this thought was the unalterable conviction I now hold—a conviction that harmonizes with every noble belief that our race entertains; with Civil and Religious Freedom for All, regardless of race or color; with the Harmony of God's works; with Peace and Goodwill to all Mankind. That conviction is this: that to make taxation the incident of protection to special interests, and those engaged in them, is robbery to the rest of the community, and subversive of National Morality and National Prosperity. I believe that taxes are necessary for the support of government, I believe they must be raised by levy, I even believe that some customs taxes may be more practicable and economical than some internal taxes; but I am entirely opposed to making anything the object of taxation but the revenue required by government for its economical maintenance.
I do not espouse Free Trade because it is British, as some suppose it to be. Independent of other things, that would rather set me against it than otherwise, because generally those things which best fit European society ill befit our society—the structure of each being so different. Free Trade is no more British than any other kind of freedom: indeed, Great Britain has only followed quite older examples in adopting it, as for instance the republics of Venice and Holland, both of which countries owed their extraordinary prosperity to the fact of their having set the example of relaxing certain absurd though time-honored restrictions on commerce. I espouse Free Trade because it is just, it is unselfish, and it is profitable.
For these reasons have I, a Worker, deeply interested in the welfare of the fellow-workers who are my countrymen, lent to Truth and Justice what little aid I could, by adapting Bastiat's keen and cogent Essay to the wants of readers on this side of the Atlantic.
EMILE WALTER, the Worker.
NEW YORK, 1866.
WHAT IS FREE TRADE?
PLENTY AND SCARCITY.
Which is better for man and for society—abundance or scarcity?
What! Can such a question be asked? Has it ever been pretended, is it possible to maintain, that scarcity is better than plenty?
Yes: not only has it been maintained, but it is still maintained. Congress says so; many of the newspapers (now happily diminishing in number) say so; a large portion of the public say so; indeed, the city theory is by far the more popular one of the two.
Has not Congress passed laws which prohibit the importation of foreign productions by the maintenance of excessive duties? Does not the Tribune maintain that it is advantageous to limit the supply of iron manufactures and cotton fabrics, by restraining any one from bringing them to market, but the manufacturers in New England and Pennsylvania? Do we not hear it complained every day: Our importations are too large; We are buying too much from abroad? Is there not an Association of Ladies, who, though they have not kept their promise, still, promised each other not to wear any clothing which was manufactured in other countries?
Now tariffs can only raise prices by diminishing the quantity of goods offered for sale. Therefore, statesmen, editors, and the public generally, believe that scarcity is better than abundance.
But why is this; why should men be so blind as to maintain that scarcity is better than plenty?
Because they look at price, but forget quantity.
But let us see.
A man becomes rich in proportion to the remunerative nature of his labor; that is to say, in proportion as he sells his produce at a high price. The price of his produce is high in proportion to its scarcity. It is plain, then, that, so far as regards him at least, scarcity enriches him. Applying, in turn, this manner of reasoning to each class of laborers individually, the scarcity theory is deduced from it. To put this theory into practice, and in order to favor each class of labor, an artificial scarcity is produced in every kind of produce by prohibitory tariffs, by restrictive laws, by monopolies, and by other analogous measures.
In the same manner it is observed that when an article is abundant, it brings a small price. The gains of the producer are, of course, less. If this is the case with all produce, all producers are then poor. Abundance, then, ruins society; and as any strong conviction will always seek to force itself into practice, we see the laws of the country struggling to prevent abundance.
Now, what is the defect in this argument? Something tells us that it must be wrong; but where is it wrong? Is it false? No. And yet it is wrong? Yes. But how? It is incomplete.
Man produces in order to consume. He is at once producer and consumer. The argument given above, considers him only under the first point of view. Let us look at him in the second character, and the conclusion will be different. We may say:
The consumer is rich in proportion as he buys at a low price. He buys at a low price in proportion to the abundance of the articles in demand; abundance, then, enriches him. This reasoning, extended to all consumers, must lead to the theory of abundance.
Which theory is right?
Can we hesitate to say? Suppose that by following out the scarcity theory, suppose that through prohibitions and restrictions we were compelled not only to make our own iron, but to grow our own coffee; in short, to obtain everything with difficulty and great outlay of labor. We then take an account of stock and see what our savings are.
Afterward, to test the other theory, suppose we remove the duties on iron, the duties on coffee, and the duties on everything else, so that we shall obtain everything with as little difficulty and outlay of labor as possible. If we then take an account of stock, is it not certain that we shall find more iron in the country, more coffee, more everything else?
Choose then, fellow-countrymen, between scarcity and abundance, between much and little, between Protection and Free Trade. You now know which theory is the right one, for you know the fruits they each bear.
But, it will be answered, if we are inundated with foreign goods and produce, our specie, our precious product of California, our dollars, will leave the country.
Well, what of that? Man is not fed with coin. He does not dress in gold, nor warm himself with silver. What does it matter, then, whether there be more or less specie in the country, provided there be more bread in the cupboard, more meat in the larder, more clothes in the wardrobe, and more fuel in the cellar?
Again, it will be objected, if we accustom ourselves to depend upon England for iron, what shall we do in case of a war with that country?
To this I reply, we shall then be compelled to produce iron ourselves. But, again I am told, we will not be prepared; we will have no furnaces in blast, no forges ready. True; neither will there be any time when war shall occur that the country will not be already filled with all the iron we shall want until we can make it here. Did the Confederates in the late war lack for iron? Why, then, shall we manufacture our own staples and bolts because we may some day or other have a quarrel with our ironmonger!
To sum up:
A radical antagonism exists between the vender and the buyer.
The former wishes the article offered to be scarce, and the supply to be small, so that the price may be high.
The latter wishes it abundant and the supply to be large, so that the price may be low.
The laws, which should at least remain neutral, take part for the vender against the buyer; for the producer against the consumer; for high against low prices; for scarcity against abundance; for protection against free trade. They act, if not intentionally, at least logically, upon the principle that a nation is rich in proportion as it is in want of everything.
OBSTACLES TO WEALTH AND CAUSES OF WEALTH.
Man is naturally in a state of entire destitution.
Between this state, and the satisfying of his wants, there exist a number of obstacles which it is the object of labor to surmount.
I wish to make a journey of some hundred miles. But between the point of my departure and my destination there are interposed mountains, rivers, swamps, forests, robbers; in a word—obstacles. To overcome these obstacles it is necessary that I should bestow much labor and great efforts in opposing them; or, what is the same thing, if others do it for me, I must pay them the value of their exertions. IT IS EVIDENT THAT I WOULD HAVE BEEN BETTER OFF HAD THESE OBSTACLES NEVER EXISTED. Remember this.
Through the journey of life, in the long series of days from the cradle to the tomb, man has many difficulties to oppose him. Hunger, thirst, sickness, heat, cold, are so many obstacles scattered along his road. In a state of isolation he would be obliged to combat them all by hunting, fishing, agriculture, spinning, weaving, architecture, etc., and it is very evident that it would be better for him that these difficulties should exist to a less degree, or even not at all. In a state of society he is not obliged personally to struggle with each of these obstacles, but others do it for him; and he, in turn, must remove some one of them for the benefit of his fellow-men. This doing one kind of labor for another, is called the division of labor.
Considering mankind as a whole, let us remember once more that it would be better for society that these obstacles should be as weak and as few as possible.
But mark how, in viewing this simple truth from a narrow point of view, we come to believe that obstacles, instead of being a disadvantage, are actually a source of wealth!
If we examine closely and in detail the phenomena of society and the private interests of men as modified by the division of labor, we perceive, without difficulty, how it has happened that wants have been confounded with riches, and the obstacle with the cause.
The separation of occupations, which results from the division of labor, causes each man, instead of struggling against all surrounding obstacles, to combat only one; the effort being made not for himself alone, but for the benefit of his fellows, who, in their turn, render a similar service to him.
It hence results that this man looks upon the obstacle which he has made it his profession to combat for the benefit of others, as the immediate cause of his riches. The greater, the more serious, the more stringent, may be this obstacle, the more he is remunerated for the conquering of it, by those who are relieved by his labors.
A physician, for instance, does not busy himself in baking his bread, or in manufacturing his clothing and his instruments; others do it for him, and he, in return, combats the maladies with which his patients are afflicted. The more dangerous and frequent these maladies are, the more others are willing, the more, even, are they forced, to work in his service. Disease, then, which is an obstacle to the happiness of mankind, becomes to him the source of his comforts. The reasoning of all producers is, in what concerns themselves, the same. As the doctor draws his profits from disease, so does the ship-owner from the obstacle called distance; the agriculturist from that named hunger; the cloth manufacturer from cold; the schoolmaster lives upon ignorance, the jeweler upon vanity, the lawyer upon cupidity and breach of faith. Each profession has then an immediate interest in the continuation, even in the extension, of the particular obstacle to which its attention has been directed.
Theorists hence go on to found a system upon these individual interests, and say: Wants are riches: Labor is riches: The obstacle to well-being is well-being: To multiply obstacles is to give food to industry.
