U I ) ^ - 5 irri MfFOS*^. <^55ttlfNIVK%. ^IC \ J ? 1 i!;:S^S iC^ IS AV** ^OJUVOJO"^ ^OJUVJ-JO"^ '^J'ilJDNVSOl^ %a] irtw .AP.rAMCAD^. .ACrAitcnn.. .«iic.tmn/[Dr 30 ^0FCAIIF0% •t'AQvaaiJ'a^' — "UFOi 'UAQvaair: ^^lUBRARYO^ ^•UBRARYa^;^ ^m^Wm ^OFCAUfOft^ mmwx ■>v^t^ ^ 'V^ ^(?A«vaani"^ "^^Aavaan-^ ^i^dnvsoi'^ f. <5ME'UNIVER% ^i^AHcar ^5WFUNIVFR% ^lOSANCaO^ 4' 5 ^ u ^QiaoNvsov^ ^aMiiiii wiAuri an* ^^Asvaan^ ^^Aiivaan-3 -^l•UBRARYa^. ^UBRARYQc ^. .. «^^UNIVERS{jt ^IDSANCfU <: I ^WinvDW^ ^mjnn-jo'^ '^ j.OFfAIIFnpy/- LnFfAiiFnoj, ■>< ^7^- ^o%d. peroz. of standard gold, which is called the mint price. The gold is purchased by the Bank of England, which acts as agent for the mint, charging i%d. per oz. for its trouble. This unlimited free coinage constitutes a free market for gold such as does not exist in any other country. 2 This flow of gold and silver to and from the United Kingdom is suf- ficiently illustrated by the statistics for five years : — The Economics of Foreign Trade. 105 Great Britain receives much more of the precious metals than she parts with, it is manifest that she is not paying- for her imports with money, but with goods, in fact she buys her gold with her merchandise. Trading is done in terms of money, that is, in price; gold is the measure and standard, but its transport is avoided as much as possible. And as in the internal trade of the country cheques and bills are estimated to perform some 95 per cent of the exchanges of the nation, so in foreig^n commerce exchanges are effected by means of bills. The operations are refined and technical; the result is that debts for goods are balanced against one another through the agency of credit documents representing money, and by the aid of the machinery of banking. Thus the foreign trade of the world is carried on with comparatively little metallic currency; goods are bought with goods, imports with exports, balances only being" paid in gold. Since imports are purchased with exports it might be expected that their values would balance one another, and as far as trading alone is concerned this is the case, but international relations are very numerous and com- plex, and involve many operations besides those of commerce which give rise to indebtedness. Great Britain is a maritime country, with a large mercantile fleet doing a considerable carrying trade for other nations all over the globe. About one-half the ocean commerce of the world is done in British vessels. This carrying trade creates an element of indebtedness, which Gold. Silver. Imports. Exports. Imports. Exports. I89I. 30,275,620 24,167,925 9,215,598 13,060,866 1891 1892. 21,583,232 14,832,122 10,746,382 14,078,568 1892 1893. 24,834,727 19,502,273 11,913,395 13.589.745 1893 1894. 27.572,347 15,647,551 11,005,417 12,165,049 1894 1895. 36,005,999 21,369,323 Toi Imports. 12,669,662 10,357,436 -AL. Exports. 1895 1891 39.591.21 8 37,228,791. [892 32,329,61 4 28,910,699. t893 36,748,12 2 33,092,018. [894 38.577.76 4 27,812,600. t895 46,675,66 I 31.726,759- io6 The Free-trade Movement. is discharged by the debtor-nations in produce. As an example, suppose a British vessel to carry out ;^iooo worth of coal to San PVancisco and fetch back corn. Let the freiij;-ht each way be ;65oo. The export of coal from Great Britain will be set down at ;^ic)00, on arrival in America the value, enhanced by cost of car- riage, will be ;^i5oo, and in addition another ;^5oo must be sent to Great Britain to pay the return freight; thus _;^20oo of corn will be entered as imports, of which ;^iooo will come in payment for British coal and ;^iooo will be due for services rendered by British shipping. The additional imports are the earnings of a British industry, the exports do not include the cost of car- riage, while the imports, which must include the goods sent to pay for carriage, will necessarily exceed the exports by that amount. The imports received in return for services of British vessels are estimated at about ;^6o,ooo,ooo per annum ; this service has been signifi- cantly named by Sir Robert Giffen "invisible exports". Not only in foreign trade, but in the ordinary affairs of life, a large part of what is paid for is " service"; but, having none of the attributes of matter to obtrude itself upon the senses, service is apt to be forgotten, and to be overlooked as a factor in exchange, and especially is this the case in comparing values of imports and exports. Another chief source of the discrepancy between im- ports and exports arises from the practice of investing capital in foreign enterprises. British subjects have lent to foreign countries vast sums, the interest on which is estimated at about ^^100,000,000 a year. It is pro- bable that half that amount is reinvested abroad annually; the balance, about ;^5o,ooo,ooo, comes in the form of imports, for which no corresponding export is required. It has been maintained that this mass of imports for interest, while it benefits the investor who receives its value, is a loss to British working-men by competing with their products. The facts are, however, exactly the reverse ; at every stage the labourer has shared in the employment and profit afforded by the foreign transac- tion. The original loans were made in the form of goods, such as railway iron, engines, machinery, clothing, &c., The Economics of Foreign Trade. 107 all manufactured by British capital and labour, and they were exported in vessels built with British capital and labour. The interest in the form of imports comes home in ships also constructed with British labour; and since these imports consist chiefly of food and material for our industries/ they are also beneficial to the working- classes. The imported food provides cheap necessaries, and augments thereby the real wages of labour, while the raw materials become the means of future employ- ment in the manufacture of goods either for home con- sumption or for re-exportation; in the latter case they again employ the labour of those directly or indirectly engaged in the shipping industry. Since there is no scarcity of capital at home, the overflow, sent out as loans in the form of manufactured goods to develop other countries, is wholly an addition to the producing power of the world, and a source of employment, income, and profit to the British nation; it is not a displacement of labour, but an addition to industry and the means of enjoyment which it procures. The right conclusion is that the foreign trade and relations which arise naturally under free competition tend to add to the wealth of a country, and cause industry and capital to flow into the channels which are most lucrative. Besides the two instances here given, many other relations give rise to indebtedness between countries; such are foreign travel, tribute, remittances of tempor- ary residents, expenses of soldiers and sailors on foreign stations, of colonial government officials, &c. All the debts which arise out of these transactions, though expressed in terms of money, ultimately tell upon im- ports and exports. Nations do not waste unnecessary power in sending gold and silver to and fro ; goods are the real things remitted, exchanged, and consumed in the long run. These various business relations, how- ever, render the balance - sheet more complex, and obscure the simple truth that imported goods and services are paid for by exported goods and services through the instrumentality of credit documents, and that the pre- 1 Of British imports about 70 per cent consist of food and materials for manufactures. io8 The Free-trade Movement. cious metals, thouj^h the basis and measure of value, play a relatively small part in the actual exchange. An objection of a dilTerent kind may here be con- sidered : it is charged against free-trading that it is in the interests of consumers only, and that producers are left to take care of themselves. The more correct state- ment, however, would be that it leaves both classes absolutely free to pursue their own interests by buying or selling how and where they choose; it deals out equal measure. Every man is at liberty to produce what he can, and the test of his fitness in the circumstances will be that the community will buy his article in preference to those of other competitors; if its quality and price are such as warrant its success, it will be for the good of the community; if the foreign article is preferred, the principle of comparative cost will show that its produc- tion at home would be an economic loss to the community. Again, if any class might claim special consideration, it would be the consumers, who are the more numerous body, seeing they comprise all, and their interests should considerably outnumber those of any group of producers who desire to foster their industry at the expense of the community; but a system which leaves both classes absolutely free cannot be said to favour either. In a country where Free - trade has already been adopted, and matters are adjusted to its working, to set up Protection would be a method of imposing an unfruitful tax upon consumers; and where equal free- dom prevails already no economic ground can be advanced for imposing such a useless burden. The same reasoning applies, only in a less degree, to the proposal to increase a tariff in a country where some degree of Protection exists; this is the case of the United States' tariff (1897), which has considerably in- creased many duties. But to remove a duty in a protective country is a much more difficult task, as the producers of the article will have acquired the right of a vested interest, and can represent that they committed their labour and capital to their industry with faith in the continuance of a system deliberately adopted and authorized by law. This is a chief difficulty in the way The Economics of Foreign Trade. 