OMMONWEAL
[tudy of the federal system
political economy
A. P. HILLIER
THE LIBRARY
OF
THE UNIVERSITY
OF CALIFORNIA
LOS ANGELES
10
THE COMMONWEAL
THE COMMONWEAL
A STUDY OF THE FEDERAL SYSTEM OF
POLITICAL ECONOMY
BY
ALFEED P. HILLIEE, BA, M.D.
" Hear, for thy children speak from the uttermost parts of the sea"
—Kipling
LONGMANS, GEEEN, AND CO.
39 PATERNOSTER ROW, LONDON
NEW YORK, BOMBAY, AND CALCUTTA
1909
-yy
PREFACE.
At a time when the proper understanding of
certain problems in Political Economy is of more
profound moment to the British Empire than
perhaps at any other juncture in its history,
it is little short of a calamity that issues — the
satisfactory determination of which depends
upon an unimpassioned and rational study of
this subject — should have been swept into the
seething vortex of party political controversy.
A further difficulty with which any writer is
confronted to-day is the vast field over which the
subject may be pursued, and the difficulty of de-
ciding what portions of it to deal with, and what
portions to avoid.
For my own part I have attempted this formid-
able task only after visiting the United States,
Germany, and some of the Colonies chiefly con-
cerned ; and, after endeavouring to study, so far
as was practicable, the fiscal systems in vogue
on the spot. I have endeavoured to write a book
which practical men of affairs may find time to
4'^ (VV^^
vi PREFACE
read, and which, therefore, has of necessity been
a short rather than a long one.
I have not attempted to traverse all the ground
covered by writers on the " Principles of Politi-
cal Economy," but merely to deal with certain of
these " Princii^les " as enunciated by various
writers of the British laissez-faire school, which
have influenced for many years the judgment
and administration of politicians in dealing with
international trade.
The endeavour to trace the effect of certain
historic incidents and developments on the fiscal
systems of different countries, has led me to the
conclusion, that, to suppose the expediency of the
fiscal policy of any country turns on an Academic
controversy as to the abstract merits of Protec-
tion and Free Trade, is misleading.
To hold such a view is to misapprehend the
nature both of politics and economics. Free
Trade is, as a rule, a privilege to the consumer.
Protection, on the other hand, has often been
held to be a national necessity, and, though less
attractive to that hypothetic entity, the con-
sumer uninterested in the industries of his
country, is, in certain cases, an advantage and a
privilege to the producer. To balance conflicting
interests, to determine equitably the allotment of
these privileges, so as to obtain the maximum of
advantage to the well-being of the State, should
be one of the chief arts of Political Economv.
PREFACE vii
In the following pages the manner in which
certain great federations have secured to their own
citizens many of the advantages of Free Trade
over large areas, more or less conserved by an
outer wall of Tariffs, will be considered.
The sub-title of the book has been chosen as
one which appears to be fairly descriptive of
a system already in vogue in certain countries,
and a modification of which is now under con-
sideration for the British Empire.
Mabkyate Cell,
Near Dunstable,
Heetfoedshirb.
CONTENTS.
CHAPTER I.
PAGE
The Writers and Systems 1
Political Economy — Its definition and function — The views of
John Stuart Mill, Adam Smith, List and others — The cosmo-
politan ideal — Cosmopolitical Economy — Economic laws —
Jevons — Copartnership.
CHAPTER II.
Laissez Faibe 11
Restraints on manufacture in 17th and 18th centuries — Corn
Laws — Limits of the laissez-faire principle — Infringements
of the principle — Its application in exchange alone absolute
— Labour protected — Free importation of products of foreign
sweated labour — Application of policy in India and Egypt
— Modern departures from principle even with imports —
Predictions of laissez-faire writers, Adam Smith, Mill and
Cobden — Natural Protection— Effect of free imports on agri-
culture — Contrast between the predictions of the laissez-
faire schoolmen and of List.
CHAPTER III.
Some Economic Fallacies 27
Do imports balance exports? — The views of Mill, Farrer, the
Fiscal Blue Book, and Lord Avebury — Sources of importing
CONTENTS
PAGE
power otlier than exports — No necessary or constant
relation between imports and exports of commodities —
Character and extent of each must be studied separately
— Efiect of the suggestio falsi is to stifle discussion and
paralyse action — The degradation of industry — Instances
of erroneous conclusions arrived at by Lord Farrer and
Lord Avebury as to the effect of imports on our exports —
Goods not necessarily paid for by goods — Foreign invest-
ments — Their magnitude and influence on imports —
Displacement of British labour — Professor Marshall and
change of employment — Capital and labour — The inci-
dence of the burden of import duties under different con-
ditions — Mr. Deakin on import duties — Recapitulation —
The alternatives before us.
CHAPTER IV.
America and Peotection 47
Alexander Hamilton— The problems before him— American in-
fluence upon List — The fiscal system an instrument of
Federation in the United States and Germany — The Con-
stitution of the United States — Hamilton's Report on
Manufactures — The attraction of foreign capital and labour
— Symmetrical national development — Lord Avebury
condemns Protection in America — His alternative con-
sidered — Hamilton's condition for acceptance of Free
Trade— Universal Free Trade— Mr. A. Mosely's Memoran-
dum on American Tariffs — Remarkable progress in steel
and cotton industries — Could better results have been ob-
tained under policy of laissez faire ?
CHAPTER V.
Germany and Heb Customs Union 68
The Holy Roman Empire — Modern German Empire — Its
Federal character — The wars of Prussia — The Zollverein
an instrument of Federation — List's National System of
Political Economy — His estimate of England's position in
1844 — Free Trade in Germany — The Continental blockade
— The work of the Zollverein — Estimates of List and Mill
CONTENTS xi
PAGE
on effects of Protection in America compared — Bismarck's
Free Trade era — His return to Protection— State Workmen's
Insurance — Emigration from Germany and Great Britain
— Socialism — Universal military training.
CHAPTER VI.
Great Britain before Free Trade 86
The industrial development of England — Sheep-raising — Wool —
Woollen manufactures — Early measures of Protection — The
cotton industry— The Methuen Treaty, 1703 — The views of
Adam Smith and List on the efiect of this Treaty — Ship-
ping and Navigation Laws — If Protection be desirable for
infant industries, may it not be so for injured industries ?
CHAPTER VII.
Great Britain's Free Trade Era 95
Free Trade policy of England defined — Its expediency — Cobden
and Bright on the Corn Laws — First half of the Free Trade
era — Foreign rivals in the forties — Second half of Free
Trade era — Industrial position — Injured industries — Motor
industry — Woollen manufactures — Shipbuilding — Cotton —
The wealth of England not necessarily an index to success
of manufactures — The attractions of England as a place of
residence — Great value of British Home Market — British
wealth and British industry are things apart — Investment
abroad — The mazy abstractions of the President of the
Board of Trade— Analysis of a foreign investment — Unsatis-
factory nature of our trade with Germany — The calamity
of unemployment - Producer must be considered with the
consumer — Protected labour and free imports — Objections
to a Tariff — Bismarck on the British Free Trade era.
CHAPTER VIII.
The Colonies and India 120
The alternatives — The fate of small States— The great Federal
instrument— Preference — Free Trade and Disintegration—
CONTENTS
PAGE
Universal Peace — The bygone forebodings of Lord Morley—
Further miscalculations — March of events forward to
Federation, not backward to separation— A Customs Union
— Colonial fiscal systems vary, all have one feature in com-
mon, the taxation of imports — Three sets of proposals on
Preference —The fiscal system of India — British objections
to Preference considered — Free Food fallacy — England an
obstacle to Freer Trade — Most-favoured Nation treatment —
Fiichs on the Trade Policy of Great Britain— Closer union
essential to the Empire - Has Free Trade been carried
too far ?— Change must come " soon, or for ever too late " —
Fiichs' warning to Germany— The advantages of Prefer-
ence — The goal a federated world State.
CHAPTEK IX.
Democracy and Empire 145
The Federal Movement — Colonial Nationalism — The French
Canadians and Dutch South Africans — The spirit of local
patriotism a strength, not a weakness — Empire and Liberty
— The Dual Empire — Self-governing and governed — One
democracy cannot dictate to another — Flammantia mcenia
Mundi.
APPENDICES.
I. State Insurance for Workmen in Gebmany . . , 151
11. The Navigation Act 157
CHAPTEE I.
THE WRITERS AND SYSTEMS.
Political Economy — Its definition and function — The views of John
Stuart Mill, Adam Smith, List, and others — The cosmopolitan
ideal — Cosmopolitical Economy — Economic laws — Jevons.
There is an Eastern proverb which says, " The altar-
cloth of one seon is the doormat of the next". The
significance of this utterance will appeal to the student
of history and theology. It contains also a warning
to the student of the exact sciences ; but for workers
in those branches of research and endeavour on the
path of knowledge which by common consent are de-
scribed as being within the category of science, but
to which the epithet " exact " is not usually permitted,
this cynical observation will appear to have a special
meaning.
Pohtical Economy has been called the Dismal Science,
and doubtless not without cause. And yet, however
abstruse, and even obscure, writings on this subject may
sometimes be, and however imperfect as science, there
can be no doubt that Political Economy does at least
endeavour to deal in a rational spirit of inquiry with
the material and practical interests of mankind.
In the words of John Stuart Mill, a gifted and at-
tractive author, " Writers on Political Economy profess ^
^ John Stuart Mill, Principles of Political Economy.
1
2 THE COMMONWEAL
to teach, or to investigate, the nature of Wealth and
the laws of its production and distribution, including,
directly or remotely, the operation of all the causes by
which the condition of mankind, or of any society of
human beings, in respect to this universal object of
human desire, is made prosperous or the reverse. Not
that any treatise on Political Economy can discuss or
even enumerate all these causes ; but it undertakes to
set forth as much as is known of the laws and principles
according to which they operate."
In this definition of the aspirations of Political Econo-
mists, the claims of Political Economy to be regarded
as a science — as distinguished from other branches of
political literature — are suggested in sufficiently modest
terms, while Wealth as the main object of its teaching is
avowed in words which are brief and unmistakable.
But a perusal of some of the older writers on the
subject, especially of the two great classics Adam Smith
and List, does raise the question whether this conception
of Political Economy is not somewhat narrow. In the
minds of both of them, as evidenced in their writings,
there were undoubtedly bound up with the subject the
ideas of national stability and of power, developing
simultaneously and as it were co-ordinately with Wealth.
It is in this sense that Adam Smith in his Wealth of
Nations addressed himself to a consideration of the Navi-
gation Act. After recapitulating the principal disposi-
tions of this Act (see Appendix) he adds, "The Act of
Navigation is not favourable to foreign commerce or to
the growth of that opulence which can arise from it." . . .
" As defence, however, is of much more importance than
opulence, the Act of Navigation is perhaps the wisest
of all the commercial regulations of England." The
counsel here given recalls in a forcible manner the ob-
THE WRITERS AND SYSTEMS 3
servation addressed by Solon to Croesus: "If a man
with better iron than you should meet you, he will be
master of all this gold ".
In List's great work, A National System of PolitiGol
Economy, the national spirit predominates in a still
greater measure. List wrote with an avowed purpose
and that purpose a political one. And he enjoys the
distinction of having advocated a commercial and im-
perial policy which has been adopted, developed, and
maintained by his country with the greatest success.
List was the intellectual founder of the German Zoll-
verein, and an able and consistent advocate of that
consolidation of Imperial Germany which grew out of
the Zollverein policy. In dealing with the more purely
theoretical aspects of Political Economy about which
not only are opponents not agreed, but with regard to
which, if we may cite so high a modern authority as
Professor W. J. Ashley, they frequently fail to under-
stand each other. List displays as acute, practical and
lucid an insight as any of his more subtle doctrinaire
rivals. The different points of view from which these
two great economists regarded their subject is fairly
well expressed in the titles chosen for their books. To
Adam Smith, Wealth appeared an object in whose train
most other desirable national objects would naturally
follow ; to List national productive power of an abiding
character was the essential complement of Wealth, a
complement for the attainment of which special national
efforts must be directed, and without which Wealth
might be only an illusory and temporary form of national
well-being.
Adam Smith was in many respects under the in-
fluence of his immediate predecessors in the field of
Political Economy — the French Economists. Of these
1*
4 THE COMMONWEAL
Quesnay and Dnpont de Nemours were the authors of
a work entitled : Physiocratie, ou die Gouverncment le i^lus
avantageux au Genre Humain. In spite of the rivalries
and wars around them, these authors refused to recognise
that the human race was still unfortunately not united
into one happy family, and that until that moment
arrived public economy must continue to be for every
separate nation a national and not a cosmopolitan
economy. Another French writer of this period, Gour-
nay, addressed himself to the task of vindicating the
freedom of industries and commerce from any form of
restriction or restraint. And he it was who first intro-
duced into the literature of Economics that expression
fraught with so much both of good and of evil — laissez
faire.
It is in conformity with the teachings of this French
school that Adam Smith urges that all restrictions on
imports, imposed on behalf of the internal industries of
a country, are necessarily impolitic ; and that to attain
the maximum of national prosperity we simply have to
follow the maxim of letting things alone {laissez aller
and laisser faire).
It is true Adam Smith subordinated the academician
to the patriot as in his attitude on the Navigation Act
already referred to. But his main object was, as List
very ably points out, to prove, as Quesnay endeavoured
to prove before him, that "pohtical or national econ-
omy must be replaced by cosmopolitical or world-wide
economy ". Such a scheme involves the assumption of
a world permanently at peace, practically in accord on
all the great questions affecting the material welfare
of different nations and finally following a system of
universal Free Trade. In fact it would almost appear to
assume in the nations of the world an entire absence of
THE WRITERS AND SYSTEMS 5
that profound selfishness which Adam Smith himself
regarded as the main motive power in the individual
whenever his material welfare was concerned.
Cosmopolitanism, which is to find expression in some
vague form of international unity, has been the dream
ahke of the conquerors, from Coesar to Napoleon, and
of the laissez-faire schoolmen. It has never yet been
realised. The one class has approached no nearer to
its attainment than the other. No conqueror will
ever enforce it. No economic theory is likely to ac-
complish it. But in the course of political evolution
it is conceivable that the gradual aggregation into larger
groups of the various states of the world will, under
the influence of federalism and negotiation, dictated in
the interest of that security so essential to industrial
and commercial development, bring us nearer to the
hitherto ever apparently receding goal. If this state be
ever reached, Cosmopolitical Economy will doubtless
have its value. Until then Political Economy must
be made to serve us, and in the interests of intellectual
honesty let us endeavour to distinguish between the
two.
After these preliminary observations it need hardly be
said that in the writer's opinion the definition given in
more or less general terms by the writers of the laissez-
faire school of Political Economy is scarcely adequate.
Questions of pure economics, regardless of all political
considerations, should be frankly and dispassionately
discussed and described as such ; but where the term
" political " is used, some national or political significance
should also be implied.
Political Economy should deal with the relation of the
State, the community, and the individual to production,
distribution, and exchange, with a view to ascertaining
6 THE COMMONWEAL
the principles which promote stability, wealth, and pro-
ductive power in the State, and the material welfare of
all its citizens. Wealth without some guarantee of the
permanence of productive power is a danger rather than
an advantage to a State, and to promote the former,
entirely regardless of the latter, is bad politics and worse
economy.
To any inquiring student on the history and literature
of Political Economy since the days of Adam Smith, the
mass of matter by different authors, in different coun-
tries, more particularly in England and Germany, will
be found to be embarrassingly great. To review it at
any adequate length would be beyond the scope of a
work of this nature, but it is only fair to say that the
extremely controversial character of a great deal of this
literature is sufficient evidence of the necessity for re-
garding many propositions, not infrequently described by
their authors as " economic laws," with very considerable
caution. In the realm of physics certain laws have been
enunciated, such as the law of gravity, which have stood
the test of time, but in the realms of metaphysics or
sociology it is hard to find their parallel.
At the same time there is an undoubted bias, deep-
rooted in the human mmd, in favour of formulae, and
such formulae the various writers on Political Economy
have readily supplied. But the doctrines expressed by
such formulae once embraced and assimilated, have a
marked influence on the estimate, by those holding
them, not only of the conclusions to be drawn from the
results of any historical investigation, but also on the
view taken of contemporary social or political pheno-
mena. Should any of these doctrines be in their
essence fallacious, the influence they exercise will be
obviously misleading.
THE WRITERS AND SYSTEMS 7
Keference has already been made to the conception of
the meaning and objects of Political Economy held by
that most distinguished of the laissez-faire school of
writers, John Stuart Mill. That both Mill and Eicardo
have contributed much of permanent value and interest
to the elucidation of many economic problems, no im-
partial reader will deny. Yet we find no less an authority
than Jevons, in his preface to the second edition of his
work on the Theory of Political Economy, announcing as
his conclusion: " That the only hope of attaining a true
system of economics is to fling aside, once and for ever,
the mazy and preposterous assumptions of the Eicardo
school". He subsequently speaks of the doctrines of
this school as " Eicardo-Mill Economics," explaining
how '' that able but wrong-headed man, David Eicardo,
shunted the car of economic science on a wrong line, a
line, however, on which it was further urged towards
confusion by his equally able and wrong-headed admirer,
John Stuart Mill."
But whatever measure of this severe criticism may
be merited by the two writers referred to, who in their
over-zealous desire to formulate a new science have in-
curred such a sweeping condemnation from Jevons, they
have at least been surpassed in this direction by a
German writer, Von Thiinen, who in his day was re-
garded as a great authority on the Political Economy of
agriculture. He came to the conclusion, through a
process of abstract mathematical reasoning, that the
amount of " natural wages " should equal J'^ a being
taken as the necessary expenditure of the labourer for
subsistence (a somewhat uncertain quantity) and^ as the
product of his labom\ Von Thiinen attached so much
importance to his formula that he left instructions to
have it engraved on his tomb. But to the impartial
8 THE COMMONWEAL
reader this formula, like others of a similar kind ex-
pressed in less mathematical but none the less positive
terms, savours more of a political or sociological opinion
than of an economic law.
For the view, which this formula is intended in some-
what too exact terms to express, that the labourer should
be encouraged to acquire some share in the profit of an
industry, there is a good deal to be said.^ Certain large
industrial corporations both in England and America
are already, and very wisely, giving effect to such a
view. The co-partnership system, in so far as it meets
the natural desire of the workman for some relative
participation in the wealth which, by his labour, he is
partly instrumental in creating, is the best practical
answer to the demands of Socialism which organised
industry has yet made. But while the adoption of a
principle of this sort may or may not, on ethical, social,
and political, grounds be wise and expedient and even
economically sound, it by no means follows that it is the
expression of some nebulous academic abstraction de-
scribed as an "economic law," much less that such a
law can be expressed in the terms of a mathematical
or any other formula. It is largely such a mistaking of
opinion for axiom, on the part of Kicardo and Mill, which
has evoked the scathing denunciation of Jevons. And
it is this same mental attitude and method which has
filled the shelves of reference libraries with tomes which
are seldom read, or, if read, seldom remembered.
If Political Economy be regarded in any sense as a
1 The United States Steel Trust and certain large companies in
England allow their workmen to obtain their shares in small
quantities and on favourable terms.
Sir Christopher Furness has recently negotiated an arrangement
whereby his workmen may acquire a participation in the profits of
his business.
THE WRITERS AND SYSTEMS 9
science, and not as a branch of political literature, it
must be frankly recognised that that science will vary
from age to age in many vital and essential points. It
will vary as the values set upon wealth, productive power,
individual rights, the prerogatives of the State, and even
such qualities as altruism and patriotism, vary. In fact,
if it is to be described in scientific language at all, it can
only be described as a " complex variable ".
One of the soundest writers on Political Economy in
the first half of the nineteenth century, and a very
trenchant critic of some of the Kicardian doctrines, was
Eichard Jones — Professor at Haileybury — of whose work
John Stuart Mill made considerable use. In regard to
the procedure to be followed in studying Political Eco-
nomy, Jones writes: "If we wish to make ourselves
acquainted with the economy and arrangements by which
the different nations of the earth produce and distribute
their revenues, I really know but of one way to attain
our object, and that is, to look and see. We must get
comprehensive views of facts that we may arrive at
principles that are truly comprehensive. If we take a
different method, if we snatch at general principles and
content ourselves with confined observations, two things
will happen to us. First, what we call general principles
will often be found to have no generality — we shall set
out with declaring propositions to be universally true
which, at every step of our further progress, we shall be
obliged to confess are frequently false; and, secondly,
we shall miss a great mass of useful knowledge which
those who advance to principles by a comprehensive ex-
amination of facts necessarily meet with on their road."
He strongly objected to looking upon the world as
being composed of theoretic "economic men," and in-
sisted on the importance of studying the real world in
10 THE COMMONWEAL
its varying conditions, and different stages of industrial
and general development. The view enunciated by this
distinguished, though but little known writer, is one
which was strongly held and acted upon by List. The
advice is so eminently suited to the present stage of
transition in economic thought and practice that it
indicates the method which it is the writer's object
to endeavour to follow.
CHAPTEK II.
LAISSEZ FAIRS
Restraints on manufacture in seventeenth and eighteenth centuries
— Corn Laws — Limits of the laissez-faire principle — Infringe-
ments of the principle — Its application in exchange alone ab-
solute — Labour protected — Free importation of products of
foreign sweated labour — Application of policy in India —
Modern departures from principle even with imports — Pre-
dictions' of laissez-faire writers, Adam Smith, Mill, and
Cobden — Natural Protection — Eflfect of free imports on agri-
culture — Contrast between the predictions of the laissez-faire
schoolmen and of List.
It is now necessary to examine some of the leading
principles and doctrines propounded by the school of
laissez-faire writers and politicians, which have largely
dominated the economic thought of Britain for so many
years, and also to consider the less widely known ob-
jections to many of these propositions which have been
advanced by List and other writers.
We may begin by considering the doctrine of laissez
faire itself. The origin of the expression in the writings
of the French economist Gournay has already been
referred to. The doctrine it expresses was not only
adopted and expounded by Adam Smith in his Inquiry
into the Natwre and Causes of the Wealth of Nations,
but was also incorporated in the utilitarian philosophy
of Bentham and his followers, and in the teachings of
11
12 THE COMMONWEAL
Eicardo and Mill and their political exponents of the
Manchester school.
Coming as it did, when first introduced, as a protest
of rationalism and individual liberty against restraints
on the operations of manufacturers and trade which ex-
isted throughout Europe m the seventeenth and eight-
eenth centuries, it excited the eager attention of many
writers, continental as well as English. The extent to
which these restraints existed in such a country as
France, even down to the Eevolution, would be almost
incredible if authentic records of them were not still
in existence. One quotation from Roland, the Girondist
Minister, cited by John Stuart Mill, will illustrate this
point. Referring to certain minute tyrannical Govern-
ment restrictions regulating the course of different in-
dustries, he writes: "I have frequently seen manu-
facturers visited by a band of satellites who put all in
confusion in their establishments, spread terror in their
families, cut the stuffs from the frames, tore off the warp
from the looms, and carried them away as proofs of in-
fringement ; the manufacturers were summoned, tried
and condemned ; their goods confiscated ; copies of their
judgment of confiscation posted up in every public place ;
fortune, reputation, credit, all was lost and destroyed ".
When we further bear in mind that even in England
as late as 1835, under a continually fluctuating scale of
charges, the duty on corn stood as high as 34s. 8d. a
quarter, we shall realise the almost prohibitive measure
of protection accorded to the staple article of food in this
country. In the Free Trade agitation between the years
1839-47, principally directed in the first instance against
the inordinately high corn duties, the arguments used
were largely drawn from the teachings of Adam Smith.
The expression laissez /aire was practically inter-
• LAISSEZ FAIBE 13
preted in the domains of British industry and commerce
by the term Free Trade — trade free, that is, from
Government duties of any sort or kind. When the ex-
treme measure of protection afforded to agriculture by
the old Corn Laws is considered, it is easy to understand
the cordial welcome accorded by the masses to an al-
ternative policy. And although that policy may have
been carried too far and its advantages over-stated and
over-estimated, it at least swept away the excessively
heavy duties imposed by the Corn Laws.^ That a policy
which promised so much should be hailed as the outcome
of a new gospel, the discovery of a new " economic law,"
is perhaps not unnatural.
But the high hopes and aspirations founded on this
policy of laissez faire set too high a demand and
value upon its potentiaHties. It accomplished much —
it has contributed much to human thought and human
action which will remain for ever a valuable inheritance.
But that it cannot be regarded as the one final, deter-
mining and guiding law on the problems of international
exchange and industry, history, since the policy was first
introduced, has rendered abundantly apparent. Trades
Unions, Factory Laws, Unemployment Bills — even the
Poor Law, are all in the strictly economic sense inter-
ference with the laws of supply and demand, the free-
dom of contracts, the freedom of trade, and therefore
infringements of the principle of laissez faire.
In his Principles of Political Economy John Stuart Mill
has a chapter entitled " Of the grounds and limits of the
Laissez Faire or Non-interference Principle ".^ And in
this chapter he indicates many directions in which a
limit has to be set to the applications of such a principle.
^ The Corn Laws are dealt with in chap. vii.
^Book v., chap. xl.
14 THE COMMONWEAL
Thus while eulogising the superior efficiency of private
agency owing to the close and strong interest ensured in
the work, the importance of cultivating habits of collec-
tive action in the people, and the desirability of making
laissez faire the general rule, he points out that this rule
is Hable to large exceptions. He cites cases in which
the consumer is an incompetent judge of the commodity.
" The uncultivated cannot be judges of cultivation.
Those who most need to be made wiser and better
usually desire it least, and if they desired it they would
be incapable of finding their own way to it by their own
lights". . . . "Education, therefore, is one of those
things which it is admirable in principle that a Govern-
ment should provide for the people. The case is one to
which the non-interference principle does not necessarily
extend."
In the same way protection of children and young
persons is provided for. Instances of this sort may be
multiplied indefinitely.
Of the limitations placed on the application of the
laissez-faire principle by Governments of all parties in
England since Mill wrote we have innumerable instances.
In fact the principle for all practical purposes has
merely come to be regarded — outside the field of trade
and industry — as an amiable expression of the natural
desire of all free people to accord to individuals and
groups of individuals alike as much liberty as may be
consistent with, and expedient for, the general welfare of
society.
Even in the field of trade and industry itself it is only
in the portion dealing with exchange — the imports and
exports of a country — that the principle is still held to
have a certain sacro-sanct character, the least infringe-
ment of which would be attended bv at least economic
LAISSEZ FAIRS 15
disadvantage. In dealing with the labour supply — the
most important of the essential factors of industry —
measures have continually been carried in direct conflict
with the principle of laissez /aire and also in diametric
opposition to the teachings of Cobden and the Man-
chester school. Labour is protected by a long series of
ParHamentary Acts. Thus in the ten years from 1896
to 1905 alone there were put in force a number of Acts
of this nature, of which the following were the most
important : —
The Foreign Prison-made Goods Act. To prohibit
the importation of foreign-made goods.
The Mines Act for the Prohibition of Child Labour
underground.
The Factory and Workshops Act. A comprehensive
measure bringing within one statute nearly a dozen
previous Acts regulating and controlHng the conditions
of labour.
Further Acts on similar lines deal with labour in coal
mines, the employment of children, shop hours, restric-
tions on the importation of, aliens and unemployed
workmen. The Unemployed Workmen Act constitutes
an entirely new departure in English legislation, under
which an organisation with a view to the provision of
employment for workmen in proper cases was perma-
nently instituted.
In every direction, then, it is evident measures have
been taken to restrict labour conditions in accordance
with requirements and considerations other than those
of the laws of supply and demand. Labour has, and
rightly has, by modern legislation certain privileges
accorded it quite irrespective of purely economic value.
It is protected in a measure from the unrestricted com-
petition of labour at home, and through the Aliens Act to
16 THE COMMONWEAL
some extent from the unrestricted importation of aliens.
But if we turn from labour to the principal products
of labour, those manufactured goods which it is one of
the chief objects of industry to produce, we find the
doctrine of laissez /aire still reigns almost supreme.
It is true the importation of prison-made goods is
prohibited, but the importation of goods the product
of sweated labour in foreign countries goes on un-
checked by legislation or import duty. In this manner
British labour is directly encroached upon, in its own
field, by the competition of cheap and unrestricted
labour.
The principles of Free Trade, in the opinion of the
Cobdenite school and British Governments for over
half a century, demand that, no matter what their origin
or conditions of production, manufactured goods, with
the foregoing exceptions of prison-made goods, should
be admitted free of any duty ; or if, as in the case with
wines and spirits, duties be imposed, the same articles,
if manufactured at home, shall be subjected to a corre-
sponding excise. This policy is not only adhered to in
Great Britain but has been enforced in a remarkable
way in India, where the native-made cotton and fabrics
are subjected to an excise equivalent to the import duty
on these articles, which for revenue purposes is levied
on all imported goods in that country.