Then comes the statesman; and as the developing and propagating of obstacles is the developing and propagating of riches, what more natural than that he should bend his efforts to that point? He says, for instance: If we prevent a large importation of iron, we create a difficulty in procuring it. This obstacle severely felt, obliges individuals to pay, in order to relieve themselves from it. A certain number of our citizens, giving themselves up to the combating of this obstacle, will thereby make their fortunes. In proportion, too, as the obstacle is great, and the mineral scarce, inaccessible, and of difficult and distant transportation, in the same proportion will be the number of laborers maintained by the various branches of this industry.
The same reasoning will lead to the proscription of machinery.
Here are men who are at a loss how to dispose of their petroleum. This is an obstacle which other men set about removing for them by the manufacture of casks. It is fortunate, say our statesmen, that this obstacle exists, since it occupies a portion of the labor of the nation, and enriches a certain number of our citizens. But here is presented to us an ingenious machine, which cuts down the oak, squares it, makes it into staves, and, gathering these together, forms them into casks. The obstacle is thus diminished, and with it the fortunes of the coopers. We must prevent this. Let us proscribe the machine!
To sift thoroughly this sophism, it is sufficient to remember that human labor is not an end but a means.
Labor is never without employment. If one obstacle is removed, it seizes another, and mankind is delivered from two obstacles by the same effort which was at first necessary for one. If the labor of coopers could become useless, it must take another direction. To maintain that human labor can end by wanting employment, it would be necessary to prove that mankind will cease to encounter obstacles.
We have seen that between our wants and their gratification many obstacles are interposed. We conquer or weaken these by the employment of our faculties. It may be said, in general terms, that industry is an effort followed by a result.
But by what do we measure our well-being? By our riches? By the result of our effort, or by the effort itself? There exists always a proportion between the effort employed and the result obtained. Does progress consist in the relative increase of the second or of the first term of this proportion—between effort or result?
Both propositions have been sustained, and in political economy opinions are divided between them.
According to the first system, riches are the result of labor. They increase in the same ratio as the result does to the effort. Absolute perfection, of which God is the type, consists in the infinite distance between these two terms in this relation, viz., effort none, result infinite.
The second system maintains that it is the effort itself which forms the measure of, and constitutes, our riches. Progression is the increase of the proportion of the effect to the result. Its ideal extreme may be represented by the eternal and fruitless efforts of Sisyphus.[A]
[Footnote A: We will therefore beg the reader to allow us in future, for the sake of conciseness, to designate this system under the term of Sisyphism, from Sisyphus, who, in punishment of his crimes, was compelled to roll a stone up hill, which fell to the bottom as fast as he rolled it to the top, so that his labor was interminable as well as fruitless.]
The first system tends naturally to the encouragement of everything which diminishes difficulties, and augments production—as powerful machinery, which adds to the strength of man; the exchange of produce, which allows us to profit by the various natural agents distributed in different degrees over the surface of our globe; the intellect which discovers, the experience which proves, and the emulation which excites.
The second as logically inclines to everything which can augment the difficulty and diminish the product; as, privileges, monopolies, restrictions, prohibition, suppression of machinery, sterility, &c.
It is well to mark here that the universal practice of men is always guided by the principle of the first system. Every workman, whether agriculturist, manufacturer, merchant, soldier, writer or philosopher, devotes the strength of his intellect to do better, to do more quickly, more economically—in a word, to do more with less.
The opposite doctrine is in use with theorists, essayists, statesmen, ministers, men whose business is to make experiments upon society. And even of these we may observe, that in what personally concerns themselves, they act, like everybody else, upon the principle of obtaining from their labor the greatest possible quantity of useful results.
It may be supposed that I exaggerate, and that there are no true Sisyphists.
I grant that in practice the principle is not pushed to its extreme consequences. And this must always be the case when one starts upon a wrong principle, because the absurd and injurious results to which it leads, cannot but check it in its progress. For this reason, practical industry never can admit of Sisyphism. The error is too quickly followed by its punishment to remain concealed. But in the speculative industry of theorists and statesmen, a false principle may be for a long time followed up, before the complication of its consequences, only half understood, can prove its falsity; and even when all is revealed, the opposite principle is acted upon, self is contradicted, and justification sought, in the incomparably absurd modern axiom, that in political economy there is no principle universally true.
Let us see, then, if the two opposite principles I have laid down do not predominate, each in its turn; the one in practical industry, the other in industrial legislation. When a man prefers a good plough to a bad one; when he improves the quality of his manures; when, to loosen his soil, he substitutes as much as possible the action of the atmosphere for that of the hoe or the harrow; when he calls to his aid every improvement that science and experience have revealed, he has, and can have, but one object, viz., to diminish the proportion of the effort to the result. We have indeed no other means of judging of the success of an agriculturist or of the merits of his system, but by observing how far he has succeeded in lessening the one, while he increases the other; and as all the farmers in the world act upon this principle, we may say that all mankind are seeking, no doubt for their own advantage, to obtain at the lowest price, bread, or whatever other article of produce they may need, always diminishing the effort necessary for obtaining any given quantity thereof.
This incontestable tendency of human nature, once proved, would, one might suppose, be sufficient to point out the true principle to the legislator, and to show him how he ought to assist industry (if indeed it is any part of his business to assist it at all), for it would be absurd to say that the laws of men should operate in an inverse ratio from those of Providence.
Yet we have heard members of Congress exclaim, "I do not understand this theory of cheapness; I would rather see bread dear, and work more abundant." And consequently these gentlemen vote in favor of legislative measures whose effect is to shackle and impede commerce, precisely because by so doing we are prevented from procuring indirectly, and at low price, what direct production can only furnish more expensively.
Now it is very evident that the system of Mr. So-and-so, the Congressman, is directly opposed to that of Mr. So-and-so, the agriculturist. Were he consistent with himself, he would as legislator vote against all restriction; or else as farmer, he would practise in his fields the same principle which he proclaims in the public councils. We would then see him sowing his grain in his most sterile fields, because he would thus succeed in laboring much, to obtain little. We would see him forbidding the use of the plough, because he could, by scratching up the soil with his nails, fully gratify his double wish of "dear bread and abundant labor."
Restriction has for its avowed object and acknowledged effect, the augmentation of labor. And again, equally avowed and acknowledged, its object and effect are, the increase of prices—a synonymous term for scarcity of produce. Pushed then to its greatest extreme, it is pure Sisyphism as we have defined it; labor infinite; result nothing.
There have been men who accused railways of injuring shipping; and it is certainly true that the most perfect means of attaining an object must always limit the use of a less perfect means. But railways can only injure shipping by drawing from it articles of transportation; this they can only do by transporting more cheaply; and they can only transport more cheaply, by diminishing the proportion of the effort employed to the result obtained—for it is in this that cheapness consists. When, therefore, these men lament the suppression of labor in attaining a given result, they maintain the doctrine of Sisyphism. Logically, if they prefer the vessel to the railway, they should also prefer the wagon to the vessel, the pack-saddle to the wagon, and the sack to the pack-saddle: for this is, of all known means of transportation, the one which requires the greatest amount of labor, in proportion to the result obtained.
"Labor constitutes the riches of the people," say some theorists. This was no elliptical expression, meaning that the "results of labor constitute the riches of the people." No; these theorists intended to say, that it is the intensity of labor which measures riches; and the proof of this is that from step to step, from restriction to restriction, they forced on the United States (and in so doing believed that they were doing well) to give to the procuring of, for instance, a certain quantity of iron, double the necessary labor. In England, iron was then at $20; in the United States it cost $40. Supposing the day's work to be worth $2.50, it is evident that the United States could, by barter, procure a ton of iron by eight days' labor taken from the labor of the nation. Thanks to the restrictive measures of these gentlemen, sixteen days' work were necessary to procure it, by direct production. Here then we have double labor for an identical result; therefore double riches; and riches, measured not by the result, but by the intensity of labor. Is not this pure and unadulterated Sisyphism?
That there may be nothing equivocal, these gentlemen carry their idea still farther, and on the same principle that we have heard them call the intensity of labor riches, we will find them calling the abundant results of labor and the plenty of everything proper to the satisfying of our wants, poverty. "Everywhere," they remark, "machinery has pushed aside manual labor; everywhere production is superabundant; everywhere the equilibrium is destroyed between the power of production and that of consumption." Here then we see that, according to these gentlemen, if the United States was in a critical situation it was because her productions were too abundant; there was too much intelligence, too much efficiency in her national labor. We were too well fed, too well clothed, too well supplied with everything; the rapid production was more than sufficient for our wants. It was necessary to put an end to this calamity, and therefore it became needful to force us, by restrictions, to work more in order to produce less.
All that we could have further to hope for, would be, that human intellect might sink and become extinct; for, while intellect exists, it cannot but seek continually to increase the proportion of the end to the means; of the product to the labor. Indeed it is in this continuous effort, and in this alone, that intellect consists.