109 of tariff-reform, and one of the reasons why a country once committed to a protective policy continues to up- hold that policy in spite of the great burden which it inflicts upon the consumers. When protection has been adopted for the purpose of starting certain manufactures, a large number of persons in the trades concerned would suffer immediate loss of employment and of capital by the sudden removal of the duties, under the shelter ot which the industries were built up. Such persons are naturally vigorous in their efforts to maintain the duties, and they would have some real cause for complaint if, without compensation, they were sacrificed to a change of policy. So impressed with the strength of vested interests was Adam Smith that he doubted whether Free-trade would ever be adopted in Great Britain. The old theory of trade favoured exporting and aimed at procuring markets ; the obstacles to importation led to bounties and other expedients for finding a sale. It is important that a country should be able to dispose of the things which it can most profitably produce; under mercantilism the notion that gold was the most desirable import restricted trading, for there was a limited amount of gold to be procured, and the impediments placed upon other imports did not assist exporting. The fact is, that since importing and exporting are complementary opera- tions, they mutually assist one another, and free imports stimulate exports. Buying implies selling. A country which is open to easy purchasing is more able to dispose of her own produce, for, since she must pay for her purchases, the countries which sell to her will be more disposed to look in her markets for the goods they are willing to import, and if such a country can offer de- sirable exports they will be more easily accepted. Also, vessels bringing goods to a country which offers a free market will endeavour not to return empty, and will stimulate exporting from such a country by offering low freights. Thus it comes that importing determines ex- porting, by making it more easy to find markets; it is perfectly true that exporting implies importing, for the exporter will require payment in some form ; but it is the importer who takes the initiative, and who makes no The Free-trade Movement. the markcl in the first phicc by his \viiling"ness to accept the g'oods. It would be useless to send g"oods to a country which would not, or could not, purchase them. Suppose China to determine upon a policy of railway development, and to send a lar<^e order to Great Britain for steel rails and steam-engines; the export of iron from Great Britain would lead to an import of produce from China or some country on which she gave us bills; but the prime fact in the whole proceeding would be, not exporting from Great Britain, but importing by China. China, desiring iron goods, would import them from Great Britain, and must be able to pay for them with exports of some kind. The transaction therefore would have its origin in China's desire for imports. It is an elementary economic truth that wants create desires, and these stimulate men to labour for their satisfaction; the funda- mental fact is in the wants; and a country which, to satisfy her wants, is willing to import freely, will thus not only increase her imports, but her opportunities for ex- porting, as a means of paying for them, will be equally augmented. The converse mode of stating the same truth would be that a country which declines imports altogether would sell nothing abroad; every step to- wards prohibition is a step towards abolishing her export trade. The smoothest method of securing markets abroad for home goods is consistent therefore with a policy which offers the freest market to foreign goods for which they may be exchanged. Chapter VI. Arguments for Protection, Reciprocity, Bounties, &c. Regarded historically and in its origin, Protection is not the outcome of a deliberate policy, adopted after careful weighing of economic arguments. It grew out of the restrictions incidental to early forms of society, and Arguments for Protection, &c. iii the restraints upon individuals inevitable in the unsettled conditions existing- long prior to the modern industrial era; the jealousy of states during- the period of their formation and consolidation, the g^rowth of the sentiment of nationality, the need for resources (treasure) to carry on war, and the creation, by means of tariffs, of classes interested in the maintenance of restraints upon com- merce, all helped to develop it. Facts came before theory, and the principle of Protection as a beneficent institution was formulated to explain and support the customs and practices which had grown up. Until late in the eighteenth century Protection was scarcely questioned as a guiding principle of statesmen; objec- tions were raised to special restraints on commerce, or on freedom of individual action, rather than to the general principle. The belief that it furthered the material in- terests of communities sustained the Protective doctrine until Adam Smith changed the stand-point by maintain- ing that the enlightened pursuit of individual interests harmonized with the national well-being. In modern times the defence of Protection is under- taken either upon economic, or, more broadly, upon political grounds. Protection is advocated either as promoting some existing branch of national industry and so securing employment for labourers; or as foster- ing some new trade which is expected ultimately to be a source of wealth, although it may involve a temporary loss to consumers and tax-payers; or it is demanded upon patriotic grounds as necessary to make the nation independent of foreigners, that it may be self-supporting in the event of war. Both lines of defence are open to the charge that they are based upon imperfect observa- tion of the whole of the circumstances, and that the conclusions deduced are consequently fallacious. In ex- amining more at length some of the current arguments for Protection, we shall find that they do not form a harmonious system, that some of them contradict others, and that nobody can consistently uphold them all. For example, it is urged that a protective tariff will support the home industry by excluding the foreign article and yet raise revenue; that it will keep up prices and yet 112 The Free-trade Movement. benefit the hibouring classes, whose real wages It would by that means reduce; that it will prevent fluctuations in trade and prices, by excluding foreign competition, although it thereby creates a monopoly which is a fre- quent cause of fluctuations and high prices; that while it is desirable to encourage invention in the interests of cheapness, it is also beneficial to keep up prices by tarifl's. These and other paradoxes appear on a survey of the diiTerent arguments in favour of Protection. They arise by confining the observation to some limited portion of the industrial field, and identifying its pros- perity with the national interest, while other effects are overlooked. Thus it comes about that a partial or temporary effect is mistaken for the whole, and it is not seen that a benefit in one direction is more than counter- balanced by a greater loss in another direction, flowing from the same cause. Protection is said to encourage home industry by pro- viding work for our own labourers in preference to foreigners, and it is therefore claimed to be a patriotic policy. This statement, however, overlooks the fact that imports are paid for with exports, and that there- fore no goods can be imported unless home industries are first employed to produce other goods with which to purchase them. A country with nothing to sell cannot buy. It must employ its labour therefore in producing the wherewithal to purchase foreign commodities, and if that labour be diverted to producing those commodities at home, it will cease to be employed in producing the other articles which were exported in exchange for them. Now where there is no artificial direction, and trade is free, the industries which are most profitable in natural conditions will be those adopted; but the general effect of duties imposed for the purpose of regulating trade will be to direct the labour and capital from more pro- ductive to less productive industries. Labour and capital being then less efficiently employed, the country will sulTer loss. To take an extreme case as an example: if Great Britain were to insist by means of prohibitive tariff's on making her people grow all their own corn, much labour Arguments for Protection, &c. 113 would be diverted to agriculture, and vast portions ot inferior land would need to be cultivated. Since all im- ports of corn would now cease, the exports of cloth, machinery, &c., by which they are at present purchased, would cease also, and the industries which supply them would decline; the mercantile marine, which conducts the trade, would be unemployed, shipbuilding- and other subsidiary industries, so far as they depend upon this branch of commerce, would collapse, and a vast army of unemployed artisans, now receiving high wages, would be driven to agriculture to provide a bare subsistence from a niggardly soil, or, what is more probable, they would leave the country in search of a better livelihood. The effect upon home industry would thus be disastrous. The principle, as illustrated in the extreme case of prohibition, is equally valid when the attempt to protect agriculture is less complete; and the results would be proportionally hurtful in whatever degree Protection were applied to any other industry. The effect of a pro- hibitive duty is to divert industry from a more profitable to a less profitable channel; it creates no new capital, and does not add to production ; but it displaces both capital and labour, and it tends therefore, not to increase em- ployment, but rather to diminish employment. The contention that home trade is more profitable than foreign trade, because it employs the capital and labour of both industries at home, is answered by means of the above reasoning. Home trade is more profitable only when it grows up and goes on naturally, without forcing. But where capital and labour are directed to some special home trade by means of Protection, and an in- dustry is fostered on which there would otherwise be loss, that is, where the article could be imported more cheaply, no economic benefit can accrue. If the cir- cumstances of the country are such that it is cheaper to import than to produce a given article, labour and capital should be permitted to find their way to the pro- duction of other goods by means of which the desired import may be purchased. Not infrequently protective duties are advocated as a source of revenue. Protection and revenue are, however, ( M 460 ) II 114 The Free-trade Movement. incompatible aims,' since, in so far as Protection is suc- cessful foreig"!! articles are excluded and no revenue is obtained ; whereas, if the articles are imported (paying- duty), to that extent Protection is not secured. But if any revenue is raised the duty is not truly protective, since it has obviously failed to prevent the ^oods paying revenue from entering the country. Protection and revenue cannot by the same measure both be secured success- fully. The fallacy arises in two ways: {a) from confusing protective duties with other indirect taxes levied on imports, such as Great Britain places upon tea, wines, tobacco, &c., but these duties are not protective, they foster no home industry, their object is revenue; and (b) because many protective duties are imposed which fail to give complete protection; some goods are im- ported under duties not sufficiently high to exclude them altogether, and then only part of the supply is produced at home. The cost to the consumer is increased on the whole of the supply — on the imported portion by the amount of the duty, on the home-made portion by the excess of the cost of production over the price at which the article could have been imported duty free; some revenue is raised from the imported portion, but none from the home-made portion; the former is not excluded by Protection, the latter raises no revenue; such a duty cannot properly be described as either a protective or a revenue duty, since it accomplishes neither satisfactorily. In young countries indirect taxation levied upon im- ports is generally the most convenient mode of collect- ing revenue, since the population is spread over wide and sparsely-settled areas. In such cases duties levied on many articles, at first for convenience, tend after- wards to become partially protective; that is, industries are commenced in the colony under the shadow of a duty which raises the price of the imported article, and they then supply in part some article which is still also imported subject to the duty. At length the protected industry may grow powerful enough to secure an in- ^ "Taxes imposed with a view to prevent or even to diminish importation are evidently as destructive of the revenue of the customs as of the freedom of trade."