Let's Be Honest About the Tariff
I
ENTERING a country store to make a small purchase, I stumbled upon a lively tariff discussion. As I made my purchase the champion of protection clinched his argument: ‘England wants us to lower our tariff. Free trade would be to her advantage. Is n’t that proof sufficient that it would be to our disadvantage?’ I was paying for my purchase and I said to the merchant: ‘You are glad to sell me these things?’ ‘Certainly.’ ‘You make a profit on them?’ ‘Yes.’ ‘Well, so do I, for they are worth much more to me than the money.’ The crowd showed a little amusement at the expense of the protectionist, who left in high dudgeon at my impertinence. What had my purchase to do with trade between nations!
I was talking with a business man, a manufacturer of shrewdness and experience. He was a protectionist, of course, but an unusual one. He thought our rates far too low and our policy wasteful. ‘ Look at the hundreds of millions we are paying every year for sugar. Wc could save all that.’ ‘How?’ I asked. ‘Why, we could produce all our sugar here at home.’ ‘Yes, but could we produce it for nothing?’ My question annoyed him a little, but elicited no very definite response. Accustomed all his life to figure costs of production, he realized that sugar was no exception, yet somehow he felt that as between ourselves and Cuba the usual relation between costs and profits did not hold. I suggested that when we bought Cuban sugar we paid for it by means of other commodities which we produced more cheaply than we could produce the sugar. He allowed that this might be so, but I left with the conviction that I had not changed his opinion. He still felt that somehow these familiar relations did not hold as between nations, and that what we paid for Cuban sugar was sheer waste.
Such views as these, and still more the instincts which are responsible for them, are of ancient lineage. This tariff-breeding world of ours has a very long tradition of enmity and fear. It is but a little way back in the history of every language that we find a single word in use for stranger and enemy. The one was always the other. The artisan economy of the Middle Ages presents this attitude in a highly elaborated form. The famous cities of five hundred years ago were one and all artisan communities engaged in the production of wares for which they sought a market over land and sea. But it seems never to have occurred to them to secure that market by reciprocal arrangement. Their policy was one of jealous exclusion maintained by duties, embargoes, and even by military force. This is our heritage.
These views were challenged by the Scottish philosopher Adam Smith, who published in 1776 his Wealth of Nations, probably the most influential book ever written. With a cogency of argument hitherto known only to theological and scholastic discussion, and a wealth of homely illustration intelligible to the man in the street, Adam Smith attacked the entire fabric of economic mediævalism, championing the cause of economic liberty, of freedom of contract, freedom of competition, and freedom of trade. He demonstrated with irrefutable logic that freedom was the condition of economic efficiency and that upon this efficiency depended the revenues of sovereigns and the wealth of nations.
It is impossible at this distance to appreciate the shock which this thesis produced. Men were not used (as we are) to a purely rational consideration of these questions. Their reasoning was influenced by prejudices, by feuds of immemorial origin, and by instincts that originated with the cave man. Adam Smith was himself under no illusions as to the reception awaiting his book. He confessed to complete skepticism as to the reform of British policy along the lines proposed.
The great philosopher was mistaken. His seed fell upon fertile soil. Industry was developing in England by leaps and bounds, with revolutionary changes in organization, appliances, and products. Old regulations were conspicuously unsuited to new conditions, and aggressive industry chafed under their hampering restraints. Everywhere was voiced the demand for liberty, and the doctrines of the great philosopher were exalted to unexpected honor. The result was the abolition of the entire English protective system in 1846.
All are familiar with the result. The next fifty years saw an advance in British industry which was without a parallel in history up to that time. Economically, financially, and politically, Britain became the foremost power in the world. The doctrine of economic liberty so powerfully enunciated by Adam Smith and now so signally confirmed by experience seemed certain of general acceptance, and it was freely prophesied that other nations would soon follow this convincing example.
These sanguine prophecies have not been fulfilled. Protective duties, far from being abolished, have been multiplied and the rates steadily increased. Most significant of all, the present century has witnessed the steady growth of protectionist sentiment in Britain itself. Practice has been followed by theory, and a voluminous literature has appeared in defense of protection.
What would Adam Smith say to it all if he were permitted to survey the very different world of to-day? We cannot do better than to go at the problem in his own way, by examining the workings of the two systems under conditions as nearly equal as possible. Where shall we find our comparison?