Sisyphism has been the doctrine of all those who have been intrusted with the regulation of the industry of our country. It would not be just to reproach them with this; for this principle becomes that of our administration only because it prevails in Congress; it prevails in Congress only because it is sent there by the voters; and the voters are imbued with it only because public opinion is filled with it to repletion.
Let me repeat here, that I do not accuse the protectionists in Congress of being absolutely and always Sisyphists. Very certainly they are not such in their personal transactions; very certainly each of them will procure for himself by barter, what by direct production would be attainable only at a higher price. But I maintain that they are Sisyphists when they prevent the country from acting upon the same principle.
EQUALIZING OF THE FACILITIES OF PRODUCTION.
The protectionists often use the following argument:
"It is our belief that protection should correspond to, should be the representation of, the difference which exists between the price of an article of home production and a similar article of foreign production. A protective duty calculated upon such a basis does nothing more than secure free competition; free competition can only exist where there is an equality in the facilities of production. In a horse-race the load which each horse carries is weighed and all advantages equalized; otherwise there could be no competition. In commerce, if one producer can undersell all others, he ceases to be a competitor and becomes a monopolist. Suppress the protection which represents the difference of price according to each, and foreign produce must immediately inundate and obtain the monopoly of our market. Every one ought to wish, for his own sake and for that of the community, that the productions of the country should be protected against foreign competition, whenever the latter may be able to undersell the former."
This argument is constantly recurring in all writings of the protectionist school. It is my intention to make a careful investigation of its merits, and I must begin by soliciting the attention and the patience of the reader. I will first examine into the inequalities which depend upon natural causes, and afterwards into those which are caused by diversity of taxes.
Here, as elsewhere, we find the theorists who favor protection taking part with the producer. Let us consider the case of the unfortunate consumer, who seems to have entirely escaped their attention. They compare the field of protection to the turf. But on the turf, the race is at once a means and an end. The public has no interest in the struggle, independent of the struggle itself. When your horses are started in the course with the single object of determining which is the best runner, nothing is more natural than that their burdens should be equalized. But if your object were to send an important and critical piece of intelligence, could you without incongruity place obstacles to the speed of that one whose fleetness would secure you the best means of attaining your end? And yet this is your course in relation to industry. You forget the end aimed at, which is the well-being of the community; you set it aside; more, you sacrifice it by a perfect petitio principii.
But we cannot lead our opponents to look at things from our point of view; let us now take theirs: let us examine the question as producers.
I will seek to prove:
1. That equalizing the facilities of production is to attack the foundations of mutual exchange.
2. That it is not true that the labor of one country can be crushed by the competition of more favored climates.
3. That, even were this the case, protective duties cannot equalize the facilities of production.
4. That freedom of trade equalizes these conditions as much as possible; and
5. That the countries which are the least favored by nature are those which profit most by mutual exchange.
1. Equalizing the facilities of production is to attack the foundations of mutual exchange. The equalizing of the facilities of production, is not only the shackling of certain articles of commerce, but it is the attacking of the system of mutual exchange in its very foundation principle. For this system is based precisely upon the very diversities, or, if the expression be preferred, upon the inequalities of fertility, climate, temperature, capabilities, which the protectionists seek to render null. If New England sends its manufactures to the West, and the West sends corn to New England, it is because these two sections are, from different circumstances, induced to turn their attention to the production of different articles. Is there any other rule for international exchanges?
Again, to bring against such exchanges the very inequalities of condition which excite and explain them, is to attack them in their very cause of being. The protective system, closely followed up, would bring men to live like snails, in a state of complete isolation. In short, there is not one of its sophisms, which, if carried through by vigorous deductions, would not end in destruction and annihilation.
2. It is not true that the labor of one country can be crushed by the competition of more favored climates. The statement is not true that the unequal facility of production, between two similar branches of industry, should necessarily cause the destruction of the one which is the least fortunate. On the turf, if one horse gains the prize, the other loses it; but when two horses work to produce any useful article, each produces in proportion to his strength; and because the stronger is the more useful it does not follow that the weaker is good for nothing. Wheat is cultivated in every section of the United States, although there are great differences in the degree of fertility existing among them. If it happens that there be one which does not cultivate it, it is because, even to itself, such cultivation is not useful. Analogy will show us, that under the influences of an unshackled trade, notwithstanding similar differences, wheat would be produced in every portion of the world; and if any nation were induced to entirely abandon the cultivation of it, this would only be because it would be her interest to otherwise employ her lands, her capital, and her labor. And why does not the fertility of one department paralyze the agriculture of a neighboring and less favored one? Because the phenomena of political economy have a suppleness, an elasticity, and, so to speak, a self-levelling power, which seems to escape the attention of the school of protectionists. They accuse us of being theoretic, but it is themselves who are so to a supreme degree, if the being theoretic consists in building up systems upon the experience of a single fact, instead of profiting by the experience of a series of facts. In the above example, it is the difference in the value of lands which compensates for the difference in their fertility. Your field produces three times as much as mine. Yes. But it has cost you ten times as much, and therefore I can still compete with you: this is the sole mystery. And observe how the advantage on one point leads to disadvantage on the other. Precisely because your soil is more fruitful it is more dear. It is not accidentally but necessarily that the equilibrium is established, or at least inclines to establish itself: and can it be denied that perfect freedom in exchanges is of all systems the one which favors this tendency?
I have cited an agricultural example; I might as easily have taken one from any trade. There are tailors at Barnegat, but that does not prevent tailors from being in New York also, although the latter have to pay a much higher rent, as well as higher price for furniture, workmen, and food. But their customers are sufficiently numerous not only to reestablish the balance, but also to make it lean on their side.
When, therefore, the question is about equalizing the advantages of labor, it would be well to consider whether the natural freedom of exchange is not the best umpire.
This self-levelling faculty of political phenomena is so important, and at the same time so well calculated to cause us to admire the providential wisdom which presides over the equalizing government of society, that I must ask permission a little longer to turn to it the attention of the reader.
The protectionists say, Such a nation has the advantage over us, in being able to procure cheaply, coal, iron, machinery, capital; it is impossible for us to compete with it.
We must examine this proposition under other aspects. For the present, I stop at the question, whether, when an advantage and a disadvantage are placed in juxtaposition, they do not bear in themselves, the former a descending, the latter an ascending power, which must end by placing them in a just equilibrium?
Let us suppose the countries A and B. A has every advantage over B; you thence conclude that labor will be concentrated upon A, while B must be abandoned. A, you say, sells much more than it buys; B buys much more than it sells. I might dispute this, but I will meet you upon your own ground.
In the hypothesis, labor being in great demand in A, soon rises in value; while labor, iron, coal, lands, food, capital, all being little sought after in B, soon fall in price.
Again: A being always selling and B always buying, cash passes from B to A. It is abundant in A, very scarce in B.
But where there is abundance of cash, it follows that in all purchases a large proportion of it will be needed. Then in A, real dearness, which proceeds from a very active demand, is added to nominal dearness, the consequence of a superabundance of the precious metals.
Scarcity of money implies that little is necessary for each purchase. Then in B, a nominal cheapness is combined with real cheapness.
Under these circumstances, industry will have the strongest possible motives for deserting A to establish itself in B.
Now, to return to what would be the true course of things. As the progress of such events is always gradual, industry from its nature being opposed to sudden transits, let us suppose that, without waiting the extreme point, it will have gradually divided itself between A and B, according to the laws of supply and demand; that is to say, according to the laws of justice and usefulness.
I do not advance an empty hypothesis when I say, that were it possible that industry should concentrate itself upon a single point, there must, from its nature, arise spontaneously, and in its midst, AN IRRESISTIBLE POWER OF DECENTRALIZATION.
We will quote the words of a manufacturer to the Chamber of Commerce at Manchester (the figures brought into his demonstration being suppressed):
"Formerly we exported goods; this exportation gave way to that of thread for the manufacture of goods; later, instead of thread, we exported machinery for the making of thread; then capital for the construction of machinery; and lastly, workmen and talent, which are the source of capital. All these elements of labor have, one after the other, transferred themselves to other points, where their profits were increased, and where the means of subsistence being less difficult to obtain, life is maintained at less cost. There are at present to be seen in Prussia, Austria, Saxony, Switzerland, and Italy, immense manufacturing establishments, founded entirely by English capital, worked by English labor, and directed by English talent."
We may here perceive that Nature, with more wisdom and foresight than the narrow and rigid system of the protectionists can suppose, does not permit the concentration of labor, and the monopoly of advantages, from which they draw their arguments as from an absolute and irremediable fact. It has, by means as simple as they are infallible, provided for dispersion, diffusion, mutual dependence, and simultaneous progress; all of which, your restrictive laws paralyze as much as is in their power, by their tendency towards the isolation of nations. By this means they render much more decided the differences existing in the conditions of production; they check the self-levelling power of industry, prevent fusion of interests, neutralize the counterpoise, and fence in each nation within its own peculiar advantages and disadvantages.