— ( Wealth of Nations, iv. 2.) Arguments for Protection, &c. 115 crease in the tariff sufficient to exclude the article alto- gether Such a duty is prohibitive; but it is obvious that a duty may be so high as to check importation, and yet not high enough to prevent it altogether, i.e. it may be partially protective, or protect up to a certain level. In all protective countries many duties imposed are only partially effective, some, but not all the foreign articles being excluded. The effect is to raise the price of the article (whether produced at home or abroad) to the level of the cost of production of the imported article plus the duty. The tax is obtained only from the im- ported goods ; on those produced in the country no duty accrues to the exchequer, but the consumer suffers an economic loss as great as if the duty had been levied on the total product. Much of the popularity gained by protective proposals seems to be founded upon the prejudice that foreign trade on the side of imports is injurious, and an act of a hostile character initiated by a rival. If this view were correct, what should be said of the export of British goods to other countries? The fallacy survives in many current expressions. ' ' Foreign goods flood our country " ; "Great Britain is the dumping-ground for foreign pro- duce"; "An invasion of foreign commodities", are a few of these question-begging phrases. Behind these and similar phrases there lurks the belief that the en- trance of foreign products into a country resembles the descent of a foreign foe upon its shores. The false analogy helps to maintain the belief, but the twofold aspect of trade as exchange is forgotten. Trade which arises spontaneously is mutually advantageous; both parties may be presumed to be studying their interests. Imports are demanded to satisfy wants, and, as already shown, they must be paid for by the produce of the im- porting country. No nation will continue the process of exchange unless it is beneficial; foreign goods will not be sold in Great Britain unless they have something to recommend them to British consumers, nor unless British producers can export commodities to pay for them. If foreign goods "invade" our shores, British goods must in return "invade" foreign territory. Gain ii6 The Free-trade Movement. must result to both parties iVom these peaceful inva- sions, or the exchanj^c will not be continued. It has been urg"ed as another arijument in favour of protective duties, more particularly in the United States and Australia, that such duties are a means of keeping" up \vag"es by excluding" the products of what has been called the " pauper labour" of other countries. To this it may be replied, that if money-wages are kept up by this means so also are prices, and the cost of living is proportionally greater; so that real-wages (the commo- dities and comforts earned by a given amount of labour of the same kind) are not higher. Moreover, experience shows that the standard of living in free-trading Britain is not inferior to that of protective countries, but, on the contrary, distinctly higher than that of most such countries. Comparison of real-wages is very difficult, so many elements enter in, and the conditions of labour and of life are so different as regards hours, severity, cost of food and clothing, rent, means of health and rational enjoyment, &c. In young countries the demand for unskilled labour is plentiful, and such labour gets a high reward; but the skilled artisan living in towns, and paying high rents, does not find the same advantage.^ Observation has yielded the empirical law, now generally accepted as an economic truth, that the best-paid labour is usually the most efficient, and that low prices may consequently co-exist with high real-wages. The United States tariff is directed principally against British manu- factures, and yet it cannot be denied that British labour ranks with the best-paid labour in the world ; while the high purchasing power of wages is, in no slight degree, owing to our system of free imports, that cheapens the commodities on which a considerable part of the wages of labour must be expended. Protective duties cannot 1 Mr. Wise writes {^Industrial Freedom, p. 306): "Personal inquiries from both masters and men have satisfied the writer that the highest grades of the class are less well paid, even in money wages, in Australia than they are in England;" and again (p. 215), "It is no uncommon thing to find among the passengers of homeward-bound steamers skilled English artisans who are returning to England because they cannot make the high wages that they used to earn in any part of Australia — not even in Protectionist Vic- toria". Arguments for Protection, &c. 117 therefore be advocated as being- levied in the interests of the real-images of skilled labour. Sometimes it is suggested in support of a proposed tariff, that, if adopted, the foreign exporter will pay the duty. It has been argued, for example, that a duty of 5J. a quarter levied upon imported corn would be paid by the exporting country. From the Protectionist point of view this should have nothing to recommend it; for if the duty were paid, and the foreign article admitted, it could aiford no protection to the home industry; such a duty becomes a revenue duty and not a protective duty. But the competition of many countries, and of many farmers in corn -producing countries, has long been effective in reducing prices and freights to a very low level, and this far-reaching competition tends to keep prices at a minimum, which leaves the sellers no adequate margin of profit out of which to pay any levy in the form of an import duty. In such circumstances a duty must raise prices, and will ultimately be paid by consumers either in the higher price of the foreign corn, or, if that be excluded entirely, in the increased cost of the home-grown corn which would take its place. It would become in any case a tax upon one of the neces- saries of life, which is one of the worst forms of taxation. No one doubts that the import duties upon tea and tobacco are paid by the consumers of those articles; otherwise the demand for a remission of the tea-duty in the interests of the poorer classes is meaningless. Nor will it be maintained that the British manufacturers pay the high duties upon their goods sent to the United States or to Russia, which are in some cases nearly equal to the cost of the product; such duties are ulti- mately paid by the consumers in those countries. The fact that such goods are imported and are sold, proves that, though thus taxed, they are nevertheless preferred to the home-made articles, owing either to some excel- lence of quality or style which is wanting in the home products, or to the fact that, with the duty, they are as cheap as the home-made article. It has been urged as a reason for imposing retaliatory duties, that manufacturers in certain countries are en- ii8 The Free-trade Movement. abled by their protective tariffs to make so much profit on their liome business as to permit them to send goods to Great Britain, which can there be ofTered at prices so low as to undersell British jjoods. No doubt in many trades there is occasional over-production, and surplus jjoods, unsaleable at home, are then shipped oil to find a market in other countries at any price. But manu- facturers makings a large profit at home are scarcely to be credited with organizing their industries so as to secure a permanent loss by steady over-production. The passion for underselling will not lead to a regular business of an utterly unprofitable character. Also, an industry protected by a prohibitive tariff, and making profits so much above the average rate as the contention assumes, would soon create competition in its own country, which would lower profits. The export trade, however, would be impossible on other and more con- vincing grounds; for if a protective duty is required to enable the producers to force the sale of the native pro- duct in their own country, it is obvious that the com- petitor-country, against which the duty is levied, can produce more cheaply. How then can they compete successfully in a country that could undersell them in their own market if they were not sheltered by a tariff"? There can be little doubt that, as a general rule, the consumer of taxed goods pays the duty. An import duty may in some instances be shifted to the producing country. If the article be a luxury, such as champagne, which the consumer can discontinue, and he is already paying the highest utility price, a fall in the demand would be occasioned by the imposition of a higher duty. The seller might then be induced to forego part of his profit, and pay the tax by reducing the price rather than lose his market. This happens in the case of any taxed monopoly, where the monopolist has been charging the highest price he can secure. Whether the duty can be shifted from the importer to the exporter depends upon the effect of the duty upon the demand, and also upon the conditions of production in the country of supply. It is also possible that part of an import duty may be borne by a country which is compelled to find its market Arguments for Protection, &c. 119 in the taxing country; but this is not a common case. Further, such a country would soon learn the lesson, and impose retaliatory duties upon the goods sent in pay- ment. The effect of the struggle between the two countries to extract duties from each other would be, that each would be paying higher prices, together with the added cost of the machinery of collection. No real economic advantage would ensue to either. The inci- dence of taxation is sometimes very difficult to trace with absolute certainty, but it seems clear that duties on ordinary imports fall upon the countries imposing them. If such duties are of a protective nature, and are fixed high enough, they will exclude the foreign article entirely, and if the duties protect in any degree, they so far exclude the foreign article, and the consumer pays a higher price to cover the increased cost of pro- ducing the article in his own country. It is very necessary to discriminate between the com- petition of nations in a neutral market and the mutual commercial intercourse of two nations ; for the former is rivalry while the latter is not. In the former case each seeks to secure the advantage of extending its trade to a new area; each endeavours