II
I think it was Francis Walker who first suggested the significance of a comparison between continental Europe and the United States of America. The two areas are not very different in size, in latitude, climate, or natural resources. Their populations are kindred, the one having been largely derived from the other. The two are about equally diversified and divided by nature into regions having special economic interests which tend in turn to develop in each an economic consciousness of its own. In each continent, too, there are wide differences of development ranging from very simple to highly complex economy.
Even the psychological factor is more alike than is generally supposed, the intense nationalism of Europe finding its counterpart in the jealous sectionalism of the United States. As a resident at different times in widely separated parts of the United States, I have everywhere found local industries guarded from ‘inferior’ goods of other sections by a sort of social embargo which visited with unmistakable disfavor those who meanly took advantage of the freedom of the market. What would have happened if that freedom had not been guaranteed by the Constitution? Can we not hear the automobile builders of Reno petitioning the Nevada legislature for protection against the ‘inferior’ machine-made cars of Detroit? Did we not witness some months ago the refusal of one of our most enlightened states to award contracts to the lowest bidder simply because that bidder lived outside the state? Even so the Balkan States are now cutting up one of the most perfect economic units in the world into tariff compartments that are almost incapable of separate existence.
From this fate a happy historic accident has saved the Western continent. Yet here in our own United States exist all the economic conditions of that economic sectionalism which characterizes Europe. It is difficult to think of a single economic argument that France or Italy or Germany could allege in favor of its industrial isolation which could not be urged with justification by some specially situated section of our own country. Yet we are all certain that within the limits of our own vast continent the American system of free trade is superior to the European system of economic isolation.
The system of protection seems therefore to depend on other than economic grounds for its justification. It may be a good way to raise revenue, a way to prepare for national defense, a way to encourage a particular class, even a way to diversify a national culture, but it is n’t a way to get rich. A nation does n’t get rich by bribing its citizens to engage in unprofitable industries. This has been the teaching of economics for the last hundred and fifty years. Economists as citizens may favor protection, but economics never. The human problem is more than an economic problem, as every economist knows, but in recognizing the claims of other factors we gain nothing by denying or perverting this plainest of economic truths.
This, then, is the great example. Say not that the United States is the home of protection. Protection is but an incident with us and not more significant here than elsewhere. It is free trade of which we have become the world’s great and unique exponent. Free trade is the American system, America’s contribution to the world’s foremost economic problem. America has succeeded in holding in leash the petty jealousies and shortsighted assertions of local interest and in maintaining freedom of commerce and economic action over the largest area known to history. That is something that Europe has been unable to do. Should Briand’s proposal eventuate in a United States of Europe and time obliterate the artificialities which her economic sectionalism has imposed, what, think you, would be the result? Not the duplication of American experience, surely, but none the less an economic stimulus beyond calculation. I do not for a moment share the illusion of those who think this can be brought about. I do not even challenge the wisdom of Europe’s choice. I merely assert that just as a matter of business the European system does n’t pay. Life is more than business, and we will not condemn those who, in subordinating economic interests, think they have chosen the better part. But let us be clear as to the part they have chosen.
III
We are thus confronted with two contrasted economic systems, each of continental scope — the American system of free trade and the European system of economic sectionalism. The superiority of the former is attested by experience and is a matter of universal conviction. Despite sectional jealousies and social embargoes upon market freedom, no state or county or township in America would to-day vote for the abandonment of free trade and the introduction of the European system.
Why, then, do these convinced free traders draw the line at the frontier? If free trade is profitable between California and Massachusetts, it is profitable between America and Europe. I am aware that economic arguments have been offered in support of protection, arguments which we must later consider, but I submit that on the face of it the two cases are analogous and the presumption is overwhelming that as a mere matter of business what is good in the one case is good in the other. The argument for protection is not economic, but political, and the explanation of our anomalous position is to be found, not in economic principles, but in the accidents of our history.