3. Even were the labor of one country crushed by the competition of more favored climates (which is denied), protective duties cannot equalize the facilities of production. To say that by a protective law the conditions of production are equalized, is to disguise an error under false terms. It is not true that an import duty equalizes the conditions of production. These remain after the imposition of the duty just as they were before. The most that law can do is to equalize the conditions of sale. If it should be said that I am playing upon words, I retort the accusation upon my adversaries. It is for them to prove that production and sale are synonymous terms, which if they cannot do, I have a right to accuse them, if not of playing upon words, at least of confounding them.
Let me be permitted to exemplify my idea.
Suppose that several New York speculators should determine to devote themselves to the production of oranges. They know that the oranges of Portugal can be sold in New York at one cent each, whilst on account of the boxes, hot-houses, &c., which are necessary to ward against the severity of our climate, it is impossible to raise them at less than a dollar apiece. They accordingly demand a duty of ninety-nine cents upon Portugal oranges. With the help of this duty, say they, the conditions of production will be equalized. Congress, yielding as usual to this argument, imposes a duty of ninety-nine cents on each foreign orange.
Now I say that the relative conditions of production are in no wise changed. The law can take nothing from the heat of the sun in Lisbon, nor from the severity of the frosts in New York. Oranges continuing to mature themselves naturally on the banks of the Tagus, and artificially upon those of the Hudson, must continue to require for their production much more labor on the latter than the former. The law can only equalize the conditions of sale. It is evident that while the Portuguese sell their oranges here at a dollar apiece, the ninety-nine cents which go to pay the tax are taken from the American consumer. Now look at the whimsicality of the result. Upon each Portuguese orange, the country loses nothing; for the ninety-nine cents which the consumer pays to satisfy the impost tax, enter into the treasury. There is improper distribution; but no loss. But upon each American orange consumed, there will be about ninety-nine cents lost; for while the buyer very certainly loses them, the seller just as certainly does not gain them; for, even according to the hypothesis, he will receive only the price of production, I will leave it to the protectionists to draw their conclusion.
4. But freedom of trade equalizes these conditions as much as is possible. I have laid some stress upon this distinction between the conditions of production and those of sale, which perhaps the prohibitionists may consider as paradoxical, because it leads me on to what they will consider as a still stranger paradox. This is: If you really wish to equalize the facilities of production, leave trade free.
This may surprise the protectionists; but let me entreat them to listen, if it be only through curiosity, to the end of my argument. It shall not be long. I will now take it up where we left off.
If we suppose for the moment, that the common and daily profits of each American amount to one dollar, it will indisputably follow that to produce an orange by direct labor in America, one day's work, or its equivalent, will be requisite; whilst to produce the cost of a Portuguese orange, only one-hundredth of this day's labor is required; which means simply this, that the sun does at Lisbon what labor does at New York. Now is it not evident, that if I can produce an orange, or, what is the same thing, the means of buying it, with one-hundredth of a day's labor, I am placed exactly in the same condition as the Portuguese producer himself, excepting the expense of the transportation? It therefore follows that freedom of commerce equalizes the conditions of production direct or indirect, as much as it is possible to equalize them; for it leaves but the one inevitable difference, that of transportation.
I will add that free trade equalizes also the facilities for attaining enjoyments, comforts, and general consumption; the last, an object which is, it would seem, quite forgotten, and which is nevertheless all-important; since, in fine, consumption is the main object of all our industrial efforts. Thanks to freedom of trade, we would enjoy here the results of the Portuguese sun, as well as Portugal itself; and the inhabitants of New York would have in their reach, as well as those of London, and with the same facilities, the advantages which nature has in a mineralogical point of view conferred upon Cornwall.
5. Countries least favored by nature (countries not yet cleared of forests, for example) are those which profit most by mutual exchange. The protectionists may suppose me in a paradoxical humor, for I go further still. I say, and I sincerely believe, that if any two countries are placed in unequal circumstances as to advantages of production, the one of the two which is the less favored by nature, will gain more by freedom of commerce. To prove this, I will be obliged to turn somewhat aside from the form of reasoning which belongs to this work. I will do so, however; first, because the question in discussion turns upon this point; and again, because it will give me the opportunity of exhibiting a law of political economy of the highest importance, and which, well understood, seems to me to be destined to lead back to this science all those sects which, in our days, are seeking in the land of chimeras that social harmony which they have been unable to discover in nature. I speak of the law of consumption, which the majority of political economists may well be reproached with having too much neglected.
Consumption is the end, the final cause of all the phenomena of political economy, and, consequently, in it is found their final solution.
No effect, whether favorable or unfavorable, can be vested permanently in the producer. His advantages and disadvantages, derived from his relations to nature and to society, both pass gradually from him; and by an almost insensible tendency are absorbed and fused into the community at large—the community considered as consumers. This is an admirable law, alike in its cause and its effects; and he who shall succeed in making it well understood, will have a right to say, "I have not, in my passage through the world, forgotten to pay my tribute to society."
Every circumstance which favors the work of production is of course hailed with joy by the producer, for its immediate effect is to enable him to render greater services to the community, and to exact from it a greater remuneration. Every circumstance which injures production, must equally be the source of uneasiness to him; for its immediate effect is to diminish his services, and consequently his remuneration. This is a fortunate and necessary law of nature. The immediate good or evil of favorable or unfavorable circumstances must fall upon the producer, in order to influence him invisibly to seek the one and to avoid the other.
Again: when an inventor succeeds in his labor-saving machine, the immediate benefit of this success is received by him. This again is necessary, to determine him to devote his attention to it. It is also just; because it is just that an effort crowned with success should bring its own reward.
But these effects, good and bad, although permanent in themselves, are not so as regards the producer. If they had been so, a principle of progressive and consequently infinite inequality would have been introduced among men. This good, and this evil, both therefore pass on, to become absorbed in the general destinies of humanity.
How does this come about? I will try to make it understood by some examples.
Let us go back to the thirteenth century. Men who gave themselves up to the business of copying, received for this service a remuneration regulated by the general rate of the profits. Among them is found one, who seeks and finds the means of rapidly multiplying copies of the same work. He invents printing. The first effect of this is, that the individual is enriched, while many more are impoverished. At the first view, wonderful as the discovery is, one hesitates in deciding whether it is not more injurious than useful. It seems to have introduced into the world, as I said above, an element of infinite inequality. Guttenberg makes large profits by this invention, and perfects the invention by the profits, until all other copyists are ruined. As for the public—the consumer—it gains but little, for Guttenberg takes care to lower the price of books only just so much as is necessary to undersell all rivals.
But the great Mind which put harmony into the movements of celestial bodies, could also give it to the internal mechanism of society. We will see the advantages of this invention escaping from the individual, to become for ever the common patrimony of mankind.
The process finally becomes known. Guttenberg is no longer alone in his art; others imitate him. Their profits are at first considerable. They are recompensed for being the first who made the effort to imitate the processes of the newly-invented art. This again was necessary, in order that they might be induced to the effort, and thus forward the great and final result to which we approach. They gain largely; but they gain less than the inventor, for competition has commenced its work. The price of books now continually decreases. The gains of the imitators diminish in proportion as the invention becomes older; and in the same proportion imitation becomes less meritorious. Soon the new object of industry attains its normal condition; in other words, the remuneration of printers is no longer an exception to the general rules of remuneration, and, like that of copyists formerly, it is only regulated by the general rate of profits. Here then the producer, as such, holds only the old position. The discovery, however, has been made; the saving of time, labor, effort, for a fixed result, for a certain number of volumes, is realized. But in what is this manifested? In the cheap price of books. For the good of whom? For the good of the consumer—of society—of humanity. Printers, having no longer any peculiar merit, receive no longer a peculiar remuneration. As men—as consumers—they no doubt participate in the advantages which the invention confers upon the community; but that is all. As printers, as producers, they are placed upon the ordinary footing of all other producers. Society pays them for their labor, and not for the usefulness of the invention. That has become a gratuitous benefit, a common heritage to mankind.
The wisdom and beauty of these laws strike me with admiration and reverence.
What has been said of printing, can be extended to every agent for the advancement of labor—from the nail and the mallet, up to the locomotive and the electric telegraph. Society enjoys all, by the abundance of its use, its consumption; and it enjoys all gratuitously. For as their effect is to diminish prices, it is evident that just so much of the price as is taken off by their intervention, renders the production in so far gratuitous. There only remains the actual labor of man to be paid for; and the remainder, which is the result of the invention, is subtracted; at least after the invention has run through the cycle which I have just described as its destined course. I send for a workman; he brings a saw with him; I pay him two dollars for his day's labor, and he saws me twenty-five boards. If the saw had not been invented, he would perhaps not have been able to make one board, and I would none the less have paid him for his day's labor. The usefulness, then, of the saw, is for me a gratuitous gift of nature, or rather, is a portion of the inheritance which, in common with my brother men, I have received from the genius of my ancestors. I have two workmen in my field; the one directs the handle of a plough, the other that of a spade. The result of their day's labor is very different, but the price is the same, because the remuneration is proportioned, not to the usefulness of the result, but to the effort, the [time, and] labor given to attain it.