But in recent years there has been more than one
instance in which a British Government has departed
from the strict letter and spirit of this policy. Thus
there is a duty on cocoa which is higher in the case of
the manufactured powder than in that of the raw
bean, and in 1907 the Liberal Prime Minister remarked
in his Budget Speech: " I think there is a good deal of
the flavour of Protection about the present scale of our
LAISSEZ FAIRE 17
cocoa duty. I should not defend it myself from the
point of view of the free trader." In the same way a
differentiation in the duties on stripped and unstripped
tobacco, the Sugar Convention, the Patents Act, the
Merchant Shipping Act, and other similar measures all
indicate a relaxation in the strict application of the
principle of laissez /aire even in dealing with industry
and trade.
Change in such a complex organisation as the fiscal
system of a constitutionally governed country, dependent
as it must be upon the gradual trend of opinion in the
electorate, usually takes place at a rate which is by no
means satisfactory to its more ardent advocates. The
changes referred to may not amount to very much, and
most of them have been, with not very successful in-
genuity, defended even on Free Trade grounds. But
they do appear to indicate a departure from the extreme
rigidity of the laissez-faire school of statesmanship in
the provinces of industry and trade, not unhke those
already referred to in the province of labour. Never-
theless, in spite of these deviations from the straight
and narrow way of economic infallibility, the doctrine and
policy of Free Trade, or more accurately free manufac-
tured imports, still has advocates of distinguished abihty
and sincerity, and still dominates, though in a slightly
lesser degree, the fiscal policy of Great Britain.
In these circumstances it will be of interest to examine
some of the arguments on which the founders of the
Free Imports school based their views of Political
Economy, and committed themselves to certain predic-
tions the majority of which have remained unfulfilled.
One thing on which both Adam Smith and Cobden
insisted, was that the free importation of foreign corn
" could very little affect the interest of the farmers of
2
18 THE COMMONWEAL
Great Britain ". Thus in his Wealth of Nations Adam
Smith says : — ^
" Even the free importation of foreign corn could
very little affect the interest of the farmers of Great
Britain. Corn is a much more bulky commodity than
butcher meat. . . . The small quantity of corn im-
ported even in times of the greatest scarcity may satisfy
our farmers that they can have nothing to fear from
the freest importation."
The speeches and predictions of Cobden on this same
subject have proved, as the following quotations v^ill
show, disastrously erroneous: "I have never been one
who believed that the repeal of the Corn Laws would
throw an acre of land out of cultivation. . . . Our object
is not to diminish the demand for labour in the agricul-
tural districts, but I verily believe, if the principles of
Free Trade were fairly carried out, they would give just
as much stimulus to the demand for labour in the agri-
cultural as in the manufacturing districts " (Speech in
Manchester, 19th October, 1843).
" So far from throwing land out of use or injuring
the cultivation of poorer soils. Free Trade in corn is
the very way to increase the production at home, and
stimulate the cultivation of its poorer soils by compel-
ling the application of more capital and labour to them.
We do not contemplate deriving one-quarter less corn
from the soil of this country ; we do not anticipate hav-
ing one pound less of butter or cheese, or one head less
of cattle or sheep ! "We expect to have a great increase
in production and consumption at home " (Speech in
London, 8th February, 1844).
" As far as lean obtain information from the books of
merchants, the cost of transit from Dantzig, during an
^ Wealth of Nations, Book iv., chap. ii.
LAISSEZ FAIRE 19
average of ten years, may be put down at 10s. 6d. a
quarter, including in this freight, landing, loading, in-
surance, and other items of every kind. This is the
nakiral jjrotection enjoyed by the farmers of this country"
(Speech in House of Commons, 12th March, 1844).
"I speak my unfeigned conviction, when I say I be-
lieve there is no interest in this country that would re-
ceive so much benefit from the repeal of the Corn Laws
as the farmer-tenant interest in this country. And, I
believe, when the future historian comes to write the
history of agriculture, he will have to state : ' In such
a year there was a stringent Corn Law passed for the
protection of agriculture. From that time agriculture
slumbered in England, and it was not until by the
aid of the Anti-Corn Law League, the Corn Law was
utterly abolished, that agriculture sprang up to the full
vigour of existence in England, to become what it now
is, like her manufactures, unrivalled in the world' "
(Speech at Manchester, 24th October, 1844).
There are other fallacious views held and taught by
Cobden, which will be referred to in a subsequent
chapter, but an examination of the foregoing statements
will show how great was his miscalculation in this most
vital matter. With regard to the " natural protection "
afforded the British grain-growers by freight, this charge,
which was in Cobden's time undoubtedly a substantial
protection to the home producer, in the case of all bulky
produce, has been reduced to-day to a small fraction of
what it was, and will become even smaller in the future.
Kailways and steamships have transformed the world.
Thus freight from Chicago to Liverpool, which in
1866-70 stood at 15s. lid. per quarter, had fallen by
1901-4 to only 3s. lid. a quarter. Under these condi-
tions it is perhaps not surprising, to find that the
2*
20 THE COMMONWEAL
sanguine anticipations of the laissez-faire school with
regard to the effect of free imports on agriculture have
not been fulfilled.
Judged by any fair test that may be applied, there is
no doubt that no industry has suffered more by the
policy of unrestricted imports, or been more absolutely
the victim of political miscalculation, than agriculture
in Great Britain and Ireland. Thus statistics show (see
table in footnote^) : " (1) That the average area under
corn crops in this country has declined since 1871-75 by
over 3,000,000 acres, or by 28 per cent. (2) That the
decline has been specially marked in the case of ivheat,
the average area under which has fallen by 2,060,000
acres, or by 55 per cent. Thus the land which has
passed out of wheat cultivation is considerably greater
than the present wheat area of the United Kingdom.
(3) That the decline has affected all the crops dealt
with in the table, even oats showing a decrease."
If we turn to live stock, things are not quite so bad.
Freight and sanitary precautions under various cattle
diseases Acts, gladly enforced with the utmost vigour of
1 ACEEAGE UNDEE CeOPS IN THE UnITEI) KiNGDOM.
Decline in
Average
Average
1907 since
1871-75.
1901-5.
1907.
1871-75.
Acres.
Acres.
Acres.
Per cent.
Wheat .
3,737,000
1,677,000
1,665,000
56
Barley
2,599,000
2,024,000
1,885,000
27
Oats .
4,233,000
4,203,000
4,219,000
3
Beans and peas
907,000
425,000
478,000
47
Flax .
136,000
49,000
60,000
56
Hops
64,000
49,000
45,000
30
All corn crops
11,544,000
8,299,000
8,317,000
28
All green crops
5,074,000
4,174,000
3,901,000
23
This and the following table have been compiled from Board of
Trade Returns and other official documents for the Tai-iflf Commis-
LAISSEZ FAIRE 21
the law by the agricultural authorities under successive
governments, have provided a certain measure of that
"natural protection " which Cobden so confidently re-
lied upon in the case of cereals. There has been a
faUing off ^ during the last thirty years in the number
of sheep reared in the country, but there is an increase
in the number of pigs and cattle, although this increase
has not kept pace with the increase in the population.
But the worst feature of all with regard to agriculture
is the great falling o& in the number of people employed
on the land. Fifty years ago it is estimated that
2,000,000 people were engaged in agriculture in England
and Wales, whereas to-day less than 1,000,000 are so
engaged.
It is therefore evident that however plausibly Free
Trade advocates to-day may endeavour to explain the
advantages of urban over rural occupations, the improve-
ments in labour-saving machinery and other collateral
developments, the original case as made by Adam
Smith and Cobden for unrestricted imports, so far as
agriculture and those interested in it are concerned,
falls hopelessly to the ground. "Natural protection"
has practically disappeared. Agriculture has gone
back rather than forward. So far from farmers having
had nothing to fear from unrestricted imports, the truth
is that unrestricted imports have wrought havoc both
in Great Britain and Ireland with farmers and agri-
cultural landowners. No one who really has witnessed
^ Number of Live Stock in United Kingdom.
Increase + or
Decrease - in
1871-75.
1901-5.
1907.
1907 as compared
with 1871-75.
Sheep .
.33,192,000
29,746,000
30,011,000
- 9i per cent.
Pigs .
3,782,000
3,786,000
3,967,000
+ 5' „
Cattle .
9,932,000
11,504,000
11,628,000
+ 17 „
22 THE COMMONWEAL
the country life of England during the past sixty years
and has seen the depopulation of so many of our country
villages, can doubt that in this direction at least a real
national loss has been incurred, and one that, could
Cobden witness it to-day, he would be the first to de-
plore. That the retention of a small tariff — something
at least sufficient to partially compensate for the dis-
appearance of the "natural protection" — would have
been expedient, both on national and economic grounds,
is highly probable.
But whether this change, so injurious to agriculture
with its depopulation of our country villages, was or
was not economically avoidable, the broad fact remains
that it is the direct opposite of what Adam Smith and
Cobden foretold. And it is perhaps as well that those
who still believe, follow and advocate implicitly, and in
their entirety, the economic teaching of these Free
Trade leaders, should realise that one of the arguments —
that of " natural protection" — though potent sixty years
ago is eliminated to-day.
Another belief, held with all the fervour with which
a man who thinks himself the apostle of a new gospel
to mankind is capable, was Cobden' s conviction that if
his country once introduced Free Trade her example
would speedily be followed by all the rest of the world.
Thus, speaking at Manchester on 15th January, 1846,
he said : —
"I believe that if you abolish the Corn Law honestly
and adopt Free Trade in its simplicity, there will not be
a tariff in Europe that will not be changed in less than
five years to follow your example ".
And even John Stuart Mill, a less impassioned orator,
but a more scientific student of economics, was evidently,
LAISSEZ FAIBE 23
when writing his Principles of Political Economy, of the
same opinion.
Thus he writes : ^ —
"In countries in which the system of Protection is
dechning, bid not yet ivholly given up, such as the United
States, a doctrine has come into notice which is a sort
of compromise between Free Trade and restriction,
namely, that Protection for protection's sake is improper,
but that there is nothing objectionable in having as
much Protection as may incidentally result from a tariff
framed solely for revenue ".
That was John Stuart Mill's conception of how things
were trending in the United States in 1848. Yet since
then, although there have been from time to time re-
adjustments of the tariff in the direction of freer trade,
the manufacturing industries of the States have grown
up under a protective tariff, and in 1899, after a period
of prosperity following on the famous McKinley tariff —
one of the highest the world has seen — Mr. McKinley
said at Chicago : —
"I have come ... to congratulate you and your
fellow-workmen everywhere upon the improved con-
dition of the country and upon our general prosperity ".
Earlier in the same campaign he said : —
" We want no Free Trade in the United States. . . .
The capitalist can wait on his dividends, but the working-
man cannot wait on his dinner."
If, therefore, the imposition of a tariff for protective as
well as revenue purposes be, as Mill and his followers
held, improper, it must be conceded that not only the
United States but all other civilised countries, including
our own self-governing colonies, have, since the days of
Cobden and Mill, launched upon careers of the most
^J. S. Mill, Principles of Political Economy, vol. ii., p. 487.
24 THE COMMONWEAL
flagrant economic "impropriety". So far indeed from
following England's example in adopting free imports,
they have gone in precisely the opposite direction and
have imposed tariffs not merely for revenue purposes
but also with avowedly protective intention and effect.
The failure of the world to follow, as was anticipated,
the Cobdenite Free Trade lead, must, therefore, be ac-
counted as one more of those miscalculations for which
the laissez-faire school were responsible. And, as a perusal
in later pages of List's forecast will show, these miscalcu-
lations offer but a sorry contrast to the predictions made
by List as to the effects of the policy he advocated.
The idea that natural conditions of production were
to be allowed free play all the world over was a fascinat-
ing idea with a fine cosmopolitan air which thoroughly
commended itself to Mill the philosopher and Cobden
the cosmopolitan visionary of his age. Moreover, it had
this further advantage, which no doubt both Mill and
Cobden viewed with adequate complacency, namely, that,
if carried out, we should remain and become still further
the workshop of the world, receiving the comparatively
immense revenues of industry, while the United States,
our own colonies, and many other countries would re-
main content to recognise our unique natural advantages,
and to supply us with raw materials and food-stuffs in
return for our manufactured goods. In other words,
manufacturing industry with all its wealth and ap-
pendages were to be ours ; pastoral simplicity to be
theirs. The scheme from our point of view was admir-
able. But other countries saw it in a different light.
In fact, List, Fiichs, and other German writers have not
hesitated to assert that there was a certain unctuousness
in our economic rectitude.
List had indeed, as already pointed out, gone so far
LAISSEZ FAIRS 25
as to challenge the very meaning of the word Wealth
as conceived and defined by the British economists. He
contended, and with a considerable degree of justice, that
Wealth is not merely the amount of exchange values
in a State at any given time, but that it also includes
productive power. Wealth without the assured poten-
tiality of continuing to produce it within the State is,
from a national point of view, but a precarious asset.
Nevertheless if the world at large rejected the scheme
of universal Free Trade, Great Britain at least has put
it, so far as she was able, in force. We have had free
manufactured imports. We have had the chief articles
of food as cheaply as the world could supply them. But
we have seen the United States and Germany scout-
ing the dreamer's cosmopolitan paradise and deliberately
building up industries under protective tariffs, not only
rival but surpass us in several directions.^ The subjoined
^ Comparative Steel Production.
Annual average in
1876-80. 1907.
Increase.
Million tons.
United Kingdom . 1"0
France . . -3
Germany . . -5
United States . -8
Million tons.
6
3
12
23
Million tons.
5-0
2-7
11-5
22-2
Per ceat.
500
900
2,300
2,776
Comparative Consumption of
Raw Cotton.
Annual a
i^erage in
Incre;
1883-87.
Million lb.
mil j^444
. 418
(years
June) 3 999
1903-7.
Million lb.
1,786
1,000
2,312
United Kingd(
Germany ^
United States
ending 30th
Million lb.
342
582
1,313
Per cent.
24
139
131
1 Net imports, i.e., total imports less re-exports.
* Imports for home consumption according to German official
returns.
^ Total estimated consumption of cotton of domestic and
foreign origin according to United States official returns.
26
THE COMMONWEAL
tables will show the relative progress of the steel and raw
cotton industries in the three countries.
Thus if free production and exchange under natural
conditions the world over have not come about, certain
unforeseen conditions have. We are by no means to-
day the workshop of the world. There are many other
workshops. Moreover, our dependence upon other
countries for food-stuffs, particularly for wheat, exists
to an extent unknown in any other country.
In fact it may fairly be stated that the policy of
laissez /aire or Free Trade, carried out in the midst of
a protectionist world, has really produced a more un-
natural and unsymmetrical state of things in England
than any scientific tariff has produced anywhere else.
This condition at home, with hostile tariffs every-
where abroad, is very far removed from being a fulfil-
ment of the predictions of Cobden or the anticipation
of Mill. Time has thus disposed of the value set on
" natural protection," and also of the sanguine Free
Trade forecast as to the economic salvation of mankind
at large on cosmopolitan Free Trade lines.
CHAPTEE III.
SOME ECONOMIC FALLACIES.
Do imports balance exports ? — The views of Mill, Farrer, the
Fiscal Blue Book, and Lord Avebury — Sources of importing
power other than exports — No necessary or constant relation
between imports and exports of commodities — Character and
extent of each must be studied separately — Effect of the
suggestio falsi is to stifle discussion and paralyse action — The
degradation of industry — Instances of erroneous conclusions
arrived at by Lord Farrer and Lord Avebury as to the effect
of imports on our exports — Goods not necessarily paid for by
goods — Foreign investments — Their magnitude and influence
on imports — Displacement of British labour — Professor Mar-
shall and change of employment — Capital and labour — The
incidence of the burden of import duties under dift'erent con-
' ditions — Mr. Deakin on import duties — Recapitulation — The
alternatives before us.
There is a doctrine propounded by John Stuart Mill,
and reiterated by such authorities as Lord Farrer and
Lord Avebury, which carries great weight and which
calls for careful analysis and impartial examination.
This doctrine is that imports always balance them-
selves by exports, and vice versa ; and it is of such a
subtle and complex character that it has given rise to a
greater amount of misapprehension than probably any
other tenet in the whole gamut of the laissez-faire writers.
Moreover, it is generally accepted by Free Trade writers,
politicians, and speakers as an established " economic
27
28 THE COMMONWEAL
law," and is continually appealed to as an argument in
itself sufficient to meet any question which may be raised
as to the quantity and quality of imports and their pos-
sible influence on British industries.
At the outset it is interesting to note that this doc-
trine in all its modern extravagance was certainly never
propounded by Adam Smith. Thus he writes : — ^
" A nation may import to a greater value than it ex-
ports for half a century, perhaps, together."
This is a plain statement of fact which it requires no
great effort of the intelligence to understand, when the
profits of foreign, investments, shipping, and all other
sources of importing power besides that of manufac-
turing industry, are borne in mind. The squaring of
the circle was left to later and less lucid writers, and
John Stuart MilP appropriately introduces what he has
to say on the subject as follows : —
"I must give notice that we are now in the region
of the most comphcated questions which Political
Economy affords ; that the subject is one which cannot
possibly be made elementary ; and that a more continu-
ous effort of attention than has yet been required, will
be necessary to follow the series of deductions. The
thread, however, which we are about to take in hand,
is in itself very simple and manageable ; the only diffi-
culty is in following it through the windings and en-
tanglements of complex international transactions."
The writer then proceeds to consider a number of
hypothetic cases which lead him, as I venture to think,
quite erroneously to the following conclusion : — ^
" The law which we have now illustrated may be
i Wealth of Nations, p. 389.
2 J, S. Mill, Principles of Political Economy, vol. ii., p. 122.
"Jtid., p. 133.
SOME ECONOMIC FALLACIES 29
appropriately named, the Equation of International
Demand. It may be concisely stated as follows. The
produce of a country exchanges for the produce of other
countries, at such values as are required in order that
the whole of her exports may exactly pay for the whole
of her imports."
A proposition in such precise terms as this, described
as a law, and coming from such an authority as Mill,
has carried great weight, and it will be interesting to
trace its history in later literature on economics. In
1887 Lord Farrer, in discussing the balance of ex-
ports and imports, realised that he would have to
give to the term exports a much wider significance
than was given it by Mill in his Prmciples of Political
Eoonoviy. Thus referring to imports he says : " They
are not given to us. How then are they paid for?
. . . they can only be paid and accounted for in two
ways. First, by the goods which we now export to
pay for them; or, secondly, as a means of receiving
and setthng the interest due to us on foreign debts. But
how were these foreign debts incurred ? By the export of
British goods or services in past years and in no other
way."
To come to still more recent times it is interesting to
note the language used in the "Fiscal Blue Book " ^
prepared in the Board of Trade in 1903. In a " Memo-
randum on the Excess of Imports into the United King-
dom," the author says : —
" Of the whole of the commercial and financial trans-
actions between any country and the outside world,
which over a period of years, though not necessarily
within the limits of any single year, must balance one
another, only a portion are embodied in the commodities
1 Cd. 1,761, p. 99.
30 THE COMMONWEAL
which pass outward and inward as exports and imports.
There is thus no necessary equaUty between the values
of imports and exports of commodities. As a matter of
fact, for many years imports into the United Kingdom
have always exceeded exports. An inquiry into the
causes of this excess of imports is, therefore, an inquiry
into the nature and value of the unrecorded transactions
and services rendered and received which, one year with
another, will balance the account."
We seem to be travelling somewhat away from "the
law," as defined by Mill, when we arrive at the statement
that " there is no necessary equality between the values
of imports and exports of commodities ".
The excess "for many years" of imports into the
United Kingdom over exports, calls for something more
than the export of mere visible commodities if the
balance is to be maintained. Against the vast excess
of imports over exports, amounting in 1902 to
£184,000,000, as the report goes on to point out,
there must be added in addition to the visible exports
such invisible contributions to the export side of the
account as the earnings of the carrying trade both home
and foreign, and the interest on foreign investments.
How these important items of revenue can by the
most liberal and elastic application of the term be ac-
curately described as exports it is a little difficult to
understand, except on the assumption that there is a
prejudiced desire to preserve the formula that, " exports
balance imports " at all costs ! Foreign investments are
sources of importing power, but to speak of them as
exports is merely to create confusion of thought.
But there are other sources of payment for imports
which surely even the most extreme Cobdenite must
hesitate to describe as " exports". Take, for instance,
SOME ECONOMIC FALLACIES 31
the case of a wealthy American or other foreigner who,
coming to reside in this country, purchases motor cars,
Parisian dresses, jewellery and other commodities which
enter this country as imports and are paid for either by
foreign cash or drafts on foreign banks. In what way
are such imports to Great Britain paid for by British
exports ?
Can it be alleged that the money paid in this case,
say from America to France, by cash, notes or bills of
exchange, gives France an additional buying power which
must necessarily be exercised in England, or to use the
favourite method of Cobdenite economists, be exercised
in some third country which in its turn will buy from
England ? If so, the answer is that such a course of
events is dependent on conditions entirely independent
of the original purchase, conditions of supply and de-
mand, import duties, and a dozen other factors.
The fact is — quite apart from such exceptional cases
as the foregoing — " the law " that exports pay for imports
can no longer be maintained, except by extending to the
term exports a meaning which it cannot fairly be held
to convey. This is practically admitted by Lord Farrer
and the authors of the " Fiscal Blue Book ". And when
the latter authorities stated as their conclusion that there
is "no necessary equality between the values of imports
and exports of commodities," they might equally well
have stated on the strength of the evidence they them-
selves adduce in their report, that there is no necessary
or constant relation between the imports and exports of
commodities.
This being so the constant appeal to the exploded
"law" that "exports pay for imports," for the purpose
of stifling all discussion on the character and significance
of such imports, is fallacious and misleading in the last
32 THE COMMONWEAL
degree. It is perfectly obvious from the foregoing con-
siderations that as no necessary or constant relationship
exists between imports and exports of commodities, it is
essential that the character and extent of each must for
practical commercial purposes be studied separately. It
is also obvious that imports of commodities may under
certain conditions increase, not only without any neces-
sary corresponding increase in the export of commodities
but even coincidently with an actual decrease in such
exports.
When this is borne in mind it will be seen how
entirely erroneous is the suggestion that an increased
import of manufactured goods must necessarily be paid
for by an increased export of manufactured goods. It is
a " suggestio falsi ". Yet this suggestion is continually
made, as will be gathered in the following pages. Free
Trade writers appear to beHeve that it matters not what
the excess of imports over visible exports may be, nor
what is of even more importance, what the character of
either may be. Let us, they urge, import as much as
we please, free of any duty, the most highly manufactured
goods, raw produce, food supplies, anything, everything
without let or hindrance, saving only such articles as
tea, coffee, sugar and tobacco — articles which we must
have and cannot produce, and on which every penny of
tax goes into the public revenue.
From the consumer's point of view there is no gain-
saying that at the first blush this is an attractive picture.
So long as he derives an assured and fixed income from
somewhere he has little to complain of. To a consumer
so situated, the character and extent of such exchange
as exists between the whole of the imports and the
whole of the exports may appear unimportant. But
let that consumer be dependent, as the vast majority
SOME ECONOMIC FALLACIES 33
of consumers eventually must be dependent, on the
prosperity of some industry or industries in this country,
let him once realise that the national wealth and wel-
fare are bound to influence his life history, and how
completely is the problem changed.
The character and the extent of the exchange of the
exports and imports of commodities then becomes to him
of the most vital importance. If, for instance, as in
the woollen trade, he finds that foreign manufactured
articles are underselling his product in the home market,
and that foreign tariffs prevent his selling to any certain
extent his products abroad, he may well complain of an
exchange in which he individually is hit both ways.
It is true an ardent free trader would perhaps endeavour
to explain to him that the increased export of combed
and scoured wool and of coal was an adequate compen-
sation for the trade lost, but to him the difference might
mean unemployment and misery. Moreover, to the
country the change would be equally disastrous, because
the latter commodities being semi-raw and raw material,
they require for their production considerably less in-
dustry than the former. Such changes constitute a
degradation of the industry so affected. And as Napoleon
long ago foresaw, after the world had once been mapped
out and occupied, the prize for which nations would
compete would be industry, and especially those forms
of industry largely employing labour.
Again, to take an extreme case, it is obvious that if
every furnace in Great Britain were extinguished, and
every factory closed, there would still be exports and
imports, and that so long as interest on foreign invest-
ment is accounted an export they would, to some extent,
balance, but half the population of England would be
starving. To the Free Trade optimist (of the Pangloss
3
34 THE COMMONWEAL
type) this may appear an untenable proposition. If it is
so let him consider what the facts of such a situation
would be. The man with foreign investments, repre-
senting as he does a large and wealthy class in England
to-day, would still have his dividends and he would still
require many imported articles. For these articles a
large portion of his dividends would be exchanged.
In addition to Mill and Lord Farrer,^ Lord Avebury ^
has held and enunciated in uncompromising terms the
view that imports from abroad are paid for by manufac-
tured exports from this country. Thus Lord Avebury
says, " The products of one country are exchanged for
those of another. Goods are paid for in goods.'' Such a
statement as this, which takes no account of other
sources of importing power already referred to, is most
misleading. The followers of these writers, accepting
statements of this character without qualification, con-
tinually assert that as imports must be paid for by ex-
ports, they must in some mysterious way create a
demand for a corresponding export of commodities. That
** goods paid for goods " sixty years ago is largely true,
but it is not true to anything like the same extent to-day.
In the era before Free Trade the English formula was
to pay for the imports of raw materials by the export
of manufactured goods. Cobden, the apostle of Free
Trade, based himself on the proposition that England
should be the workshop of the world, and that other
nations should exchange their raw material for England's
manufactured goods. How far are free traders driven
from this position — common to both the pre-Free Trade
protectionists and to the early Free Trade protagonists
— when they are content to advance fallacious arguments
^ Farrer, Free Trade v. Fair Trade, p. 120.
^ Rt. Hon. Lord Avebury, Free Trade Address in Dundee, p. 4.
SOME ECONOMIC FALLACIES 36
about exports balancing imports, and are profoundly
careless whether they import manufactured goods or
raw materials, or whether they pay for what they
import by means of foreign investments, raw material,
or partly manufactured goods ? Is it not time that the
British producer took steps to secure his only means of
livelihood, and to conserve that "productive power"
which is more important than mere wealth ?
As the interest on foreign investments is such a grow-
ing factor in importing power, it will be interesting at
this point to consider the subject. The amount of
British capital invested abroad is enormous. " The
Fifteenth Keport (dated August, 1907) of the Commis-
sioners of H.M. Inland Kevenue " for the year ending
31st March, 1907, gives figures of "identified" income
from foreign investments assessed for income tax, the
increase of which in the preceding fiscal year it describes
as " remarkable ". Sir Joseph Lawrence estimates from
the official returns that in twenty years over £500,000,000
have been invested abroad in securities, whose interest is
paid and the income tax collected in bulk. The " identi-
fied " income received in this country is rapidly increas-
ing, and in the year 1905-6 amounted to £73,899,265.
Imports are largely paid for by the interest of these
foreign investments, and these figures are in themselves
sufficient to show how impossible it is to argue from
the amount of our imports with regard to the success
of our manufacturing industries. Yet in the address
delivered by Lord Avebury in 1908,^ already referred
to, in dealing with a suggestion for a tariff on manu-
factured goods, he says, taking silk, which is chiefly
imported for the use of the wealthier classes, as an
instance : " How do we pay for the silk ? By an export
^ Avebury, Free Trade Address in Dundee, 1908.
3*
36 THE COMMONWEAL
of equivalent value, say of cotton goods or iron." The
silk v^ill be paid for, no doubt — but to suggest that it will
necessarily be paid for by goods of cotton or iron is really
to beg the v^hole question. It may be so paid for, but on
the other hand, it may equally well be paid for by the
interest on foreign investments. The figures already
quoted will suffice to show the amount of these foreign
investments. And in the face of them it is no longer
possible to argue that say £1,000 worth of imports must
necessarily be paid for by £1,000 of goods manufactured
in England.
It is true of course that much of this wealth invested
abroad is the product of profit made in British indus-
tries in the past. But even granting this, it is but a
slender consolation to the unemployed workmen of to-
day to be assured that the imports of perhaps the very
article he used to manufacture — but manufactures no
longer — are being paid for by the profits of home industry
employing thousands of his predecessors many years
ago. Moreover, if this capital invested abroad be largely
the accumulation of profits made in the past, it is not by
any means entirely so. It is often largely increased by
the success of the foreign enterprise in which the capital
is invested, not infrequently a protected industry, the pro-
ducts of which compete with British industries, such as
the United States Steel Trust. It may at any time be
increased, and to-day is continually being increased, by
capital withdrawn from unprofitable home industries.
And herein lies one of the most important of all the
modern conditions introduced into the problem.
Lord Farrer, ^ in his interesting book, writing with
some impatience of those who deplore the decHne of any
particular British industry, says : —
1 Farrer, Free Trade v. Fair Trade, pp. 119-120.
SOME ECONOMIC FALLACIES 37
" For instance, I find in one of the Fair Trade tracts
a long and graphic description of the roaking of a plough
in England, and of all the EngHsh people employed in
preparing the materials and putting them together.