The thing that needs explaining is not our protection, but our free trade. Men have always set up economic barriers, not because it was good business, but because they were jealous or afraid of the people beyond. These barriers have been gradually pushed out and larger and larger areas opened to free trade. The present condition of the world means that we have gotten thus far in our progress from mediæval separatism toward that economic world unification which seems our manifest destiny. Europe has not gotten nearly so far as we have, simply because the obstacles have been very much greater. When the European system, considerably less advanced than now, was transplanted three centuries ago to a virgin continent without institutions, traditions, or prejudices, there was a tendency to establish it here just as it was in Europe. The settlements were scattered and their contacts were few and not always sympathetic. If England had let them alone for another century, they would very likely have duplicated the European system on the American continent, and all the arguments now urged in favor of our national protection would have been urged as vigorously in favor of the isolationist policy of each separate state. But England gave to the colonies an overshadowing common interest while as yet their conflicting or separatist interests were incipient and unsubstantial. It thus became possible for the Americans of 1789, led by masters of statecraft if there ever were such, to skip that further period of distressful unification which must seemingly endure for Europe through weary centuries.
I stand amazed at the marvel of that achievement; amazed that it should have been the deliberate choice of a people the heir to separatist traditions and already advanced in the development of separatist policy; amazed that through the storm and stress of national development, complicated by civil war, it should have endured and won the unanimous approval of our heterogeneous and very unequally circumstanced people. The marvel is not that Europe has gotten no further, but that we have gotten so far, that we have given to Adam Smith’s doctrine of economic liberty its evident application and its most convincing demonstration.
When, with this continental domain, we began our national life, we had little in the way of a formulated economic policy as regards other nations. The few duties levied during the first twenty years of our life as a nation were revenue measures in intent and in fact, and they hardly influenced American industries.
Curiously enough, it was not Hamilton, the protectionist, but Jefferson, the free trader, who laid the foundations of our protective system by his famous Embargo Act of 1807. This was followed in 1809 by the NonIntercourse Act and in 1812 by war with England. For a period of eight years, from 1807 to 1815, imports from Europe practically ceased. This was protection with a vengeance, however inadvertent. As a result, establishments of many kinds sprang up with mushroom growth to supply the missing wares. Many of these were improvised and uneconomical investments, and with the return of peace they clamored for protection from the more experienced and better-financed industries of Europe. The need of revenue enforced the appeal. Patriotism was invoked in behalf of the claimants. How could the nation sacrifice to the industrialists of our recent enemy those who had risked their capital to supply its needs in a time of national emergency?
But the nation was not yet protectionist. It felt for the unfortunate investors and decided to help them over the difficult period of transition, but it seems definitely to have resolved that the help should be temporary. Thus a duty of 25 per cent was levied on cotton goods in 1816, accompanied by the proviso that it was to be reduced in three years, with a view to its gradual removal. The war had created an emergency which the nation met as we now meet the emergency of a Mississippi flood, and with much the same anxiety lest it overstay its time and become a dangerous precedent. That, of course, is what happened. The cotton manufacturers were as clamorous for protection in 1819 as in 1816, and their clamor prevailed. That is the way protection began. Then came more wars and other emergencies with new demands for revenue, which, with an ever-insistent demand from the protected industries, made the policy continuous and permanent. That is how protection became our settled policy.
IV
As the policy of protection became permanent, the nation began to evolve a philosophy to explain its action. In its earliest form the doctrine was known as the protection of infant industries. As plants are often started under glass, later to thrive in the open, so industries, it was urged, may require protection until they are thoroughly established. The cost of protection was justified by the service rendered later.
This argument upon which the protectionist once staked his case is now seldom urged, perhaps because it seems to lose plausibility when infants a hundred years old remain as unweaned as ever. Then, too, as capital accumulated and corporations began looking for opportunities to invest their surplus, the nursing of industrial infants ceased to be a necessary state function. The argument applies, if at all, not to infant industries, but to the infancy of industry when capital is scarce and will not engage in waiting ventures without special inducements. For both reasons the argument has lost its popularity.
With this prolongation of infancy, to which there is hardly an exception among protected industries, protection becomes not a temporary but a permanent demand, and must find its justification not in deferred but in present benefits. We cannot go on paying higher prices in hope of lower prices to come when it becomes clear that they are never going to come. We must be shown that the higher prices are profitable to us in some way right now. Hence the new argument which arose in the latter part of the nineteenth century. Protection, it was claimed, raises the standard of living and protects the wage earner from the competition of the pauper labor of Europe. In the McKinley campaign it became the picturesque slogan of the ‘full dinner pail,’ which had an immense vogue and exercised a great influence. The argument was simple. The employer who is protected gets a better price for his product and can therefore pay a better wage. Yes, but will he? Nay, under competitive conditions can he, after all? He must hire his labor as cheaply as he can. If he does not, his competitor will, and will drive him off the field. He must hire his labor in the open market and in competition with unprotected industries. He must pay what these industries pay. He need not and he cannot pay more.