to sell its own goods for the products of the new country. The suc- cessful competitor will enlarge its trade at the expense of its rival. The competition of Great Britain and Ger- many, for example, in a neutral field like South America or China, is of this nature, and the country which gains the trade will expand its own industries thereby, and in exchange will secure fresh products for itself. The mutual trade relations of Great Britain and Germany, however, are not of this nature; it is not a condition of advantage to Great Britain that Germany should lose. They exchange the comparatively superfluous for the relatively desirable, thus satisfying one another's wants and increasing the total of utilities; each is an importer, each an exporter, and both derive advantage. The interchange of produce results in greater concentration upon special industries in the two countries, of much the same kind as that which determines most of the woollen trade to Yorkshire and the cotton trade to Lancashire; lao The Free-trade Movement. but as there is no hostility in the trade relations of Yorkshire and Lancashire, so neither can trade between two nations, which consists in the mutual supply of con- veniences, be properly described as hostile, or as other than beneficial. A belief that nations trading- with one another are engaged in a kind of warfare evidently lies at the root of the desire for "retaliation", which distinctly suggests the notion of paying back " blow for blow". The belief finds expression in various forms: "They strike us with their tarilfs, let us retaliate"; "We have thrown away our weapons, and in this warfare we have no guns with which to fight in the commercial struggle of nations"; and, "We have lost our power to bargain for a reduction of tariffs, we have nothing to ofl^er" ; and again, "Others take advantage of our Free-trading policy and give us nothing in return". Lurking behind all such expressions stands the assumption that trading, so far as the pur- chaser is concerned, is a mistake; that its object is to get rid of products, not to obtain them. The fact that the maximum advantage is sought on the easiest terms, which is the prominent feature in individual trading transactions, is ignored when the matter comes to be regarded from a national point of view and in the gross. The object of international, as of individual exchanges, is to obtain the commodities we need, and the goods we part with are merely instruments for gaining as much as possible of those we desire. Now free importation conduces to this end, and its non-adoption by other nations does not preclude Great Britain from gaining its benefits. Great Britain gains by allowing foreign goods to enter without impediment, whether other nations copy her example or not. So long as Great Britain receives in return for her exports a quantity of desirable imports sufficient to cover the cost of produc- tion of her exports, she is a gainer by the trade, since she thus gets goods she requires at less cost than she could produce them herself, and, in fact, she gains much more than this, for she makes profit by trading, and carries on a lucrative business as shipper for both parties. Foreign tariffs may curtail her advantage but Arguments for Protection, &c. 121 cannot destroy it, for if loss occurred trade would cease. Extreme advocates of reciprocity and so-called Fair- trade ask that we shall only trade with those countries which will accept reciprocal terms, and that we shall punish those who decline by excluding- their goods. But while we may regret the methods of other countries, which injure us to some extent by limiting the total trade carried on, we shall not convert them to our views by adopting their methods, and shall only injure our- selves still further by refusing to continue commercial relations which we find profitable even under present conditions. Those who object to the British system of Free-trade as "one-sided Free-trade" fail to recognize the advantages it confers upon both consumers of im- ports and producers of exports, and are still under the influence of the doctrine which regarded exporting as more profitable than importing, or of that other fallacy which seems to assume that exporting without importing is either possible or desirable. That we have parted with our means of bargaining for the remission of duties is a matter of little account, when we set against possible petty gains from mutual reduction of duties the enormous advantage of fifty years of free imports, as manifested in the prosperity of the country and in our high standard of living. Com- mercial treaties and diplomacy are indifferent substitutes for the higher advantages of complete freedom ; they are but tentative measures, useful in mitigating the evils of restriction; but which, while securing only partial re- missions, are liable to produce mischief or loss in other directions, owing to the jealousy they excite by the diversion of trade. Such treaties may be expedient in dealing with the countries whence we obtain our imports for revenue — wine and spirits, tobacco, tea, &c. The French treaty of i860, negotiated by Cobden, in which Great Britain lowered the duties on French wines and brandy in return for relaxation of duties on English manufactures, proved that in becoming Free-traders we had not entirely parted with our power of gaining con- cessions by treaties; the lapse of the treaty and re- 122 The Free-trade Movement. version by France to a more protective rdgime shows equally the want of permanence in such arrang-ements ; but the hii^i^ling- for small concessions which treaties involve, with all the troublesome details of tariflfs, and the expense attending- administration would be super- seded by the simpler system of general Free-trade with its larger economic advantages. All consumers, as such, prefer Free-trade, because they know that, to buyers, open competition secures the best article ; but men are apt to become Protectionists when their view is confined to their own sales. It is then that they desire to monopolize the market for their own special profit and not for the good of the nation. The late Mr. Villiers, in his reply to the address presented to him in June, i8g6, on the completion of fifty years of Free-trading, summed up the position in a single sentence: "The land-owner, the ship-owner, the West Indian merchant, all approve of Free-trade in what they consume, but in the sources of their income and profit there are no more staunch supporters of prohibitive law; they are always reasoning as if the country were made for them and not they for the country; and in their ignorance they are ever blind to the fact that while they seek to profit by the losses of others they are again injured by a like injustice ". But retaliation in our case is a vain and futile hope. Great Britain cannot afford to retaliate by taxing food and the raw materials of her industries, which constitute quite 70 per cent of what she imports ;^ she would only starve or ruin herself by such a course, and she would excite increased commercial hostility on the part of nations which are already envious of her prosperity. If it is worth considering, a further objection exists in the difficulty of making retaliation effective. It is not neces- sary that trade should be direct. If French silk were excluded from Great Britain by a high tariff, it might ^ Even most advocates of Protection admit this. Friedrich List, the author of a National System of Political Economy, wrote: — "A nation which has already attained manufacturing supremacy can only protect its own manufacturers and merchants against retrogression and indolence by the free importation of means of subsistence and raw materials, and by the competition of foreign manufactured goods". Arguments for Protection, &c. 123 yet enter through Belgium and Holland, while German goods we might wish to exclude could pass through Holland or Sweden. It is almost impossible to determine the country of origin and to make a workable scheme discriminating against the imports of particular countries; the only resource would be thorough-going Protection, which for us is as impossible as it is undesirable. But, it is objected, a manufacturing nation might, at all events, tax the manufactured articles which enter the country. Now, our imports in i8g6 were valued at ;^44i,ooo,ooo; of these, food-stufiFs amounted to ;^ 1 57,000,000, articles paying duty to ;^30,ooo,ooo, goods which may be classed as raw materials to another ;^ 1 57,000,000, and goods manufactured or in some stage of manufacture to ;;^97,ooo,ooo. Some of these last are finished products, such as clocks, watches, French boots, hats, gloves, &c. ; others are partly-manufactured goods, such as linen yarn, iron bars, leather, straw- plaiting, &c., all of which are utilized as materials for other British industries. The question has been raised as to what is a manufactured article and what is a raw material. Definition does not solve the practical question, it is entirely a matter of degree; for it might be maintained that every import which has passed through the hands of man, such as fleeces or raw cotton, has already passed through one stage of manufacture. Let us take the example of leather, of which we im- ported ;^7, 500,000 in 1896. On examination we find that leather imports include hides tanned and curried or dressed, and goat and sheep skins dressed. The whole item might be treated as raw material for the purposes of British industry, since it is here converted into boots and shoes, harness, portmanteaus, and numerous other finished articles, of which, beyond her own consumption, Great Britain exports nearly ;^2, 000,000 worth. The tendency is evidently for the rougher early processes of tanning to be carried out in countries where materials are abundant, and for British industry to be limited to the finer processes which call for greater skill and also afford a higher wage. The same remarks apply to timber, which is now generally imported from Canada 12^ The Free-trade Movement. and Scandinavia sawn into given lenj^ths and sizes, or even advanced a turlher stag"e. The complexity of modern production makes far greater subdivision of employments, and this is furthered by the advantages which situation oilers for any process. It is thus im- possible always to draw a sharp line between the raw material and the manufactured article, for the latter is the result of evolution progressing by many stages. The finished article of one country or locality becomes the raw material of another, just as bricks are the materials of house-building; pig-iron, yarn, wire, zinc- sheeting, and tin plates are the products of certain industries and the raw materials of others. The country which in this classification performs the final process, becomes the finishing-shop; its work is more refined, less arduous, and better paid; its skill is greater and its subsistence is gained with less expenditure of toil; and its finished products, when re-exported, pay for its im- ports both of raw materials and other consumable articles. The world-wide organization of industry gives greater efficiency to the labour of the whole world, and this kind of efficiency is best promoted by the removal of all impediments to trading.