The whole culminates in the sale of the English-made
plough to a farmer for £12, whilst a similar article might
be imported from abroad for £11 10s. All this is for the
sake of the following precious piece of political wis-
dom: —
"I must deal with the question in its practical bear-
ing, and tell you that the dogma, " Buy in the cheapest
market," is a great delusion, for, in the case of the
plough which produced £12 to the whole nation, if it
could be bought from the foreigner for £11 10s. the
whole nation would certainly gain 10s., hut loould lose
the £12 hj the coUajJse of that special industry, the nation,
from the Government down to the candlestick-maker, being
poorer by £11 10s. in distributive wealth."
" Astounding conclusion ! How do the fair traders
think the imported foreign plough is to be paid for ?
With nothing? If so, then the nation will be richer not
by 10s., but by £12. If with something, then with what ?
Why, of course, ivith something tohich English tvorkmen can
make better and cheaper than they can make ploughs, ami
which will have to be sent abroad, and there sold to pay for
the 2)lough."
How misleading is the last sentence in this paragraph
has already been demonstrated.
But Lord Farrer's statement has this further point of
interest, it is an indirect way of stating another funda-
mental doctrine of the Free Trade school which is con-
tinually reiterated in one form or another by Cobdenite
speakers and writers. Perhaps the latest and most re-
markable enunciation of this doctrine comes from Pro-
4::l(l3 <r
38 THE COMMONWEAL
fessor Marshall in his official Memorandum to the
Treasury, entitled Fiscal Policy of International Trade,
published in 1908, in which he says : —
"A chief corner-stone of our present policy is the
great truth that the importation of goods which can be
produced at home does not in general displace labour,
but only changes the direction of employment."
This policy, of which the " great truth " is, we fear, a
particularly fallacious portion, is based upon the assump-
tion that capital and labour driven out of one British
industry by foreign competition will automatically, as it
were, flow into another more profitable British industry.
If this were true. Free Trade would, indeed, have a
potent argument in its favour. But unfortunately it is
not. Capital is daily becoming more and more an in-
ternational commodity. And capital once dislodged is
chiefly to-day invested elsewhere in accordance with the
amount of security and interest offered. There is no
law of nature, of the land, of Political Economy, or of
common sense compelling an unfortunate investor to
reinvest what may be left of his capital in the very
country in which he has recently been losing it. With
the aid of telephones, cables, and stock exchanges in
every city in Europe and America, capital is wafted
about the world to-day almost as by the waving of a
magician's wand. There never was a time when an in-
vestor could keep so closely in touch with his foreign
investments, nor a time in which the securities of huge
corporations, such as the railways and great industrial
corporations of America, could be so freely dealt in as
at the present time.
Capital is mobile. Labour is very much less so ; but
is this comparative immobility of labour any advantage
to it? Is it any guarantee that it will, "when dis-
SOME ECONOMIC FALLACIES 39
placed," in accordance with Professor Marshall's " great
truth," merely have the direction of its employment
changed ? Professor Marshall, with that fond adhesion
to a faith which has characterised so many of his
laissez-faire predecessors, clings to the belief that the
tenets of his creed are "economic truths as certain as
those of geometry." If the "great truth" quoted be
accounted one of them, the fabric must be fragile indeed.
In the case of any British industry from which both
capital and labour have been dislocated by foreign com-
petition and from which the capital has been reinvested
abroad, what new power is called into being which will
necessarily create a demand for that displaced labour in
some other industry in England ?
It is true, it may be urged, that the foreign investment
stimulates trade and demand in the country of invest-
ment, and that some of that demand may be for English
goods, and that so English labour may eventually be
employed in consequence of that investment. But con-
sider the long train of assumption or rather conjectures
here involved. Such a train of events may occur, but
there is no assurance that they will. If the country of
investment like the United States has a stiff tariff, the
chances are that the demand from England for manu-
factured goods created by a British investment in that
country will, owing to the tariff, be relatively a bagatelle.
The investor, if his investment be sound, will get his
dividends, and those dividends may go to pay for say
silks and motor cars imported into England ; but what
channel of employment is hereby opened up for the
British workman " displaced " from a decayed industry?
The fact is, in spite of the increased facilities of trans-
portation, labour, especially in old countries, tends to
become largely rooted to the spot. A man with a wife
40 THE COMMONWEAL
and family and a home dependent on his weekly wage,
deprived of his occupation and of funds, cannot so
easily plant himself elsewhere. The very fact that wages
in different localities of the same country vary con-
siderably even in the same occupation is evidence of
this. And if there be this want of freedom in movement
of labour from place to place, there is even less freedom
in moving from one avocation to another. A skilled
workman in one industry thrown out of employment
cannot at his pleasure forthwith become a skilled work-
man in another. At the best, if he is fortunate enough
to get work, he will almost certainly have to sink to the
level of unskilled labour, from which, if he ever emerges,
it can only be after a period of painful uncertainty.
Unemployment bureaux and workmen's associations
may do much, and should do more, to lessen these evils ;
but minimise them how we may, the fact remains that
no industry can be curtailed much less destroyed in any
country without inflicting grave injuries both upon
capital and labour, but most emphatically upon labour.
With regard to import duties and the incidence of
their burden under different conditions, it is usually
contended by Free Trade writers and speakers that the
cost of any imported article which is also manufactured
in the country will, if a duty be placed upon it, be in-
creased to the consumer by the full amount of the duty
imposed.
A careful analysis of what actually occurs will show
that the result is dependent on many other conditions.
In the case of articles which are not manufactured or
produced within the country, such as tea, coffee, sugar
and tobacco, it is obvious that any duty placed upon
them must result in an increase in the cost of these
SOME ECONOMIC FALLACIES 41
commodities to the consumer equal to the amount of the
duty imposed. Further, the whole of the amount paid
in this additional cost goes to the revenue. But where
an alternative source of supply of any commodity exists
within the country imposing the duty, or from any other
country under a preferential tariff, a new and variable
factor is introduced into the problem. If a heavy
duty be imposed, the article subjected to the duty
may cease to be imported altogether. In this case the
cost of the article of home manufacture would prob-
ably for a time be raised to the consumer, though com-
petition might again reduce it. In such a case there
would be nothing for the revenue, because there would
be no imports to tax. But if, on the other hand, moder-
ate duties were imposed, and the articles were not ex-
cluded altogether but continued to be imported in
diminished quantities, the price to the consumer would
probably either not be increased at all, or only to an
extent less than the amount of the duty. The reasons
for this are not difficult to understand. Thus a freshly
imposed moderate duty would exclude not the whole,
but only a portion of an import, where producers
abroad would rather sell such export at a smaller
profit than forfeit the sale of it altogether. Certain
conditions in the exporting country, such as proxim-
ity to the port of export, or circumstances specially
favouring production, would, and as a matter of fact
notoriously do, insure, though usually in a lesser degree,
the continued export of a commodity, on which a moder-
ate foreign duty is placed, to any country with which a
trade has already existed, imposing such duty. Where
this effect is produced a portion of such duty is borne
by the foreign exporter. At the Colonial Conference
of 1907 Mr. Deakin — the Australian Premier — dealt
42 THE COMMONWEAL
with this point in clear specific terms. Thus he
said : —
" We have illustration within our own country in
which we have imposed duties of a definitely pro-
tectionist character, which have not had the effect of
raising prices in our community. Of course, no state-
ment whatever can be made as to the effect of ' duties '
which would apply to all of them, or even to many of
them. They may be of any height, or of any character,
apply to any part or totality of a product. There are
duties some of which would be no tax at all, some of
which would impose a partial tax, and some which
might be wholly taxes. If I do not err, all the duties
in this country (Great Britain), with possibly an excep-
tion for cocoa and chocolate, which have a slight
protectionist flavour — with that single exception — so far
as I know — the duties in this country (Great Britain)
are imposed as taxes, so to speak, that is with the sole
purpose of raising revenue."
Where instances — such as those to which Mr. Deakin
refers — occur in which duties do not raise prices at all,
it may fairly be held that the whole of such duties must
be borne by the foreign exporter, and that no portion
of them falls on the home consumer. Also where prices
are raised to an amount equal to only a portion of the
duty, the burden of that duty falls partly upon the
foreign exporter and partly upon the consumer.
We are thus obliged to admit that the effect of import
duties on the consumer, the foreign exporter and the
revenue may, and undoubtedly |does, vary under different
conditions, and that no case can be made the subject of
a hard and fast rule, either in favour of the home con-
sumer or the foreign exporter, but must be considered
on its individual merits.
SOME ECONOMIC FALLACIES 43
Where, however, a duty has the effect of diminishing
the import of any particular commodity, it is obviously
advantageous at least to the home manufacturers and
workmen who produce that commodity. The extent,
if any, to which the consumer is called upon to con-
tribute his quota to this advantage is, as the foregoing
considerations indicate, subject to considerable variation.
But even where the price of the commodity subjected
to duty is appreciably raised it does not necessarily
follow that the burden on the consumer is any greater
than the amount received by the revenue, which it must
be borne in mind the consumer pays in full in the case
of the purely revenue-producing, non-protective duty on
such articles as tobacco. This point has been dealt with
both by Professor Seligman in his Incidence of Taxation
and by Professor Sidgwick.
A hypothetic case somewhat similar to one discussed
by Professor Sidgwick may serve to make this point
more clear, and also to illustrate the force of the preced-
ing propositions. Suppose that a 10 per cent, duty be
placed upon imported gloves and that as a result half
the gloves purchased by the consumer came to be sup-
plied at home and half from abroad, and that the price
is raised by 5 per cent. Of the 10 per cent, duty paid
on the gloves imported, or half the quantity purchased, 5
per cent., or half the duty, would be borne by the foreign
exporter, who would now get £95 for what formerly
brought him £100, and 5 per cent, would be paid on the
price of the gloves by the British consumer, who would
pay £105 for what formerly cost him £100.
On the remaining half of the gloves purchased, the
consumer would pay £105 for what formerly cost him
£100, or another 5 per cent, on the gloves manufactured
at home. The consumer would thus pay on his entire
44 THE COMMONWEAL
supply of gloves an additional 5 per cent., which would
be equal to 10 per cent, on half the supply, or the
quantity of gloves imported. But as the revenue would
receive 10 per cent, on the imported gloves, it will be
seen that in this case the British consumer would pay
no more in increased cost of gloves than the revenue
would receive in dutfes. At the same time the British
manufacturer would have an advantage of 10 per cent,
in price over his foreign rival. Thus in an instance of
this sort the country imposing the duty gets the full
value of the duty for revenue purposes, and at the same
time confers a measure of protection upon her own
manufacturers and workmen.
Where the import is less the revenue derived is smaller
and the advantage to the manufacturer greater, and on
the other hand, where the import is larger the revenue
derives more, and the manufacturer less, advantage.
The foregoing analysis of different cases will show how
fallacious is the popular argument of free import advo-
cates when they declare that a duty cannot both furnish
revenue and protect. In the vast majority of cases it does
both, though in different relative degrees, in different
instances.
From the considerations already adduced in this and
the foregoing chapters it will thus be seen that, in
dealing with the laissez-faire policy to-day, we are
in a different position from that which confronted the
founders of the Manchester school sixty years ago.
The "natural protection" to agriculture on which
Cobden rehed has practically disappeared. Foreign
countries, instead of following our example, as John
Stuart Mill and Cobden anticipated would be the case,
SOME ECONOMIC FALLACIES 45
preferred to try what could be gained by adopting in
fuller rigour the system of Protection under which Eng-
land originally became the workshop of the world.
Further, the "doctrine" that capital and labour dis-
placed from one British industry by foreign competition
will promptly flow into some other equally or more lucra-
tive British industry has less truth in it to-day than at
any previous time. In only too many instances the
capital goes abroad and the labour remains at home —
unemployed. But whether or no these and many other
latter-day conditions do or do not indicate the political
economic desirability of modifying the present Free
Trade system, still in vogue in England, in favour of a
policy with less traditional fiscal restrictions and a wider
basis of taxation, must depend on the ideal which we
set before ourselves.
If before and above all other considerations we insist
on buying everything in the cheapest market, no matter
what our selhng facilities may be, how many workmen
are thrown out of employment, how many emigrate,
how many industries decline, how much labour is
diverted from a higher to a lower grade of manufac-
turing industry, or from an industrial manufacturing
function to one of transport or personal service, or
finally how many are deprived of the means of buying
anything at all, then we shall still remain free im-
porters.
But if, on the other hand, we desire to retain in as
many industries as possible a strong productive power,
employing a large amount of capital and labour at
home, and if we desire to preserve some degree of
symmetry in our national development, we shall realise
the impossibihty of continuing for ever in the midst of
46 THE COMMONWEAL
a protectionist world a rigid policy of free manufactured
imports, under which our manufacturers and workmen
are subjected in bad times and good — but more especi-
ally in bad times — to a competition of an unfair and a
one-sided character.
CHAPTEE IV.
AMERICA AND PROTECTION.
Alexander Hamilton — The problems before him — American influ-
ence upon List — The fiscal system an instrument of Federation
in the United States and Germany — The Constitution of the
United States — Hamilton's "Report on Manufactures" — The
attraction of foreign capital and labour — Symmetrical national
development — Lord Avebury condemns Protection in America
— His alternative considered — Hamilton's condition for accept-
ance of Free Trade— Universal Free Trade— Mr. A. Mosely's
Memorandum on American Tariffs — Remarkable progress in
steel and cotton industries — Could better results have been
obtained under policy of laissez faire ?
Having briefly dealt in the foregoing chapters with some
of the purely literary and theoretic aspects of Economics,
it will now be of interest to turn our attention to the
actual practice of different great nations in adapting the
principles of economics to their varying requirements.
And as the fiscal policies of the United States and Ger-
many both offer modern illustrations of fiscal systems
in most respects opposed to that now practised in the
United Kingdom, a consideration of these systems and
their results in the two countries will the better enable
the reader to estimate the nature of the present British
system — which will be more fully dealt with in the later
chapters on Great Britain and her colonies.
The great part which Alexander Hamilton, firstly as
Washington's secretary and later as an American states-
man, played in moulding the destinies of his country
47
48 THE COMMONWEAL
has recently been set before English readers in two
works of exceptional power and interest. In the first,
The Conqueror, by Gertrude Atherton, we have the man
full of courage, lofty patriotism, intellectual power
amounting to genius, indefatigable energy, and strong
tides of human passion, which together make up a char-
acter of profound dramatic force and abiding interest in
the history of mankind. In the second, Mr. Oliver's
book, Alexander Hamilton — An Essay on American Union,
we find a critical analysis admirably and concisely exe-
cuted of Hamilton's Hfe-work. For the purposes of
such a treatise there fortunately exists adequate literary
material, which, though but little known to the ordinary
Enghsh reader, has been exhaustively studied by Mr.
Oliver.
What will appeal to every serious student of the
history, economics, and politics of the British Empire,
in Hamilton's career, was the set of national and political
problems with which he found himself confronted on
entering public life. His perspicacity, directness, and
resolution in addressing himself to these problems ; the
philosophic detachment of mind which he brought to
bear in considering them ; the methods and pohcy he
advocated, and the amount of success or non-success
which eventually resulted from their adoption ; are all
of them matters not merely of great historic interest in
themselves, but of the greatest instructive value to all
statesmen confronted with similar problems.
That the great German writer on PoHtical Economy,
List, the intellectual founder of the German Zoll-
verein and the author of A National System of Political
Economy, published in parts from 1841 to 1846, was con-
siderably influenced by Hamilton's teaching and pohcy,
there seems little reason to doubt. At the instigation of
AMERICA AND PROTECTION 49
General Lafayette, List visited the United States early
in the nineteenth century, and in 1830 he was appointed
by President Jackson Consul for the United States at
Hamburg. It is thus evident that although he was
not actually in the States until after Hamilton's death
he was brought into intimate contact with that com-
mercial policy of which Hamilton was the chief founder.
Moreover, it is impossible to read the arguments and
general national policy advocated in List's book without
being struck by their similarity to some of Hamilton's
best known writings, as, for instance, Hamilton's famous
" Keport on Manufactures " submitted to the House of
Kepresentatives in 1791.
But whatever influence the teachings of Hamilton
may have had upon List in the shaping of a German
fiscal pohcy so closely resembling that of the United
States, there is no doubt that in both countries the great
instrument of Federation was a fiscal system of Free
Trade between the Federated States and a general tariff
as against the outside world. And with this policy of
cementing Federation by national commercial arrange-
ment the names of Hamilton in America and List in
Germany must remain for ever associated.
It will now be of interest to consider more explicitly
some of the problems and difficulties of the great task
which Washington and Hamilton set before themselves
after the Independence of America had been accom-
plished.
The Articles of the Confederation of the United States
of America — "whereas it hath pleased the great Gover-
nor of the world to inchne the hearts of the legislatm'es "
of the different States to approve of, and ratify, the said
articles — were only signed by delegates of all the States
excepting Maryland in 1778, three years after the
4
50 THE COMMONWEAL
Declaration of Independence. The delegates of Mary-
land declined to sign until the year 1781. During this
period and for many years afterwards troubles between
the various States and the Central Congress rendered the
work of confederation by no means easy. And it re-
quired all the tact and firmness of Washington, com-
bined with the arguments and eloquence of Hamilton,
to reconcile conflicting interests and gradually to estab-
lish that confederation on a sound and permanent basis.
The preamble to the Constitution of the United
States runs as follows : —
" We, the people of the United States, in order to form
a more 'perfect union, establish justice, insure domestic
tranquillity, provide for the common defence, promote
the general welfare, and secure the blessings of liberty to
ourselves and om- posterity, do ordain and establish this
Constitution for the United States of America."
The spirit and intention of this Constitution, which
the Preamble so well expresses, are, from a human
and national standpoint, so admirable as to be worth
retaining in the memory. And in the endeavour to
attain as far as possible the fulfilment of this ideal
for his country, Hamilton felt that every policy — fiscal
or otherwise — must be subordinated. In considering
the commercial policy which it was desirable and ex-
pedient for America to follow, Hamilton was not without
the advantage of an intimate acquaintance with the
Free Trade doctrine of Adam Smith. His book. The
Wealth of Nations, had appeared in 1776, and we are
assured by Mr. Oliver that " Hamilton had studied the
book with care and had written a commentary upon it,
which unfortunately has been lost".
In the year 1791 Hamilton submitted to the House
of Kepresentatives a "Report on Manufactures". In
AMERICA AND PROTECTION 51
this document he shows the breadth and originality of
mind worthy of a statesman loyal to that ideal so elo-
quently set forth in the preamble to the Constitution.
The development of his country must be symmetrical
and self-contained, not lop-sided and perilously dependent
on conditions of international interchange, which war
and other disturbing human factors might at any moment
dislocate. Wealth — regarded by Adam Smith as the
sum of all the exchange values possessed by individuals
in the State during a time of universal peace — was
a desirable commodity enough, and the more of it the
better, provided certain other qualities essential to the
stability and welfare of the State were not sacrificed in
pursuing it.
On this point Hamilton and List show themselves ab-
solutely at one. Wealth without security and continuous
productive power is a danger rather than an advantage.
Hamilton, in writing on Political Economy, contrives
to endow this usually dreary subject with the same fire
and brilliance that Huxley displayed in his treatment
of Natural Science. His writings would deserve perusal
as specimens of vigorous English literature even if they
possessed no other merit.
In the Keport referred to he says : — ^
"Not only the wealth but the independence and se-
curity of a country appear to be materially connected
with the prosperity of manufactures. Every nation,
with a view to those great objects, ought to endeavour
to possess within itself all the essentials of national
supply. These comprise the means of subsistence, habi-
tation, clothing and defence. The possession of these is
necessary to the perfection of the body politic ; to the
H. C. Lodge; Works of Alexander Hamilton, 1904, vol, iv., pp.
135-36.
4 *
52 THE COMMONWEAL
safety as well as to the welfare of the society. The want
of either is the want of an important organ of political
life and motion ; and in the various crises which await
a State it must severely feel the effects of any such de-
ficiency. The extreme embarrassments of the United
States during the late war, from an incapacity of supply-
ing themselves, are still matter of keen recollection ; a
future war might be expected again to exemphfy the
mischiefs and dangers of a situation to which that inca-
pacity is still, in too great a degree, applicable, unless
changed by timely and vigorous exertion. To effect this
change, as fast as shall be prudent, merits all the attention
and all the zeal of our public councils : it is the next great
work to be accomplished."
He also adds : —
" The want of a navy to protect our external commerce,
as long as it shall continue, must render it a pecuHarly
precarious reliance for the supply of essential articles,
and must serve to strengthen prodigiously the argu-
ments in favour of manufactures."
The view so complacently held by Adam Smith and
his followers, namely, that we should continue to be the
workshop of the world, while the United States, our
colonies, and all other new countries should be content
to continue to supply us with food and raw materials
in exchange for our manufactures, and should refrain
from being so foohsh as to attempt manufactures on
their own account, did not at all appeal to Alexander
Hamilton.
Thus he writes : — ^
"It is a just observation, that minds of the strongest
and most active powers for their proper objects fall below
mediocrity, and labour without effect, if confined to un-
1 H. C. Lodge, Works of Alexander Hamilton, 1904, vol. iv., p. 93.
AMERICA AND PROTECTION 53
congenial pursuits. And it is thence to be inferred, that
the results of human exertion may be immensely in-
creased by diversifying its objects."
A perusal of this Eeport shows how absolutely
Hamilton realised the necessity of Protection to in-
fant industries : — ^
" Combinations by those engaged in a particular
branch of business in one country, to frustrate the first
efforts to introduce it into another, by temporary sacri-
fices, recompensed, perhaps, by extraordinary indemni-
fications of the government of such country, are believed
to have existed, and are not to be regarded as destitute
of probability. The existence or assurance of aid from
the government of the country in which the business is
to be introduced may be essential to fortify adventurers
against the dread of such combinations ; to defeat their
efforts if formed ; and to prevent their being formed, by
demonstrating that they must in the end prove fruitless.
Whatever room there may be for an expectation that
the industry of a people, under the direction of a private
interest, will, upon equal terms, find out the most bene-
ficial employment for itself, there is none for a reliance
that it will struggle against the force of unequal terms,
or will, of itself, surmount all the adventitious barriers
to a successful competition which may have been erected,
either by the advantages naturally acquired from practice
and previous possession of the ground, or by those which
may have sprung from positive regulations and an arti-
ficial policy. This general reflection might alone suffice
as an answer to the objection under examination, ex-
clusively, of the weighty considerations which have been
particularly urged."
The argument for the Protection of Infant Industries
1 H. C. Lodge, Works of Alexander Hamilton, 1904, vol. iv., p. 39.
54 THE COMMONWEAL
was never more clearly or more conclusively stated. And
it does suggest the reflection that if "positive regula-
tions and an artificial policy " are capable of strangling
an infant industry, they may also be capable of inflicting
disastrous injury upon an adult one, and further that a
modified and moderate measure of Protection against so
specially directed an attack may be as desirable under
these conditions for the injured adult industry as the
more rigid form of Protection was for the infant one.
The Report goes on to urge that manufactures would
attract emigrants and also foreign capital : — ^
"It is a natural inference, from the experience we
have already had, that, as soon as the United States shall
present the countenance of a serious prosecution of
manufactures, as soon as foreign artists shall be made
sensible that the state of things here affords a moral
certainty of employment and encouragement, competent
numbers of European workmen will transplant them-
selves, effectually to insure the success of the design.
How, indeed, can it otherwise happen, considering the
various and powerful inducements which the situation
of this country offers — addressing themselves to so many
strong passions and feelings, to so many general and
particular interests ? "
In the same way he shows how the prospect of suc-
cessful manufacturing industries will not only attract
capital to the States but even induce manufacturers
from Europe to plant factories there.
How amply Hamilton's anticipations on these vital
points have been fulfilled, and how completely his policy
has been vindicated, all those with any knowledge of the
vast development of America's resources and industries
1 H. C. Lodge, Works of Alexander Hamilton, 1904, vol. iv., p.
109.
AMERICA AND PROTECTION . 55
can testify. Variety of occupation and interests were
essential in Hamilton's opinion to a healthy national
development. And he continually refers to the point : —
" The spirit of enterprise, useful and prolific as it is,
must necessarily be contracted or expanded, in propor-
tion to the simphcity or variety of the occupations and
productions which are to be found in a society. It must
be less in a nation of mere cultivators than in a nation
of cultivators and merchants ; less in a nation of culti-
vators and merchants than in a nation of cultivators,
artificers, and merchants." ^
An all-round symmetrical development of a civilised
nation's functions was in Hamilton's opinion essential
for the welfare and stability of the State, and can any
one who views the position of the United States to-day
with her enormous system of railways, her colossal steel
and other industries, and her abounding prosperity,
question the wisdom of this policy not merely from a
national and human but from an economic point of
view?
To the writer who has visited the States on more than
one occasion the fiscal and commercial policy so elo-
quently advocated by Hamilton, and so persistently
followed by the States, would appear to be absolutely
vindicated beyond any shadow of doubt. Vindicated by
a century of the most remarkable and enormous material
and economic development that the world has ever
seen.
And yet we find even to-day men of distinguished
position and ability, like Lord Avebury, apparently as
strongly convinced of the opposite view as the most
ardent of their Free Trade predecessors from Adam
Smith and Cobden downwards.
^ H. C. Lodge, Works of Alexander Hamilton, 1904, vol. iv., p. 95.
56 . THE COMMONWEAL
Thus Lord Avebury, in the address already referred
to dehvered in 1908/ says : —
"We may regret that the United States, and our
own colonies, instead of developing their enormous
agricultural resources, have preferred to compete with
us in the matter of manufactures. They have suffered
very much from this short-sighted policy. If they had
adopted a different course they would have made much
more progress, and we should have shared in their
prosperity."
Why Lord Avebury should think it necessary to sug-
gest that the United States and our colonies have not
adequately developed their agricultural resources, in view
of the fact that the wheat from the millions of acres
under cultivation in the States, Canada, and Australia
has already reduced the cost of that commodity in these
manufacturing islands to a cost considerably lower than
anything ever contemplated by either Adam Smith or
Cobden, it is difficult to understand.
Does he believe that if they had not "preferred to
compete with us in the matter of manufactures," in the
United States they would have had still more millions
of acres under cultivation ? Does he beHeve that under
these conditions the population of the States would have
approached its present proportions ? If so, would it not
have been an extraordinary phenomenon for a population
of some 80,000,000 people of European descent to have
remained almost entirely dependent on agriculture, and
dependent for obtaining their manufactured goods on
exchanging the products of that agriculture with coun-
tries on the other side of the Atlantic ? Could a com-
munity so circumstanced have been regarded as a stable
1 " Free Trade Address by Lord Avebury," p. 34. Published by
the Cobden Club.
AMERICA AND PROTECTION 57
and secure one ? Would they not rather, as Hamilton
foresaw, have been in constant peril of having their
whole commercial and social fabric utterly deranged by
such an incident as a war or even the hostile commercial
action of European powers ? Moreover, is it reasonable
to suppose that a country with such magnificent mineral
resources, such facilities for producing raw material like
cotton, should remain for ever dependent on others for
the manufactured products from these materials, even if
at the outset some temporary sacrifice were made to ac-
quire their industrial independence ?
The whole conception seems so unreal that it is diffi-
cult to believe that Lord Avebury seriously entertains it.
Yet in doing so he is only echoing the doctrines of the
laissez-faire school and the " mazy " abstractions of the
Cobden Club. But to turn from the visionary realms of
a latter-day pseudo-Cobdenism to the region of actual
fact, it is interesting to note still further some of the
arguments used by Alexander Hamilton a hundred years
ago ; to observe more explicitly how far his policy was
put in force ; to what extent it has been approved and is
still approved by the American democracy ; and finally,
to consider the actual results, so far as they are ascertain-
able, produced in the United States by the practice of
that policy.
As has been already pointed out, Hamilton was fully
acquainted with the teaching of Adam Smith in his
Wealth of Nations. But Hamilton, being a man of affairs
and a constructive statesman engaged in moulding
both the constitution and the future destinies of his
country, felt little inclination to adopt the policy of laissez
faire in any extreme form either in commerce or
anything else. He had had too much experience of the
real man to rely too impHcitly on the collective result
58 THE COMMONWEAL
of the actions of a number of individual "economic
men ". For him these automata, the laws of whose
actions in the economic world could be expressed by
algebraical or other formulae, did not exist.
In his writings there is none of that obscurity of dic-
tion, so invariably the accompaniment of confusion of
thought, which is only too frequently found in the writ-
ings of political economists, and which in a later day
called forth the scathing denunciation of Jevons already
referred to.^ Hamilton was an actor on the world's
stage, as well as a writer. He was endowed in a re-
markable degree with that perspicacity which, brushing
all trivial and irrelevant matters aside, goes straight to
the heart of the business in hand.
In considering the Free Trade policy of Adam Smith
he was the last man to fail to see its attractiveness.
But he was among the first to place his finger upon its
great defect as a practical policy for all countries at all
times. He was prepared to admit the wisdom of Free
Trade upon one stipulation, and that was " if the system
of perfect liberty to industry and commerce were the pre-
vailing system of nations ". Here in a nutshell is the
answer to the Free Trade argument as a panacea.
But as he points out : " The prevalent one has been re-
gulated by an opposite spirit. The consequence of it is,
that the United States are, to a certain extent, in the
situation of a country precluded from foreign commerce.