What made wages high in America? Simply the immense economic opportunity that America offered to the average American. He was a partner in the richest partnership on earth. Enormously valuable natural resources were at his disposal on terms unknown to Europe. When a man could get a hundred and sixty acres of good land for the taking, the employer had to bid high for his labor. In less obvious form that competition exists to-day.
High wages are indeed a handicap in international competition, but they inevitably produce their own antidote in the form of labor-saving devices. The so-called genius of the American people for invention is in itself the product of these favoring natural conditions. Where labor is redundant, invention is frowned upon, not to say penalized, with the result that wages are low and output small. I asked an American in China what he was paying to a certain workman. He replied: ‘Fifteen cents a day, and he almost earns it.’ While American wages, even in this period of depression, are the highest, it is hardly an exaggeration to say that American labor is the cheapest in the world.
It is often asserted, quite without warrant, that our machine industry is itself a result of protection. Quite the contrary. Necessity is the mother of invention, and the very purpose of protection is to escape from that necessity. When the invention of puddling and rolling greatly reduced the cost of producing iron in England, we levied a duty of 150 per cent on rolled iron, thus making it possible to continue our own primitive and obsolete methods. Such cases are so frequent as almost to warrant the assertion that a chief result of protection is to preserve the obsolete.
Neither high wages nor machine industry, therefore, can be credited to protection, which is rather an obstacle to both. I am, of course, aware that we have created an artificial situation which for the moment may modify this conclusion. Protection may not fill the dinner pail, and yet its incautious withdrawal may empty it. There was force in the simile employed by the Republican Congressman who said that it was good sailing above Niagara and might be good sailing below, but it was mighty rough sailing in between. Economic theory in its broader statements of principles may ignore the ‘in between,’ but national policy cannot. There can be little doubt that an abrupt withdrawal of protection would produce widespread panic and bankruptcy, with waste of invested capital and prolonged prostration. I have a suspicion, to be sure, that the fatalities would not be so numerous or the prostration so complete as is sometimes alleged. I am not sure, even, that the ordeal would be very much worse than that through which we are now passing under the highest tariff ever enacted by a nation. Much or little, however, it is a transition experience — an item which bulks large in the programme of the hour, but is irrelevant to the merits of the case.
V
Thus far we have considered only the economic arguments for protection. It seemed necessary in the interest of clear thinking to consider it first as a purely economic problem. I think we must recognize, too, that this is the fundamental aspect of protection. There is a remorseless persistence in economic forces to which in the end all artificial situations must yield.
Nevertheless there are considerations other than economic which at a given time and place compel recognition. Such a consideration is national defense. Free trade usually results in a certain specialization, and specialization means dependence. Whatever advantages specialization may have in time of peace, it becomes disadvantageous, possibly fatal, in time of war. Thus, in the long period of peace which preceded the World War, Germany acquired a virtual monopoly in the manufacture of high-grade field glasses. The Zeiss lenses were known and preferred the world over. The outbreak of the war at once witnessed an immense demand for these glasses for the use of the British army, glasses which could be furnished only by the enemy. It became necessary to establish the new industry at once, and it has since been maintained by protection. The situation was much the same in the manufacture of dyestuffs, so closely related to the manufacture of explosives. This industry, too, was very nearly a German monopoly, and might well have remained so had not the war revealed its vital importance to the national defense.
Most important and most nearly fatal of all is the specialization of nations, some devoting themselves to manufacturing, others to food producing, which means that the former are dependent upon the latter for their very existence. Germany, as we know, lost the war and Britain almost lost it because of this fatal dependence. This specialization is probably furthered by free trade, as in the case of Britain, where the abolition of the Corn Laws in 1846 was followed in the next half century by the decay of agriculture, the doubling of population, and the conversion of the country into a vast factory. When we remember, however, that the same thing happened a generation later in Germany despite a very considerable measure of protection, it seems doubtful whether free trade was solely or even chiefly responsible, or whether protection can be relied upon as a remedy. England, with her vast coal resources and her unrivaled access to the sea, was plainly predestined to industrialization. Free trade facilitated and somewhat accelerated this development. To this extent the defender of the realm finds here an argument for protection.