I invoke the patience of the reader, and beg him to believe, that I have not lost sight of free trade: I entreat him only to remember the conclusion at which I have arrived: Remuneration is not proportioned to the usefulness of the articles brought by the producer into the market, but to the [time and] labor required for their production.[B]
[Footnote B: It is true that [time and] labor do not receive a uniform remuneration; because labor is more or less intense, dangerous, skilful, &c., [and time more or less valuable.] Competition establishes for each category a price current: and it is of this variable price that I speak.]
I have so far taken my examples from human inventions, but will now go on to speak of natural advantages.
In every article of production, nature and man must concur. But the portion of nature is always gratuitous. Only so much of the usefulness of an article as is the result of human labor becomes the object of mutual exchange, and consequently of remuneration. The remuneration varies much, no doubt, in proportion to the intensity of the labor, of the skill, which it requires, of its being a-propos to the demand of the day, of the need which exists for it, of the momentary absence of competition, &c. But it is not the less true in principle, that the assistance received from natural laws, which belongs to all, counts for nothing in the price.
We do not pay for the air we breathe, although so useful to us, that we could not live two minutes without it. We do not pay for it, because nature furnishes it without the intervention of man's labor. But if we wish to separate one of the gases which compose it for instance, to fill a balloon, we must take some [time and] labor; or if another takes it for us, we must give him an equivalent in something which will have cost us the trouble of production. From which we see that the exchange is between efforts, [time and] labor. It is certainly not for hydrogen gas that I pay, for this is everywhere at my disposal, but for the work that it has been necessary to accomplish in order to disengage it; work which I have been spared, and which I must refund. If I am told that there are other things to pay for, as expense, materials, apparatus, I answer, that still in these things it is the work that I pay for. The price of the coal employed is only the representation of the [time and] labor necessary to dig and transport it.
We do not pay for the light of the sun, because nature alone gives it to us. But we pay for the light of gas, tallow, oil, wax, because here is labor to be remunerated;—and remark, that it is so entirely [time and] labor and not utility to which remuneration is proportioned, that it may well happen that one of these means of lighting, while it may be much more effective than another, may still cost less. To cause this, it is only necessary that less [time and] human labor should be required to furnish it.
When the water-boat comes to supply my ship, were I to pay in proportion to the absolute utility of the water, my whole fortune would not be sufficient. But I pay only for the trouble taken. If more is required, I can get another boat to furnish it, or finally go and get it myself. The water itself is not the subject of the bargain, but the labor required to obtain the water. This point of view is so important, and the consequences that I am going to draw from it so clear, as regards the freedom of international exchanges, that I will still elucidate my idea by a few more examples.
The alimentary substance contained in potatoes does not cost us very dear, because a great deal of it is attainable with little work. We pay more for wheat, because, to produce it, Nature requires more labor from man. It is evident that if Nature did for the latter what she does for the former, their prices would tend to the same level. It is impossible that the producer of wheat should permanently gain more than the producer of potatoes. The law of competition cannot allow it.
Again, if by a happy miracle the fertility of all arable lands were to be increased, it would not be the agriculturist, but the consumer, who would profit by this phenomenon; for the result of it would be abundance and cheapness. There would be less labor incorporated into an acre of grain, and the agriculturist would be therefore obliged to exchange it for less labor incorporated into some other article. If, on the contrary, the fertility of the soil were suddenly to deteriorate, the share of nature in production would be less, that of labor greater, and the result would be higher prices.
I am right then in saying that it is in consumption, in mankind, that at length all political phenomena find their solution. As long as we fail to follow their effects to this point, and look only at immediate effects, which act but upon individual men or classes of men as producers, we know nothing more of political economy than the quack does of medicine, when instead of following the effects of a prescription in its action upon the whole system, he satisfies himself with knowing how it affects the palate and the throat.
The tropical regions are very favorable to the production of sugar and coffee; that is to say, Nature does most of the business and leaves but little for labor to accomplish. But who reaps the advantage of this liberality of Nature? NOT THESE REGIONS, for they are forced by competition to receive remuneration simply for their labor. It is MANKIND who is the gainer; for the result of this liberality is cheapness, and cheapness belongs to the world.
Here in the temperate zone, we find coal and iron ore on the surface of the soil; we have but to stoop and take them. At first, I grant, the immediate inhabitants profit by this fortunate circumstance. But soon comes competition, and the price of coal and iron falls, until this gift of nature becomes gratuitous to all, and human labor is only paid according to the general rate of profits.
Thus, natural advantages, like improvements in the process of production, are, or have, a constant tendency to become, under the law of competition, the common and gratuitous patrimony of consumers, of society, of mankind. Countries, therefore, which do not enjoy these advantages, must gain by commerce with those which do; because the exchanges of commerce are between labor and labor, subtraction being made of all the natural advantages which are combined with these labors; and it is evidently the most favored countries which can incorporate into a given labor the largest proportion of these natural advantages. Their produce representing less labor, receives less recompense; in other words, is cheaper. If then all the liberality of Nature results in cheapness, it is evidently not the producing, but the consuming country, which profits by her benefits.
Hence we may see the enormous absurdity of the consuming country, which rejects produce precisely because it is cheap. It is as though we should say: "We will have nothing of that which Nature gives you. You ask of us an effort equal to two, in order to furnish ourselves with produce only attainable at home by an effort equal to four. You can do it because with you Nature does half the work. But we will have nothing to do with it; we will wait till your climate, becoming more inclement, forces you to ask of us a labor equal to four, and then we can treat with you upon an equal footing!"
A is a favored country; B is maltreated by Nature. Mutual traffic then is advantageous to both, but principally to B, because the exchange is not between utility and utility, but between value and value. Now A furnishes a greater utility in a similar value, because the utility of any article includes at once what Nature and what labor have done; whereas the value of it only corresponds to the portion accomplished by labor. B then makes an entirely advantageous bargain; for by simply paying the producer from A for his labor, it receives in return not only the results of that labor, but in addition there is thrown in whatever may have accrued from the superior bounty of Nature.
We will lay down the general rule.
Traffic is an exchange of values; and as value is reduced by competition to the simple representation of labor, traffic is the exchange of equal labors. Whatever Nature has done towards the production of the articles exchanged, is given on both sides gratuitously; from whence it necessarily follows, that the most advantageous commerce is transacted with those countries which are the least favored by Nature.
The theory of which I have attempted in this chapter to trace the outlines, deserves a much greater elaboration. But perhaps the attentive reader will have perceived in it the fruitful seed which is destined in its future growth to smother Protectionism, at once with the various other isms whose object is to exclude the law of COMPETITION from the government of the world. Competition, no doubt, considering man as producer, must often interfere with his individual and immediate interests. But if we consider the great object of all labor, the universal good, in a word, Consumption, we cannot fail to find that Competition is to the moral world what the law of equilibrium is to the material one. It is the foundation of true gratification, of true Liberty and Equality, of the equality of comforts and condition, so much sought after in our day; and if so many sincere reformers, so many earnest friends to public right, seek to reach their end by commercial legislation, it is only because they do not yet understand commercial freedom.
OUR PRODUCTIONS ARE OVERLOADED WITH INTERNAL TAXES—
This is but a new wording of the Sophism before noticed. The demand made is, that the foreign article should be taxed, in order to neutralize the effects of the internal tax, which weighs down domestic produce. It is still then but the question of equalizing the facilities of production. We have but to say that the tax is an artificial obstacle, which has exactly the same effect as a natural obstacle, i.e. the increasing of the price. If this increase is so great that there is more loss in producing the article in question at home than in attracting it from foreign parts by the production of an equivalent value of something else—laissez faire. Individual interest will soon learn to choose the lesser of two evils. I might refer the reader to the preceding demonstration for an answer to this Sophism; but it is one which recurs so often, that it deserves a special discussion.
I have said more than once, that I am opposing only the theory of the protectionists, with the hope of discovering the source of their errors. Were I disposed to enter into controversy with them, I would say: Why direct your tariffs principally against England, a country more overloaded with taxes than any in the world? Have I not a right to look upon your argument as a mere pretext? But I am not of the number of those who believe that prohibitionists are guided by interest, and not by conviction. The doctrine of Protection is too popular not to be sincere. If the majority could believe in freedom, we would be free. Without doubt it is individual interest which weighs us down with tariffs; but it acts upon conviction. "The will (said Pascal) is one of the principal organs of belief." But belief does not the less exist because it is rooted in the will and in the secret inspirations of egotism.
We will return to the Sophism drawn from internal taxes.
The government may make either a good or a bad use of taxes; it makes a good use of them when it renders to the public services equivalent to the value received from them; it makes a bad use of them when it expends this value, giving nothing in return. To say in the first case that they place the country which pays them in more disadvantageous conditions for production, than the country which is free from them, is a Sophism. We pay, it is true, so many millions for the administration of justice, and the maintenance of order, but we have justice and order; we have the security which they give, the time which they save for us; and it is most probable that production is neither more easy nor more active among nations, where (if there be such) each individual takes the administration of justice into his own hands. We pay, I grant, many millions for roads, bridges, ports, steamships; but we have these steamships, these ports, bridges, and roads; and unless we maintain that it is a losing business to establish them, we cannot say that they place us in a position inferior to that of nations who have, it is true, no budget of public works, but who likewise have no public works. And here we see why (even while we accuse taxes of being a cause of industrial inferiority) we direct our tariffs precisely against those nations which are the most taxed. It is because these taxes, well used, far from injuring, have ameliorated the conditions of production to these nations. Thus we again arrive at the conclusion that the protectionist Sophisms not only wander from, but are the contrary—the very antithesis—of truth.