They can, indeed, without difficulty, obtain from abroad
the manufactured supplies of which they are in want ;
but they experience numerous and very injurious im-
pediments to the emission and vent of their own com-
modities. Nor is this the case in reference to a single
foreign nation only. The regulations of several coun-
^ Vide above, p. 8.
AMERICA AND PROTECTION 59
tries, with which we have the most extensive intercourse,
throw serious obstructions in the way of the principal
staples of the United States.
" In such a position of things the United States cannot
exchange with Europe on equal terms ; and the want
of reciprocity would render them the victim of a system
which should induce them to confine their views to
agriculture, and refrain from manufactures, A constant
and increasing necessity, on their part, for the com-
modities of Europe, and only a partial and occasional
demand for their own, in return, could not but expose
them to a state of impoverishment, compared with the
opulence to which their political and natural advantages
authorise them to aspire.
" Kemarks of this kind are not made in the spirit of
complaint. It is for the nations whose regulations are
alluded to, to judge for themselves, whether, by aiming
at too much, they do not lose more than they gain. It
is for the United States to consider by what means they
can render themselves least dependent on the combina-
tions, right or wrong, of foreign policy. ... If Europe
will not take from us the products of our soil, upon terms
consistent with our interest, the natural remedy is to
contract as fast as possible our wants of her."^
Having thus clearly and dispassionately stated his
views and defined his position, Hamilton came to the
conclusion that " To produce the desirable changes as
early as may be expedient may therefore require the
incitement and patronage of Government".^
The framers of the Constitution of the United States
were at any rate determined that Congress should have
a free hand in this matter. Thus Section 8 of Article 1
^ Oliver's Alexander Hamilton, pp. 243-244.
"Ibid., p. 246,
60 THE COMMONWEAL
of the Constitution in brief but precise terms provides
that : " The Congress shall have power to lay and collect
taxes, duties, imposts and excise" — also further on in
the same section — " To regulate commerce with foreign
nations, and among the several States, and vt^ith the
Indian tribes ".
A perusal of the history of the United States discloses
the fact that this power " to regulate commerce with
foreign nations " has been freely exercised by Congress
from the time the Constitution came into force down to
the present day.
In this manner, then, the principles laid down by
Hamilton have become part of the flesh and blood of
the social and commercial fabric of the United States.
The means chiefly relied upon by the successive
congresses to give effect to this policy has been a pro-
tective tariff levied upon manufactured imports.
A " Memorandum on American Tariffs " compiled by
Mr. A. Mosely, and recently published, contains with ad-
mirable conciseness a record and history of the tariffs im-
posed from 1789 down to the Dingley tariff. And the
memorandum is further prepared with the intention of
throwing light upon " what effect the protective tariff has
had in the building up of the astonishing state of pro-
sperity that one sees in the United States to-day, both in
the overwhelming increase of capital by her manufac-
turers, the great general prosperity, and the high standard
of living of the masses ".
For the purposes of analysis and examination the
memorandum divides the various phases assumed by
the tariff into a series of periods. At the outset there
was a period of low tariffs. But in 1807-8 the tariffs
were materially raised, and in 1812 a war tariff was
enacted which doubled existing duties. This tariff re-
AMERICA AND PROTECTION 61
suited in great activity in manufacture, the average rate
on imports having increased to 32 per cent.
During the v^hole of the nineteenth century the pro-
tective tariffs were continued. At times, however,
reactions against the tariff caused reductions to be made.
Thus in 1833 there was first put in force what was
known as the "Compromise Tariff" under which re-
ductions in the tariff were made annually by instalments.
By the action of this law tariffs fell from their highest
point in 1828, when they averaged 48 per cent., to an
average of about 17 per cent, in 1842,
The American writer Curtiss, in his History of Protec-
tion in the Unitad States, associates all the periods of de-
pression in that country with the reductions in the tariff,
which, according to this writer, were the chief causes of
these crises. Thus he says that a Free Trade or purely
revenue tariffs period culminated in the year 1857, when
the tariff was again revised and further reductions made.
This is described as a "culminating Free Trade Act,
resulting in panic and commercial ruin, the worst in the
nation's history ".
In 1860 Lincoln became president. In reply to a
deputation desiring to know his views on fiscal policy he
replied : —
"The problem seems to me a simple one. If we
adopt Free Trade it means that we import our goods,
in which case the foreigner will have the money and we
shall have the goods. If we adopt a system of Protec-
tion — or better, a system of safeguarding our industries
and our workmen — thereby manufacturing the goods
ourselves, the result will be that in so manufacturing we
shall have both the goods and the money." ^
The Lincoln tariff, besides increasing the existing
^ " Memorandum on American Tariffs," by Mr, A. Mosely, CM. 6.
62 THE COMMONWEAL
duties, introduced for the first time a new principle. It
changed many duties from being merely ad volorem
to a specific character, Lincoln's schedule, passed on
these scientific lines, remained practically in force till
1882, when the Tariff Commission of the United States
was appointed. It is significant to note that the dis-
criminating and scientific character of the Lincoln tariff
was, after twenty-two years' trial, approved and still
further extended by this Commission.
In their report the Commissioners state that "Its
framers regarded all forms of American labour, and plac-
ing a duty upon the primary element of an article if of
native production, advanced the rate as the article was
advanced by the increased expenditure of labour ". And
later on, they say, " While aiming to diminish the
burdens upon the people which inevitably attend any
system of collecting the national revenue, the Commis-
sion has not lost sight of the relations of a wise tariff
system to the attainment of the highest possible material
life of the nation ; its security in times of war, both in
its means of defence and industrial independence ; its
position amongst the nations ; its acquisition of all the
arts which fortify, enrich and adorn ; its attractiveness
for the skilled labour of other lands, and the comfort
and means of all its people ". ^
This paragraph breathes the spirit, and might indeed
have been the ipsissima verba of Alexander Hamilton, so
like is it both in style and manner to his writings on
fiscal policy. The work of this Commission resulted in
the readoption of a tariff arranged on scientific protec-
tionist lines.
A reaction against the tariff occurred in 1881, but the
Morrison Bill, intended to reduce it, failed. In 1890 the
^Moaely's "Memorandum on American Tariffs."
AMERICA AND PROTECTION 63
McKinley Bill was introduced, and in meeting the argu-
ments against Protection President McKinley said :
" First, then, to retain our own market under the
democratic system of raising revenue by removing all
protection, would require our producers to sell at as
low a price and upon as favourable terms as our foreign
competitors. How can that be done ? In one way only :
by producing as cheaply as those who would seek our
markets. What would this entail ? An entire revolu-
tion in the methods and conditions and conduct of busi-
ness here, the levelhng down through every channel to
the lowest line of our competitors ; our habits of living
would have to be changed, our wages cut down 50 per
cent, or upwards, our comfortable homes exchanged for
hovels, our independence yielded up, our citizenship de-
moralised. These are the conditions inseparable to Free
Trade ; these would be necessary if we would command
our own market among our own people ; and, if we
would invade the world's markets, harsher conditions
and greater sacrifices would be demanded of the masses.
Talk about depression ! We would then have it in its ful-
ness ! We would revel in unrestrained trade ! Every-
thing would indeed be cheap, but how costly when
measured by the degradation which would ensue !
When merchandise is the cheapest, men are the poorest,
and the most distressing experiences in the history of
our country — aye, in all human history — have been
when everything was the lowest and cheapest measured
by gold, for everything was the highest and dearest
measured by labour. We want no return to cheap
times in our country. We have no wish to adopt the
conditions of other nations. Experience has demon-
strated that for us and ours, and for the present and the
future, the protective system meets our wants, our con-
64 THE COMMONWEAL
ditions, promotes the national design, and will work out
our destiny better than any other. With me this is a
deep conviction, not a theory. I believe in it, and thus
warmly advocate it because enveloped in it are my
country's highest development and greatest prosperity.
Out of it came the greatest gains to the people, the
greatest comforts to the masses, the widest encourage-
ment for many aspirations, with the largest rewards,
dignifying and elevating our citizenship upon which
the safety and purity and permanency of our political
system depend."
In 1894 the Wilson tariff — with strong Free Trade
tendencies — was adopted. In 1897, after a period of ex-
treme depression, the Dingley Bill on the lines of the
McKinley tariff was passed. It increased some duties
and modified others to suit the changed conditions of the
time, and has remained in force ever since.
WTiile it is probably somewhat overstating the case
to contend, as Mr. Curtiss and Mr. Mosely are disposed
to do, that every commercial crisis in America has been
brought about entirely by a reduction in the tariffs, the
converse of this proposition will be found very difficult
to refute. The adoption and maintenance of a protec-
tionist policy ever since the time of Lincoln which has
tended, with the exception of the Wilson tariff in 1894,
to become more specifically and scientifically protec-
tionist with each revision down to the time of the
Dingley tariff in 1897, has undoubtedly been accom-
panied with phenomenal advancement in industrial and
general prosperity. If, as Cobdenite free traders of
Lord x\vebury's opinion would apparently argue, this
prosperity has been won by a country richly endowed
by nature with resources, in spite of Protection, it will
have to be conceded that the people of the United
AMERICA AND PROTECTION 66
States themselves are not of that opinion. After a period
of wavering and uncertainty on the question of fiscal
policy in the earlier half of the nineteenth century, in
which several low tariff periods were tried, they have
declared unhesitatingly in frequently recurring triennial
periods at the polls in favour of Protection.
That there may be in the future as there have been
in the past reaction and modification of the tariff in the
direction of Free Trade is more than probable. But
that the present policy of Free Trade between the
States uniting them in a common bond, and Protection
as against the outside world, will ever be departed
from except on Hamilton's supreme condition of uni-
versal Free Trade, there is not a tittle of evidence to
suggest.
Free Trade — in its true sense of free exchange — not
in the false one-sided sense of free imports only — is a
privilege the Americans reserve for their own citizens
which foreigners may not share. It is the privilege of
every citizen, and, supplemented as it is with a tariff
against the outside world, is a great federal link binding
the various States of the Union together.
Although in the latest great Federation, that of Great
Britain and her colonies and dependencies. Free Trade
may not yet be obtainable, Freer Trade than at one
time existed has already been obtained between Colonies
and Mother Country — by a reduction of Colonial tariffs
in favour of Great Britain — as a privilege for Imperial
citizens. If this treatment be reciprocated by Great
Britain, it will doubtless be still further extended by
the Colonies. And this preferential Freer Trade will
serve the cause of federation in the British Empire as
privileged Free Trade has served it in Germany and the
United States.
6
66 THE COMMONWEAL
It would scarcely be doing the subject of this chapter
justice if it were concluded without reference to the
extraordinary progress that has been made, under the
influence of a scientific tariff, in the United States in
certain specific industries. In the quinquennial period
from 1876-80 the average production of steel in the
United States stood at 800,000 tons. In 1907— that is
some fifteen years after the Tariff Commission's recom-
mendations were embodied in a revised scientific tariff
— this production stood at 23 million tons, or more than
the steel produced in England and Germany put together.
In the period 1883-87 the average annual consumption
of raw cotton in the States amounted to 999 million
pounds. In the period 1903-7 this average had risen
to 2,312 million pounds, being an excess of 526 million
pounds over the average of the United Kingdom for the
same period (vide table, p. 25).
These figures with reference to the enormous growth
of the iron and cotton industries in America are more
instructive than the returns only of imports and exports
on which so many writers appear to believe the verdict
with regard to the industries of a country must almost
entirely depend. What is so frequently overlooked in
estimating the industrial position of any country — and
especially of the United Kingdom — is the immense im-
portance of the home market. This home market the
United States secures very largely to herself under her
tariff system, and it is this security which has enabled
these two industries to develop such colossal proportions.
Is it possible that Lord Avebury was familiar with
these figures when, early in the year 1908, he said as
already quoted — speaking of the American system of
Protection — " They have suffered very much from this
short-sighted policy " ?
AMERICA AND PROTECTION 67
If to employ a larger number of workmen at a higher
rate of wages, to offer a greater prospect of advancement
to individuals, to increase more rapidly in material wealth
and in numbers, than any other country, either now or
in any former time, on the face of the globe, be suffering,
then the United States have indeed suffered heavily.
But if, on the other hand, these accomplishments do,
as the great majority of mankind believe, indicate pro-
gress and prosperity, then the United States have gone
far and abundantly prospered.
Nor is it conceivable that any impartial student of this
prosperity whose vision is not obscured by the mists of
bygone doctrinaire hypotheses can for one moment hold
with Lord Avebury that " If they had adopted a different
course they would have made much more progress. ..."
CHAPTEE V.
GERMANY AND HER CUSTOMS UNION.
The Holy Roman Empire — Modern German Empire — Its Federal
character — The wars of Prussia — The Zollverein an instrument
of Federation — List's National System of Political Econ-
omy — His estimate of England's position in 1844 — Free
Trade in Germany — The Continental blockade — The work of
the Zollverein — Estimates of List and Mill on the effects of Pro-
tection in America — Bismarck's Free Trade era — His return to
Protection — State Workmen's Insurance — Emigration from
Germany and Great Britain — Socialism — Universal military
training.
To understand the position, the poHtical and economic
structure, and the aspirations of the Modern German
Empire, requires at least some knowledge and study of
that remarkable institution of the middle ages — which was
only finally dissolved in 1806 — the Holy Koman Empire .
This Empire, in which were blended the Teuton and
the Roman, the greatest temporal and the greatest
spiritual powers, which dominated the continent of
Europe for over a thousand years, combining as it did
the influence of the popes with the material strength of
powerful rulers, has a history which is full of strife and
of suffering, of heroism and martyrdom, of intellectual
advancement and of blind superstition, of all the brilliant
and all the obscure incidents which have gone to make
up a large portion of the drama of the evolution of
Western civihsation.
GERMANY AND HER CUSTOMS UNION 69
In referring to it there is but one consideration which
calls for some examination here. It is the conception
and the nature of the Empire which thus subsisted
through the long ages of the mediaeval twilight down to
and beyond the period of the European Kenaissance.
It is true that from the Reformation onwards the
Empire gradually waned until in the eighteenth century
Voltaire declared that it was neither holy, nor Roman,
nor Empire ; but although but a gaunt shadow of its
former self, it did not actually cease to exist until the
year 1806.
What then in essence was this Mediaeval Empire?
It was in its earlier years the continuance in spirit and
form of that system which the Caesars imposed upon
the ruins of the Roman Republic. It was based upon
usurped authority and tradition which frowned on in-
dividual liberty and private Judgment alike. No matter
what ferocity or tyranny might rend the civic life, the
rulers were ordained of God.
This system engendered in its Emperors a passion
for aggressive dominion over all the earth. This system,
in its turn, inspired Napoleon, and has made the very
terms, Empire and Imperiahsm, terms of such reproach
that to this day they are intolerable to many men of
democratic opinion. It proved a source of feud to cen-
tral Europe for ages. Under Napoleon it destroyed the
power and half the manhood of France.
If, therefore, Empires and Imperialism are to persist
and flourish in the future it must be on different lines
from these. And of this fact not even the supporters of
the present British Empire have shown a greater con-
sciousness than some of the builders of Modern Germany.
Thus in a controversy — to which Mr. Bryce refers
in his most interesting and brilhant work Tlie Holy
70 THE COMMONWEAL
Boman Empire — which took place under the present
German Empire, the spokesmen of the Austrian
Roman Cathohc party claimed for the Hapsburg Mon-
archy the honour of being the representative of the
Mediasval Empire, and urged that only again by ac-
cepting this leadership could Germany have restored to
her, her former strength and glory. This evoked from
certain North Germans the following bitter retort : —
" Yes," they rephed, " your Austrian Empire, as it calls
itself, is the true daughter of the old despotism ; not less
tyrannical, not less aggressive, not less retrograde ; like
its progenitor, the friend of priests, the enemy of free
thought, the trampler upon the national feeling of the
peoples that obey it. It is you whose selfish and anti-
national policy blasts the hope of German unity now,
as Otto and Frederick blasted it long ago by their
schemes of foreign conquest. The dream of Empire
has been our bane from first to last." ^
Whether or no this last utterance contams any moral
for Modern Germany, one thing at least is certain, the
German Empire of to-day is built on very different lines
to the Empire of the past. What that difference is, and
how it has been brought about, call for our careful con-
sideration.
In 1806 the old Empire was buried. Fifty years
later the Modern German Empire arose like a Phoenix
from its ashes, and with all its modernity the onlooker
may sometimes imagine that he discerns occasional
lurid flashes of the old nether fires. Nevertheless
modern, scientific, and even democratic it is. No Euro-
pean State to-day approaches so closely in many respects
the great democracy of the United States. In both
cases the constitution is a federal one. In addition to
^ Bryce's Holy Roman Empire, p. 367.
GERMANY AND HER CUSTOMS UNION 71
the powerful Kingdom of Prussia, the German Empire
contains monarchies such as Bavaria, Saxony and
Wiirtemburg, as well as small republics such as Ham-
burg and Bremen. Each has its own local government
and peculiar constitution. Some are Protestant and some
are Roman Catholic. And yet in questions of interna-
tional relationship, whether of defence or fiscal poHcy,
the federal Government is supreme — with a solidarity,
uniformity and power — which no heaven-appointed em-
peror under the Mediaeval Empire was ever able to attain.
What, then, were the forces productive of this result ?
It is the habit of historians in deahng with this period
to attribute the solidarity which Germany has attained
in the last quarter of the last century to the influence
of war, and the powerful headship of the Hohenzollern
family. And doubtless the influence, both of the Aus-
trian and the Franco-Prussian Wars, was to sweep away
many old-standing differences between the feudal and
liberal parties in Prussia, and to go far to arouse a new
national spirit. But Central Europe has a history of
wars almost unceasing behind it, and in spite of the
nominal existence of the Holy Boman Empire, the
great historic Federation of the middle ages, over so
long a period of time, war cannot be said to have
proved very reliable as an instrument of Federation.
It is worthy of note that even after the death of the
old Empire, there arose at the time of the Napoleonic
Wars another Germanic Confederation including Austria
as well as Prussia and the other German States, which
lasted down to the time of the quarrel over the annexa-
tion of Schleswig-Holstein. At this juncture Prussia
stood almost alone. Then followed war with Austria
in 1866, and here war proved a two-edged sword to the
Confederation, for if it consolidated the rest of Germany
72 THE COMMONWEAL
it cut off Austria, and excluded her from the Confedera-
tion.
In 1870, as an outcome of the Franco-Prussian War,
the Imperial Crown was once more placed upon the
head of a German potentate. The King of Prussia be-
came German Emperor. But Austria remained out-
side the new Imperial Federation, and with her some
seven million Germans. Nevertheless, under a new
constitution the Empire was restored, and it undoubtedly
to-day possesses more power, organisation, and stability
as a political organism than could at any time be found
in its mediaeval predecessor.
Turning from these rapid and dramatic changes, sur-
rounded as they are with all the glamour of a new Im-
perial dynasty, and all the pomp and panoply of war, it
is interesting to observe and record what other move-
ments, what undercurrents, perhaps less apparent but
none the less powerful, contributed to the building of
this new State. In the interval between the old Empire
in 1806, and the new Empire in 1870, a period of sixty-
four years, certain changes, but little marked by the
historian, and less picturesque and attractive to the
general reader than the foundation of new dynasties,
were taking place within the kingdoms and petty prin-
cipalities of the German Confederation.
In the first place there existed in Germany, especi-
ally in the Northern States, in common with the rest of
civihsed Europe, the political spirit of the nineteenth
century, a spirit which combined with the desire for
individual liberty the aspiration towards national unity.
The progressive party, while it championed the cause of
the people, saw also in national unity, on rational and
constitutional lines, the future welfare of the people.
It was to men in this mood that List's policy of the
GERMANY AND HER CUSTOMS UNION 73
Zollverein or Customs Union appealed. List realised,
and eventually taught his countrymen to realise, that
the most powerful federal and national instrument
which the world could use to-day, an instrument more
powerful than any treaty, or the prestige of any potentate,
was that of mutual and permanent self-interest. States
varying in religion, in their allegiance to different reign-
ing houses, and in other divergent interests, might be
brought very closely together by establishing a common
commercial and industrial policy.
Mediaevalism died with the old Empire. The world
was entering on a new era. And as Napoleon said at
the beginning of the century, " Formerly there was but
one description of property, the possession of land ; but
a new property has now risen up, namely, industry,"
The United States anticipated the German States in
adopting a policy of Free Trade within its borders and
protection without as a federal instrument. What Alex-
ander Hamilton pleaded for with such power and elo-
quence, what the North Americans subsequently fought
for, was very largely the policy which List introduced
to his countrymen.
In 1815, at the close of the Napoleonic Wars, the
continental blockade system, under which Germany had
felt the advantage of Protection in many of her manu-
factures, came to an end. German ports were thrown
open to foreign manufactured imports at low rates of
duty, but custom-houses continued to gather duties on
the frontiers of all the petty German States from one
another. An association, formed to promote the abolition
of these internal barriers to trade, elected List as its
president. His election to this office, which was disap-
proved of by the Government authorities, cost List his
official appointment in the civil service of Wiirtemburg,
74 THE COMMONWEAL
and eventually led him to seek his fortunes in America.
While there he made the acquaintance of General La-
fayette, President Jackson, Henry Clay and other leading
spirits of the United States. His stay in America, where
he was successful both in journalism and industrial en-
terprise, doubtless tended to strengthen his belief in the
national and federal value of Free Trade within the
national territories, and a Protective tariff outside. On
his return to his native country he returned with re-
newed vigour to the task of converting his countrymen
to his views.
In 1841 appeared the first part of his National
System of Political Economy — the fourth part entitled The
Politics being published in 1844. The avowed object of
this work was to advocate a policy for uniting Germany
by a Customs Union or Zollverein embracing all the
different States, in other words to do as the United
States had already done, to allow no duties within the
Federation but to maintain and develop them with-
out. Free Trade for the home manufacturer within
his own domain — restricted trade for the foreign com-
petitor.
A nation without great productive industries of its
own, dependent for the bulk of its manufactured supplies
on other countries, was no more acceptable to List than
it had been to Hamilton, however much such a scheme
might commend itself to the English free traders
writing avowedly in the broad interests of mankind at
large, but really, as List stoutly maintained, on behalf
of their country, then the workshop of the world.
At the time List wrote his book the Free Trade doc-
trines of J. B. Say and Adam Smith had been for some
time before the world and had attracted many followers.
In meeting them List had no difficulty in showing
GERMANY AND HER CUSTOMS UNION 75
how much the policy by which England had risen to
greatness differed from the teachings of these writers.
Thus he pointed out that in 1721 the English King
was made, by his ministers, at the opening of Parliament,
to say that " it is evident that nothing so much contri-
butes to promote the public well-being as the exporta-
tion of manufactured goods and the importation of
foreign raw material ".^
In order -to carry out this policy, England — as List
points out — in addition to her undoubted conquests in
science and the arts, resorted to Navigation Laws, Com-
mercial Treaties, and wise and powerful protection ex-
tended to her home industries. According to the Free
Trade theorists England had attained to wealth and
power, not by means of, but in spite of her commercial
poHcy. "As well," says List, "might they argue that
trees have grown to vigour and fruitfulness not by means
of, but in spite of, the props and fences with which
they had been supported when they were first planted." ^
The estimate which List gives, at the time of writing
his book, of the power and resources of England is most
instructive, and is of special interest as describing the
position of England previous to the commencement of
her Free Trade era. And on the necessity of power as
an accompaniment to wealth. List is the most emphatic
of all the writers on Political Economy. Thus he
writes : —
" Power is more important than wealth. And why ?
Simply because national power is a dynamic force by
which new productive sources are opened out, and
because the forces of production are the tree on which
wealth grows, and because the tree which bears the
' List's National System of Political Economy, p. 32.
^ Ibid., p. 33.
76 THE COMMONWEAL
1
fruit is of greater value than the fruit itself " . . . ."and
because the reverse of power — namely, feebleness —
leads to the relinquishment of all that we possess, not
of acquired wealth alone, but of our powers of produc-
tion, of our civilisation, of our freedom, nay, even of our
national independence ".
Summing up England's position he says : —
"England has got into her possession the keys of
every sea, and placed a sentry over every nation. . . ,"
" Her navy alone surpasses the combined maritime
forces of all other countries, if not in number of vessels,
at any rate in fighting strength. . . ." "Her manu-
facturing capacity excels in importance that of all other
nations. . . ." "In the fourteenth century England
was still so poor in iron that she thought it necessary
to prohibit the exportation of this indispensable metal ;
she now, in the nineteenth century, manufactures more
iron and steel wares than all the other nations on earth." ^
If that was so in the forties of the last century, a
period within the life of many now living, it is significant
to note the change that has since occurred. The views
of List have prevailed. The Zollverein policy, abohsh-
ing all customs within the Empire and thus extending
wide the home market, and at the same time following
England's old example, protecting that home market
by tariffs against foreign competition, has been adopted.
Under this policy what has happened to the iron and
steel industries of Germany?
In 1907 Germany surpassed us considerably in the
production of pig iron, and doubled our production of
steel {vide table, p. 25). If ever facts appeared to justify
and vindicate the contentions of a political writer as-
suredly they do so in the case of List.
^ List's National System of Political Economy, pp. 37, 38 and 39.
GERMANY AND HER CUSTOMS UNION 77
List reviews and analyses at some length the history
and fiscal pohcy of Germany down to and after the
final adoption of the Zollverein. Prussia, first under
Frederick II., seriously and systematically endeavoured
to develop the agricultural and manufacturing resources
of the country, using a protective tariff among other
measures, as a means of doing so. Meanwhile the
whole of Germany for centuries, with the exception of
Prussia, had been and remained practically Free Trade
down to the time of Napoleon's Continental blockade.
"It cannot, however," says List, "be asserted that
the predictions and the promises of the school about
the great benefits of Free Trade have been verified by
the experience of this country, for everywhere the move-
ment was rather retrograde than progressive."
AVith regard to the Continental blockade,^ maintained
— so far as was practicable by Napoleon — List insists
that there is abundant evidence to show in the statistical
writings of the day that, as a result of the blockade,
German manufacturers were materially benefited.
But on peace being re-established, British manufac-
tures were again poured into the country, making great
havoc among the native German industries. Even the
^ Napoleon having overrun and imposed his authority upon most
of Continental Europe, and being desirous of crushing England by
means of crippling her trade, issued a decree forbidding any of the
countries in his grip to import English goods. He also got Russia
to agree to forbid such importation. The effect of this decree to
the extent to which it was efficacious, was to " protect " such home
manufactures as existed in the several European countries, though
where none existed it caused curious results, English goods being
very largely smuggled instead of openly imported into these
countries. And incidentally it may be stated that Russia's breach
of her promise to exclude British goods led to war with Napoleon,
and was the beginning of his downfall.
78 THE COMMONWEAL
Prussian bureaucracy of the day became imbued with
Adam Smith's writings and modified their tariffs in the
direction of Free Trade. Great distress and outcry pre-
vailed in the manufacturing districts. England was ac-
cused of "dumping" with a view to killing German
industry, and Henry Brougham was reported to have
said in 1815 " That it was well worth while to incur a
loss on the exportation of English manufactures in order
to stifle in the cradle the foreign manufactures ".
Under the stress of this agitation Prussia soon re-
turned to her protective policy. But at this time duties
were levied at custom-houses between the different
German States. And the smaller States now had to
face not only exclusion from the markets of Austria,
France, and England, but also from Prussia, which
practically hemmed in several of them. " Restricted
on all sides, in their export trade to small strips of terri-
tory, and, further, being separated from one another by
smaller internal lines of customs duties, the manufac-
turers of these countries were well-nigh in despair."
It was to remedy this state of things that a Manufac-
turers' Union with branches throughout Germany was
formed in 1819. Deputations visited every German
Court, the work of the Zollverein began in earnest. A
union was first formed between Wiirtemberg and
Bavaria, then with some of the German States and
Prussia, then between the middle German States ;
finally, there occurred a fusion of these three groups
into a general Customs Union which comprised the
whole of Germany except Austria, Hanover, the Hanse
Towns and the two Mecklenburgs. Trade within the
union was free and unrestricted, but as against the
outside world a moderate protectionist tariff was main-
tained.
GERMANY AND HER CUSTOMS UNION 79
Writing in 1841, List was able to record that " in con-
sequence of this unification of customs, the industry, trade,
and agriculture of the German States forming the union
have already made enormous strides ". From that time
forward — with a slight and somewhat disastrous interval
of modification in the direction of free imports under
the influence of the Cobdenite agitation — this policy
has been followed in Germany.
List's personal acquaintance with the institutions and
fiscal policy of America had undoubtedly largely influ-
enced him in his advocacy of the Zollverein policy. In
his book he shows clearly that he had closely studied
the history of the trade and industry of the United
States. He had noted the periods of Free Trade and
Protection in that country and their consequences. And
at a time, only some four years previous to that at
which John Stuart Mill regarded Protection in America
as a fiscal error from which that country was about to
shake itself free. List pointed out that the Americans
had realised the truth that proximate material advan-
tages must not be the only consideration of a great
nation. That, they saw that civilisation and power could
only be secured and maintained by a symmetrical de-
velopment of their country, in which the creation
of manufacturing power was an absolutely essential
factor.