The militarist is, in fact, the logical protectionist. Contemplating always the possibility of national isolation, he emphasizes the importance of self-sufficiency even at the expense of economic efficiency and advantage. It is to be noted, however, that this ideal is only partially attainable at best. Our own country is undoubtedly the most favored in this respect, but there still remain a multitude of highly necessary commodities, such as rubber, which are not produced within our boundaries. Some of these we shall learn to produce, but only to find that others have become essential which are beyond our reach. Militarism, with all its logic, proves but a single point— the necessity of peace.
The militarist is not alone, however, in urging the importance of a varied national production and invoking protection to secure it. It is argued with much force that a varied national economy reacts more favorably upon national culture than a simpler and more specialized one, and that a people may well sacrifice something of economic advantage to that end. A community engaged in a single industry, or an agriculture devoted to the raising of a single crop, develops a single-track mind in politics, economics, and matters generally, which is not conducive to national equilibrium. The cottonraising South, the wheat-raising West, are familiar but by no means solitary examples. Not only are they exposed to economic fluctuations of great violence, but their emotional and political reactions lack the calm and the breadth of view which would result from a more varied economy. Nations, it is urged, can afford to encourage unprofitable industries in the interest of variety and broader culture.
The argument has force, and, could we be assured that protection would be applied wisely and unselfishly to that end, it might well be convincing. I fear, however, that our lawgivers are little moved by such considerations and that in the scramble for fiscal favors the interests of varied culture are quite as apt to be sacrificed as furthered. It is reassuring, also, to recall that other influences more potent than protection tend toward diversification. Single crops and single industries are usually characteristic of an undeveloped economy and tend to break up as the result of their own limitations. The boll weevil and the grasshopper are great diversifiers, aided in turn by unsalable surpluses, unexpected substitutes, and the accidents that assail a too specialized economy.
Further, the argument, loses force in a country so varied by nature as our own, both because we have least need of greater diversification and because we could not apply protection where we need it most. We cannot diversify the agriculture of Dakota or Texas by collecting duties in New York. The single-mindedness of our wheat raisers and cotton planters is not national but regional, and as such is beyond the reach of the benign influence of protection unless we apply it at the state frontiers, which we are nowise minded to do.
VI
We have, up to this point, considered the benefits claimed from protection, of which national defense seems the most substantial, though least important for our own country. We have now to consider certain disadvantages which usually attend a policy of protection. I shall pass with the briefest mention the familiar and possibly overworked charge of corruption. Protection may be profitable to the public, but its immediate and more obvious advantage is to certain individuals or interests that are far more capable of organized action. I do not believe that these beneficiaries of protection are less patriotic or less honorable than other men, but they are convinced that their interests coincide with those of the community and find in that coincidence a warrant for the exercise of any influence that may assure the desired result. Of bribery in its vulgar and overt forms I believe there is little. Our Congressmen have their limitations, but their votes are not literally for sale. In the form of campaign contributions and other indirect inducements, however, well-directed and well-organized influence is still disquietingly effective. If we concede any amount of justification for the protective policy, it still remains true that it is artificial and political, and that an objective judgment of its merits by political bodies is unthinkably remote.
This suggests another difficulty that is too familiar to call for lengthy discussion — namely, its tendency to hold business in suspense. Whatever the merits or demerits of the HawleySmoot tariff, we secured it at a price which no such bill could justify. To have held the national industry in paralyzing suspense for fifteen months just as it was facing the most serious depression in its history was little less than suicide. The fact that the law as finally passed suited nobody and left us worse off than when we began was an added and not unrelated injury. I do not believe that this was the fault of a perverse or incompetent Congress. It was the fault of a system which taxes legislators beyond their powers and lends itself to exactly this sort of thing.