^ Among minor advantages alleged to accrue to a nation from a protective duty, it is urged that the protected industries are enabled to employ larger capitals, and thus call into fuller play the law of in- creasing returns; also that Protection permits an in- dustry to be started which, without such aid, would at once be crushed out by the competition of established organizations operating from foreign shores. As abstract arguments these hypotheses are valid, and possibly ^No doubt it will be here pointed out that hiphly-finished machinery is now being imported from the United States and Germany, and that Britain is being attacked in her most vital part. Circumstances favouring foreign competition with our staple industries are discussed in a subsequent chapter, but it may be at once stated that for these Protection affords no antidote. If the British mechanic allows himself to be surpassed in skill, intelligence, or industry by others, or if he permits any restraints upon the full efficiency of his working powers, so that he can no longer compete with foreign industry, not only in the home markets but in the markets of the world, neither Protection nor anything else can avail to maintain the supremacy of British manufactures. Arguments for Protection, &c. 125 instances might be adduced of very exceptional circum- stances in which the conditions would obtain. But in dealing- broadly with the subject, while we may be prepared to admit the possibilities, we must recognize that the problems of trade are essentially practical, and cannot be kept within the limits of academic discussion. Capital is very plentiful, and highly-organized machinery exists for lending it; capital is easily tempted abroad, and affords opportunities for large production wherever an industry can succeed; but large production by the aid of cheap capital is best illustrated in Free-trading Britain. With regard to the second point, it has not been found that governments have shown either the capacity to discriminate between instances, or the strength to confine their favours to such exceptional cases of interference; they are prone rather to yield to general demands for interference, and indeed when once the principle has been admitted in any country, Protec- tion has been applied all round without any reference to the conditions in which assistance might possibly afford an ultimate economic advantage to the community. The history of tariffs in young countries endorses the opinion aptly expressed by Professor Nicholson, that " Free-trade, like honesty, remains the best policy". Bounties are a peculiar form of Protection. They were a device of mercantilism to encourage exportation. Under a system of trade which laid stress upon exports and the importance of securing a favourable balance in gold, bounties or premiums were given on certain branches of home industry to enable them to obtain markets abroad by lowering their prices. The bounty system is a natural complement to the system of placing duties on imports; both flourish together. As the latter excludes the cheaper foreign goods in order to protect articles produced at home, so the former subsi- dizes an industry which could not otherwise succeed in the country, the community being taxed for the amount given to the bounty-fed industry. The French and German sugar bounties are the most notable examples of bounties at the present day. One effect of the bounty-fed sugar industry in France, together with the 126 The Free-trade Movement. French proliibitioii of fonij;!! sui;^ar, is that siig'ar is 3J, a pound clicaper in Great Britain than in France, while the consumption is 86 pounds per head of population in Great Britain compared with 25 pounds per head in France. Ag"ain, the confectionery, biscuit, jam, marma- lade, and sweet-drink trades have received an immense stimulus in Great Britain owingf to the advantage arisiui;- out of the cheapeninj^ of sugar by foreign bounties. Fruit gathered in Southern France is sent to Great Britain in British steamers to be made into jam with cheap French sugar, and such British-made pre- serves are re-imported for French consumption. France also gives a bounty of some 65 francs per ton on iron and steel ships. These vessels could be bought from the United Kingdom and the whole bounty saved; but for the satisfaction of building them in France the nation is taxed to nearly half their cost, ship-builders alone being the gainers. Yet, according to Lloyd's Register, in 1S95 the United Kingdom launched merchant shipping to the amount of 950,967 tons, while in the same period France launched only 22,000 tons, and in 1896 Great Britain completed 1,159,751 tons of merchant shipping, as against 365,000 tons by all other nations. Some writers complain of the "disabilities under which British shipping labours in competition with the vessels of bounty-paying countries " ; but it requires very slight observation to perceive that the disability lies with France in this matter; France has a natural disability in the matter of materials and resources for ship-building, which renders it more economic for her to purchase than to build ships. If, in the circumstances, she persists in building vessels by the aid of bounties, it must be at the expense of the community which provides the additional cost from taxation. It is a matter of common knowledge that M. Thiers gave his support to the sugar-bounty system with the remark that "he wished to see the tall chimneys smoke ". To his imagination these chimneys seemed evidence of manu- facturing prosperity and a sign of increasing wealth to France. The test, however, is not satisfactory when we learn that such prosperity as it indicates is purchased Arguments for Protection, &c. 127 at the cost ot heavy taxation to the remainder of the community. Of 3,000,000 tons of sugar produced on the Continent two-thirds are exported by the aid of bounties, the population pays this bounty, and for the remaining- one-third which it consumes it pays more than it receives for all it exports. To find a market for the produce of sugar-refining- by selling it to another country at less than cost of production cannot enrich a nation, though the loss may be obscured by the indirect methods of bounties, and the erection of refineries with smoky chimneys may give the appearance of additional employment.^ Meanwhile European sugar is practically excluded from the United States by a bounty on home-produced sugar and a 40-per-cent duty on imported sugar. The result is that a syndicate has been formed which controls about 80 per cent of the supply of sugar consumed in the States. It is strong enough to fix its own price, and ^The report of the West India Commission (issued October, 1897) gives the latest information about the sugar-bounty system and its effects. Germany pays an export bounty of 25J. a ton, and has a protective customs duty of ;^io a ton. France gives a bounty of gos. a ton, and has a protective duty of £24 a ton. In both countries there is an excise duty equal to the amount of the customs duty, which, under the monopoly, the producers recover in the price. The effect is that on the Continent sugar is 2ii. or $}id. a lb. dearer than in England. It is calculated that the cost to consumers from the continental system in Germany, France, and Austria amounts to ^^47, 000, 000 a year, and that those countries pay in bounties ^'5, 000. 000 a year. Deducting from the total cost the e.xcise of ;{'2o,ooo,ooo, this leaves a loss of ^^32, 000, 000 for the three countries. Between 1882 and 1896, the period during which the continental bounty system has been in full operation, the world's production of sugar has increased from 3,799,284 to 7,474,000 tons, and prices have fallen quite one- half. The fall is explained as mainly due to reduced cost of production, and in British Guiana, where the latest improvements have been adopted, the price of cane-sugar has fallen from /'16 a ton to £8 and £g a ton. But these improved methods are not generally adopted throughout the West Indies. Of the total exports (^6,106,000) of the West Indies, one-half (;^3, 250,000) consists of cane-sugar, and this is threatened by the conti- nental competition of beet-sugar. The commissioners reject the proposal to give a bounty on West Indian sugar, and two out of three reject also the proposal of countervailing duties, while the third recommends a duty of one halfpenny per lb. This, on the average consumption of 80 lbs. per person in the United Kingdom, would mean 35. i^d. per head of population, or ;^6, 500,000 a year. Other suggestions point to more direct aid in en- couraging other industries in the West Indies and to developing the other resources of these colonies. i2S The Free-trade Movement. iias made a profit of about ;^'5, 000,000 a year. In such stupLMidous monopolies we have a natural fruit of Protec- tion. In Great Britain, however, owing- to her Free- trade system, these syndicates have had little success in raising' prices They have to encounter, sooner or later, the conseciuence of the larg-e area of supply which open competition creates, and which responds to the certainty of a free market. The area is too vast to be readily brougfht under the control of a single combination in the case of a necessary of life. Trusts exist in Great Britain, but their tendency is to steady production and effect economy and cheapness by the org-anization of the in- dustry and the distribution of the product on a larger scale. The safeguard is in free competition. A similar economy, accompanied by a fall in price, is claimed for the American Standard Oil Trust, which has, however, to compete with all other illuminants, and finds a large market in Europe only by its cheapness. The working of the bounty and protective system has recently been illustrated in Argentina. Following the lead of other countries, Argentina imposed a heavy duty on imported sugar, amounting to some ;^i8 a ton. Consequently sugar-planting received a great impulse, so that the production soon began to exceed the home consumption. It was necessary then to find a fresh market, and the experiences of France were repeated almost exactly. The Government placed an internal duty upon sugar, and gave a drawback on its exporta- tion which amounted to a bounty. This was a further influence favourable to planting, and production again went on rapidly until it was found to have greatly ex- ceeded the consumption. The sugar manufacturers are now (1897) attempting to form a trust to deal with the surplus, to force sales abroad (of course at a loss) and to check production at home. Such are the difficulties which arise when the natural progress of industry is interfered with to foster a special trade. It is often maintained that Great Britain ought to "countervail" the bounties of other countries by impos- ing duties equal to the bounties, and frequent efforts have been made to secure this kind of legislative