As to unproductive taxes, suppress them if you can; but surely it is a most singular idea to suppose, that their evil effect is to be neutralized by the addition of individual taxes to public taxes. Many thanks for the compensation! The State, you say, has taxed us too much; surely this is no reason that we should tax each other!
A protective duty is a tax directed against foreign produce, but which returns, let us keep in mind, upon the national consumer. Is it not then a singular argument to say to him, "Because the taxes are heavy, we will raise prices higher for you; and because the State takes a part of your revenue, we will give another portion of it to benefit a monopoly?"
But let us examine more closely this Sophism so accredited among our legislators; although, strange to say, it is precisely those who keep up the unproductive taxes (according to our present hypothesis) who attribute to them afterwards our supposed inferiority, and seek to re-establish the equilibrium by further taxes and new clogs.
It appears to me to be evident that protection, without any change in its nature and effects, might have taken the form of a direct tax, raised by the State, and distributed as a premium to privileged industry.
Let us admit that foreign iron could be sold in our market at $16, but not lower; and American iron at not lower than $24.
In this hypothesis there are two ways in which the State can secure the national market to the home producer.
The first, is to put upon foreign iron a duty of $10. This, it is evident, would exclude it, because it could no longer be sold at less than $26; $16 for the indemnifying price, $10 for the tax; and at this price it must be driven from the market by American iron, which we have supposed to cost $24. In this case the buyer, the consumer, will have paid all the expenses of the protection given.
The second means would be to lay upon the public an Internal Revenue tax of $10, and to give it as a premium to the iron manufacturer. The effect would in either case be equally a protective measure. Foreign iron would, according to both systems, be alike excluded; for our iron manufacturer could sell at $14, what, with the $10 premium, would thus bring him in $24. While the price of sale being $14, foreign iron could not obtain a market at $16.
In these two systems the principle is the same; the effect is the same. There is but this single difference; in the first case the expense of protection is paid by a part, in the second by the whole of the community. I frankly confess my preference for the second system, which I regard as more just, more economical, and more legal. More just, because, if society wishes to give bounties to some of its members, the whole community ought to contribute; more economical, because it would banish many difficulties, and save the expenses of collection; more legal, because the public would see clearly into the operation, and know what was required of it.
But if the protective system had taken this form, would it not have been laughable enough to hear it said: "We pay heavy taxes for the army, the navy, the judiciary, the public works, the debt, &c. These amount to more than 200 millions. It would therefore be desirable that the State should take another 200 millions to relieve the poor iron manufacturers."
This, it must certainly be perceived, by an attentive investigation, is the result of the Sophism in question. In vain, gentlemen, are all your efforts; you cannot give money to one without taking it from another. If you are absolutely determined to exhaust the funds of the taxable community, well; but, at least, do not mock them; do not tell them, "We take from you again, in order to compensate you for what we have already taken."
It would be a too tedious undertaking to endeavor to point out all the fallacies of this Sophism. I will therefore limit myself to the consideration of it in three points.
You argue that the United States are overburdened with taxes, and deduce thence the conclusion that it is necessary to protect such and such an article of produce. But protection does not relieve us from the payment of these taxes. If, then, individuals devoting themselves to any one object of industry, should advance this demand: "We, from our participation in the payment of taxes, have our expenses of production increased, and therefore ask for a protective duty which shall raise our price of sale:" what is this but a demand on their part to be allowed to free themselves from the burden of the tax, by laying it on the rest of the community? Their object is to balance, by the increased price of their produce, the amount which they pay in taxes. Now, as the whole amount of these taxes must enter into the Treasury, and the increase of price must be paid by society, it follows that (where this protective duty is imposed) society has to bear, not only the general tax, but also that for the protection of the article in question. But, it is answered, let everything be protected. Firstly, this is impossible; and, again, were it possible, how could such a system give relief? I will pay for you, you will pay for me; but not the less still there remains the tax to be paid.
Thus you are the dupes of an illusion. You determine to raise taxes for the support of an army, a navy, judges, roads, &c. Afterwards you seek to disburden from its portion of the tax, first one article of industry, then another, then a third; always adding to the burden of the mass of society. You thus only create interminable complications. If you can prove that the increase of price resulting from protection, falls upon the foreign producer, I grant something specious in your argument. But if it be true that the American people paid the tax before the passing of the protective duty, and afterwards that it has paid not only the tax but the protective duty also, truly I do not perceive wherein it has profited.
But I go much further, and maintain that the more oppressive our taxes are, the more anxiously ought we to open our ports and frontiers to foreign nations, less burdened than ourselves. And why? In order that we may SHARE WITH THEM, as much as possible, the burden which we bear. Is it not an incontestable maxim in political economy, that taxes must, in the end, fall upon the consumer? The greater then our commerce, the greater the portion which will be reimbursed to us, of taxes incorporated in the produce which we will have sold to foreign consumers; whilst we on our part will have made to them only a lesser reimbursement, because (according to our hypothesis) their produce is less taxed than ours.
BALANCE OF TRADE.
Our adversaries have adopted a system of tactics, which embarrasses us not a little. Do we prove our doctrine? They admit the truth of it in the most respectful manner. Do we attack their principles? They abandon them with the best possible grace. They only ask that our doctrine, which they acknowledge to be true, should be confined to books; and that their principles, which they allow to be false, should be established in practice. If we will give up to them the regulation of our tariffs, they will leave us triumphant in the domain of literature.
It is constantly alleged in opposition to our principles, that they are good only in theory. But, gentlemen, do you believe that merchants' books are good in practice? It does appear to me, if there is anything which can have a practical authority, when the object is to prove profit and loss, that this must be commercial accounts. We cannot suppose that all the merchants of the world, for centuries back, should have so little understood their own affairs, as to have kept their books in such a manner as to represent gains as losses, and losses as gains. Truly it would be easier to believe that our legislators are bad political economists. A merchant, one of my friends, having had two business transactions, with very different results, I have been curious to compare on this subject the accounts of the counter with those of the custom-house, interpreted by our legislators.
Mr. T dispatched from New Orleans a vessel freighted for France with cotton valued at $200,000. Such was the amount entered at the custom-house. The cargo, on its arrival at Havre, had paid ten per cent. expenses, and was liable to thirty per cent. duties, which raised its value to $280,000. It was sold at twenty per cent. profit on its original value, which equalled $40,000, and the price of sale was $320,000, which the consignee converted into merchandise, principally Parisian goods. These goods, again, had to pay for transportation to the sea-board, insurance, commissions, &c., ten per cent.; so that when the return cargo arrived at New Orleans, its value had risen to $352,000, and it was thus entered at the custom-house. Finally, Mr. T realized again on this return cargo twenty per cent. profits, amounting to $70,400. The goods thus sold for the sum of $422,400.
If our legislators require it, I will send them an extract from the books of Mr. T. They will there see, credited to the account of profit and loss, that is to say, set down as gained, two sums; the one of $40,000, the other of $70,400, and Mr. T feels perfectly certain that, as regards these, there is no mistake in his accounts.
Now what conclusion do our Congressmen draw from the sums entered into the custom-house, in this operation? They thence learn that the United States have exported $200,000, and imported $352,000; from whence they conclude "that she has spent, dissipated, the profits of her previous savings; that she is impoverishing herself and progressing to her ruin; and that she has squandered on a foreign nation $152,000 of her capital."
Some time after this transaction, Mr. T dispatched another vessel, again freighted with national produce, to the amount of $200,000. But the vessel foundered in leaving the port, and Mr. T had only further to inscribe upon his books two little items, thus worded:
"Sundries due to X, $200,000, for purchase of divers articles dispatched by vessel N."
"Profit and loss due, to sundries, $200,000, for final and total loss of cargo."
In the meantime the custom-house inscribed $200,000 upon its list of exportations, and as there can of course be nothing to balance this entry on the list of importations, it hence follows that our enlightened members of Congress must see in this wreck a clear profit to the United States of $200,000.
We may draw hence yet another conclusion, viz.: that according to the Balance of Trade theory, the United States has an exceedingly simple manner of constantly doubling her capital. It is only necessary, to accomplish this, that she should, after entering into the custom-house her articles for exportation, cause them to be thrown into the sea. By this course, her exportations can speedily be made to equal her capital; importations will be nothing, and our gain will be, all which the ocean will have swallowed up.
You are joking, the protectionists will reply. You know that it is impossible that we should utter such absurdities. Nevertheless, I answer, you do utter them, and what is more, you give them life, you exercise them practically upon your fellow-citizens, as much, at least, as is in your power to do.