More serious is the demonstrated tendency to a constant increase in tariff rates. It is a ratchet movement that can proceed in only one direction. It is conceded that the present tariff rates would have shocked McKinley, the apostle of high tariff in his day. These rates, which, as Taussig has shown, amount in many cases to 150 per cent, are largely concealed under an artful camouflage, specific duties being superimposed upon ad valorem duties in a manner difficult to compute. Taussig attributes this steady rise of rates to the nature of party government, which pushes opposing parties to extreme positions.
A more obvious explanation seems to be found in sectionalism. Each locality has its special interest which it wishes protected, and its representative is sent to Congress with a mandate to that end. He has no such mandate to oppose the demands of other localities. The inevitable result is a deal. It is perfectly possible to get a consensus of opinion that rates should be lowered, coupled with the stoutest insistence in each individual locality that the particular rate upon which that locality depends should be retained and increased. In such a case the rates will be raised by a consensus of legislative fear. Gradually this becomes the ethics of protection. Ostensibly a policy of nationalism, it becomes in practice a concerted sacrifice of national to local interests.
Another regrettable influence of protection is its tendency to prolong obsolescence. We have already noted the case of the iron industry in this country, where a high duty prevented for some years the introduction of improved methods of smelting and manufacture. Such cases abound in every tariff bill. In every industry there are concerns which are making no profit. They should reform or go out of business. Under a tariff régime such concerns invariably look to protection for relief. They get it, not because the community needs their services, but because the Congressman needs their votes. There can be no question that the protective system retards that process of constant rejuvenation upon which the life of industry depends.
Perhaps the most pernicious influence of protection is its tendency to acquire the character of a panacea, a cure for all ills, even the most unrelated. The industrial organism in our day is exceedingly complex and subject to numberless disorders often involving no international relation whatever. Mass production is introduced into agriculture, and the old farming becomes unprofitable. The remedy — the only possible remedy — is general mass production. But this is unwelcome, painful, and infinitely difficult. Can’t the tariff do something for us? Or, since we are dealing with an export commodity, a subsidy (the perfectly logical equivalent of the tariff as applied to export commodities)? Of course, the proposal involves a palpable absurdity, — to encourage by subsidy the production of a commodity already produced to excess, — but this is a matter of detail. The important thing is the tariff-born conviction that the government must do something for us in our trouble.
We are confronted just now with an extreme case of disorder in the economic organism. The clamor for relief wellnigh drowns the voice of economics, which, contrary to popular belief, is tolerably clear. A runaway industry goaded by the stock-selling banker and sustained far beyond its normal time of reckoning by super-salesmanship and credit sales, a runaway stock market which forgot the relation between value and income, and, finally, a comparatively sluggish psychology of consumption which wearies of prolonged fever in the blood — these and related causes are patent to the thoughtful observer. The case calls for the homely remedies which no nostrum can displace from our pharmacopœia. Revised methods, improved processes, consumption correlated with income, production limited to matured (that is, non-credit) demand, investments based on income instead of speculative price movements, — in short, a return to the homely practices of thrift and payas-you-go, — these are the unquestionable prescriptions of economic science.
Such was the situation which confronted the American Congress when it was called in special session in the spring of 1929. But, in the long run, the trouble with representative government is that it is too representative. The men we send to Washington are too much like ourselves. We like it better so, for we have a mortal jealousy of those who know more than we do, and besides, we are all back-seat drivers. But, for all that, I believe that the American Congress under other circumstances might have enacted some useful, palliative legislation in 1929. The trouble was that the panacea so long in use was at hand and they inevitably took down the old bottle from the shelf. The nation was distressed, and since the tariff was the foundation of our prosperity, it must be that something was the matter with the tariff.
So fifteen months were spent in keeping our sore-stricken industry on the anxious seat and in passing the most preposterous tariff measure known to history. Taussig quotes a sage foreign observer as summarizing thus the result of his inquiries: ’Nobody thought it a good measure; nobody wished to see it enacted. Nobody had any expectation that it would stem the tide of business depression. The President of the United States himself was doubtful whether he should veto the act or let it become law.’ This seems strange, but it is n’t. It is what we must expect when a remedy is administered which has no known relation to the disease. But it was the standard remedy, and, the case being unusually serious, it called for an exceptionally large dose.