inter- Arguments for Protection, &c. 129 ference on the grounds that our Industries are unfairly opposed by assisted competition. The attempt of this mode of retaliation, if made, would most probably not be successful, for the bounties might easily be augmented, and it is exceedingly difficult to ascertain their exact amount and actual effect on trade. But a fatal objection to countervailing duties is, that we cannot draw a clear distinction between them and pro- tective duties; all aim at raising prices by state interven- tion. Countervailing duties are a form of retaliation upon bounties in favour of some other source of supply. Bounties, tariffs, differential duties, and countervailing duties are all alike interferences with production or con- sumption. If England adopted countervailing duties against continental sugar bounties, she would enter once more into the conflict of adjusting tariffs — an expensive and disturbing process, and there would be no limit to the attempts to exclude foreign goods on some pretext or other. In fact, the principle of non-intervention being surrendered, the path would be opened for the re-introduc- tion of all kinds of Interference. If, for example, this kind of protection were afforded to the British sugar in- dustry against French and German bounties, the farmers might reasonably demand like treatment for corn against the low rates of American railways, or "the unfair fer- tility" of superior foreign soil. Many similar claims could easily be sustained, for bounties are given in a variety of forms, the natural and artificial shade into one another, and cannot be clearly discriminated. Some countries give bounties in money, some in drawbacks or exemption from taxation, some in free grants of land; in some countries the state undertakes the organization of an export, as In the case of Australian butter; some give subsidies to steamship companies and to railways, which reduce the cost of transport. All in some degree, diffi- cult to estimate, tell upon the price of the goods exported, and so far cheapen them to the importing country at the expense of the exporting country. The principle of Free-trade is easily grasped; it inter- feres neither with producer nor consumer; its merits are obvious and can be followed ; the perplexities of the ( U 400 ) I 130 The Free-trade Movement. larill system arc eiulli'ss, and the injuries it inflicts are too serious to admit of any trilling;- with scliemes which would lead to the possibility of their recurrence. Move- ments in that direction, liowever plausible, are only Protection in disguise. Chaptef VII. Fifty Years of Free-trade. The essence of the Protectionist contention is that articles excluded by tariffs will be produced at home, and thus home industries will be encouraged. The weakness of this contention, so far as it fails to recog"nize the ad- vantag-e obtained from the exchange of products in foreign trading, is examined in the previous chapter. We shall deal with only one question here. Did the protective system, during the thirty years of its applica- tion to agriculture, feed the people of this country? The labourer who exclaimed, " I be protected and I be starv- ing!" summed up the results of the Corn-laws on this point. The history of the thirty years from 181 5 to 1845 is a continuous record of distress ; periods of scarcity and privation, fluctuating prices alternately starving labourers and ruining farmers, bread riots and disturb- ances, in manufactures uncertainty and loss. At length a famine in Ireland, following closely upon manufactur- ing depression and starvation in Great Britain, termi- nated the system devised to secure an abundant home- supply of food at steady and profitable prices. No principle could have received a fuller trial, and none could have failed more completely. With a population less than half the present population of Great Britain, the condition of the people was such that multitudes, daily employed in the occupation of rearing cattle and growing corn, rarely tasted any meat except bacon, and many could not earn sufficient bread to maintain their own families in health and energy. Fifty Years of Free-trade. 131 The test of a principle is in its total effects, not in any partial or peculiar advantage to individuals; every monopoly benefits the holder, but it does this at the expense of others ; and if we inquire into the results of the Corn-laws, we find they were a cause of great misery, want, and suff'ering to a large proportion of the com- munity, and of loss and injury to many others.^ The abolition of the restrictions gave immediate relief, an era of prosperity began, and fifty years of free-trading show no such instances of suff"ering and distress as those which preceded it. On the contrary, the progress of the nation in comfort and material well-being has been con- tinuous and marvellous. Fluctuations have accompanied the advance; the Crimean War, the American Civil War, and other misfortunes have imposed checks, but the outcome of the change is that Great Britain is the best-fed country on the globe, although it is the country which produces the smallest proportion of its own food. Common observation reveals the fact that the lot of the working-man has entirely changed, and that his eco- nomic condition in the present day would be an enviable one to those circumstanced as were the labouring classes of the early forties. Statistics of wages and prices show that, with easier work and shorter hours, a labourer gets now about 65 per cent, factory operatives 75 per cent, and a skilled mechanic go per cent more of necessaries than he did fifty years ago. Sir R. Giff'en has stated that nearly the whole of the economic advantage of the last fifty years has gone to the working-classes, that is, their position has not only changed absolutely as regards the comforts of life, but relatively as regards other classes in their share of the general prosperity. ^ 'As already stated (chap, iii.), various causes of distress operated during the first forty years of the century — bad harvests, the war, with its burden of taxation and debt, the Poor-law, which, until 1834, fostered an idle and inefficient population— the rapid changes in manufactures also dislocated industry. The Protective system accentuated all the evils arising from these various causes, created scarcity of food, and prevented the means of profit- able employment. " " Hence, while capital has increased, the income from capital has not in- creased in proportion. The increase of earnings goes exclusively, or almost exclusively, to the 'working-classes'". . . . "What has happened to the working-classes in the last tifty years is not so much wluU may be called an 132 The Free-trade Movement. This wonderful Iransformation is of course not to be assijjned exclusively to the Free-trade movement; the marvellous pros^ress of science, the conquest of man over the forces of nature, and their subjection to his purposes, are features of the century which need no detailed enumeration to remind us of their vast import. But the reform of 1S46 and the subsequent fiscal changes were factors of the deepest importance in the scientific development and industrial prog'ress of this country; and the Free-trade movement may be credited with rendering" possible the freest application of scientific discovery and invention, so as to lead the nation to a standard of life hitherto inconceivable. As a self-supporting- country Great Britain must have continued to devote the chief part of her labour and capital to obtaining food from her soil; and we have seen what was the average of comfort when that was attempted. Her population must have remained smaller, and her resources in other industrial directions could not have been utilized. Under Free-trade she was enabled to give full play to her mechanical and manufacturing genius and reap the full advantage of her mineral wealth, relying upon an abundant supply of cheap food in ex- change for her other products. The abolition of hin- drances to trade gave to the nation fresh possibilities, and called into activity the energy and skill by which they could be realized. The scientific discoveries and wonderful inventions which have enriched Great Britain through her various industries, and have even made agri- culture a mechanical industry to some extent, could never have found an opening in this country; the vast indus- tries of coal, iron, machinery, of cotton and wool, &c. , could never have been developed under a system which compelled the country to produce its own food, and ex- cluded the agricultural products which are now pur- chased by means of these industries. Free-trade was therefore a necessity prior to the full and profitable ex- improvement as a revolution of the most remarkable description." — ("On the Progress of the Working Classes" — Financial Essays, vol. ii.) See also Labour in the Longest Reign, pp. 9-16, by Sidney Webb, for similar testi- mony as regards men in organized trades. Fifty Years of Free-trade. 133 pansion of those industries which have enriched Great Britain during- the last fifty years. The industrial re- volution, with its mechanical inventions, factory-system, and the steam-engine, beg-an its operation more than fifty years earlier, but the masses were, notwithstanding, poor and half-starved until the advent of Free-trade. The Free-trade movement really involved at root much more than the revoking of the Corn-laws and the reform of our fiscal system, though these were the actual matters about which it was definitely fought out and decided. It meant the adoption of the idea of enlarged opportunity for enlightened individual action, and for true freedom of contract, both as regards trade and labour, on the largest and fullest scale possible. Adam Smith had advocated "natural liberty" in this sense; he contended for the removal of all restrictions which operated in- juriously, he urged the justice of workmen's combina- tions and the necessity for education as a means of conferring higher freedom and opportunity, as well as the removal of protective tariffs and bounties on food. Errors sometimes arise in regard to Free-trade among its most ardent devotees owing to a too narrow inter- pretation of its doctrine. Having for its aim the pro- motion of the wealth of nations, in principle it would apply to any measure, which, by removing- obstacles to trade in any direction, makes for that end. Commercial treaties (in the absence of fuller measures) are consistent with the spirit of Free-trade, which is one of peace and good-will, displacing jealousy and warfare by means of friendly business relations. Arrangements between na- tions, involving " give and take" of many kinds, recog- nize mutual interests ; in various ways the world is being educated to appreciate the advantages of improved intercourse and enlarged markets. International com- munication (through telegraph, post, travel, newspapers, and financial relations) all point to the advantages of diminished friction. It is difficult to believe that artificial obstacles to the full enjoyment of nature's