With regard to their being reconciled — as Lord Ave-
bury ^ believes they should have been — to simply becom-
ing one vast agricultural community. List showed a
deeper insight. Thus, deaHng with this point, he
says : —
" It is even conceivable that, were the whole territory
of the United States laid under cultivation from sea to
^ See above, p. 56.
80 THE COMMONWEAL
sea, covered with agricultural States, and densely popu-
lated in the interior, the nation itself might neverthe-
less be left in a low grade as respects civilisation, in-
dependence, foreign power, and foreign trade." ^
It is thus evident that List's study of America and
American industrial policy at first hand, had left a deep
impression upon him. His estimate of its value and
efficacy has been abundantly justified by results.
Finally, it was largely on the great object-lesson afforded
him by America that his advocacy of the Zollverein
policy, which has in its turn proved of such immense
value to Germany, was based. At the same time it
would be a mistake to suppose that the Zollverein
policy — in so far as it was protectionist against the
outside world — has not had its opponents in Germany,
or that it has even been rigorously and persistently
adhered to by the German Government.
About the middle of the century, under the influence
of the Cobdenite doctrines, and the poHcy of free im-
ports which England had then adopted, a revision of the
German tariff in the direction of free imports appears
to have been made. And between the years 1865 and
1877 a series of measures of this character was passed.
In 1878 the Free Economic Union agitated for a rever-
sion to the earlier policy, on the ground that hostile
tariffs and competing imports were causing the greatest
depression both in trade and agriculture. In 1879 Bis-
marck avowed his intention to return to the time-
honoured ways of 1823-65 — " I am willing to confess my
past errors ".
In this same year a speech from the throne contained
the following words : "I regard it as my duty to adopt
measures to preserve the German market to national
1 List, p. 84.
GERMANY AND HER CUSTOMS UNION 81
production so far as is consistent with the general
interest ; and our customs legislation will accordingly
revert to the tried principles upon which the prosperous
career of the Zollverein rested for nearly half a century,
but which have in important particulars been deserted
in our mercantile policy since 1865."
In that same year, 1879, the Keichstag adopted a
strong protective tariff. From that date onwards the
tariff has been readjusted from time to time, but its
Protectionist character has been scientifically differen-
tiated and accentuated rather than relaxed. The reform
duties of 1879 placed import duties on corn, wood
and iron. In 1881 the two great ports of Hamburg
and Bremen were brought into the Zollverein, which
was thus made universal within the Empire and com-
plete.
Turning to the progress which Germany has made
since the completion of the Zollverein, there is no doubt
that, judged by any reasonable standard of comparison
which may be selected, she has advanced more rapidly
and more materially than any other country except
the United States. The increase in her production
of pig iron and steel alone has never before been ap-
proached by any other country in the world, and has
only been surpassed in the same period by the United
States.
Her exports have increased both in actual amount and
percentage to a much greater extent than the exports of
Great Britain.^
^ Export Trade of Principal Countries.
The following tables are taken from the Statistical Statements
prepared by the Board of Trade and laid before the Colonial Con-
ference of 1907 (Cd. 3524, page 310) :—
6
82
THE COMMONWEAL
The amount assessable for income tax in Prussia lias
increased in the ten years from 1896 to 1906 by 71 per
cent., whereas that of England has not increased by
more than a third of that percentage.^
Unemployment has existed for 1907 and 1908 to a
much greater extent in England than in Germany.
On the other hand emigration from Germany,^
which at one time was very considerable, annually, has
sunk to an insignificant amount, while emigration from
England has been largely and rapidly increasing.
Added to all this are the significant and important
U.K.
U.S.A.
Germany.
MUlion £.
Million £.
Million £.
. 232
161
155
. 236
151
158
. 227
183
155
. 253
237
197
. 297
297
251
Million £.
Million £.
Million £.
. 65
136
96
Per cent.
Per cent.
Per cent.
. 28
84
62
TOTAL SPECIAL EXPORTS
{i.e., manufactures and produce of the countries mentioned).
Average.
1881-85
1886-90
1891-95
1896-1900
1901-05
Increase.
1901-051
over
1881-85 J
1 Report on Trade of Germany for 1906 by Consul-General
Schwabach.
2 Thus taking the ten years' period from 1897 to 1906, the annual
number of emigrants has never exceeded 33,824, or at the rate of
6-4 per 10,000 ; while in 1906 it stood as low as 4*3 per 10,000.
Yet in the eighties German emigration frequently stood at a rate of
over 20 per 10,000. Dm'ing the same decade British emigration
never fell below 11*3 per 10,000 — which point was touched in 1899.
And from that year onwards it steadily rose to 44'6 per 10,000 in
1906. While in the year 1907 the greatest number ever recorded,
235,392 emigrants, left British shores, being at the rate of 50 per
10,000. Of these it is some consolation to know that more than
half went to some portion of the British Empire, but the remainder
which went to foreign countries far exceeded in number those leav-
ing the much larger population of Germany.
GERMANY AND HER CUSTOMS UNION 83
facts that every German is trained as a soldier, and that
Gennany already has, and is rapidly increasing, a
powerful fleet of modern battleships.
If List were alive to-day he would have the profound
satisfaction of seeing that the fiscal policy for which
he pleaded has been carried out to its fullest extent,
and that the position in which Germany now finds
herself is at least what he urged would be the result.
Wealth in abundance, but not wealth alone, wealth
with immense power for peace or war. A great home
market in which the home producers are considered be-
fore the foreign producers, and are considered equally
with the home consumers. By this means is productive
power, which from a national point of view List always
regarded as an essential portion of real wealth, developed
and secured.
A study of the history of Modern Germany will con-
vince any impartial reader that from the time when
Bismarck, shaking off the last trace of Cobdenite influ-
ence, recanted and avowed himself a Protectionist, from
the time when the Zollverein policy was completed and
the spirit of it in List's sense of the word was allowed
full sway, the progress of Germany has been phenome-
nal.
From 1879 onwards the last trace of the laissez-faire
doctrines was thrown to the winds. Whatever was
done was done not in deference to any shibboleth, or
to any body of mazy abstractions, but on a cool, clear
calculation of the probable results, and of their ultimate
national value. For the inauguration of such a policy
Bismarck was no doubt pre-eminently fitted. But for
the driving-force behind him, at least in the fiscal portion
of his policy, he was indebted to a determined Economic
Union of Germans, who had by practical experience
6*
84 THE COMMONWEAL
convinced themselves of the soundness of List's teach-
ings. Whatever vs^as done was thorough, calculating,
and scientific. If Germany had dreamed in the past,
she vi^as awake and practical now.
In social reform Germany was no less thorough and
scientific than in her military and fiscal policies.
In 1881, the very year in which the ZoUverein
was completed, was inaugurated the most remarkable
and most successful piece of Social Eeform that the
world has ever seen, State Insurance for all German
workmen. Under this scheme a central national fund
is provided — to which contributions are made by the
employer, the workmen, and the State — and out of
which provision is made in the case of sickness, accident,
invalidity, and old age.^ As a supplement to the scientific
tariffs of 1879 and the eighties it has undoubtedly proved
of immense value to the State.
For many years the Social Democrats had been a
factor to be reckoned with. They were numerous and
not without influence in the reign of WiUiam I. The
State grappled with Socialism as it had grappled with
war and with industry. Instructed by a definite mes-
sage from the Throne, the Reichstag passed the State
Workmen's Insurance Scheme. The practical effect of
this measure has been to reconcile Socialists very largely
to the existing order of things and to give them a stake
and a participation in the wellbeing of the country which
has largely increased their national interest and checked
emigration.
Germany viewed as a whole to-day is a compact,
symmetrical, powerful, wealthy and highly developed
1 See Appendix for Report of Author's visit with delegates from
Friendly Societies to inspect the Arrangements for State Insurance
of Workmen in Germany.
GERMANY AND HER CUSTOMS UNION 85
national organism, effective, progressive and prosperous
in peace; ready and formidable for war, should war
arise. If seventy years ago List did not hesitate to urge
upon his countrymen that they had much to learn from
England, assuredly the time has come when we in our
turn may, with every advantage to ourselves, study and
reflect upon the progress of Germany.
The three prominent factors in the position of the
German Empire to-day are undoubtedly the Zollverein,
combined with Protection against the outside world, the
State Workmen's Insurance, and universal military
training, and although the Constitution of the British
Empire is such that no one of them may be applicable
in its entirety to our requirements, there is much in each
of them that we should be wise to adopt.
CHAPTEK VI.
GREAT BRITAIN BEFORE FREE TRADE.
The industrial development of England — Sheep-raising— Wool —
Woollen manufactures — Early measures of Protection — The
. cotton industry — The Methuen Treaty, 1703 — The views of
Adam Smith and List on the effect of this Treaty — Shipping
and Navigation Laws — Infant and injured industries.
It is undoubtedly a matter for considerable regret that,
in an age when education for all classes of the com-
munity is being made a subject of special concern both
to the State and to individuals, the industrial history
of England should be so little taught either in our
higher schools or universities. Yet the industrial devel-
opment of England has probably been more potent in
building up the British Empire than either the forces
of feudalism or the v^^iles of politicians. In fact J, W.
Welsford, in his brilliant and instructive work The
Strength of Nations, has gone the length of saying that :
*' The Spanish Armada was defeated, and the battle of
Trafalgar won, in the weaving sheds of England ". ^
If hitherto the attention of students of history and eco-
nomics has not been sufficiently drawn to this subject,
we are at least fortunate in possessing a comprehensive
work by Dr. Cunningham entitled The Growth of Eng-
lish hidustry and Commerce in Modern Thnes, in which
1 J. W. Welsford, The Strength of Nations, p. 141.
86
GREAT BRITAIN BEFORE FREE TRADE 87
the whole subject is dealt with in a spirit of impartiality
and scientific research. It would be an excellent thing
if all students of Political Economy, as set forth by the
academic exponents of the laissez-faire school, were to
acquaint themselves with this work.
A perusal "of the main features of British industrial
history establishes one fact beyond all question of con-
troversy — the industries of England were born, nursed,
and developed to a position supreme above those of all
other nations under a system of deliberate and syste-
matic Protection. A consideration of these facts, al-
though it must of necessity be far from exhaustive, will
enable us the better to understand the British Free
Trade era and the present industrial and Imperial
position.
For a considerable time after the Norman Conquest
the main meat supply of England was furnished by
pigs, and the breeding of hogs, which roamed and fed
over the unenclosed forest lands, was one of the principal
industries of the country.
But as the cloth weavers of the Continent increased
their demands for wool, sheep-rearing gradually increased
and came to be more important than the rearing of hogs.
And to take one instance alone, in the year 1327
" Lord Spencer counted, upon sixty-three estates in his
possession, 28,000 sheep ". ^ The production of wool,
although it furnished raw material for another industry,
did not of itself create that industry, and the history
of how the weaving of wool was first established as a
staple British industry is significant and instructive.
On the subject of British capacity and natural apti-
tude for the introduction of manufacturing industries,
Professor Thorold Eogers says : " That we learned all
1 Hume, vol. ii., p. 143,
88 THE COMMONWEAL
our knowledge of weaving from the Flemings is certain,
but we were the slowest of pupils. Even in the middle
ages it was seen that a piece of cloth was worth at
least eight times as much as the wool from which it
had been spun and woven, and that, if we could catch
the art, the wool which bore an export duty of 100 per
cent, with ease, i.e., without depreciation, would have
borne in the shape of cloth a far higher duty, and, in the
absence of duty, a far higher profit. We had extra-
ordinary advantages of climate, but we either did not
understand them, or made no use of them. As I have
told you before, I do not detect any progress in the
arts of invention, under which the process of production
was cheapened, for centuries, except in two arts, paper
and glass-making. I do not know whence these arts were
derived, and how they were improved. But I am sure
they were both of foreign origin, and that their develop-
ment in England was not due to native abihty or to
native enterprise."^
It is evident that the British race had no special
bent towards manufacturing industry, and that unaided
such industry could scarcely have come into existence.
In the time of Edward III. heavy export taxes were
placed on wool, and taxes were also levied upon the
foreign merchants trading in woollen goods from the
Continent. In this way the "infant industry" of
woollen manufacture was strongly protected and eventu-
ally grew to large proportions. By the middle of the
fifteenth century England no longer sold wool — she
sold only the cloth made from wool.
In the time of Elizabeth^ large quantities of undressed
and undyed cloth were carried to the Continent to re-
iThorold Rogers, Economic Interpretation ofHistory.
^ Welsford, Strength of Nations.
GREAT BRITAIN BEFORE FREE TRADE 89
ceive those finishing processes in which alum was such
an important ingredient. Then ahim was discovered in
Yorkshire. The exportation of undressed and undyed
cloth was prohibited, and the secondary cloth-making
industry was established in England as the primary one
had been. In the time of James I. the export of woollen
manufactures had come to represent nine-tenths of all
the English exports put together.
In relation to the early days of this industry in Great
Britain, List writes : —
" This branch of manufacture enabled England to drive
the Hanseatic League out of the markets of Eussia,
Sweden, Norway and Denmark, and to acquire for herself
the best part of the profits attaching to the trade with
the Levant and the East and West Indies. It was this
industry that stimulated that of coal mining, which again
gave rise to an extensive coasting trade and the fisheries,
both which, as constituting the basis of naval power,
rendered possible the passing of the famous Navigation
laws which really laid the foundation of England's mari-
time supremacy. It was round the woollen industry of
England that all other branches of manufacture grew up
as round a common parent stem ; and it thus constitutes
the foundation of England's greatness in industry, com-
merce and naval power." ^
There were doubtless other factors in the development
of this and other industries which enabled England to
reap the fruits of Protection. Religious persecution
under Philip II. and Louis XII. drove skilled artisans to
Great Britain who were invaluable in introducing many
new branches of industry. But the fostering of these
industries by prohibitions and duties alone enabled them
to be successfully started. "The island kingdom bor-
1 List, National System of Political Economy, p. 31.
90 THE COMMONWEAL
rowed from every country of the Continent its skill in
special branches of industry, and planted them on Eng-
lish soil, under the protection of her customs system.
Venice had to yield (amongst other trades in articles of
luxury) the art of glass manufacture, while Persia had
to give up the art of carpet weaving and dyeing."
In the same way the Lancashire cotton industry
was first started under Protection and received great ad-
vantages from preferential treaties and prohibition of
imports. Thus in 1703 there came into existence the
Methuen Treaty between Great Britain and Portugal.
Under this " preferential" treaty Portuguese wines came
to Britain on considerably better terms than French
wines, and the woollen manufactures of Britain were ad-
mitted into Portugal, the prohibition being taken off.
The result of this treaty was remarkably beneficial
both to the woUen and cotton industries in England. —
As Portugal under this arrangement now sold large
quantities of port and other wines to England, she took
large supplies of cloth in return. Trade between the
two countries grew and developed, and Portugal, im-
porting many other commodities in course of time from
England, paid for them in buUion estimated at £50,000
a week.^ This bullion — obtained by the Portuguese from
America — was in turn used by the British in their East
Indian trade where bullion was indispensable. From
India they obtained, in addition to spices and fans,
large quantities of cheap and beautiful silk and cotton
fabrics. These became so popular as to threaten the
Lancashire cotton industry, and in 1700 an " Act for the
more effectually imploying the poor by encouraging the
manufactures of this Kingdom " ^ was passed by the
^ Cunningham, Industrial Eevolution, p. 461.
""Ibid., p. 465.
GREAT BRITAIN BEFORE FREE TRADE 91
British Parliament under which Indian fabrics might be
warehoused for re-exportation, but could not be sold
within the country. The effect of this was that the
Lancashire cotton industry had its own home market
protected in England, and the East India merchants
were at the same time able to get their profit by seUing
the Indian fabrics on the Continent of Europe. Europe
for a time bought cheap fabrics. England established
a great cotton manufacturing industry. List's comment
on these transactions is interesting. He says ; —
" Was England a fool in so acting? Most assuredly,
according to the theories of Adam Smith and J. B. Say,
the Theory of Values. For, according to them, England
should have bought what she required where she could
buy them cheapest and best ; it was an act of folly to
manufacture for herself goods at a greater cost than she
could buy them at elsewhere, and at the same time give
away that advantage to the Continent. The case is
quite the contrary, according to our theory, which we
term the Theory of the Powers of Production, and
which the English Ministry, without having examined
the foundation on which it rests, yet practically adopted
when enforcing their maxim and importing produce and
exporting fabrics. The English Ministers cared not for
the acquisition of low-priced and perishable articles of
manufacture, but for that of a more costly but enduring
manufacturiiig poiver.
" They have attained their object in a brilliant degree.
At this day England produces seventy million pounds'
worth of cotton and silk goods, and supplies all Europe,
the entire world, India itself included, with British
manufactures. Her home production exceeds by fifty or
a hundred times the value of her former trade in Indian
manufactured goods. What would it have profited her
92 THE COMMONWEAL
had she been buying for a century the cheap goods of
Indian manufacture ? And what have they gained who
purchased those goods so cheaply of her ? The Enghsh
have gained power, incalculable power, while the others
have gained the reverse of power." ^
The shipping of England was developed under a series
of Navigation Laws thoroughly protective in character.
And although Adam Smith, in order to support his Free
Trade doctrine at all hazards, and under all circum-
stances, makes a distinction between the political and
economic effects of these laws, it is impossible to con-
cede that even on purely economic grounds in the long
run they were not advantageous.
List sums up the position as follows : —
"The truth of the matter is this. Eestrictions on
navigation are governed by the same law as restrictions
upon any other kind of trade. Freedom of navigation
and the carrying trade conducted by foreigners are
serviceable and welcome to communities in the early
stages of their civilisation, so long as their agriculture and
manufactures still remain undeveloped. Owing to want
of capital and of experienced seamen, they are willing to
abandon navigation and foreign trade to other nations.
Later on, however, when they have developed their pro-
ducing power to a certain point and acquired skill in
shipbuilding and navigation, then they will desire to
extend their foreign trade, to carry it on in their own
ships, and become a naval power themselves. Gradu-
ally their own mercantile marine grows to such a de-
gree that they feel themselves in a position to exclude
the foreigner and to conduct their trade to the most dis-
tant places by means of their own vessels. Then the
time has come when, by means of restrictions on navi-
^ List, National System of Political Economy.
GREAT BRITAIN BEFORE FREE TRADE 93
gation, a nation can successfully exclude the more
wealthy, more experienced and more powerful foreigner
from participation in the profits of that business.
When the highest degree of progress in navigation and
maritime power has been reached a new era will set in,
no doubt ; and such was that stage of advancement
which Dr. Priestley had in his mind when he wrote '■
' that the time may come when it may be as politic to
repeal this Act as it was to make it '."
That time doubtless did come, and British shipping is
free. But it is significant that only recently we have
passed a Merchant Shipping Act to remedy a state of
things in which that freedom had been carried so far
as to allow foreign shipowners a freedom from restric-
tions with regard to British trade which we did not
allow even to our own shipowners.
In the same way our numerous manufacturing in-
dustries have run for a long period without the " props "
of Protection which were so lavishly bestowed upon them
in their infancy. That some of the fostering measures
of Protection were crude, clumsy, and unscientific no
modern student of economics will deny. But that a
system of absolute Free Trade would have served those
infant industries as well it seems impossible in face of
their history to believe, except on the one paramount
condition, that of universal Free Trade.
If, for instance, the doctrine of Lord Avebury with
regard to America'^ be applied to England, would it not
compel us to argue that the English should have con-
tinued a race of wool growers and allowed Flanders to
retain for ever the position of cloth manufacturers ? A
^ Priestley, Lectures on History and General Policy, Pt. ii., p.
289.
2 Vide above, p. 56.
94 THE COMMONWEAL
position we were only finally able to share with Flan-
ders by taking the most stringent measures of Protection
in order to get our industry started and established.
In the same way, would our cotton industries have
developed as they have done if our ancestors had been
content to import the fabrics of India ? And if these
great industries had not been developed, what were to
be the alternatives? Were the breeding of hogs and
sheep to continue indefinitely our chief occupations ?
But let us pursue the analysis of this question a little
further.
If it be once conceded, and the concession is freely
made by John Stuart Mill,i that it may be expedient to
protect an infant industry, what valid objection can be
urged against the possible expediency of offering some
measure of protection to an injured industry ?
In the language of that metaphor which economists
have chosen to apply to this subject, if nursing be neces-
sary to the infant is it not equally so for the injured?
If, in other words, a matured industry is subjected to
precisely those same unfair conditions of competition
which render the life of an infant industry so precarious
as to demand Protection, why should not some measure
of that same Protection be expedient for the matured
industry ?
As the preservation of productive power in a State
should be one of the first objects of applied Political
Economy, there can be no question that under certain
conditions the matured industry should be so assisted.
All civilised nations except Great Britain are to-day
convinced of this fact.
^Mill, vol. ii., p. 487.
CHAPTEE VII.
GREAT BRITAIN'S FREE TRADE ERA.
Free Trade policy of England defined — Its expediency — Cobden
and Bright on the Corn Laws — First half of the Free Trade
era — Foreign rivals in the forties — Second half of Free Trade
era — Industrial position — Injured industries — Motor industry
— Woollen manufactures — Shipbuilding — Cotton — The wealth
of England not necessarily an index to success of manufactures
— The attractions of England as a place of residence — Great
value of British Home Market — British wealth and British
industry are things apart — Investment abroad — The mazy ab-
stractions of the President of the Board of Trade — Analysis of
a foreign investment — Unsatisfactory nature of our trade with
Germany — The calamity of unemployment — Producer must be
considered with the consumer — Protected labour and free im-
ports — Objections to a tariff — Bismarck on the British Free
Trade era.
In preceding chapters I have recorded and briefly re-
viewed the testimony with regard to the duration, nature,
and effects of certain eras of Free Trade, or eras in
which the fiscal pohcy showed a tendency towards Free
Trade, in the United States and Germany. We have
seen that in both these countries, after trials of certain
periods of Free Trade, the protective system was re-
verted to, until to-day carefully calculated scientific Pro-
tection, Protection especially directed to employing
labour at home to the fullest extent, is the avowed
pohcy and practice of both these countries.
95
96 THE COMMONWEAL
It is now necessary to consider and, as far as possible,
analyse the remarkable Free Trade, or more accurately
free import, era which has existed in England since the
forties of the last century down to the present day.
Without stopping to discuss the amount of wisdom
there may be in the proverb "Vox Populi, vox Dei,"
it is undoubtedly a significant fact, and one which
no impartial student of this problem can afford to
ignore, that during that period, at least to within the
last few years, the free import system has been approved
by the majority of the people of these islands. This
policy, within that period, has guided the legislation and
administration of British Governments of both political
parties. That it has from time to time been challenged,
more especially in the fair trade agitation of the eighties,
is true, but that in the main it has received the assent
and support of the majority of EngHshmen cannot be
denied.
It is well that we should here define more precisely
the so-called Free Trade policy of England. The
principles recognised are ;
That there shall be no duties of a protective character
whatever, that is, no duties on imported goods which are
also produced at home. But on the other hand, duties
must be of a purely revenue-producing character, revenue
taxes, as they are called, on certain articles not produced
at home, such as tea, coffee, sugar and tobacco, and on
which therefore any duties levied cannot have a protective
effect. Further, there are also customs duties on certain
foreign goods, such as spirits, equivalent in amount to the
excise levied on these articles when produced at home.
That these principles, although avowed with great
fervour by their advocates, have not always been rigidly
adhered to of recent years we have already seen in dis-
GREAT BRITAIN'S FREE TRADE ERA 97
cussing the doctrines and practice of the laissez-faire
school. Still, broadly speaking, it may be said that Eng-
land is the one great civilised country in modern history
in which the pohcy of free imports has been regarded
over a long period of years as the most expedient and
most successful policy to adopt.
The questions then to v^hich we have to address our-
selves are : —
On what grounds is the expediency of this policy based ?
Is the policy, even if expedient for a time in the past,
necessarily expedient to-day ?
At the outset it must be conceded that the Free
Trade doctrines propounded by Turgot and Say, and
stated with such conspicuous ability and lucidity by
Adam Smith, impressed themselves in a remarkable
manner upon many Englishmen early in the first half
of the nineteenth century. So impressed was Buckle
with the intellect of Adam Smith that he writes of him
as by far " the greatest thinker Scotland has produced "}
And although to-day we may seriously question the
cardinal doctrine on which Adam Smith based his
system, namely, that the sum of individual actions,
unrestrained and unregulated by Government interfer-
ence, short of actual crime, will necessarily best serve
the interests of the whole community, it is certain that
this view came to be largely adopted and was freely ex-
pounded by the Manchester school of politicians.
Moreover, not only was Adam Smith a great force in
himself, but he was succeeded, and his doctrines still
further extended and modified, by such writers as Eicardo
and Mill. Some of the conclusions, hypotheses, and fal-
lacies of this school of writers, as well as some of their
predictions, were dealt with in the first chapter, and it is
' Buckle, History of Civilisation in England, vol. ii., p. 467.
7
98 THE COMMONWEAL
not necessary to discuss them further here. At the same
time, in considering the causes of the British free imports
era, the great influence of these writers, which was felt
not only in England but throughout Europe and America,
must be rated high. And although Free Trade as con-
ceived, expounded and put in practice by the laissez-faire
politicians may not have been the ideal policy for Eng-
land, its adoption at any rate was followed by a period
of great prosperity.
The Corn Laws, which were started in 1815 — to en-
courage agriculture — were by Governments, chiefly
under the influence of country squires and the farming
interest, carried to an unfair extent. Thus by the Corn
Law of 1828 it was provided that when the price of
wheat was as low as 66s. a quarter the duty should be
20s. 8d. a quarter. This may have been Protection, but
it was not reasonable scientific Protection, it was ar-
ranged in the interests of one class rather than in those
of the community generally. And it was denounced as
inexpedient almost as strongly by List — an avowedly
protectionist writer — as by the Corn Law agitators in
England.
Where Protection is used at all it must be used to
promote a symmetrical national development such as is
arrived at to-day both by the United States and Germany.
In the instance of the Corn Laws, the manufacturing and
working-classes believed themselves, not without reason,
to be unduly sacrificed in the interests of agriculture.
Cobden and Bright and the Anti-Corn Law agitators suc-
ceeded in getting these Corn Laws abolished, and one
of the weapons they used was Adam Smith's doctrine of
Free Trade. At the same time it is a remarkable fact
that although the exorbitant duties under the Corn
Laws furnished politicians with magnificent material for
GREAT BRITAIN'S FREE TRADE ERA 99
perorations, and were indefensible, as they stood, on
any fair basis of taxation, it was many years after their
aboHtion before the price of wheat in England was ma-
terially affected. To a certain extent, and for a time,
Cobden was right, the freight charges of his day and for
many years afterwards did afford the farmers of Eng-
land a means of Protection, or, as Cobden preferred to
describe it, a " Natural Protection ". Other causes also,
such as the Crimean War and the American War, tended
to keep foreign wheat supplies down. But art overcame
nature. Freights became a dwindling quantity, enor-
mous fresh wheat areas were opened in America, and from
the late seventies onwards the real drop in the price of
wheat occurred.
The policy of Free Trade — beginning with the Eepeal
Act of 1846 abolishing the corn duties — was extended
at the same time, and at intervals, for several years
subsequently, to many other articles of commerce until
the year 1860, which practically brought the process of
abolishing duties to an end. Judged by any test that
can fairly be applied, the progress for twenty-five years
after the new free import fiscal policy was introduced was
rapid and substantial, especially when compared with
the progress for twenty-five years previously. Thus,
taking the test most frequently applied, that of exports,
although as already stated there are many objections to
relying too exclusively on this test, we find that in 1820 ^
the value of exports was estimated at £2 Is. 9d. per head,
that twenty years later, during the Corn Law era in
1840, they only stood at £1 18s. 9d. a head, but that in
1860 they had risen to £4 14s. 7d. ; 1870, £6 9s. 6d. ;
and in 1872, a phenomenal year, they were as high as
£8 Is. per head.
^ Figures prior to 1854 are approximate only.
7*
100 THE COMMONWEAL
Some writers to-day very properly contend that this
progress was due to other causes than free trade,
and although the relative value of different factors
in the advance must always be difficult to estimate,
there is no doubt that many other causes did operate
favourably on the trade of Great Britain. Among
these were the discovery of the Californian and Aus-
tralian goldfields and the continuous advance in all
sorts of improved machinery — more particularly in the
textile trades. But nevertheless, allowing for all these
factors, it appears difficult to avoid the conclusion that
the policy of free imports during the first half of the
period under consideration — that is from the fifties
to the eighties — did contribute to the commercial and
industrial prosperity of that time. In any case the
Free Trade pohcy during that time was undoubtedly
better for England than the fiscal policy — most par-
ticularly as expressed by the Corn Laws — which had
immediately preceded it.
It need hardly be pointed out that it is possible to
hold this view without necessarily believing that the
extreme form of free import policy adopted was the
best and most expedient that might have been adopted.
