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INTERFERENCE WITH 
 FOREIGN TRADE. 
 
 A Supplementary Chapter to 
 "ELEMENTS OF POLITICAL ECONOMY." 
 
 By JAMES BONAR, M.A., LL.D., 
 
 Author of " Malthus and his Works," 
 "Philosophy and Political Economy," etc. 
 
 LONDON : 
 JOHN MURRAY, ALBEMARLE STREET, W. 
 
 SIXPENCE NETT. 
 

 SUPPLEMENTARY CHAPTER 
 
 INTERFERENCE WITH FOREIGN TRADE 
 
 THE essence of all honest trade is the exchange 
 of what is in excess for what is in defect. The 
 result of the exchange is to increase the re- 
 sources of both the exchanging parties. They 
 have given away what they needed less, in return 
 for what they needed more ; they have got what 
 they needed more, in return for what they needed 
 less. 
 
 Trade does not cease to have this quality if 
 it is between foreigners. Indeed, the foreign 
 article is sometimes so different from its equiva- 
 lent, that the increase of resources resulting from 
 the exchange of the two equivalents is even 
 more unmistakable than in other exchanges. If 
 we did not get tea and rice by foreign trade we 
 should live without them altogether. 
 
 Foreign trade, like home trade, is spontaneous. 
 As in the home trade men without any aid from 
 
xiv INTERFERENCE WITH FOREIGN TRADE 
 
 governments will adopt various occupations in 
 various localities best suited for them, and then 
 exchange their productions to mutual advantage, 
 so, on the same principle of the division of labour, 
 foreign trade will arise for the mutual gain of 
 the traders and purchasers. The economy of 
 resources secured by foreign trade is the same as 
 is secured by the home trade. The differences of 
 the two kinds of commerce are not radical but 
 superficial ; they are such as might and usually 
 do exist between two distant parts of the home 
 country. Calais is nearer London than Dublin ; 
 but the trade between London and Dublin is a 
 home trade, and between London and Calais a 
 foreign. The difference is connected not with 
 industry or with situation, but with politics. 
 London and Calais are under separate political 
 governments, and therefore the trade between 
 them belongs to a different species from the trade 
 between Dublin and London. 
 
 > This political difference has been the pretext 
 
 for an interference of governments with foreign 
 trade, long abandoned by most of them in the 
 case of domestic exchanges. Within the borders 
 of the modern State, a trade takes care of itself ; 
 but a foreign trade is thought to need the special 
 care of the legislature. In most modern States, 
 accordingly, we find an elaborate system of devices 
 to secure what the wisdom of legislatures con- 
 
A QUESTION-BEGGING WORD xv 
 
 ceives to be the better direction of the foreign 
 trade of their peoples. 
 
 Governments usually interfere with foreign V 
 trade in order (as it is said) to " protect " the home 
 industries against all and sundry foreign assail- ; 
 ants. Protection is an attractive word, suggest- 
 ing the righting of a wrong or the defence of the 
 oppressed against the oppressor. But in its 
 fiscal sense it is a good name given to a policy of 
 doubtful goodness. It may even appear that it 
 is, like "perversion" and " orthodoxy," a fallacy 
 in one word which begs the question in dispute. 
 
 Who and what are to be protected, and against 
 whom and what ? The answer is in general 
 terms, that the maker or seller of goods in the 
 home market is to be protected against the com- 
 petition of the foreign maker or seller of goods, 
 the home maker being unable of himself to keep 
 his market, and (very naturally) desiring that 
 hindrances should be put in the way of his foreign 
 rival. 
 
 The hindrance which his Government accord- 
 ingly puts for him is usually a tax placed on the 
 imported article. In order to enable the weak 
 seller to go on selling at a profit at home, the 
 Government puts a Protective Duty on his rival's 
 goods. Contrariwise, in order to keep some 
 foreign market for him that he is not able to keep 
 for himself, they may give him a gratuity (or 
 
xvi INTERFERENCE WITH FOREIGN TRADE 
 
 Bounty) for each article he exports, in order that 
 he may still be able to keep his prices to the level 
 of the weak buyers and strong sellers in the 
 foreign market. Again, if an article, especially a 
 raw material, has been imported from abroad, and 
 has paid its duty on entrance, and if our own 
 citizens export it again, manufactured or not, 
 Government may pay back to them the original 
 duty, in order that they may not be hampered by 
 the tax which was meant to be a burden to their 
 rivals. There are, of course, drawbacks that have 
 nothing to do with protection, being drawbacks 
 of duties that are not protective. These are not 
 at present in question. 
 