products can be permanently maintained. So long- as the pressure is not felt acutely the burden may be tolerated, but there are many evidences that sections of other nations smart 134 Th^ Free-trade Movement. under a consciousness of the injury inflicted upon them by tarifTs on foreign merchandise. Great Britain, with her g'rowing- population, found the pressure of tariffs upon food intolerable in a time of scarcity, and the lesson of the economic advantage of free exchans^e was broug-ht home to her by the most impressive kind of teachings that could be conceived. No other country has had the principle enforced in the same manner, and those who in protective countries fully realize its worth are confronted with the difficulty of dealing- with interests which would suffer loss if the tariff-fed manufactures of those countries were suddenly placed in competition with the products of other coun- tries. But the trend of events is towards universal trading-. The boundaries of race and nation are being- effaced in the operations of exchang-e, and g-radually the economic area will expand to comprise the whole pro- ductive world. Science cannot continue to brings nations nearer tog-ether, bestowing- fresh gifts of wealth and power upon all, without at length the fact dawning upon them that to resist nature's generosity, by imposing arti- ficial limits upon the acceptance of her lavish productive- ness, is much the same as to refuse to enjoy the use of steam-power, or to deny themselves the fruitful dis- coveries of electricity. Statistics of wealth, commerce, rates of wages, sav- ings, consumption of food, &c., of shipping, revenue, and of the expansion of the great staple trades, give indubitable evidence of the vast advance in comfort of the nation since the abolition of the protective regime. In considering these figures we must remember that though young countries, like the United States and Australia, rich in natural gifts, and fed with streams of emigrants from Great Britain, have advanced rapidly during the past fifty years, their progress starts from a comparatively recent date, while that of Great Britain is the growth of a more mature and relatively populous country. To compare their progress in some respects with that of Great Britain would be to compare the growth of the child with that of the man. Taking note of like circumstances, no country has made the same Fifty Years of Free-trade. 135 relative progress as Great Britain during the past fifty years. In 1840 the population of the United Kingdom was 26^ millions, it is now nearly 40 millions, living at a vastly higher level of comfort. The population had grown rapidly from 1800 to 1840 under the stimulus of the new factory industries and under the influence of the Poor-laws, which practically gave a bounty on births, but the standard of living had not advanced; with the re- moval of restrictions on trade, improvement began, and it has proceeded at an accelerated rate. Meanwhile the nation has supplied the Colonies and the United States with some millions of its able-bodied offspring as emi- grants, and has further provided hundreds of millions of capital from its savings to enable them to develop the newer regions in which they have settled. Although the population of Great Britain increased 50 per cent (from 12^ millions to 18^ millions) between 181 1 and 1841 the export trade made no progress: it declined from 181 5 to 1836, and had barely recovered by 1844.^ In 1845 our total foreign trade (imports and exports) only amounted to ;^ 160, 000, 000, or less than ;^5, ic^s. per head of the population, and the exports were greater in value than the imports. The effect of the repeal of the Corn-laws was an immediate increase in our foreign trade; the exports for the twenty-five years following 1845 were nearly three times those of the preceding twenty-five years, though some of this increase must be attributed to the eff"ects of the gold discoveries. By 1854 this commerce amounted to ;^ 268,000,000, and the im- ports exceeded the exports by ;^3 2, 000, 000, In 1896 the total foreign trade had grown to _;^738,ooo,ooo, being £18, los. per head of the population, and the imports were in excess of the exports by ;^ 130, 000, 000. This large surplus, which has been annually increasing for ^ See Porter's Progress of the Nation, pp. 361-362. Declared Value of Exports of the United Kingdom. 1815, ;f5i,632,97i 1821, 38,870,851 1831, 47,020,658 1844, 58,584,292 136 The Free-trade Movement. more than forty years, is practically all profit to Great Britain, arisini^ from interest on foreign investments, profits on trading, earnings of British vessels, &c. The increase in money values of our foreign trade does not fully represent, however, its real magnitude ; the general fall in prices during the last quarter of a century should be taken into account, in which case the business would need to be estimated at probably some 50 per cent more. A better idea, perhaps, of the magni- tude of our foreign trade is gained from the statement that it is more than the total foreign trade of Germany and the United States together, and that while it amounts to ;^i8 per head of the British nation, the foreign trade of Germany is only ;^7 per head of its population, and that of the United States is ;^4, los. It must be remembered that in this immense trade 70 per cent of the exports are manufactures, and an equal pro- portion of the imports consists of agricultural produce (food and raw materials), and that the industrial inter- change has been stimulated by the removal of impedi- ments to free exchange. Great Britain possesses about 30 per cent of the commerce of the world in manufac- tures, while France and Germany jointly control about an equal amount. Consequent upon this enormous growth of business with distant parts, and under the same stimulus of free enterprise, another vast source of wealth has grown up in our ship-building and carrying trade. Great Britain owns more than half the tonnage of the mercantile ship- ping on the globe, and does more than half the convey- ance of goods by sea. During the last fifty years her carrying power has grown fourteen-fold, her sailing ton- nage (2,189,000 tons) is only slightly greater than that of 1840, but her steam tonnage has been developed from an insignificant amount to more than 10,213,000 tons, about 55 per cent of the steam tonnage of the world. Her ships employ a quarter of a million of seamen, ship-building has become one of her most thriving and highly-paid industries, and during the last fifteen years has annually added to her mercantile sea power some 600,000 tons. It will be seen that this great expansion Fifty Years of Free-trade. 137 has taken place since the repeal of the Navigation Acts in 1849, and it is under the system of free competition that the United Kingdom has become the general carrier of the world, and that her commercial navy has grown in so remarkable a degree. Meanwhile under protective tariffs the United States shipping has declined, until only 23 per cent of her foreign trade is carried in her own vessels. Out of a total tonnage on the globe of 25,907,451 tons the United Kingdom and her Colonies possess 13,482,876 tons, the United States comes next with 2,326,838 tons, Germany has 2,029,912 tons, and France with bounties on both ship-building and freights possesses only 1,162,382 tons.^ Railway development and home trade have run paral- lel with that of iron ship-building and foreign commerce. Railways were in their infancy when Queen Victoria ascended the throne. In 1845 only 2400 miles had been laid in the United Kingdom, fifty years later this had increased to 21,174 mi'^s. The enormous traffic is one further proof of the prosperity of the nation; in 1896 the passengers conveyed numbered 981,603,296, the goods amounted to 356,468,009 tons. The British railways, created by voluntary enterprise, represent wealth valued at more than ;^ 1,000, 000, 000. No doubt the railways, roads, canals, may be said to be concerned with the internal development of the country; they have been necessitated, however, by the manufacturing expansion which received so strong an impulse from the new con- ditions of trade. Internal transport is a needful acces- sory to commercial development, with its elaborate specialization and localization of industry, and the extent of the machinery of transport is an indication of the degree to which this differentiation has been carried. If we next glance at the textile trades (cotton, wool, flax, silk, hemp, and jute), we find our factories employ- ing more than one million operatives, and manufacturing one-fourth of the raw materials produced in the world. Thus we provide about one-fourth of the clothing ot civilized races from materials which, with the exception 1 Statistics from i/oyrf'^ Register of British and Foreign Shipping, 1897-8, quoted in Whitaker, p. 728. 138 The Free-trade Movement. of wool and llax, are entirely imported from other countries. In the interval since 1846 these various in- dustries have increased not only in extent and value, but in efficiency and output per man. Durini^ the last fifty years the total value of the manufactured products of all the textile trades has gfrovvn from some _;^9o,ooo,ooo to about ;j{^ 1 90, 000, 000 per annum. Between 1854 and 1895 the import of raw wool increased from io4"9 to 771 million lbs. The cotton trade alone daily pays in wag-es ;;^ioo,ooo and turns out 14,000 miles of cotton cloth. At present we consume at home a little more than half the cotton goods manufactured and export the remainder.^ With some vicissitudes due to various causes, such as the American Civil War (which checked the supply of cotton), to the construction of mills in India, to the natural development of the cotton industry in other countries, and to the fluctuations arising from the dictates of fashion in dress materials, &c., this large section of our staple employments has gone on increasing its consumption and advancing in value and importance. Wages have risen, the standard of living of the artisans employed has considerably improved, and there have been no such periods of depression as that of 1842, when half the spinners of Stockport failed, and thousands of operatives were standing in the streets. The cotton famine of 1862-1863 has been the sole serious inter- ruption, and this was due to a definite cause, beyond the reach of economic foresight. ^ The great expansion of the manufactures of Great Britain has been accompanied by a proportionate devel- opment of her industries in coal and iron, as in turn the prosperity of the manufactures are dependent upon these natural resources. It is by means of their joint results that payment is made for the enormous amount of food- stuffs which annually enters the kingdom. In 1840 the output of coal was about 30 million tons; in 1896 about 195 million tons were raised, this output being valued at ;^57,23i,ooo. The whole mineral wealth produced 1 For some interesting statistical details of progress see Mulhall's Na- tional Progress in the Queen s Reign. ^ Consumption of raw cotton by Great Britain in average periods of five Fifty Years of Free-trade. 