Time does appear to have disclosed — more particularly
in quite recent years — certain directions in which it has
told adversely against the true interest of England, and
tended to a one-sided development which might have
been avoided with economic and great national advan-
tage. But reserving this point for further consideration,
it will be interesting to consider certain further reasons
for the industrial prosperity of this period.
In the forties the rivalry of foreign countries in
manufactures was comparatively slight. As evidence
of this it is only necessary to refer once more to the
GREAT BRITAIN'S FREE TRADE ERA 101
estimate of England's position made by List in his
day (vide above, p, 76). The danger of competition with
foreign manufactm'ed goods in the home market hardly
existed.
Further, if Cobden was successful in establishing his
doctrines and policy at home, he was not entirely with-
out success abroad. The doctrines of Free Trade were
discussed in every country, and the tariff legislation of
Germany and of the United States during this period
towards a relaxation of Protection has already been re-
ferred to. England, therefore, down to the seventies was
not exposed to the high foreign tariffs she has since
had to meet. Had this passing disposition on the part
of foreign countries only become a permanent one, and
Free Trade been generally and permanently adopted, as
Cobden and Mill anticipated would be the case, the fair
trade and the most recent tariff-reform controversies in
England would never have arisen, and there is little
doubt that in a Free Trade world England would have
maintained her industrial and commercial supremacy
unchallenged. But foreign countries found Free Trade
too costly from a national point of view, and soon re-
verted once more to Protection. England thus had to
eliminate the hope and inducement held out by Cobden
of a Free Trade world, and decide whether or no free
imports was still her best policy even in a protectionist
world. Hitherto she has decided in the affirmative.
But if it be conceded that on the whole British trade,
industry, and general material welfare were benefited
by our present fiscal system down to the time of the
seventies or eighties of last century, it by no means
follows that the same is true of the last twenty years,
much less of to-day. Nor does it follow that there
were not grave defects in that policy which might have
102 THE COMMONWEAL
been avoided with considerable national and even econ-
omic advantage.
The industrial, agricultural, and commercial history of
the second half of the British Free Trade era nov^ calls
for some consideration. It by no means presents the
same relative or actual advance as v^as to be observed
in the first half. Broadly speaking, what has happened
has been a continuous and large rise in our imports of
manufactured goods ; stagnation or an actual fall in our
exports of manufactured goods through the greater
portion of this period, but slightly compensated for by
a rise in the last few years.
The figures, illustrating this, compiled from the Board
_of Trade returns, are set forth in Mr. Holt Schoohng's
British Trade Year Book, from which a few figures may
be quoted.
Thus, taking the decade 1880-89 our imports of manu-
factured goods stood at a yearly average of 79 milHons,
with every succeeding decade the average rose until, in
1898-1907, it stood at 134 mlhons.
On the other hand, our exports of manufactured goods
stood at 201 millions in the decade 1880-89 and remained
at about that level, sometimes slightly above and some-
times below, down to the decade 1893-1902. They then
began to rise until, in the decade 1898-1907, they stood at
242 millions — a more satisfactory position if there were
not already signs of our again receding from it.
The position indicated by these statistics is that of
the home market being increasingly invaded by foreign
manufacturing competition, and a foreign export trade
not even increasing to a sufficient extent to compensate
for that invasion — to say nothing of the further increase
required by an increasing population. The results to
GREAT BRITAIN'S FREE TRADE ERA 103
be anticipated from such a position are that certain in-
dustries will be injured or even killed by competition,
that capital will be lost or withdrawn from such indus-
tries, and that workmen will be thrown out of employ-
ment. And unfortunately these results have occurred.
Keference has already been made to the continuous
and increasing flow of capital from this country for
investment abroad (see above, p. 35). A portion of
this increased investment abroad is undoubtedly capital
withdrawn from certain declining industries in England.
The Tariff Eeform League and Tariff Eeform Com-
mission have collected, compiled, and published statistics
in regard to a number of injured British industries
disclosing the nature of the mischief which is going
on.
To review this evidence, or in any adequate way to
attempt to deal with the present position of the whole
of the industries of England, would be beyond the scope
of this work. But a few instances may be briefly re-
ferred to as illustrating the disadvantages which manu-
facturers and workmen have to contend against under
existing fiscal arrangements, whereby the foreign manu-
facturer has his home market secured to him, and the
British manufacturer has to face the competition of the
world.
Perhaps the most modern of all the greater industries,
involving a very large amount of highly paid labour, and
therefore of special value from a national point of view,
is the motor industry. The introduction of the motor
car has been attended with results of an economic
character in more directions than one.
In the first place it has struck severe blows at the
carriage-builder, the harness-maker, and the farmer.
It is beginning to tell on the retiirns of the railways.
104 THE COMMONWEAL
In this way it has dislodged a certain amount of both
capital and labour, and as already pointed out, although
capital may find investment elsewhere, it is not so simple
a matter, as Professor Marshall and other laissez-faire
writers suggest, for labour to do so.
Moreover, the motor consumes petrol and india-rubber
— both foreign imports — and not oats, hay or straw, as
the farmer knows to his cost. Still such a change as
this is inevitable from time to time in the nature of
things, and will come under any fiscal system in the
world. The real question at issue is whether there is
anything in the fiscal system which prevents this country
from obtaining the only compensation which such a
change has to offer, namely, that obtainable by both
capital and labour from the development of the com-
peting industry itself.
The manufacture of a motor car requires a large
amount of skilled labour. The raw material used is
about a tenth of the cost of the car when sold, and
nearly the whole of the balance is paid in wages.
Motors have been freely manufactured in many countries
— especially France, Germany and the United States —
and in each of these countries the manufacturer has
started on his enterprise with the assurance that the
home market was largely secured to him by the pro-
tective tariff. He has thus been able to employ large
capital with confidence, to standardise all important
parts of the machine, to manufacture on a large scale
and so reduce the costs of production to a minimum.
By this means he can arrange to export at a relatively
low price, and as England is the one large market to
which he can obtain free access, it is here chiefly that
his exports have been sent.
The English manufacturers, on the other hand, have
GREAT BRITAIN'S FREE TRADE ERA 105
found the greatest difficulty in building up a new in-
dustry — it might even be called an infant industry —
against such overwhelming competition. Had their
market been even partially secured to them by the most
moderate tariff, they could have entered on the new
industry with some confidence and on a sufficiently large
scale ; but as it is, the history of the motor industry in
England has been one of disappointment and financial
disaster.
Free importers may of course urge that motors have
by this system been obtainable more cheaply here than
elsewhere, but it behoves us to consider at what cost to
the many this cheapness for the few who buy motor
cars has been obtained. In 1907 the money spent on
imported motor cars, and parts thereof, amounted to
£4,552,786, of which at least four-fifths went to foreign
workmen.^ And this, it must be borne in mind, is an
industry which has to a large extent displaced others
already referred to of native origin, and has driven
British workmen in certain other trades out of work.
As against this large import the export of motor cars
was below a million pounds in value.
Here, then, is a clear instance of labour being displaced
from old industries in England, and being replaced — if
it may be said to be replaced at all — by labour abroad.
What became of the labour thrown out of work in
England may, we fear, be more accurately gathered from
the statistics of unemployment than from Professor
Marshall's doctrinaire utterance on the subject.^
But a still more striking and significant instance of the
peculiarities of our present fiscal position is disclosed by
one of those textile industries which for so many years
was our greatest industry. The woollen manufacture,
1 Statistical Abstract, 1908 [Cd. 4268]. " Vide above, p. 38.
106 THE COMMONWEAL
to which considerable reference was made in the pre-
ceding chapter, was described in the seventeenth
century as " the flower, and strength, and revenue, and
blood of England", And as List wrote: "It was
round the woollen industry of England that all other
branches of manufacture grew up as round a common
parent stem ; and it thus constitutes the foundation
of England's greatness in industry, commerce and
naval power".
This industry — so firmly established and deeply rooted
in the age of Protection — forms an interesting object for
study during the era of free imports. In 1895 there
were employed in the woollen, worsted and shoddy
trades of England and Wales 282,401 persons ; in 1904
this number had fallen to 261,801.^ Continual improve-
ments in machinery no doubt partly accounted for this,
but there is another reason which is far from satisfactory.
Exports of finished goods to foreign countries have
diminished since the quinquennial period 1885-89. On
the other hand there has grown up a great export trade
in " noils" and " tops," the technical terms for scoured
and combed wool. The processes of scouring and comb-
ing wool call for the lowest grades of labour in the
industry, and this semi-raw material purchased here is
sent abroad and made up abroad into finished articles.
In 1906 the imports from foreign countries of finished
goods were over ten millions in value, while those sent
abroad to foreign countries only amounted to a little
over thirteen millions. It is true that while the export
to foreign countries has shrunk, that to the colonies has
increased, but only just enough down to 1906 to balance
the loss in foreign exports.
So that over a period of twenty years, in spite of the
• Statistical Abstract, 1908 [Cd. 4258].
GREAT BRITAIN'S FREE TRADE ERA 107
great increase in population, this industry — once the
"flower and strength and revenue" of England — has
been largely ousted from the home market, and has only
been prevented from actually going back in its export
trade by the growing colonial market. It is yearly be-
coming more apparent that it is impossible to combine
a system of the most highly protected labour in Europe
with a system of absolutely free imports without seriously
injuring some of our most important industries.
The change which in the last twenty-five years has
come over British agriculture has already been referred
to.
On the other hand there doubtless are some indus-
tries which appear to have advanced, or at least to be
holding their own. Those most frequently quoted by
the advocates of Free Imports are shipbuilding and the
cotton trade.
With regard to shipbuilding one important fact is
continually overlooked. The spirit and practice of the
old Navigation Laws — so extolled by Adam Smith and at
the same time so thoroughly protectionist in character —
have never been entirely departed from. It is still a
stipulation in all admiralty contracts for ships that
British materials only must be used in building them.
"When the enormous quantity of material and con-
struction used in building our battle-ships is borne in
mind, it will be recognised that this is really a measure
of Protection which contributes, materially, to the secur-
ity and stability of the shipbuilding industry as a whole
and of the subsidiary industries which feed it.
The cotton industry continues large, and as a whole,
owing to the increasing exports to our colonies, still
appears to be growing, but even here there are certain
facts which give rise to a doubt as to whether under
108 THE COMMONWEAL
existing conditions we may not rather anticipate a dimin-
ution than an increase in the future. America now con-
sumes more raw cotton than we do, and Germany is
rapidly gaining on us. Moreover, both countries are
increasing their exports of cotton goods more rapidly
than we are. The number of persons employed in the
cotton trade in the United Kingdom was smaller in 1901
than it was ten years previously.
But if shipbuilding and the cotton trade may still be
claimed as flourishing industries, there are unfortunately
a number of others which are either stationary or de-
clining, or at least were so over a period of twenty years,
until the boom of 1907 gave them a temporary revival
from which they are already once more receding.
Viewed, therefore, as a whole it cannot fairly be con-
tended that the industrial and trade results obtained
during the second half of the Free Trade era in Great
Britain, especially when compared with the results ob-
tained by our manufacturing rivals in that same period,
can in any way be regarded as evidence of the value of
the existing fiscal system to that industry and trade.
Moreover, what is more unsatisfactory even than the
statistics and evidence we have been considering, is the
large amount of unemployment and emigration as evi-
denced by the of6cial returns.^ For two years past the
amount of unemployment in England has exceeded
considerably that in Germany.
There is one argument frequently used by free im-
porters in favour of the present system which appears
to give rise to great misapprehension and which requires
careful examination.
Apologists of the free import system continually refer
to the wealth of England, — as evidenced in various
1 For statistics of emigration see above, p. 82.
GREAT BRITAIN'S FREE TRADE ERA 109
ways, the income tax returns, money invested in foreign
securities, the large number of the wealthy leisured
classes, and numerous other facts, all of which they re-
gard as satisfactory and all of which they attribute to
Free Trade. That England per head of her population
is still the richest country in the world is probably true ;
that she gained much of that wealth during the Free
Trade era, and even for the first half of that era, partly
owing to Free Trade, may also be admitted. But that
she has gained her wealth, to anything like the same
relative extent, from her industries under Free Trade
in the second portion of this era is certainly not the
case.
England enjoys one great advantage, and has enjoyed
it increasingly, during the last quarter of a century.
She offers to the wealthy, leisured classes of the Anglo-
Saxon race many attractions as a place of residence.
Wealthy Americans as well as wealthy colonists still
find England the most agreeable place to live in — at
any rate for a considerable portion of the year. The
art of healthy, enjoyable country life is better under-
stood and practised by the wealthy classes in England
than anywhere else in the world, and even to the
poorer classes a greater measure of this enjoyment is
extended than in other countries.
The field sports and games of England are often
made a subject of reproach by apologists of the laissez-
faire system in industry and trade, who, rather than
admit any possibility of defect in our present fiscal
system, are apparently ready to attribute the stagnation
in industry and the unemployment of British workmen
to anything and everything else, from the consumption
of alcohol or tea, to the hunting field or the village
cricket club. But as a matter of fact, the pluck, the
110 THE COMMONWEAL
enterprise and the pioneering instinct which have led
the British race to overrun and colonise successfully
in every corner of the globe were largely trained, reared,
and nourished in the hunting and playing fields of
England.
Open-air games are an evidence and source of viriHty,
not a sign of decadence or sloth. And whatever mis-
takes we have made we still do not produce to any
great extent among our upper and middle classes either
the neurotic type of American, or the myopia so fre-
quently seen among modern Germans. England's public
schools and universities, in which the healthy tradition
of physical training is so well combined with mental
training, draw many colonists and Anglo-Saxons from
all parts of the world to England.
But most potent of all advantages to the capitalist is
probably the fact that London still remains the great
exchange of the world. In no market is so much
capital invested abroad, and in no market are there as
many facilities for this form of investment. These
reasons all combine to make England the home of
a very large class of wealthy people who spend money
freely in the country and whose residence in the country
is no doubt an advantage in many ways, but whose
financial interests are international rather than national,
and a greater portion of whose wealth is drawn from
investments abroad.
The buying power of this portion of the community
is a very important factor in the British home market,
for all sorts of finished commodities, but so long as that
market is equally accessible to all competitors it is little
more a source of advantage to the British than to foreign
manufacturers and workmen. In fact British industry
and British wealth, under the existing system, are thmgs
GREAT BRITAIN'S FREE TRADE ERA 111
apart. There is no necessary or constant relationship
between the two. British wealth may actually go on in-
creasing when British industry is waning. Thus capital
may be withdrawn from British industry and invested
more profitably abroad. As Goldsmith long ago realised,
you may have a condition of things in which
Wealth accumulates, and men decay.
To all appearances we seem to have to some ex-
tent such a condition of things now, and the cause is
neither the village ale-house nor drinking tea — nor are
the remedies total abstinence, the abolition of games, or
Socialism.
Kecent debates in the House of Commons have dis-
closed an amount of doctrinaire bigotry on this subject
which may well astonish the ordinary reader. The con-
fusion of mind which exists on the subject of wealth,
and the satisfaction which the British producer ought
to derive from the reflection that so long as Englishmen
are increasingly investing abroad all must be well, would
be ludicrous if it were not so disastrous.
As an illustration of this delusion, and the paralysing
complacency which it appears to confer even on the
minds of those who are in a measure responsible for the
country's position in trade, I cannot do better than
quote from the speech made in the House of Commons
on 19th February, 1909, by the President of the Board of
Trade, who said : —
" I recognise that the rate of investment abroad is
increasing at the present time. I assert also that in-
vestment abroad is beneficial. It is a very good thing
for British capital that it should be able to secure for
itself a share in the new wealth and the new opportuni-
ties and the great resources of the whole world. Such
112 THE COMMONWEAL
a system of investment develops our trade connections
with many countries. It develops the British Empire
for which hon. gentlemen opposite are so ready to speak
in terms of unrestrained panegyric and enthusiasm. It
can only leave this country, as the Prime Minister told
us, in the form of exports, the produce of British labour,
and while it goes in these exports it returns a hand-
some and profitable return not only in the interest but
very often in a marked increase of the capital sum to
those who have made the investments."^
To the first portion of this statement no exception
need be taken. Lucrative foreign investment is a per-
fectly legitimate and excellent thing for the investor,
and indirectly, in so far as it gives those investors divi-
dends to be expended in the country of their residence,
not a bad thing for England. But the whole question at
issue is, does this large and increasing foreign invest-
ment necessarily afford any guarantee whatever as to
the satisfactory position of British producers? As a
matter of fact the two things stand apart. The capital
going abroad may be and indeed is largely, if not chiefly,
the re-investment of profits made abroad, it is also at
the present time largely money withdrawn from dechn-
ing British industries, and from the sale of British
securities which are shrinking in value. In what way
then can this tide of capital flowing out of the country
be regarded as an index of the prosperity of British
producers ?
Let us take an actual concrete case that recently came
under my notice. A British investor having a large sum
of money invested in the shares of a well-known British
motor manufacturing company became dismayed at
the continual decline of the industry, sold his shares and
^ Mr. Winston Churchill, Times, 20th Feb., 1909.
GREAT BRITAIN'S FREE TRADE ERA 113
invested the proceeds in United States Steel Preferred
shares which yield him a good cumulative dividend.
Meanwhile the motor company, having exhausted its
working capital, endeavoured to raise more by issuing
fresh shares. But the continuous decline in the price
of the shares rendered the issue a failure. The com-
pany had to curtail its operations, and the shareholders
incurred great losses. In the case referred to the share-
holder withdrew such money as he could save from a
declining British industry to invest it in a thriving
American one, which behind the walls of a tariff has
grown to such dimensions as to be now capable of pro-
fitably invading the British market.
In what way do British producers profit by this
" foreign investment " ?
It is clear those engaged in the motor industry do not
do so. They, under the stress of foreign competition
and the consequent withdrawal of British capital, have
had to close a large portion of their works and dismiss
their workmen. No. The advantage to the British
producer is of a much more subtle character than that.
It is only to be discovered by recourse to a theory based
on mazy abstractions, which apparently are ample for
the purposes of a President of the Board of Trade, but
are entirely inadequate for the requirements of trade
itself.
What is this theory? It is that capital "can only
leave this country in the form of exports, the produce of
British labour ".
That a statement of this sort might emanate from the
somewhat arid discourses of certain laissez-faire academic
schoolmen, with no practical knowledge of business, and
a blind devotion to those assumptions which Jevons
so roundly denounced, is conceivable, but that they
114 THE COMMONWEAL
should fall from the lips of a President of the Board
of Trade who from his official position must be assumed
to have some knowledge of the department over which
he presides is a remarkable piece of evidence of how far
the influence of the popular fallacy with regard to imports
being paid for by exports extends. The nature of this
fallacy was discussed in Chapter III., and the frequency
with which it gives rise to the suggestio falsi referred to.
It would be difficult to find a more striking example of
the erroneous conclusion to which this fallacy continually
leads than that furnished by the President of the Board
of Trade. The statement is of sufficient importance to
lend some interest to its detailed analysis which we may
proceed to consider.
In the first place to say that " capital can only leave
this country in the form of exports, the produce of
British labour," is on the face of it a mis-statement of
actual fact. Let us follow what occurs when a pur-
chase of say American securities is made. The shares
are sent to the purchaser. The payment made for
them is sent in the form of a bill of exchange, a cheque,
or a credit transfer to America, where it passes to the
credit of the seller of the securities. It remains, as a
debit against this country, an exchange value which will
be disposed of as convenience and the position of trade
requires, thus it may be liquidated forthwith in bullion,
be used m course of exchange to defray expenses of
American tourists, or even go in part payment of a deer
forest in Scotland, or a residence in England. It may
be used to pay for British services in various forms, and
it may be used to pay for manufactured goods if such
goods happen to have been purchased, but it does not
determine such purchase. In what form, other than
an exchange value, it ultimately finds its material equi-
GREAT BRITAIN'S FREE TRADE ERA 116
valent either within, or as an export from, this country,
is dependent on a dozen other factors besides that of
British industry. And to seriously maintain that it can
only be exchanged for manufactured goods, and that it
necessarily creates the demand for these goods, is en-
tirely untenable.
No doubt one of the theories which underlies this
argument is the "abstraction" that an exchange value
sent to the States increases the buying power of the
States, and that this buying power will directly or in-
directly, probably through a third country, eventually
be exercised by obtaining some material equivalent from
Great Britain for that exchange value. But even grant-
ing the truth of this proposition, the supply of that
material equivalent may take, as already pointed out,
many forms alternative to manufactured goods. Thus
on examination it will be seen that the utterance of
the President of the Board of Trade is fallacious to the
core. It might well be regarded as the official death
knell to the system of free import finance.
The truth is, the success of the English producing in-
dustries turns on a good deal more than the mere buy-
ing power of foreign countries. That any increased
buying power in a foreign country is going to increase
that country's purchase of our manufactured goods en-
tirely depends on the resources that country has for
manufacturing similar goods, the amount of tariffs such a
country places upon our goods, and the extent to which
we can hope to trade in the face of those tariffs.
Take the nature of our trade with Germany to-day.
In the year 1907 our imports from Germany of articles
wholly or mainly manufactured amounted to 38*6 mill-
ions. Our exports of the same class of goods to Germany
only amounted to 297 millions. The balance of trade
116 THE COMMONWEAL
in manufactured goods is thus entirely in favour of
Germany. We who, with our open competitive market,
are more dependent on our export trade than any of
our protectionist rivals, send less manufactured goods to
Germany than she does to us. While, on the other hand,
Germany gets, in addition to coal, other raw or semi-raw
material from us in increasing quantities, which, when
duly made up into finished manufactured material, the
product of German labour, comes back to compete with
the products of British labour.
Thus it will be seen that the mere wealth of England,
in the sense of mere buying power, whether we have
regard to the proportion spent on living and luxury in
this country, or sent abroad for investment, does not,
under the free import system, necessarily afford any
great support to British manufactures and workmen.
It doubtless does an excellent turn to the merchant.
But the British producer must take his chance of cus-
tom from this wealthy buyer in free competition with
all the rest of the world. At the same time it must not
be overlooked that the very presence of a comparatively
large wealthy class does confer an exceptional value in
buying power upon the British home market, a value
which would speedily be felt by the British producer as
soon as he had the advantage of a moderate tariff over
his foreign rivals.
The foregoing considerations do appear to establish
the fact, that the wealth of a certain class or indeed the
total wealth of England estimated by the sum of ex-
change values, or in other words purchasing power, must
be regarded, as long as the free import system obtains,
as something distinct from British industry. British
industry may be stationary or even declining and yet the
actual wealth of England increasing. It is therefore a
GREAT BRITAIN'S FREE TRADE ERA 117
source of perpetual and most unfortunate error to con-
fuse the two. And to risfer complacently to the extent
of the latter as necessarily indicating a flourishing con-
dition of the former is entirely misleading.
Nor from a national point of view can it for one
moment be conceded that an increase in wealth is an
adequate compensation for a declining or even a station-
ary condition of industry. The success of industry is
the welfare of millions. The accumulation of wealth is
the privilege of the few. No nation, much less a nation
like the British, of only a comparatively moderate popu-
lation, at the heart of a great empire, can afford to see
workmen in great numbers, either enduring the misery
of unemployment or quitting her shores for ever. Con-
tinuous unemployment is a calamity, first and foremost
of all, on those grounds of humanity which England has
so frequently made not merely the subject of her impas-
sioned panegyric, but her substantial sacrifice. And it
is further a calamity on every ground of national well-
being.
The time has come when the producer must be con-
sidered at least equally with the consumer. The policy
of laissez /aire abandoned the producer utterly, but
abandoned him fortunately at a time in England when
he had practically no competitors and was well able to
take care of himself. But to-day all is changed. Trades
unionism has protected and conditioned labour. Trades
unionism is as far removed from the traditions of laissez
/aire as the most extreme protection of Germany or
America. And yet trades unionism cannot produce a
demand for labour. It may even have been unconsciously
instrumental in diminishing the demand for labour.
Thus to protect and condition labour, but to admit free
the products of foreign unconditioned sweated labour, is
118 THE COMMONWEAL
to injure certain branches of British industry, and to
throw British workmen out of work.
A tariff, however moderate, would, it is argued, what-
ever effect it might have on productive industries and
those directly interested in them, increase the burdens
of those not dependent on them.
In the first place, those in no way dependent on British
industry are comparatively few, and would chiefly be
found among the wealthier classes. Moreover, actual
necessities need not by any scientific discriminating tariff
as a whole be made dearer.
But even if certain articles cost a little more, the
tariff would be such an addition to the revenue as to
lighten other taxes which at present are growing to
alarming proportions, and by this means largely com-
pensate for such additional cost. And if some small
sacrifice were called for in certain few cases would it
not be worth making ? To eliminate unfair competition,
to give more security to capital invested in British in-
dustries, to increase the demand for labour — all of which
results might reasonably be expected to ensue in time
as a result of a moderate tariff — would, from a national
point of view, be of immense advantage.
The productive powers of England cannot be sacri-
ficed indefinitely, no matter how desirable for the
wealthier classes the purchase of luxuries at the cheapest
possible rate may be. And unless the industrial pro-
ductive power of England develops and grows co-
ordinately and interwoven with the growth of our
colonies, the Imperial fabric will tend to disintegrate.
Finally the evidence we have adduced and considered
does seem to point to the conclusion that Free Trade is
GREAT BRITAIN'S FREE TRADE ERA 119
in its essence a cosmopolitan ideal ; that when other
nations declined to adopt it England nevertheless did
for a time practise her system of free imports without
detriment, possibly with advantage, to her great indus-
tries. But only exceptional advantages, only a unique
position could render such a policy expedient in the
midst of a protectionist world. For a time, possibly
down to about the late seventies, England had these
advantages. From that time onward they gradually
fell away. The Protection of both the United States
and Germany became scientific and intensely national ;
freights continued to drop, removing what vestige of
natural Protection England had left to her. Factory
legislation and trades unionism all protected and con-
ditioned labour, without in any way creating more
demand for it or without being accompanied by any
legislation to protect it from the competition of the
products of foreign sweated labour.
The results on the home market and our export trade,
together with the rapid progress of our chief rivals, have
already been dealt with. The inference which as a
whole we are compelled to draw does appear to be that
whether or no a change in our fiscal system would, as
the writer believes, have been wise and expedient in the
eighties, the time has at least come to-day when once
more tariff reform — this time on moderate protective
and preferential lines — has become as expedient and as
imperative a change as tariff reform in another direction
was in the time of Cobden.
England like other countries has had her Free Trade
era. With us it has lasted longer than with any other
country in modern times. But as Bismarck long ago
emphatically predicted, even with "burly, full-blooded
England," it cannot last for ever.
CHAPTEE VIII.
THE COLONIES AND INDIA.
The alternatives — The fate of small States — The great federal in-
strument — Preference — Free Trade and disintegration — Uni-
versal peace — The bygone forebodings of Lord Morley —
Fm-ther miscalcubitions — March of events forward to Federa-
tion, not backward to separation — A Customs Union — Though
colonial fiscal systems vary, all have one feature in common,
the taxation of imports — Three sets of proposals on Preference
— The fiscal system of India — British objections to Preference
considered — Free Food fallacy — England an obstacle to freer
trade — Most-favoured Nation treatment — Fiichs on the Trade
Policy of Great Britain — Closer union essential to the Empire
— Has Free Trade been carried too far ? — Change must come
"soon, or for ever too late" — Fiichs' warning to Germany —
The advantages of Preference — The goal a federated world
State.
In turning our attention from Great Britain herself to
the British Empire as a whole, there are certain points
of dissimilarity to be borne in mind. Thus, whereas
the kingdom of Great Britain is one of the oldest in
Europe, the British Empire of to-day is young. It is
younger for the most part than the United States, but
still considerably older than Germany, which is the most
modern and at the same time the most highly organised
political federation in existence.
England's maritime supremacy — the foundations of
which were laid in the time of the Tudors — and the
enterprise and pioneering instincts of her sons, have
120
THE COLONIES AND INDIA 121
been chiefly instrumental in acquiring colonies. Her
colonial history has passed through two stages, has
been the record of the acquisition of two Empires.
The first of these — the American Colonies, now the
United States — has been lost to us. The fate of the
second British Empire still remains to be decided, but
in the event of its following that of the first it is clear
that as the surface of the earth is now allotted among
different Powers there can never be a third.
From the day, therefore, that we part with our pre-
sent colonies, the British will come under the category
of those dead empires for which there can be no further
resurrection. Under these conditions England would
become such another small State as Norway, or, to take
the instance of a wealthier small people, Belgium.
It is well sometimes to put before ourselves what has
been and what may be. And before being dismayed at
the difficulties in the process of integration, in the path
of a closer federal union, and the construction of a more
maturely developed federal organism, we must at least
not shrink from a careful estimate and realisation of
what the alternative, the process of disintegration, would
mean. To suppose that a severance from our colonies, a
retirement from our present position into that of a second
or third-rate power, would ensure that blissful condition
of ensured peace and rapid domestic development on
socialistic lines, which is the dream of certain radical
extremists, is to imagine a vain thing.
Our prosperity as a people and a nation depends
chiefly on the success of our industries. For that suc-
cess we must have not only a larger share of our own
home market, but growing markets outside these shores.