VII
I cannot close without a brief reference to the international aspect of protection. I will pass without discussion the oft-noted contradiction between our policies of debt collection and protection, the more so since this conflict seems destined to be brief. In getting rid of it, it will be the debts rather than the tariff that will suffer. Revision and probable cancellation of debts are already foreshadowed. The American people will not continue for two generations to rub salt into the wounds of peoples whose good will they are compelled to win. The debts will go, and the tariff will be free to run its course and be glorified. What will be its consummation?
We have already noted the continual elevation of the tariff wall, the logical outcome of which is economic isolation. Conscious that we are better situated than any other nation, we are tempted to regard with complacency this possible outcome to our economic relations. But how about our political relations? What of the maintenance of world peace in a world thus divided into water-tight compartments? Can we erect the structure of permanent peace on such foundations? We must not forget that such a system is entirely artificial and that the stars in their courses fight against it. Its effective maintenance depends upon a power of sustained political consistency never yet attained by any people. And if we are minded for a moment to take a long look ahead, we cannot fail to perceive in it the negation of that human synthesis which is the unescapable premise of all constructive thought.
Returning to humbler and more immediate considerations, let us glance briefly at the influence of American example on other nations. There can be no doubt that our phenomenal development tends to commend to other nations the procedure associated with it. America has grown rich under protection. Obviously that is the policy for those to adopt who would fain grow rich. A melancholy example of this dangerous logic is found in the new Balkan States, formerly united in the Austro-Hungarian Empire. This empire was a miscellany of races, but one of the most perfect economic units in existence. Its dismemberment destroyed this unity without eliminating the miscellany. These dismembered parts, some of them agricultural, others industrial and otherwise specialized, forthwith adopted the policy of protection, of economic isolation, of forced development of unnatural industries. America was the great example. With false logic they adopted protection on the narrow, regional basis, where it is our glory to have adopted and maintained free trade.
And now comes the tragedy of tragedies. Britain adopts protection. With more than half her population dependent on foreign-grown food which can be secured only in exchange for exported manufactures, with these manufactures in turn dependent on imported raw materials which must be paid for by additional exports, England turns to protection.
Once again we must remember that the problem is not purely economic. Behind the movement for British protection there is in the minds of the farseeing a great vision of empire. The historic empire based on force and political tutelage has passed away. It remains as a great spiritual entity, but this too, in the absence of all organic connection, may pass in turn, continuing rather as a memory than as a living reality. Can some vital and mutual dependence be established that will clothe the spiritual with material substance and give to the empire a new and impressive reality? In this the more thoughtful see the hope, the only hope, of maintaining the proud eminence of Britain. To this end they propose a protective tariff with exemption or preference for the dominions. The dream is not unworthy. Its successful realization would change the economic unit from a small, insular, highly specialized, and wholly dependent country to the largest, the most varied, the most self-sufficient economic unit in the world. The economic loss of protection would be reduced to a minimum. The political gain would be raised to a maximum.
But all the same, let us not overlook the fact that the gain would be political and the loss economic. Without this Scheme of imperial preference the loss would be appalling. If British industries need protection, if they cannot compete with foreign competition in the home market, how can they compete with those same competitors in the foreign market? And if they cannot compete, whence are to come those exports without which production must cease and Englishmen starve?
No, a nation doomed to depend for its very existence upon export trade can tolerate no artificial enhancement of prices. Costs and prices must be maintained at the international competitive level or the game is up. No doubt there are anomalies and temporary situations in British industry which might be relieved by a prudent and temporary application of protection, but the likelihood that protection would be either temporary or prudent when once introduced is small indeed. The ills of British industry that are subject to remedy are a stubborn retention of antiquated methods, on the one hand, and on the other a predatory labor policy which sees in the raiding of capital the approach of the socialist millennium. Protection will cure neither and will aggravate both. If this policy is adopted against the world in general, and in any but the most transient of applications, we are witnessing the passing of Britain.
It is with something of sober optimism that I close this survey. It is difficult to see in the existing international situation any promise of the adoption of a more reasonable policy. Yet when I recall that the policy which Adam Smith was convinced England would never adopt actually was adopted a couple of generations after his death, I take hope. Spencer says that men at last go right because they have first tried all possible ways of going wrong. And the wrong ways are wrong simply because along these ways you cannot get out of the woods. We may travel this way for a time yet, but it will not take us out of the woods. Sometime we shall find the right way.