But lest even Mr. T's books may not be deemed of sufficient weight to counterbalance the convictions of the Horace Greeley school of prohibition, I shall proceed to furnish a table exhibiting various classes of commercial transactions, embracing most of the classes usually effected by importing and exporting houses, all of which may result in undoubted profits to the parties engaged in them, and to the country at large, and yet which, as they appear in the annual Commerce and Navigation Reports issued by the government, would be made to prove by Mr. Greeley that the result has in each case been a loss to the country. The sums are all stated in gold:
A, represents one hundred merchants, who shipped to London beef, boots and shoes, butter, cheese, cotton, hams and bacon, flour, Indian corn, lard, lumber, machinery, oils, pork, staves, tallow, tobacco and cigars, worth in New York, in the aggregate, ten millions of dollars, gold, but worth in London plus the cost of transportation, &c., eleven millions of dollars, gold, in bond. After being sold in London, the proceeds (eleven millions) were invested in British goods, worth eleven millions in London, but worth twelve millions in bond in New York, and plus the cost of transportation, &c. After having these goods sold in New York, a net profit of two millions was the result of the whole transaction, a profit both to the merchants and the country; yet, according to the Commerce and Navigation Returns, the exports were ten millions, and the imports eleven millions (valued at the foreign place of production as the law directs), showing, according to Mr. Greeley's solitary point of view, a loss to the country of one million.
B, owned a gold mine in Nevada, and had no capital with which to develop it. He proceeded to France, sold his mine to C for a million, which he invested in French muslin-de-laines, buttons, and glassware, worth a million in France, but worth $1,100,000 in Philadelphia, ex duty and plus transportation, &c. These sold, B netted an undoubted profit of $100,000, besides getting rid of his mine; but, according to the Commerce and Navigation Returns, the exports were nothing, and the imports $1,000,000; showing, according to Mr. Greeley's solitary point of view, a loss to the country of $1,000,000.
C, the French owner of the Nevada mine, had a million more with which to develop it. Hearing that French cloths and gloves had a good sale in Boston, he invested his million in these goods, sailed for Boston with them, sold them there in bond and plus exportation, for $1,100,000, which he at once invested in machinery, labor, &c., destined for Nevada. So far, C made a profit of $100,000, and had $2,100,000 invested in an American gold mine; but, according to the Commerce and Navigation Returns, the exports were nothing, and the imports $1,000,000; according to Mr. Greeley's solitary point of view, a loss to the country of $ 1,000,000.
D, had a rich uncle in Rio Janeiro who died and left him a million. D ordered this sum to be invested in hides and shipped to him at Boston. These hides were worth a million in Rio, but $1,100,000 in Natick, ex duty and plus transportation. Upon selling them D was clearly worth $1,100,000; yet, according to the Commerce and Navigation Reports, as there had been no exports, but simply $1,000,000 of imports, the transaction, from Mr. Greeley's solitary point of view, seemed a loss to the country of $1,000,000.
E, in 1850, shipped to Cuba, wagons, carts, agricultural implements, pianos and billiard-tables, worth $1,000,000 in Baltimore, but $1,100,000 in Havana, ex duty and plus transportation. These he sold, and invested the proceeds in cigars worth $1,100,000 in Havana, but in Russia, ex duty and plus transportation, $1,210,000. Disposing of these in turn, and investing the proceeds in Russian iron worth $1,210,000 in Russia, but $1,331,000 in Venezuela, ex duty and plus transportation, he shipped the iron to Venezuela, where he realized on it, investing the proceeds this time in South American products worth in Spain $1,464,100. He sold these products in Spain, bought olive oil with the proceeds, shipped the same to Australia, where it was worth, ex duty and plus charges, $1,610,510, which sum he realized in gold, which he carried to New York in 1853. On the latter transaction he makes no profit, but barely clears his charges. Yet on the whole he has made a net gain of $610,510; but, according to the Commerce and Navigation Reports, the exports have been $1,000,000 and the imports $1,610,510, showing, from Mr. Greeley's solitary point of view, a loss to the country of $610,510. Nay more, for Mr. Greeley balances his trade accounts each year by itself, and as E's outward shipment was made in 1850 and his importation in 1853, the country, according to H.G., lost in 1853, by over importation, $1,610,500. Yet not to be hard on H.G., and to be perfectly honest in our accounts, we will only set down a loss to the country from his point of view of $610,510.
F, owned the 4,000 ton ship Great Republic, which cost him $160,000. Finding her too large for profitable employment, and hearing that large vessels were in demand in England as troop transports to the Crimea, he sent her out in ballast and sold her in Southampton for $200,000 cash. With this sum he went to Geneva, where he invested it in Swiss watches worth $200,000 in Geneva, but $210,000 in New Orleans, ex duty and plus transportation. To New Orleans he accordingly shipped the watches, and they were sold. By these transactions he not only got rid of his elephant, but both he and the country clearly gained $50,000. Yet according to Mr. Greeley's single eye the country suffered to the extent of $200,000, for in the exports appeared nothing, but among the imports $200,000 worth of foreign gewgaws, only fit to keep time with.
G, (an actual transaction) shipped by the Great Eastern on her last voyage from New York, lard and other merchandise, worth in New York $600,000, the fact of which, in the hurry of business, he failed to report to the Custom House, and it therefore did not appear in the exports. This lard was carried to England, where it found no sale, and was reshipped to New York. G only escaped being charged duty on it when it arrived, by swearing that it had been originally shipped from here in good faith; yet it was entered as an import (free of duty), and showed, according to Mr. Greeley's one eye, that the country was on the road to ruin $600,000 worth.
H, lived in Brownsville, Texas, where he had a lot of arms and gunpowder, worth $100,000. The Mexicans levied a very high import duty on these articles, and they consequently bore a very high price in Matamoras, just opposite, being worth in the market of that town no less than $250,000. He accordingly conceived the idea of smuggling them into Mexican territory, and, with the connivance of the Mexican officials, (what rascals these foreign custom-house officials are, to be sure!) actually succeeded in doing so, and thus realized the very handsome profit of $150,000 in gold. The entire proceeds he invested in Mexican indigo and cochineal, worth in Mexico $250,000, and in Boston $275,000, in bond, plus charges. Of course, no export entry was furnished to the customs collector at Brownsville; but Mr. Greeley fastened his one eye on the indigo and cochineal, when it arrived in Boston, and made up his mind that the country had lost $250,000. As for H, he has invested $100,000 in more gunpowder and arms, and starts for Brownsville next week, to try his luck again. With the other $175,000 he has a notion of buying out the New York Tribune, and setting it right on free trade, and other matters of the sort.
I, and his friends owned a fine fleet of merchantmen when the war broke out. The aggregate burden of the vessels was nearly a million of tons, and they were worth $40 a ton. When the rebel cruisers commenced their operations, there were no United States cruisers prepared to capture them, because our best vessels were on blockade service. This being the case, insurance on American merchantmen rose very high—so high that I and his friends were reluctantly compelled to sell their vessels in Great Britain and elsewhere, and convert them into cash. They brought $40,000,000, and this sum was invested in merchandise, which netted a profit of ten per cent. to I and his friends. They thus gained $4,000,000 by these transactions. The entire proceeds, $44,000,000, they then lent to the government with which to carry on its war of existence with the Southern insurgents. Profitable as these transactions clearly were to I and his friends, and to the government, Mr. Greeley, nevertheless, only sees the import of $40,000,000 worth of foreign extravagances, and consequently wants the tariff on iron increased in order to make water run up hill.
J, had $2,000,000 in five-twenty bonds, which cost him $1,400,000 gold. As the market price in New York was only 70 gold, while it was 72-1/4 in London, he conceived the inhuman idea of selling them in the latter place. The cost of sending them there, including insurance, &c., made them net him but 72, but at this price he gained a profit of $40,000. With his capital now augmented to $1,440,000 he bought rags in Italy, which he sold in New York for $1,584,000, ex duty and plus transportation, a clear profit of $184,000 from the start. No export appearing in the Commerce and Navigation Returns, and nothing but the rags meeting his unital gaze, Mr. Greeley at once posted his national ledger with a loss of $1,440,000, the cost of the rags in Italy.
K, was, and is still (for these are actual transactions taken from his account books), an exchange broker, doing business in New York. He buys notes on the banks of England, Ireland, Scotland, France and Canada—indeed, foreign banknotes of all kinds—for which he usually pays about ninety per cent, of their face value. By the end of last year he had invested $200,000 in these notes brought here by travellers. He then inclosed them in letters, and sent them to their proper destinations to be redeemed. Redeemed they were in due time, and the proceeds remitted in gold. In this business he earned the neat profit of $22,222, and the country was that much richer thereby. But Mr. Greeley, who only looked at the import of K's gold remittance, declared the country $22,222 worse off than before, and dares us to "come on" with the figures.