It is now manifest that the foreign protectionist
countries will tend more and more to exclude us from
122 THE COMMONWEAL
their markets for the more highly finished goods. If
any fresh object-lesson were needed, the last French
tariff would furnish it.
In the neutral markets of the world the rivalry of
foreign manufacturing Powers with ourselves becomes
steadily keener. Moreover, it is probably only a matter
of time before some of these markets themselves be-
come protectionist.
The one remaining and the most rapidly expanding
market to-day is that within the British Empire itself.
To secure and maintain a preference in that market is
not merely to obtain an advantage now, but to peg out
claims for posterity in the last great field for modern
British enterprise, the growing markets for the finished
products of industry. Free Trade, within the British
Empire, is impracticable now and probably for an in-
definite period in the future. But preference, which at
least lowers existing internal barriers, and thus promotes
a freer trade, if not an actually Free Trade, within the
Empire, may be made a potent influence for extending
British trade.
Such a policy as this can only be carried out while
the colonies remain colonies. Once they were indepen-
dent, any motive or pretext for estabhshing such rela-
tions would be gone. Moreover, the warning uttered by
Professor Seeley should be kept clearly in mind.
"But observe that a small state among small states
is one thing, and a small state among large states quite
another. Nothing is more delightful than to read of
the bright days of Athens and Florence, but those bright
days lasted only so long as the states with which Athens
and Florence had to do were states on a similar scale of
magnitude. Both states sank at once as soon as large
country-states of consolidated strength grew up in their
THE COLONIES AND INDIA 123
neighbourhood. The lustre of Athens grew pale as soon
as Macedonia rose, and Charles V. speedily brought to
an end the great days of Florence." ^
We live in an age of great federations. And the con-
clusion already forced upon us by a study of the modern
history of the United States and Germany is that fiscal
pohcy may be a great federal instrument. Further, that
the policy which most tends to the prosperity and all-
round symmetrical development of a great federated
state is that which gives the greatest unity of material
interest and purpose to the individuals, and different
political communities, comprising that state.
If a ZoUverein within, and Protection without, be not
feasible for the British Empire, preference within and
a moderate tariff without both are. And together they
would not merely prove an immense centripetal federal
force, but would embody the one policy calculated to
partially secure and develop for us great growing
markets outside these islands in the future. And it is
these conditions which alone will increasingly retain
and employ British capital and labour at home. Thus
on merely economic as well as Imperial grounds, the
federal instrument of preferential, that is freer trade
within the Empire would appear to be the best instru-
ment at our disposal to-day.
The whirhgig of time brings many changes. Fiscal
exactions from the colonies by the mother country
brought about the American Eevolution and American
Independence. Fiscal concessions on both sides, it is
now urged, would lead to closer union. One further
argument in favour of this view remains to be con-
sidered. The converse of it, namely, that Free Trade,
or the pohcy of laissez faire, would prove a potent instru-
^ Expansion of England, p. 349.
124 THE COMMONWEAL
ment for separation of the colonies from the Mother
Country has been strongly held by various writers, in-
cluding Cobden, and the anomalous conditions of to-day,
under which Canada shows a disposition to make re-
ciprocal trade treaties elsewhere, if they are not to be
made with the mother country, would appear to confirm
the accuracy of this view.
Cobden, like Bright, was a profound behever in and
advocate of universal peace, and he held that " the
Colonial Policy of Europe" had been the chief source
of wars for a hundred and fifty years previously. On
this account he evidently regarded colonies and the
colonial system as evils to be got rid of as soon as pos-
sible. Thus the separation of the colonies from the
mother country was regarded by the founders and pro-
moters of Free Trade as a probable consequence, and
even as one of the laudable objects of their policy. So
infatuated were they with the idea of substituting a cos-
mopolitan and millennial society for a world of sordid
national rivalries. Thus in a letter to Mr. Ashworth
in 1842 Cobden says : " The colonial system, with all its
dazzling appeals to the passions of the people, can never
be got rid of except by the indirect process of Free Trade,
which will gradually and imperceptibly loose the bands
which unite our colonies to us by a mistaken notion of
self-interest ".^
In Cobden's view Free Trade and Peace were to go
hand in hand. " They are," he says in the same letter,
" one and the same cause."
To discuss whether Free Trade in its only true, that
is its cosmopohtan sense, the sense in which Cobden
delighted to regard it and to theorise about it, would
^Morley's Life of Cobden, vol. ii., p. 230.
THE COLONIES AND INDIA 125
really promote the interests of peace, is to discuss a set
of hypothetical conditions which have not yet existed.
It is possible that if the world were once so amiably
constituted as to be content to establish the "depen-
dence of countries one upon another," such a condition
might tend to lessen the chances of conflict as effectu-
ally as the modern method of endeavouring to maintain
a balance of power. But the disposition of nations has
been in an entirely opposite direction. The colonies
have not separated from the mother country any more
than other States have adopted Free Trade. Foreign
States have become more intensely national and protec-
tionist, while the colonies under the influence of a simi-
lar spirit have developed nationalism, protection, and
imperialism, coming closer to, rather than receding
from, British federal union. No nation, except a Cob-
denite England, desires to be at the mercy of another
for the supply of essential commodities. No theory, not
even the Free Trade theory, has been able to stem the
torrent of iron-clad facts. The only security for any
country to-day is the security of wealth combined with
power. They are the best guarantee in the first place
of peace, in the second place of security should war
arise.
If misleading appeals to the prejudices of a people be
an evil, it is the laissez-faire doctrinaires, and not the
patriots, who stand condemned. Free Trade, peace
societies, the Sermon on the Mount are no more able
to ensure us peace, than the soft mists which gather at
nightfall are able to defend our coasts. As Kipling has
warned us, we are " neither children nor gods, but
men in a world of men ".
But however illusory his separatist ideal, there is
no doubt Cobden was right when he regarded Free
126 THE COMMONWEAL
Trade as likely to further it so far as the colonies
were concerned. The cold rigidity of a system which
treats a colony precisely as a foreign country is not
calculated in itself to inspire much sympathy. But
cold, disintegrating and centrifugal as Free Trade in
its influence on the colonies has been, and is, there
have been forces still deeper and more abiding in the
opposite direction. And whatever may be the ultimate
political goal of civilised mankind, whether a cosmopol-
itan committee will or will not eventually control the
destinies of humanity, in the meantime the tendency of
the last fifty years has not been, as the laissez-faire
schoolmen dreamed it would be, towards smaller politi-
cal units, but more and more into vast Imperial, or
more accurately federal, groups. If, therefore, any form
of idealistic cosmopolitan unity is to be arrived at in
the future, it apparently will be by a process of evolu-
tion through larger and larger political units, and not
by the indefinite multiplication and ultimate coalescence
of small ones.
Yet how distasteful was the idea of a larger Britain
to the Cobdenite politician, how obscure to him was the
real tendency of the age, and how utterly erroneous
was his forecast, may be gathered from the lugubrious
reflections of Cobden's great literary biographer, Lord
Morley. In a review of Seeley's Expatision of England,
published now a good many years ago. Lord Morley set
himself to put what he evidently regarded as the too
exuberant optimism of Professor Seeley into its proper
place.
"History, it would seem," says Lord Morley, "can
speak with two voices — even to disciples equally honest,
industrious and competent. Twenty years ago there
was a Eegius Professor of History at Oxford. . . . He
THE COLONIES AND INDIA 127
(Professor Goldwin Smith) applied his mind especially to
the colonial question and came to a conclusion directly
opposed to that which commends itself to the Eegius
Professor of History at Cambridge (Professor Seeley).
Since then a certain reaction has set in, which events
will probably show to be superficial, but of which
while it lasts Mr. Seeley's speculations will have the
benejSt." ^
Since the foregoing words were written another period
of rather more than twenty years has elapsed. Yet has
the reaction to which the writer refers proved so super-
ficial ? Has it passed away, or has it remained and de-
veloped ? Which of the two professors, in the hght of
subsequent events, heard the true voice of history —
Professor Goldwin Smith, the Separatist, or Professor
Seeley, the Federalist?
Perhaps it may be argued that the time is still too
short to enable us to decide. Yet within that period —
since Professor Goldwin Smith wrote in 1865 — Canada
has, under the influence of the federal spirit, united into
one dominion ; Australia is a Commonwealth, and South
Africa is on the eve of following in the steps of her great
colonial sister States. Moreover, all of these great and
thriving groups of colonies grant a preferential tariff to
the mother country, with a view to strengthening the
Imperial tie.
Is not the superficiahty to which Lord Morley refers
rather in his own view, than in the British federal senti-
ment which is here so manifest and so profound ? But
that we may do neither Lord Morley nor those insular
Englishmen who think, or thought, with him any in-
justice, let us consider a little more explicitly certain
specific predictions or misgivings to which he gave
^ John Morley, Critical Miscellanies, 1887.
128 THE COMMONWEAL
utterance in this review, and see how they have stood
the test of time.
In support of his dislike for the idea of a greater
British world State, and his contempt for anything ap-
proaching an Imperial Federation, he says in the course
of the Keview : —
"What is the common bond that is to bring the
colonies into a Federal Union ?
" Is it possible to suppose that the Canadian lumber-
man and the i)LUstralian sheep-farmer will cheerfully
become contributors to a Greater Britain fund for keep-
ing Basutos, Pondos, Zulus quiet ?
"Is there any reason to suppose that South Africa
would contribute towards the maintenance of cruisers ?
" No : we may depend upon it that it would be a
mandat impiratif on every federal delegate not to vote a
penny for any war, or preparation for war, that might
arise from the direct or indirect interests of any colony
but his own."
Let us consider how time has answered these ques-
tions.
If no Federal Union has been attained, the common
bond that may yet achieve it has been revealed.
Canadian lumbermen and Australian sheep-farmers
have stood side by side, of their own free will, contri-
buting funds, services, lives, to the British cause in
South Africa. South Africa has, all her quarrels not-
withstanding, contributed towards the maintenance of
cruisers. As for the mandat impSratif, and the narrow,
petty parochialism which Mr. Morley imagined every
colonist to cherish, the deeds of colonists since these
melancholy hypotheses were evolved have blown them
to the winds. Was ever a writer more utterly mistaken,
or more totally misled, than this brilliant doctrinaire
{
THE COLONIES AND INDIA 129
in his endeavour to estimate the real sentiments of his
kinsmen in the colonies'?
The moral is obvious. It is folly for any man, how-
ever astute or skilled a v^^riter he may be, to suppose
that from the depths of his library in London he is,
without any knowledge at first hand, and with no
personal contact with the colonies, in a position to
divine their innermost heart better than they know
it themselves. If some old god from Olympus had de-
scended once more into the arena of mortals for the
purpose of making one of them his sport, he could not
have done so more effectually than by inspiring the lu-
cubrations of Mr. Morley.
Such morbid pessimism might be left to die a natural
death, were it not for the fact that it still lingers in the
minds of many Enghshmen. But Free Trade having
once more failed to accomphsh what its promoters anti-
cipated, and not having separated the colonies from us,
what is to be the policy of the future ?
Professor Seeley appears to have heard the true voice
of history ; Professor Goldwin Smith and Mr. Morley
the false one. The march of events has been forward
towards Federation, not backwards to separation.
The federal spirit within the colonies themselves,
which has served to unite Canada, AustraHa and South
Africa, has already been referred to. That same spirit
still reigns supreme and extends itself to the Empire, or
British Federation, as a whole. What form of central
federal government for certain purposes may eventually
be evolved it is beyond the scope of this work to con-
sider. But the forces that are drawing us inevitably
and almost unconsciously towards a closer Federation
are as deep and permanent as the flow of the Gulf Stream.
And first and foremost are to be accounted those move-
9
130 THE COMMONWEAL
ments for the Empire's defence which sent spontane-
ously troops to South Africa and contributions towards
the navy.
From these patriotic and picturesque incidents we
must now pass on to the more prosaic, but none the less
powerful, movement towards preferential, commercial
relations between the colonies and the mother country,
which have already been partially put in force by certain
colonies, and are now eagerly advocated not only in
the colonies but in the mother country. What the
ZoUverein has done for Germany, and a similar policy
for the United States, has already been discussed.
The question we now have to consider is whether a
ZoUverein would prove a federating instrument and an
economic advantage to Great Britain and her colonies.
A ZoUverein or Customs Union as it exists in Germany
is probably inexpedient and at least for the moment
impracticable for the British Empire.
The impartial student of political economy, and more
particularly of economic history in the past, will fully
realise, as I have endeavoured to make it one of the ob-
jects of this book to demonstrate, that there is no such
thing as any one economic formula with regard to the
fiscal problem, which is universally apphcable. Certain
formulae and " economic laws " propounded by the
laissez-faire writers have already, in the opinion of most
competent judges, induced a habit of mind and mode of
thought which has exercised a disastrous influence upon
the fiscal policy of Great Britain. In rejecting these
formulae and the free import pohcy which is their ex-
pression, it will therefore be wise to avoid falling into
a similar error in the opposite direction.
At the outset it must be frankly recognised that our
THE COLONIES AND INDIA 131
colonies differ widely in their fiscal systems, as well as
in their products and in their capacities for developing
manufacturing industries. In some colonies a measure
of Protection is deemed essential to the development
of certain industries, in others the industries are of such
a character that at least for the present there are few or
no directions in which protective duties would serve any
useful purpose.
There are great colonies, such as Canada, in which
Protection in several directions is exercising a marked
effect in so developing and utilising the great and
varied natural resources of the country as to establish
and foster considerable manufacturing industries. There
are other colonies, such as the South African group,
where a deliberately protective policy can scarcely yet be
said to have been indicated, and where it has not to any
appreciable extent been adopted. While finally there
are certain tropical colonies, whose products being al-
most entirely raw material, have no protective duties at
all.
It perhaps scarcely needs pointing out that there are
cases both in countries and colonies where the expedi-
ency of Protection in this or that industry becomes a
question of the most careful weighing of the relative
claims of consumer and producer. No Protection ever
yet devised will convert a sterile island devoid of natural
resources into a hive of manufacturing industry. And
in a lesser degree Protection of an industry, to the
development of which a country is but ill suited, is calcu-
lated to place an unwarrantable burden upon the con-
sumer, and is entirely at variance with that scientific,
discriminating Protection directed to the symmetrical
development of a country, and duly weighing the claims
of both producers and consumers, which has been brought
9*
132 THE COMMONWEAL
to such a high degree of national utihty in the United
States and Germany.
It is, therefore, not difflcult to realise why in various
British colonies ruled by practical men of affairs and
business, uninfluenced by academic pedantry, there
should have grown up such a variety of fiscal arrange-
ments — arrangements made only with consideration to
the resources and requirements of each individual
colony. But there is one common feature in the fiscal
systems of the various British Colonies which is of in-
terest and value from the preferential point of view.
They all derive revenue from the taxation of imports.
Where the tax is levied purely for revenue purposes,
it is as a rule fairly uniform on manufactured articles,
being so much ad valorem on the articles imported.
In nearly all the colonies in the great majority of cases
these tariffs have no protective value for the reason that
the colonies do not manufacture the articles tariffed.
But where, for one reason or another, as the resources
and enterprise of a colony develop, certain manufacturing
industries are started, the tariffs originally levied for re-
venue purposes come to have a certain protective value.
As these industries advance the tariffs on the particular
articles manufactured may or may not be increased so as
to enhance their protective effect. The course eventually
taken in this respect is determined by what the govern-
ment of the colony consider expedient in the ultimate
material and economic interests of the colony concerned,
and not in deference to any blind adherence to the
doctrines either of Free Trade or Protection.
Having a set of tariffs already in existence it has thus
been comparatively easy for the self-governing colonies
to extend to the mother country a certain measure of
preference.
THE COLONIES AND INDIA 133
On the other hand, although Great Britain has exces-
sive tariffs on a limited number of imported articles,
such as tea, coffee, sugar and tobacco — on which reduc-
tions might be made in favour of certain colonies — she
has not as yet any general system of tariffs which would
enable her to arrange a comprehensive system of pre-
ference applicable to all her colonies. In the case of
manufactured competitive articles enough has already
been said to show that what, even such rigid free traders
as Mill admit, may be politic in the case of infant in-
dustries, would also appear to be called for in the case
— to extend the metaphor — of certain injured industries.
Such a degree of Protection would place the British
manufacturer on level terms with his foreign rival and
prevent him from unfair competition.
But in the policy of closer commercial union with the
colonies we have additional objects to serve, and a
somewhat different set of problems and conditions to
consider. The advocates of this policy desire to serve
the cause of Imperial consolidation, and at the same
time to secure the advantage of preferential treatment
in the most important set of markets now open to the
world. It is thus both an Imperial and economic prob-
lem, and it is urged that both objects may be simul-
taneously served with advantage not only to the Imperial
fabric, but also to the industries and commerce of the
colonies and mother country.
The effort to promote this policy did not begin with
the present Tariff Reform movement, although the
powerful, disinterested and eloquent advocacy of Mr.
Chamberlain, and the energetic campaign of the Tariff
Reform League, have given it a weight which it never
before possessed. Since the fair trade agitation of the
early eighties, when a gallant attempt by Sir Howard
134 THE COMMONWEAL
Vincent and his colleagues was made to direct attention
to the necessity of fiscal change, no less than three pro-
posals have been made at different times, intended to
give effect to the policy of colonial preference.
I. The first proposal was that of a ZoUverein in its
full and true sense, that is a ZoUverein or Customs Union
establishing complete Free Trade within the Empire,
and a protective tariff against foreign countries.
Unfortunately, whether or no such a pohcy might
have been expedient fifty years ago, it is on many
grounds impracticable to-day. In the first place, the
colonies have embarked on industries which are already
in competition, not only with foreign but with British
industries. These infant industries they cannot — at least
at present — afford to expose to the level competition of
British industries, without the prospect of seeing them
seriously injured, if not crushed. Moreover, as already
pointed out, the revenue is derived in the colonies chiefly
from the customs, and to change their whole system of
taxation would involve very considerable difficulties. On
these and other grounds then the proposal of a ZoUverein
is at present impracticable for the British Empire.
n. The second proposal — a modification of the ZoU-
verein system — is of special interest, inasmuch as it was
made by a distinguished Dutch politician in South Africa,
Mr. Hofmeyer, who was selected by the Cape Colony to
represent that country at the Colonial Conference held
in 1887.
The subject which Mr. Hofmeyer introduced to the
conference for discussion was " The feasibility of pro-
moting a closer union between the various parts of the
British Empire by means of an Imperial tariff of customs,
to be levied independently of the duties payable under
existing tariffs, on goods entering the Empire from
THE COLONIES AND INDIA 135
abroad, the revenue derived from such tariff to be de-
voted to the general defence of the Empire ".^
In opening the discussion, Mr. Hofmeyer said : —
"I have taken this matter in hand with two objects :
to promote the union of the Empire, and at the same
time to obtain revenue for purposes of general defence.
Everybody will acknowledge that the British Empire is
the most unique that the world has ever seen. It is
spread all over the globe, I may say piecemeal all over
the globe, the different parts being separated by thou-
sands of miles of sea or of foreign territory. In an
Empire of such a nature one must expect that territori-
ahsm will arise, that local interests will make themselves
felt, and that those local interests will act as disinte-
grating tendencies."
As an enunciation of Imperial policy this utterance
has peculiar weight and interest as coming from a South
African colonist of Dutch descent. The speaker then
went on to point out that Protection would tend to
develop in the colonies, but he added : " I aim at some-
thing that shall supply a cohesive force to the Empire,
and shall at the same time provide revenue for defensive
purposes. It may even be that in the course of years
this system may, instead of providing a protective tariff,
lead to absolute Free Trade as between the mother
country and the colonies. If the various representatives
of the colonies and of the Empire jointly should agree
that there should be only one tariff, an Imperial tariff,
and no local tariffs, you would have a Zollverein which
involves perfect Free Trade between the various parts
of the Empire." ^
This proposal was not accepted, but it marks an im-
1 Proceedings of the Colonial Conference, 1887. (C. 5091.)
2Jbid, 1887. (C. 5091.)
136 THE COMMONWEAL
portant step in Imperial evolution, and Mr. Hofmeyer's
warm advocacy of the measure was well described by
one of the delegates, an Australian Premier, Mr. Service,
as a " noble speech ".
III. The third, and most important, proposal for
closer commercial union with the colonies is that brought
forward by Mr. Chamberlain. It is a somewhat wider
application of Mr. Hofmeyer's proposal and is based
on mutual preferential arrangement in the customs
tariffs between the mother country and the colonies, as
against foreign countries. Such a policy as this, as
already pointed out, has the advantage of being quite
compatible with existing colonial fiscal arrangements,
as all that is necessary for the colonies to do is either
to lower existing duties in favour of Great Britain, or
to raise them as against foreign imports. And such
measures have already been taken in the case of all the
great self-governing colonies of Canada, Austraha, South
Africa and New Zealand.
At the present time the fiscal system of India remains
rigidly, and even remarkably, adherent to the theory of
Free Trade, though in some respects the system in
vogue can hardly be described as consistent with the
doctrines of laissez faire. Next to America, India is the
largest cotton-producing country in the world. She
naturally aspires to manufacture a large portion of the
cotton fabrics necessary to her own requirements. Yet
under Lord Elgin, in opposition to the whole of India,
an excise duty on cotton goods manufactured in India
was imposed equivalent to the import duty. This step
was taken avowedly in order that the Lancashire cotton
manufacturers should be on precisely the same footing
in India as the Indian manufacturers.
It is certainly not a pohcy that would be either pro-
THE COLONIES AND INDIA 137
posed to, or accepted by, a self-governing colony, and it
is strongly objected to in India. At the last Madras In-
dustrial Conference a resolution recording an emphatic
protest against the continuance of the excise duty on
Indian mill-made cloth as an unjust and unnecessary
impost, and urging its removal without delay, was un-
anim.ously carried.^ The Indian advocates of Protection
point out with perfect justice that the present excise
duty on cotton manufactured goods is a concession not
only to free-trading England but also to protectionist
Germany and other protectionist countries. India is
thus compelled to submit her infant industries not only
to the unchecked competition of free traders, but to
that of foreign protectionists.
On the other hand Great Britain still has heavy duties
on tea, coffee and tobacco, raw materials imported from
India. The position does, therefore, appear to be cap-
able of most beneficial adjustment on preferential Hnes
advantageous both to India and Great Britain.
A repeal of the cotton import duty on British goods,
and also of the excise, on the one hand, and the aboli-
tion, or at least diminution of all duties on Indian
products sent to this country on the other, would remove
a serious cause of irritation, and at the same time bring
India and Great Britain into still closer trade relationship.
Such an arrangement, so far as applicable, might equally
well be made as between India and the self-governing
colonies, and by this means India would be brought into
the scheme of general Imperial preference.
In the case of the United Kingdom and the self-govern-
ing colonies certain difficulties present themselves.
The chief one is that the products sent to the United
Kingdom from the colonies are principally raw materials,
1 The Times, 24th May, 1909.
138 THE COMMONWEAL
grain and meat. Thus from Canada the principal ex-
ports are grain, meat and timber ; from Australia grain,
meat and wool ; and from South Africa wool, gold and
diamonds.
None of these products are at present taxed. The
policy of preference will therefore involve the imposition
of a light tariff on some of them which come from
foreign countries. Such protective advantage as might
be obtained under this arrangement would be extended to
the Empire as a whole, and thus be extended to a large
body of competing producers, which would be sufficient
to prevent any appreciable rise in prices. Mr. Chamber-
lain, in his great public campaign on behalf of tariff
reform, has urged that raw materials such as wool and
wood should not be taxed, but that small taxes on
foreign grain, meat and dairy produce would be sufficient
to give an appreciable preferential treatment to the
colonies.
Around the whole of this question for some years past
political controversy has unfortunately been raging,
tending in many instances rather to obscure than to
elucidate the questions at issue. To traverse all the
various considerations which have been urged for and
against any preferential arrangements would exceed the
contents of any one volume, but one particularly pre-
judiced mode of attack on such preferential proposals as
have been put forward calls for some examination.
The proposed taxes on foreign corn and flour are de-
nounced as food taxes, and when it is pointed out in
reply that taxes on sugar, tea, coffee and tobacco of a
very heavy character already exist, and that it is pro-
posed to diminish these to an extent at least sufficient
to compensate for any enhancement of price which
could conceivably be brought about by the moderate
THE COLONIES AND INDIA 139
duty proposed on corn, and also, if imposed, on meat
and dairy produce, the rejoinder is made that tea, sugar,
coffee and tobacco are the luxuries, or the comforts of
the poor, whereas bread and meat are necessities.
An argument such as this is spHtting hairs, and can-
not be allowed to prejudice a great cause. Tea and
sugar are to-day consumed in practically every household,
and regarding these articles as food, it may fairly be
stated that the amount of the food budget will not be
increased by the changes proposed.
In the first place the extent, if any, to which a 2s.
duty on foreign corn and a 5 per cent, duty on foreign
meat and dairy produce would increase the price of these
articles to the consumers in Great Britain is problem-
atical. As they are all largely produced in Great Britain
and the colonies it is, as already demonstrated, per-
fectly obvious that the price of these commodities, if
increased at all, would not be increased to the full
amount of the duties imposed (vide above, p. 40). But
admitting for the sake of argument that some increase
in price did occur, it is quite certain that with such
heavy duties as those on tea, sugar, coffee and tobacco,
to deal with it would be perfectly easy to more than
compensate for such increase by a reduction on these
articles.
Conditions with regard to existing taxation on articles
of daily consumption, being as they are, such phrases as
" free food " and " food taxes," tend to obscure and pre-
judice fair judgment of the issue, and must be relegated
to that baser sort of political controversy which so fre-
quently endeavours to destroy a cause by distorting it.
Nevertheless this form of distortion on this particular
subject has been in the past, and doubtless will remain
in the future, a formidable obstacle to the establishment
140 THE COMMONWEAL
of a scheme of preference on these Hnes. But once the
proletariat realise, as the more intelligent portion of it
already realises, that the objection is a prejudice based
on misrepresentation or misapprehension, and not an
economic reahty, it will lose its force.
A piece of impartial testimony to the great value if
not absolute necessity of commercial preference with
the colonies in the near future is contained in a work
by Fiichs, a German Professor of Political, Economy,
The Trade Policy of Great Britain and her Colonies since
1860. This work is an exhaustive and lucid study of
this policy which well repays perusal, and the conclu-
sions at which the author arrived, as far back as 1893,
are of the greatest interest.
" On political grounds, England needs, now more than
ever, to retain her great Colonial Empire. But, owing
to the numerous and active centrifugal forces of to-day,
this can only be done by a closer union. Such a union
England must try to secure at any cost.
"For the rest, these political considerations are, in
part at least and indirectly, of economic importance as
well. We have seen ... to what an extent England
is dependent, not only for her industry but also for
the food supply of her people, on foreign trade, and
on the undisturbed continuation of the same in time of
war. The safe-guarding of this immense British trade,
and especially the transport of grain, would be altogether
impossible without the possession of all her naval bases
and coaling stations in the different colonies. There is,
besides, to be taken into account the safety of the yet
more rapidly increasing colonial trade, the protection of
which still rests wholly on the mother country with the
exception of the small subsidy, lately contributed by
THE COLONIES AND INDIA 141
Australia, to the fitting out of a squadron for Australian
waters. The protection of the whole enormous trade
of the British Empire is — and on this all experts agree —
very far from adequate. To make it so, immense addi-
tional expenditure would be necessary, and this, if the
present constitution of the Empire continues, would
again fall solely on the home country, although the
colonies, to a considerable extent, would share in the
benefit. How great an advantage it would be if the
supplies of grain came, wholly or preponderantly, from
other parts of the Empire, and if England were almost
independent of foreign countries for the food supply
of her people, is evident, when we consider that to-day
the greater part of the British grain supply comes from
Russia and the United States, i.e., from the countries
with which England has most political friction. And
how war can quite suddenly cut off supphes from a
foreign country has been clearly proved by the stoppage
of the cotton export from the American States during
the War of Secession — and this was not a war in which
England herself was involved. In the same way, there is
no doubt that any new continental war in which Russia
was involved would have the most momentous effects on
England's economic life. . . .
" It remains to be seen whether time will raise up to
England a statesman who possesses clear-sightedness,
courage, energy and tact enough to bring this question
to a happy issue — a question which is of so much im-
portance for the future of England, as well for her posi-
tion among nations as for her trade. But it must be
soon, or it will be for ever too late."
Since this was written there has been a considerable
increase in the amount of corn obtained from the
Argentine and the colonies. Pohtical friction may also
142 THE COMMONWEAL
be said to have changed its site from time to time. But
broadly speaking, the criticism of our Imperial organisa-
tion, or lack of organisation, is as applicable to-day as
when this paragraph was written.
Further than that the statesman, Mr. Chamberlain,
has arisen. Has he come too late?
Fiichs also argues that if England had resorted to pre-
ferential arrangements with her colonies several years
back, combined with a policy of retaliation, the moral
effect might have been to compel foreign countries to
moderate their extreme protective policy. In this way he
believes the strong protectionist reaction since the early
eighties would have been prevented from going so far.