139 was worth ;^76,6oi,ooo, and 838,000 men were employed in its extraction. More than 40 million tons of coal are now exported yearly. The production of iron has in- creased between 1835 and 1896 from ^^ million tons to 8)4 million tons. Great Britain exports annually about 4 million tons of iron and steel goods. The annual value of iron and steel manufactures is ;^i 15,000,000, and the increase in value continues in spite of the enormous reduction in cost which has been caused by recent inventions and new processes. Machinery, cut- lery, tools, steel rails, engines, and apparatus of various kinds form a considerable part of our exports, as well as of the provision for the demands of home industries, and employ skilled artisans at several times the amount they could possibly earn in agriculture if Great Britain were a self-supporting country. The only extensive industry which has not advanced during the Victorian era is agriculture; the causes of this exception are of sufficient interest and importance to call for discussion in a separate chapter, years, and exports of piece-goods and yarns, from Ellison's Annual J?eview of the Cotton Trade for 1895: — Consumption by Great Britain. Export of Piece-goods. 1841-45. 521,300,000 lbs. 1840. 790,600,000 yards. 1856-60. 947,300,000 ,, 1850. 1,358,200,000 1861-65. 628,600,000 ,, 1870. 3,252,800,000 1871-75. 1,228,600,000 ,, 1890. 5,124,200,000 ,, 1881-85. 1,444,100,000 ,, 1895. 5,033,400,000 ,, 1891-95. 1,579,400,000 ,, 1896. 5,218,248,000 ,, Wool. Raw Wool Imported. Export of Yarns. 1854. 104,900,000 lbs. 1840. 118,500,000 lbs. 1870. 259,400,000 ,, 1850. 131,400,000 ,, 1880. 461,000,000 ,, 1870. 187,700,000 ,, 1890. 629,200,000 ,, 1890. 258,400,000 ,, 1895. 771,000,000 ,, 1895. 252,100,000 ,, United Kingdom Coal Raised. Pig-iron Produced. 1870. 110,431,000 tons. 1870. 5,963,000 tons. 1880. 146,969,000 ,, 1880. 7,749,000 ,, 1890. 181,614,000 ,, 1890. 7,904,000 ,, 1895. 189,661,000 ,, 1895. 7,703,000 ,, 1896. 195,400,000 ,, 1896. 8,660,000 ,, 140 The Free-trade Movement. There are many other proofs of the national pros- perity and proj^ress durinqf the fifty years, that can easily be made visible by the use of statistics, a few of which may be indicated. It is computed by ofllcial statisticians that the capitalized wealth of the United King-dom has increased since 1840 from about ;^ 4, 000, 000, 000 to ;^i 1,806,000,000; that is, from ;^i55 to ;^295 per head of the population, and many facts tend to show that the wealth is widely diffused. The value of house property alone has increased nearly fourfold ; and since the character of its housing- is a very real test of the com- fort of a people, it is of interest to observe that the proportion of houses rented at sums above ;^20 has increased from 7 to 20 per cent of the whole in the same period. The income-tax, reimposed by Sir Robert Peel in 1843 as a means of remitting- taxes on commodities, was then assessed on property and incomes valued at ;^25o,ooo,ooo, and each penny then yielded ;^8oo,ooc of taxation. In 1895 it was assessed on ;^7oo,ooo,ooo, and each penny produced ;^2, 200,000. Increase of business calls for an enlarg-ement of the special machinery for efTecting- exchanges and payments. The expansion of banking- thus forms an excellent index of the growth of commerce ; the deposits and capital of the banks of the United King-dom have advanced between 1840 and 1895 from ^^132, 000,000 to ;^i,i 11,000,000; that is, from ;^5 per head to ;^28 per head of the population. In the same period the accounts settled by the Bankers' Clearing- House have advanced from ;^95o,ooo,ooo to more than ;^7, 000,000, 000. With this g-reat development of g-eneral banking- there has been a corresponding addition to Savings-bank deposits; these increased between 1841 and 1897 from ;^24, 500,000 to ;;^ 1 76, 000, 000. In 1861 Post-office Savings-banks were devised to carry thrift to the doors of all classes, and there are now some eight million depositors in Savings- banks of all kinds in the United Kingdom. Meanwhile other openings for investments have been brought with- in the range of the working-classes, not only in building clubs, co-operative, trade, and friendly societies (the deposits in which, together with the Savings-banks Fifty Years of Free-trade. 141 deposits, amount to more than ;^28o,ooo,ooo), but the system of joint-stock enterprise with Hmited liabiUty, which has proved a most potent instrument for convert- ing labourers into capitaHsts, has enabled large numbers of workmen to become owners of shares in municipal stock, gas and water companies, railway companies, and various industrial enterprises. In the budget speech of 1897 the chancellor of the exchequer stated that during the Queen's reign the National Debt had been reduced by ;^ 17 5, 000, 000, while the revenue had risen from ;^52, 000,000 to^i 12,000,000; meanwhile taxation had been so reduced and its inci- dence rearranged, that, while a labourer earning i^s. 2d. a week paid 435'. 3^. a year in taxes in 1841, he would now pay only 12s. sj^d. a year. Perhaps in no way can the advance in the material condition of the masses be indicated with more assur- ance than by their consumption of necessaries. As the rich may be assumed to have had always a sufficiency of necessaries, a reduction in prices would affect only their consumption of luxuries, and not of necessaries; any increase in the average consumption of ordinary commodities therefore has arisen from a larger con- sumption by those classes who formerly had an inade- quate supply; the addition, though spread over the whole population by an average, is really in the lower grade of incomes. Between 1840 and 1895 the average consumption of wheat, corn, and flour in the United Kingdom has grown from 290 to 360 lbs. per head, of meat from 75 to no lbs. (and meat in 1840 was to the labouring classes mainly bacon), of sugar the consump- tion rose from 15 to 88 lbs., of tea from i^ lbs. to 5^ lbs., of tobacco from '86 lbs. to i"j lbs. If Ireland, which only consumes 40 lbs. per head of meat, be omitted, the consumption of meat by Great Britain becomes 120 lbs. per head, which is far in excess of that of any other European country: Germany con- suming 75 lbs., France 70 lbs., and Belgium 56 lbs. per head. The consumption of imported butter, bacon, cheese, and eggs has been multiplied tenfold in the fifty years. If diet, as asserted by medical authorities, 142 The Free-trade Movement. be a chief determining factor in the endurance and efficiency of labour, there can be no doubt as to the advantage possessed by British workmen of to-day over those of the protective era, and also over the labourers of most other European countries at the present time. It was on January ist, 1840, that the penny post was introduced, taxes on advertisements were abolished in 1853, and on newspapers in 1855, the duty on paper was removed in 1861, the Education Act for England was passed in 1870. It is difficult to realize the full benefits of these measures, all of a character removing restrictions upon knowledge and communication, and all steps in the development of individual freedom. There was no daily paper published outside London in 1841, now the daily issue of papers in the United Kingdom is about seven millions. The average number of letters per head of population in the United Kingdom was in 1839 only three, and in 1895 it had risen to fifty-three, for England alone it was eighty per person. The mass of cheap literature, which now appeals to a reading public, speaks both for education and for leisure. A free press, un- taxed papers and advertisements, free education, and means of extending those opportunities for gaining knowledge, which have formed so considerable an ele- ment in the progress of the nation, have removed some of the most effectual barriers between difTerent classes, and have tended to promote a feeling of the common claims of humanity. Among other significant changes, which have followed upon the improvement in material condition, is the steady diminution in crime, convictions having latterly fallen to about one -third of the number in 1840, although the population has increased fifty per cent ; pauperism has also been reduced one -half. Better food, improved dwellings and sanitation, and reduction in the severity of labour under modern conditions have told favourably upon health and the duration of life; the death-rate has fallen materially, sickness is diminished, and human life has been prolonged. Very real evidences of the sub- stantial improvement in the condition of the masses are to be found in the abbreviation of the hours of labour Fifty Years of Free-trade. 143 (for British labourers work fewer hours than those of any other country), in the increase of holidays and excursions, and the dress and manners of the people. We read, for example, in a recent Oldham newspaper: " Holiday club' subscriptions for seaside, &c., amounted this year to ^150,000, Nearly every factory and public- house has its club, and the averag^e takings are ^750 a year ". The contrast with the descriptions of the same district in 1842 is very significant. The multiplication of free public libraries and newsrooms, of which there are now more than 200 in the country, is a further addition to the comfort and well-being of the industrial classes. Hospitals and dispensaries for the free treatment of disease have increased, and subscriptions for their sup- port, received from all classes, indicate not only the growth of sympathy and social sentiment, but the exist- ence of a surplus upon which the benevolent feelings can operate. The Metropolitan Hospital Sunday Fund alone has raised for this purpose some ;^goo,ooo in twenty-five years. In Burdett's Hospitals and Charities for 1897 we read that the working-men of Wigan con- tributed ;^58*24 per 1000 of the population to their hospital, Wolverhampton ;^4i'73, Birmingham and Sunderland each ;^30'i. These are suggestive facts indicative alike of material progress, regard for health, and the increase of that consideration and sympathy with suffering which mark an advance in refined feeling. The amount expended by the working-classes upon athletics is a proof of a different kind, but a forcible one, that they have both energy, time, and money to spa)re. A starving people has neither the spirit nor the means for sport. During the first half of this century our working-classes had little to spend on amusements. The healthful pleasures of football, cricket, cycling, and boating are no monopoly of the rich in this country ; and indeed the very extensive industries called into existence by cycling alone are sufficient to demonstrate that a very large proportion of the community is able to secure, not only the necessaries, but some share in the luxuries of life and in its amusements. Again, theatres and con- 144 The Free-trade Movement. cert-rooms multiply at a very rapid rate, especially those which cater for the working-classes. We learn from statistics that while, durin