L, and some fifty thousand other skedaddlers ran off to Canada when the war broke out, for fear they might be drafted. Together with the colored folks who fled there, and the many travellers who went there from time to time, they carried with them most of our silver half-dollars, quarters, dimes, half-dimes, and three-cent pieces. These amounted to $25,000,000, which the skedaddlers, the colored folks, and the travellers, as with returning peace they slowly straggled back into the country, invested in Canadian knick-knacks, which they disposed of in the United States. The incoming goods were duly entered at our frontier custom-houses, but the outgoing silver was not. Mr. Greeley, unaware of this fact, detects an over-importation of $25,000,000, and is waiting to be elected to Congress in order to legislate the matter right.
M, (an actual transaction) had $1,000,000 in Illinois Central Railroad bonds, for which he desired to obtain $1,000,000 worth of iron rails to repair the road with. Not being able to effect the transaction in the United States, he sent the bonds to Germany, where they were sold, and the proceeds invested in English railroad iron, worth $1,000,000 in Glasgow, but $1,100,000 in Chicago, ex duty, and plus transportation. By this transaction M, besides effecting the desired exchange, netted a profit of $100,000. Yet, according to the Commerce and Navigation Reports, and Mr. Greeley's one eye, as there had been no exports and $1,000,000 of imports, the country was a sufferer by the latter sum.
N, was a body of incorporators who owned a tract of land lying in the bend of a river. Standing in need of water power for manufacturing purposes, they resolved to cut a canal across the bend. As this would essentially benefit the navigation of the river, the State agreed to guaranty their bonds for a loan of money to the extent of $1,000,000. Finding no purchaser for these bonds in the United States, they remitted them to Europe, and there sold them at par. With the proceeds they purchased army blankets for the Boston market, on which they realized ten per cent. net profit. These sold, the avails were invested in barrows, spades, water-wheels, wages, &c., and in good time the canal was cut and the manufactory set a-going. Profitable as this thing was to N, Mr. Greeley's single-barrelled telescope sees in it only a loss to the country of $1,000,000.
O, represents the Illinois Central, Union Pacific, and other western railroads, owning grants of land along their respective roads, to sell which to actual settlers they open agencies in London, Havre, Antwerp, and other European cities. The emigrants who buy these lands pay for them in Europe, and set sail for America with their title-deeds in their pockets, and their axes on their shoulders, ready for a conquest over forest and prairie. The agents of the Illinois Central Railroad (see report of the Company), who have sold 1,664,422 acres, say at an average of ten dollars per acre, invested the proceeds, $16,644,220, in iron rails for the road, worth that sum in England, but ten per cent. more in Illinois, less duty and plus transportation. The road has thus not only netted a profit of $1,664,422 on the transaction, but sold their wild lands to actual settlers, who will soon convert them into productive farms. But Mr. Greeley, upon seeing an import of $16,644,220 of iron rails, declares the thing must be stopped or the country will perish.
P, is Sir Morton Peto and other European capitalists, who, believing that eight per cent., the average rate of interest in the United States, is better than three per cent., the average rate in England, invest $10,000,000 of capital in American enterprises. This capital is sent hither in the form of merchandise, to stock our railroads, farms, factories, etc., and is so much clear benefit to the country; but to Mr. Greeley's solitary vision it is only a curse.
Q, and his friends are cozy old-fashioned merchants in Boston city, who own one hundred and seventy-nine vessels (see Consular Reports, 1865), which trade between foreign ports and away from the United States altogether. These vessels have an aggregate burden of one million tons, are worth forty dollars, gold, per ton, and earn a net profit per annum of ten per cent. on their cost. Although in this kind of carrying trade we are wofully behind other nations, yet it yields, in twelve years (the average age of the vessels engaged in it), the neat little profit of $48,000,000, which is invested by Q in tea, coffee, and sugar, and imported into the United States at a net profit of ten per cent. Although an unquestionable gain to Q and the country at large of $52,800,000, Mr. Greeley, with his contracted views, only regards it as a dead loss on the import side of our Commerce and Navigation Returns.
R, was a bank which had a defaulting cashier, who ran away in 1857 with $500,000 of its funds. (Sch*yl*r carried off a million of New Haven Railroad bonds). These funds were recovered and converted into gold, which was shipped to the United States. According to Mr. Greeley, who could find no record of exports to counterbalance it, the same was a dead loss to the country.
S, and his friends own 76,990 tons of whaling ships (see Commerce and Navigation Reports, 1866), worth $40 per ton, gold, or $3,079,600. These ships are sent annually to the Arctic regions and earn for S and his friends ten per cent., or $307,960 net profit each year. Five years' profits, consisting of whale oil, bone, etc., which, after an active and profitable trade at the Sandwich Islands, they returned with this year, were valued at $1,655,659, and were duly entered among the imports, furnishing to Mr. Greeley an indubitable proof that the country was losing money in this business, and that the attention of Congress should at once be directed toward supplying a proper remedy.
T, was a South American refugee, who brought with him a million of dollars in gold doubloons. After living here for many years, by which time, through foreign trading, his capital had doubled, he invested the entire avails in United States bonds, as a last and striking evidence of his faith in our institutions, and departed to his native country, there to rest his bones. This man clearly prospered, and so did the country in which he settled, and on whose national faith he lent all his fortune. Yet Mr. Greeley concludes the whole thing to have been a bad job for us, and harps upon another over-importation of $1,000,000.
U, is a gallant Yankee sea-captain, who picks up an abandoned vessel at sea laden with a valuable cargo of teas, and bravely tows her into port, receiving $200,000 of the proceeds of the sale of her cargo as salvage for his skill and intrepidity. From Mr. Greeley's point of view U is a traitor to his country, and suffering a merited poverty for over-importing. But U drives his carriage about town, and has his own opinion of Mr. Greeley's views.
V, having a debt of $300,000 due to him by a merchant in Alexandria, requests him to invest the same in Arabian horses, as fancy stock to improve American breeds. The horses arrive in good order, and on being sold, yield V a net profit of $30,000, besides enriching our native breeds of these useful animals. Mr. Greeley still holds out, and jots the whole transaction down as an additional evidence of national decadence.
Official Returns of these Transactions as they would appear per Commerce and Navigation Reports.—Sums all stated in gold.
Exports. Imports. Net profit Immediate Value in the Foreign to the accretion to the United value. individual. country's stock States. of productive wealth. A $10,000,000 $11,000,000 $2,000,000 $2,000,000 B 1,000,000 100,000 1,100,000 C 1,000,000 100,000 1,000,000 D 1,000,000 1,100,000 1,100,000 E 1,000,000 1,610,510 610,510 610,510 F 200,000 50,000 50,000 G 600,000 H 250,000 175,000 175,000 I 40,000,000 4,000,000 4,000,000 J 1,440,000 184,000 1,584,000 K 222,222 22,222 22,222 L 25,000,000 25,000,000 M 1,000,000 100,000 1,000,000 N 1,000,000 100,000 1,100,000 O 16,644,220 1,664,422 18,308,642 P 10,000,000 10,000,000 Q 48,000,000 52,800,000 52,800,000 R 500,000 500,000 500,000 S 1,655,659 1,655,659 1,655,659 T 1,000,000 1,000,000 2,000,000 U 200,000 200,000 200,000 V 300,000 30,000 330,000 W X Y Z $11,000,000 $163,622,611 $66,391,813 $124,736,033 -
W, X, Y, Z, represent 43,628,427,835,109 other commercial transactions, in all of which the parties to them and the countries in which they live make money, but which, regarded from Mr. Greeley's solitary point of view, should be stopped at once by appropriate legislation.
These various transactions, it will be perceived, have netted to the individuals engaged in them a clear profit of $66,391,813, while the country has added to its immediate stock of wealth not only this sum, but $58,344,220 over, viz: $124,736,033; while, according to the Balance of Trade chimera, which simply weighs the custom-house reports of the value of the exports with that of the imports (and their values in their respective countries of production, too), this commerce has been a loss to the country of $163,622,611—$11,000,000: $152,622,611.
So much for theory when confronted with practice.
The truth is, that the theory of the Balance of Trade should be precisely reversed. The profits accruing to the nation from any foreign commerce should be calculated by the overplus of the importation above the exportation. This overplus, after the deduction of expenses, is the real gain. Here we have the true theory, and it is one which leads directly to freedom in trade. I now, gentlemen, abandon you this theory, as I have done all those of the preceding chapters. Do with it as you please, exaggerate it as you will; it has nothing to fear. Push it to the furthest extreme; imagine, if it so please you, that foreign nations should inundate us with useful produce of every description, and ask nothing in return; that our importations should be infinite, and our exportations nothing. Imagine all this, and still I defy you to prove that we will be the poorer in consequence.
Petition from the Manufacturers of Candles, Wax-Lights, Lamps, Chandeliers, Reflectors, Snuffers, Extinguishers; and from the Producers of Tallow, Oil, Resin, Petroleum, Kerosene, Alcohol, and generally of every thing used for lights.
"To the Honorable the Senators and Representatives of the United States in Congress assembled.
"GENTLEMEN:—You are in the right way: you reject abstract theories; abundance, cheapness, concerns you little. You are entirely occupied with the interest of the producer, whom you are anxious to free from foreign competition. In a word, you wish to secure the national market to national labor.