If this view is accurate — and the whole of Fiichs' book
goes to indicate that it is so — it may also be very fairly
asked whether at the present moment the anomalous
position of free-importing Great Britain in the midst of
a protectionist world is not really the greatest obstacle
to a relaxation of the extreme protectionist policy on
the part of foreign countries, whether in fact England
is not the greatest obstacle to freer trade in the world.
At present the markets of Great Britain herself are
freely accessible to all the world ; those in the colonies,
until the recent measures of preference to the mother
country were granted, were equally accessible. Foreign
countries have thus had no inducement to offer Great
Britain any special concessions. It is true she has re-
ceived such advantages as exist, under the most-favoured-
nation treatment, but as the treaties containing the
clauses defining this treatment are drafted entirely in
the interests of the foreign countries signatory to them
and without reference to England's interests, they are of
little value to England and have in no way mitigated the
most stringent protective duties levied directly against
THE COLONIES AND INDIA 143
British manufactures. It is only a country with tariffs
who can dictate, or even suggest, terms effectively,
and not till England has a tariff to negotiate with can
she anticipate more considerate treatment.
Fiichs' final words of advice to his fellow-countrymen
must be recorded : —
" The first thing is to hinder the carrying out of the
scheme of a British Imperial Tariff Union with differen-
tial duties against foreign countries, as this, naturally,
would be a great misfortune to Germany ; the next, to
hold fast unconditionally to the clauses referred to in
the tariff treaties with Belgium and the ZoUverein ;
the third, to zealously cultivate trade relations with the
British colonies, and so to create great interests in them
which would be hostile to any such scheme."
Since this was written German trade relations with
British Colonies have developed proportionately more
rapidly than our own.
In a further preface to the English edition of his
book published in 1905, after the Tariff Eeform move-
ment in England had been some time in existence.
Professor Fiichs thought it desirable to modify his
estimate of what effect a preferential policy with our
colonies would have on Germany. For various reasons
he did not think the economic results would be so im-
portant or inimical to German interests as he had
anticipated. And he further urges German and British
co-operation. It is to be hoped that his countrymen
have also read this amendment in favour of that friendly
spirit in commercial rivalry which contributes to the
successful conduct of both international and private
business.
What, then, in conclusion, are the economic and Im-
perial advantages of the policy of Preference? They
144 THE COMMONWEAL
have already been incidentally referred to, but may be
recapitulated.
Such a policy would stimulate and increase the pur-
chases of the mother country from the colonies and of
the colonies from the mother country.
It would gradually lessen the dependence of Great
Britain upon foreign countries for her food supplies,
and increase the interdependence of one part of the
Empire upon another for all the necessary commodities
of hfe.
In this way a strong federating influence would be
exercised.
It would be hailed with the greatest approval by the
colonies, who have already taken the first step in this
direction by themselves granting a preference to the
mother country.
Finally, it will be the last remaining piece of evi-
dence necessary to demonstrate to the little England
party within Great Britain, and to the world outside,
that though the march of our progress may be slow, it
is sure, and that the goal is not a number of isolated,
independent, Anglo-Saxon units scattered about the
world, but a federated world State of self-governing com-
munities in which the objects shall be peace with honour
and security, justice and liberty with prosperity, a world
State in which England shall serve as the ancient
metropolis, and the ocean as a mighty highway.
CHAPTEE IX.
DEMOCRACY AND EMPIRE.
The federal movement — Colonial nationalism — The French Can-
adians and Dutch South Africans — The spirit of locil patriotism
a strength, not a weakness — Empire and Liberty — The dual
empire — Self-govei'ning and governed — One democracy cannot
dictate to another — Flammantia mcenia Mundi.
In considering the ultimate possibilities of the federal
movement at present occurring within the British Em-
pire, there is one all-important factor in the problem
which has to be taken into the most careful considera-
tion. Can the British democracy be relied upon to take
a sufficiently broad view of the requirements and advan-
tages of this movement as to sink minor prejudices to
the extent essential to its ultimate success ?
Much ground will be gained when it is more clearly
recognised that the ideal aimed at is not a new scheme
of government in which the mother country is to take
on fresh burdens and fresh responsibilities, but a form
of alliance with other Anglo-Saxon democracies already
governing themselves under the British flag. An alli-
ance in which some of the burdens which we already
bear will be shared rather than increased, and in which
some of the responsibilities, especially with regard to
defence and foreign relations, will also be shared.
In the democracies of Canada and South Africa it
145 10
146 THE COMMONWEAL
must be borne in mind that while British forms of
government and British traditions of liberty, justice and
security to life and property predominate, and while
the peoples of these dominions are loyal to the British
flag and the Imperial tie, they are by no means all of
British descent. The European population of Canada
is largely of French descent, and that of South Africa is
largely Dutch. In both cases these races were, equally
with the British, pioneers in founding these colonies. In
both cases they have shared in the development and pro-
gress of these colonies and to-day they play a large and
powerful part in their government. Their loyalty to
the Crown is therefore chiefly expressed in their devo-
tion to the land of their birth, rather than in that senti-
ment for the mother country which still subsists in the
colonist of British race even though he may never have
seen it.
This spirit of colonial nationalism — which has been
so admirably studied and described by Mr. Eichard J ebb ^
— must therefore never be lost sight of or misunder-
stood. Moreover, it is not only in Canada and South
Africa among the French and the Dutch that this senti-
ment of colonial nationalism obtains, it exists in equal
strength in Australia.
At the Imperial Press Conference held at the Foreign
Office in Downing Street in 1909 it was a young Aus-
trahan who said "Colonialism is dead" — colonies are
becoming daughter nations.
This spirit of local and even national independence
and patriotism is an additional strength rather than a
menace to Imperialism. United action for common
purposes of defence in war, or of commerce in peace,
combined with absolute freedom of national development,
^ Studies in Colonial Nationalism.
DEMOCRACY AND EMPIRE 147
mark the course best calculated both to maintain and
strengthen the Empire, and at the same time to satisfy
the natural and legitimate aspirations of our French
and Dutch, as well as of our British kinsmen overseas.
Silently but unceasingly the powerful influence of
preferential trade will do its work. And modern steam-
ships, like mighty shuttles plying to and fro between
the warp and the woof, the colonies and the mother
country, bearing the golden thread of commerce, will
weave the fabric of Federation and of Empire.
And if any British worker, only partially it may be
apprehending the true nature of this modern world
State, should resent the term of Empire as one inimical
to democracy, let him realise that over this British Em-
pire there reigns no despot, but that within its dominions
Empire and Democracy are wedded, Empire and Liberty
go hand in hand. Further, it is necessary to recognise
that besides the great self-governing dominions of
Canada, South Africa, Australia and New Zealand, there
are also the Crown Colonies and India, standing on a
different basis and in a different relation to the mother
country. The British Empire of to-day is in fact a
dual Empire, of which one section is self-governing,
and the other, principally owing to the existence of large
native races, is governed on lines in which the principle
of self-government is only very partially applicable and
extant. They have been distinguished as the self-govern-
ing and the dependent Empires.
It is only with the great self-governing communities
that the problem of closer federal union for the present
has to be considered. But the very consideration of it
does at times appear to create confusion in the minds of
certain politicians who argue that what is good for
Australia or Canada must also be good for India. The
10 *
148 THE COMMONWEAL
political, like the fiscal problem, has to be judged in each
individual case on its merits, and the attempt at a too
broad generalisation results in fallacious conclusions with
reference to both.
The results of British rule in India on bureaucratic
and oligarchic lines have been too solid and substantial
to justify any too reckless an interference v^ith the ex-
isting machinery of Government, made in deference
either to spasmodic agitation or to the abstractions of
benevolent constitutional theorists entirely unacquainted
v\^ith native races. In the same way the British Demo-
cracy must realise, with regard to questions of native
policy which from time to time arise in South Africa
and elsewhere, that they are essentially problems to be
dealt with on the spot. One democracy cannot dictate
to, much less govern, another. And once a community
like that of the recently united South Africa has been
granted a self-governing constitution it must be left to
frame its own native policy without vexatious and con-
tinuous interference on the part of the British Colonial
Office. Unwarranted action of this character only re-
cently evoked an indignant protest from the Natal Premier.
The two great factors which will be supreme in the
Federation of ourselves and our daughter States are
mutual reciprocity in the field of commerce, mutual
confidence in the field of political administration. It
is not for us to say whether labour in the Transvaal
shall be white, black or yellow, it is not for us to say
whether a military demonstration and arrests by Natal
forces within the Natal borders are or are not necessary.
Mutual respect and confidence, indeed all the canons
of justice and common sense, demand that, once self-
government be granted, the privileges of self-government
shall remain unquestioned.
DEMOCRACY AND EMPIRE 149
Whenever the British voter feels tempted to agitate
for a policy of interference in some colonial internal
question let him bear in mind that by so doing he is
endeavouring to override the privileges of fellow British
voters, and that he violates every principle of that de-
mocratic form of government on the rights of which he
is himself so emphatic.
Reference has already been made to the dread, states-
men of the type of Cobden or Lord Morley appear to
have entertained, of the demoralising influence, and the
danger, of what they regard as the dazzhng character
of the colonial system. Imperialism is in their minds
of so vaunting a character that they fear it may o'er-
leap itself. The warning is surely a little out of date
to-day when Democracy sits enfranchised and enthroned
in all the great British Colonies.
But if there still be those who at times are tempted
to set too much store by the Flammantia mcenia Mundi,
let them remember that there is also another and a
nobler side to the picture.
One of the things which most rejoiced the heart of
Cecil Rhodes was the growth of English violets on the
site of Lobengula's kraal. Peaceful civilisation, in place
of savage tyranny, in the heart of the wild.
APPENDIX.
I.
STATE INSUKANCE FOR WORKMEN IN GERMANY.
In the history of social progress there is, perhaps, no in-
stitution which has done more to protect mankind from those
accidents of fortune which leave not only men, but women
and children, destitute than that of the various forms of
insurance.
Among the upper classes in civilised countries a system of
insurance has now been in existence for many years, but
among the working-classes, where the need is certainly not
less, insurance has only hitherto been thoroughly and system-
atically organised in one country — Germany.
The system which has now been in force in that country
for twenty years is of such a remarkable, and in many respects
of so beneficent a character, that in November, 1902, I in-
duced an influential deputation from the National Conference
of Friendly Societies in England to accompany me to Germany
and study the question on the spot. They received a cordial
welcome both from State ollicials and fellow-workmen in Ger-
many, and they have issued a most interesting report to the
members of their societies on what they learnt there. There
is no doubt that this system of workmen's insurance deserves
a more careful study by the people of other countries than it
has hitherto received.
The work of State insurance in Germany, to which the
writer refers, was initiated by the message of the Emperor
William I. to the Reichstag in November, 1881. This mes-
151
152 THE COMMONWEAL
sage, as communicated by the Chancellor, Prince Bismarck,
may be cited here : —
" We consider it Om- Imperial duty to impress upon the
Reichstag the necessity of furthering the welfare of the work-
ing-people. We should review with increased satisfaction the
manifold successes, with which the Lord has blessed Our reign,
could we carry with us to the grave the consciousness of
having given our country an additional and lasting assurance
of Internal peace, and the conviction that We have rendered
the needy that assistance to which they are justly entitled.
Our efforts in this direction are certain of the approval of all
the federate Governments, and We confidently rely on the
support of the Eeichstag, without distinction of parties. In
order to realise these views a Bill for the Insurance of Work-
men against industrial accidents will first of all be laid before
you, after which a supplementary measure will be submitted
providing for a general organisation of industrial Sick Eelief
Insm'ance. But likewise those who are disabled in conse-
quence of old age or invalidity possess a well-founded claim
to a more ample relief on the part of the State than they have
hitherto enjoyed. To devise the fittest ways and means for
making such provision, however difficult, is one of the highest
obligations of every community based on the moral founda-
tions of Christianity. A more intimate connection with the
actual capabilities of the people, and a mode of turning these
capabilities to account in corporate associations, under the
patronage and with the aid of the State, will. We trust, de-
velop a scheme to solve which the State alone would prove
unequal."
Under the system which has been evolved out of this Im-
perial mandate, the working-man, incapacitated from work by
sickness, accident, infirmity or old age, has a legal right to a
measure of provision, both for himself and family, which save
him from being compelled to rely upon public charity.
The means by which this end has been obtained require
some description. They are based upon compulsory insm'ance
STATE INSURANCE FOR WORKMEN IN GERMANY 153
on the part of the working-man and his employer, under a
system of administration in which the insured are represented.
Under this system there are three forms of insurance : —
(1) Accident.
(2) Sickness.
(3) Invahdity and Old Age.
Accident Insurance.
(1) In this branch the premiums are entirely paid by the
employers, and in cases of death resulting from an accident
an allowance is made to the survivors from the day of death.
In the case of widows ^nd children this allowance is 50 per
cent, of the yearly earoings, or in the case of dependent
parents 20 per cent.
For the first thirteen weeks an injured man is supported
out of the Sick Fund (No. 2), and if by that time he is not
sufficiently recovered to resume work he receives an allowance,
during disablement, up to 60 per cent, of yearly earnings, or
free hospital treatment during the whole cure and an allowance
for the family.
This accident insurance is extended to work-people engaged
in industry or agriculture, to officials whose salaries do not
exceed £100 a year, and to small employers.
The employers are united in trade associations and con-
tribute to the insurance funds proportionately to the wages
paid or to the number of hands employed, as well as to the
risk of accident in the various occupations.
Insurance against Sickness.
(2) In this class the workman pays two-thirds of the
premium and the employer one-third. In case of sickness
the allowance is made for thirteen weeks, or the sick man
receives free hospital treatment and half the sick pay for the
support of the family.
Similar relief is provided for women in child-bed for four
154
THE COMMONWEAL
weeks; and in case of death the funeral expenses (twenty
times the daily wages) are paid.
The sickness insurance is managed by local sick associa-
tions, of which there are a number of organised branches.
One of the many indirect advantages of this system is that
not only is the man paid, but feeling that his family are pro-
vided for, this knowledge prevents him from leaving the
hospital too soon, and he enjoys the first essential to recovery
— from any form of accident or sickness — a mind at rest.
Insukance against Infikmity and Old Age.
(3) This fund is contributed to conjointly by the Empire,
the employers, and the employed. The Empii-e contribute
to each annuity the fixed amount of 50 marks (£2 lOs.) per
annum, and pays as well the contribution of the workman
himself while serving in the army or navy. The employer
and the employed contribute equally and in proportion to the
wages earned.
The payment of these contributions is really made by the
employer, who affixes stamps to the card of the insured weekly.
The stamps are issued by the Imperial Insurance Department,
and in paying the wages of the employed the employers are
entitled to deduct the workman's share of these contributions.
The charges of the entire workman's insm'ance on the
year's average is as follows : —
Employers'
marlcs.
Employed
marks.
Empire
marks.
Total
marks.
Sick insurance .
Accident insurance .
Invalidity insurance
5-15
6-08
4-65
10-30
4-65
2-88
15-45
608
12-18
Total .
15-88
1405
2-88
33-71
STATE INSURANCE FOR WORKMEN IN GERMANY 155
From this it will be seen that the workman actually does
not pay the half of the whole charges. By the workmen's
insurance he gets back considerably more in compensation
than he pays in the form of contributions.
These three branches of National State Insurance supple-
ment one another and form a complete organisation which
goes far to relieve distress thrown upon the entire family in
the case of sickness, incapacity for work, or death of a work-
man.
The effect of this organisation is more far-reaching even
than this. The social status of the workman is raised to a
higher plane than that attained perhaps in any other State.
In place of dependence on almsgiving, the workman claims
as a right from the State that relief, in case of sickness, for
himself and family, which the State has helped him to pur-
chase and not left him to beg.
Out of the capital funds of the workmen's insurance, grants
by way of advance are made for improving the dwellings of
workmen and for supporting every improvement of public
interest. In the Guide to the Workmen's Insurance of the
German Empire, written in 1901, Dr. Zacher writes : —
" Now already one million marks are expended daily in
Germany for this branch of provision for workmen alone,
whilst the accumulated funds already exceed one milliard
marks (£50,000,000), 100 millions (£5,000,000) of which have
been spent in constructing workmen's dwellings and special
establishments for sick, injured, invalided and convalescent
work-people, public baths, and the like institutions for the
benefit of the working-classes. As, however, the circumstances
which tend to disturb the good relations between employers
and employed are everywhere much the same, the hope is
natural and well justified, that the consideration and fore-
thought which the German labourers owe to the beneficent
sacrifice of their employers will find an echo in other civilised
countries, for the welfare of the human race and the consoli-
dation of social peace and concord."
156 THE COMMONWEAL
The workmen's insurance has also done much to improve
the general conditions of life for the workman and his people,
and the consideration that, in case of sickness and incapacity
for work, he is entitled to an indemnity from the insurance
funds, largely allays anxiety. The policy on the part of the
controllers of the fund is to prevent danger from sickness and
accident. And this policy, which has inspired much of the
work of the State Sick Insurance Department (Eeichsversich-
erungsamt), is described by a short formula constantly quoted,
" The Prevention of Invalidity". As sickness immediately
makes a call upon the common fund the various local branches,
or sick clubs, not only address themselves to restoring the sick
to health, but endeavour to prevent by every hygienic and
and other beneficent measure the occurrence of disease.
Thus by the aid of the State Sick Insurance Department,
miUions of publications, such as the Tuherkulose-Merkhlatt,
were distributed among the working-classes and to the officers
of the sick clubs and unions, and they have attracted much
interest. Statistics of the sick and invalided were compiled,
and showed that of all men working in mining, metallurgy,
industry and building who become invalided at the age of
thirty, more than half suffer from consumption. The propor-
tion among workmen was much the same.
The result of these facts led the department to issue a
circular calling attention to the importance of the crusade
against consumption. The three great unioas, engaged under
the active patronage of the Empress in combating tuberculosis,
to which the Workmen's Insurance Department and other
insurance institutions belonged, wjre much impressed, and
proceeded to take up the work, especially the provision of
sanatoria for consumptives throughout Germany,
II.
THE NAVIGATION ACT.
(i) The following are the principal dispositions of this Act
as given by Adam Smith : " All ships, of which the owners,
masters and three-fourths of the mariners are not British sub-
jects, are prohibited, upon pain of forfeiting ship and cargo,
from trading to the British settlements and plantations, or
from being employed in the coasting trade of Great Britain.
" (ii) A great variety of the most bulky articles of importa-
tion can be brought into Great Britain only, either in such
ships as are above described, or in ships of the country where
those goods are produced, and of which the owners, masters
and three-fourths of the mariners are of that particular country ;
and when imported in even ships of this latter kind they are
subject to double aliens duty. If imported in ships of any
other country, the penalty is forfeiture of ship and goods.
When this Act was made the Dutch were, what they still are,
the great carriers of Europe, and by this regulation they were
entirely excluded from being the earners to Great Britain, or
from importing to us the goods from any other European
country.
" (iii) A great variety of the most bulky articles of importa-
tion are prohibited from being imported, even in British ships,
from any country but that in which they are produced, under
pain of forfeiting ship and cargo. This regulation too was
probably intended against tlie Dutch. Holland was then, as
now, the great emporium for all European goods, and by this
157
158 THE COMMONWEAL
regulation British ships were hindered from loading in Holland
the goods of any other European country.
" (iv) Salt fish of all kinds, whale-fins, whale-bone, oil and
blubber, not caught by and cured on board British vessels,
when imported into Great Britain, are subjected to double
aliens duty. The Dutch, as they still are the principal, were
then the only fishers in Europe that attempted to supply
foreign nations with fish. By this regulation a very heavy
burden was laid upon their supplying Great Britain.
" When the x\ct of Navigation was made, though England
and Holland were not actually at war, the most violent
animosity subsisted between the two nations. It had begun
during the Government of the Long Parliament, which first
framed this Act, and it broke out soon after in the Dutch Wars
during that of the Protector and of Charles II. It is not im-
possible, therefore, that some of the regulations of this famous
Act may have proceeded from national animosity. They are
as wise, however, as if they had all been dictated by the most
deliberate wisdom. National animosity at that particular time
aimed at the very same object which the most deliberate
wisdom would have recommended, the diminution of the naval
power of Holland, the only naval power which could endanger
the security of England."
INDEX.
Agriculture, injured by free im-
ports, 20.
— statistics of, 20.
— people employed in, 21.
America and Protection, 47.
Ashley, W. J., 3.
Austria, war with Prussia, 71.
Avebury, Lord, on imports and ex-
ports, 27, 34, 35.
— on protection in America, 56,
66.
Bentham, 11.
Bismarck, on Free Trade in Ger-
many, 80.
— his constructive policy, 83.
British Empire, 120.
the two Empires, 147.
Buckle, on Adam Smith, 97.
Cattle, number of, in United King-
dom, 21.
Chamberlain, Eight Hon. Joseph,
his commission, statistics of,
20, 21.
— his Tarifi Reform proposals,
136.
ChurchiD, Mr., on foreign invest-
ments, 112.
Cobden, on free importation of
corn, 18.
— on com laws, 18.
— on natural protection, 19.
— conviction on world's adopting
Free Trade, 22.
— Club, abstractions of, 57.
— his mission abroad, 101.
— on separation of Colonies, 123.
— on universal peace, 124.
Cocoa, duty on, 16.
— protection of, 16.
Colonial Conference, on import
duties, 41.
— nationalism, 146.
Colonies, the, 120.
Commission of Inland Revenue,
report, 35.
Conquerors, the, 5.
Continental Blockade, the, 77.
Co-partnership system, 8.
Corn crops in United Kingdom, 20.
Corn Laws, 12, 13, 98.
Cosmopolitical economy, 4, 5.
Cosmopolitanism, 5, 126.
Cotton industry, origin of, in Lan-
cashire, 90.
progress of, under free im-
ports, 107.
persons employed in, 108.
Croesus, advice from Solon, 3.
Crops in United Kingdom, 20.
— acreage under, 20.
Crown Colonies, 147.
Cunningham, growth of English
industry, 86.
Deakin, on import duties in Aus-
tralia, 41.
Democracy and Empire, 145.
Depopulation of villages, 22.
Dupont de Nemours, 4.
Economic laws, 6.
— formulae, 6.
— system of, Jevons on, 7.
— men, 9, 58.
— infallibility, 17.
— fallacies, eh. iii., 27.
159
160
INDEX
Economic truths, 39.
Edward III., taxes in time of, 88.
Elizabeth, taxes in time of, 88.
Emigration, rate of, from England
and Germany, 82.
Exports, balance imports, 27.
— the suggestio falsi, 32.
— trade of principal countries, 81.
— per head, 99.
— of manufactured goods, 102.
Farrer, Lord, on imports and ex-
ports, 29.
on Fair Trade, 36.
Federalism, 5.
Federation, fiscal system as federal
instrument, 65.
Fiscal Blue Book, on imports and
exports, 29.
Food taxes, 138.
Foreign investments as sources of
importing power, 30.
extent of, 35.
nature of, 111.
Free Trade, 12.
principles of, 16.
McKinley on, 23.
miscalculations, 24.
universal, 25.
in Germany, 77, 80.
Bismarck on, 80.
Great Britain's era of, first
half, 95.
— — Great Britain's era of,
second half, 102.
policy of England defined,
96.
review of, in Great Britain,
118.
Bismarck on, in England,
119.
disintegrating influence of,
124.
French economists, 3.
Fiichs, Professor, on trade policy
of Great Britain and
Colonies, 140,
German institutions, how far ap-
plicable in Great Britain, 85.
Germany, her Customs Union, 68.
— modern, 68, 70.
Germany, Zollverein in, 78.
— Manufacturers' Union in, 78.
— progress under Zollverein, 81.
— exports of, 81.
— unemployment in, 82.
— emigration from, 82.
— Economic Union of, 83.
— State insurance for workmen,
84, 157.
— British trade with, 115.
Gournay, 4.
Great Britain before Free Trade, 86.
Hamilton, Alexander, 47.
— problems before, 48.
— report on manufactures, 49, 51.
— on protection of infant indus-
tries, 53.
— on symmetrical national de-
velopment, 55.
— his condition for Free Trade, 58.
Hofmeyer, on an Imperial Tariff,
134.
Holy Roman Empire, 68.
Voltaire on, 69.
Biyce on, 69.
North Germans on, 70.
Hume, on woollen industry, 87.
Imperialism, 146.
Import duties, burden of, 40, 43.
in Australia, 41.
Importing power, sources of, 30.
Imports, balance exports, 27.
— of manufactured goods, 102.
India, trade with, in eighteenth
century, 90.
— Free Trade in, 136.
— position in British Empire,
147.
Infant industries, 53, 94.
Injured industries, 54, 94.
Insurance, State insurance for
workmen in Germany, 84,
151.
James I., taxes in time of, 89.
— woollen industry in time of, 89.
Jebb, Richard, on Colonial Na-
tionalism, 146.
Jevons, on system of Economics, 7.
INDEX
161
Jones, Richard, his criticism of
Ricardo, 9.
Labour, 15.
— protected, 15.
— sweated, 16.
— fate of, when displaced, 38.
Labourer, share in profit, 8.
Laissez faire, ch. ii., 11.
origin of term, 4.
policy defined, 4.
principles and doctrines of,
11.
limits of the principle, 13.
Lawrence, Sir Joseph, on foreign
investments, 35.
Lincoln, on tariffs, 61.
List, on national system of Poli-
tical Economy, 3, 74.
— on productive power, 3, 91.
— on wealth, 3.
— views contrasted with those of
Adam Smith, 3.
— visit to America, 74.
— on Zollverein, 74.
— on British policy, 75.
— on power, 75.
— on England's position, 76.
— his predictions verified, 76, 83.
— on Free Trade in Germany, 77.
— and Mill on America com-
pared, 79.
Live stock in United Kingdom, 20.
Marshall, Professor, on change of
employment, 38.
on Economic Truths, 39.
McKinley, on Free Trade, 23, 63.
Merchant Shipping Act, 93.
Methuen Treaty, results of, 90.
Mill, John Stuart, definition of
Political Economy, 1.
— Jevons on, 7.
— Limits of laissez-faire prin-
ciple, 13.
— thought Protection doomed, 23.
— on imports and exports, 28.
Morley, Lord, on separation of the
Colonies, 126.
Mosely, memorandum on American
tariffs, 60.
Motor industry, 103.
Napoleon, on industry, 73.
— his Continental Blockade, 77.
Natural wages, 7.
— protection, 19, 21, 99.
eliminated, 22.
Navigation Act (see algo Appendix),
2, 157.
views of Adam Smith and
List on, 92.
Norman period, 87. ■
Oliver, book on Hamilton, 48.
Patents Act, 17.
Physical laws, 6.
Physiocratie, 4.
Pigs, number in United Kingdom,
21.
Political Economy, as defined by
John Stuart Mill, 1.
defined, 5.
— evolution, 5.
Portugal, trade with in XVIIIth
century, 90.
Preference, 123, 134.
— advantages of, 143.
Production, natural conditions of,
24.
Productive power, 3.
"a complex variable," 9.
Protection, natural, 19, 21, 99.
— in America, 47, 65.
— of infant industries, 53.
— of injured industries, 54.
— in Great Britain, 88-94.
— in Colonies, 131.
Prussia, wars of, 71.
— product of Income Tax in, 82.
Quesnay, 4.
Raw cotton, world's consumption
of, 25.
Restrictions on trade, 12.
Revenue taxes, 96.
Rhodes, Cecil, 149.
Ricardo, Jevons on, 7.
Ricardo-Mill Economics, 7.
Rogers, Thorold, on economic in-
terpretation of history, 87.
Roland, Girondist minister, on
trade restriction, 12.
162
INDEX
Seeley, Professor, on small estates,
122.
Seligman, Professor, 43.
Sheep, number in United Kingdom,
21.
Shipbuilding, 107.
Sidgwick, Professor, 43.
Smith, Adam, on laissez-faire, 4.
— on Navigation Act, 2, 92.
— his views contrasted vfith those
of List, 3.
— on free importation of corn, 17.
— on exports and imports, 28.
Smith, Goldwin, Professor, 127.
Social Democrats in Germany, 84.
Socialism, in Germany, 84.
Solon, advice to Croesus, 3.
Steel, world's production of, 25.
Tariff Commission, Mr. Chamber-
lain's statistics of, 12, 20.
— memorandum in America, 60.
— compromise in America, 61.
— Lincoln on, 61.
— Commission of the United
States, 62.
— the McKinley, 63.
— Reform League, 103.
— Reform Commission, 103.
— proposals considered , 118.
of Mr. Chamberlain, 136.
Unemployment in England and
Germany, 82.
United States and Protection, 47.
— Confederation of, 49.
— Constitution of, 50.
— memorandum on American
tariffs, 60.
— production of steel and raw
cotton in, 65.
— industrial progress of, 66.
— exports from, 82.
Von Hiinen on natural wages, 7.
Washington, 49.
Wealth of Nations, 2, 3.
— of England, 108.
— distinct from industry, 116.
Welsford, on strength of nations,
86.
Wheat cultivation in United King-
dom, 20.
Woollen industry in Great Britain,
87, 89.
under Free Imports, 105.
Workshop of the world, 26.
Zollverein, German, 3, 73.
— List on, 74.
— proposed for Colonies, 134.
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