 All the items of the protective system, 
 Bounties, Rebates, Drawbacks, Subsidies, Navi- 
 gation Acts, Preferential Duties, and the rest, 
 contain in substance the one fallacy or bundle of 
 fallacies involved in the Protective Duty " simple, 
 of itself." It will be best, therefore, to consider 
 this last fully by itself in all its main aspects. 
 
 The classes of people concerned in the matter 
 are (i) the producers, (2) the intermediaries, (3) 
 the governments, (4) the consumers or ultimate 
 beneficiaries. 
 
 The home producers may be taken to include 
 landlords, capitalists, employers, and workmen. 
 It is said that but for the protective duty the last 
 three would lose their market and the first would 
 
INTERMEDIARIES xvii 
 
 have lower rents. The capital invested in the 
 unprotected business would be wasted ; the em- 
 ployers would lose their profits, or see them 
 diminished ; the workmen would be thrown out 
 of work, and, if their trade is a skilled trade, 
 might find it hard to get another opening. The 
 foreign producers include the same classes of 
 men ; but we are supposed to have no considera- 
 tion for their losses or prevented gains, though, 
 as apparently doing their business better than 
 their protected rivals, the foreign employers and 
 workmen at least might be thought to deserve 
 some sympathy. 
 
 The home intermediaries include the home 
 merchants and shipowners who provide for the 
 importation of the articles, and also those who 
 deal in it after importation. The foreign inter- 
 mediaries may be similarly divided. It is the 
 interest of shippers to have their ships built as 
 well and cheaply as possible, and therefore to 
 have free access to the best materials and tools 
 and men. It is their interest to have goods 
 to carry, and therefore to have no obstacles 
 placed in the way of the carnage of them. It 
 is the interest of the merchant that there be 
 imports as well as exports for the ships to carry ; 
 the shippers cannot bring his goods so cheaply 
 without a return cargo as with it. The shipping 
 industry itself may desire (what it has sometimes 
 
xviii INTERFERENCE WITH FOREIGN TRADE 
 
 indeed obtained by Navigation Acts and Sub- 
 sidies) protection for itself; but its interest is that 
 other trades should be free. Of all English 
 industries shipping is one of the most character- 
 istic and important, peculiarly well suited to the 
 special powers of Englishmen. We have not 
 been outri vailed in this direction. In every 
 nook of the Seven Seas may be found British 
 ships carrying goods for the rest of the world, 
 being free, almost alone free, to take a return cargo 
 where they can find it. 
 
 As to the home government, it is not a 
 certain gainer by a protective duty. The pro- 
 tective duty ceases to protect if it does not 
 keep out all but the very strongest sellers ; and, 
 in proportion as these are few in number, the 
 revenue from the tax must be correspondingly 
 small. But this is to be expected ; the duty is 
 mainly for protection, only incidentally for revenue. 
 |j The foreign government, on the other hand, 
 : loses by our protective duties only as all govern- 
 ments may lose when the trade of their subjects 
 is curtailed. 
 ^ Of all the four classes, the first and the fourth, 
 
 *y 
 
 the -Producers and the Consumers, have interests 
 of the greatest magnitude in the matter. To 
 settle the dispute between them is to settle the 
 question between free imports and protection. 
 The consumers or users of the article are the 
 
APPEAL TO PATRIOTISM xix 
 
 persons for whose benefit the whole course of 
 production and trade is supposed to exist. So 
 deeply rooted is this conviction among the con- 
 sumers (or customers) themselves, that no govern- 
 ment has been able to entrust the " protection " 
 of native industries to the good sense or patriotism 
 of the consumers alone. The attempt to injure 
 the cause of the slaveholders by voluntary 
 abstinence from slave-grown sugar was never 
 made by the consumers of eighty years ago on 
 such a scale as to serve the purpose ; and, where 
 home industries are vexed by foreign competition, 
 the home traders gain little or nothing by appeal- 
 ing to the patriotism of their fellow citizens. They 
 are practically met by the answer that business is 
 business, and that one man cannot afford to buy 
 in any but the cheapest market unless all do so. 
 Therefore the compulsion of the public force must 
 come in to confine all, willy nilly, to the dearer 
 market, shutting them up for example to the 
 necessity of paying 305. for a hat instead of 2os.> 
 because 303. is the lowest price at which the 
 home maker can make the hats at a profit. 
 
 When a man pays 395. instead of 2os/, <he 
 has i os. less to lay out on other things, and^ 
 the makers of these other things are the losers, 
 while his own comforts are less by the value of 
 i os. The poor man who could have afforded 
 a new hat at 203. but not at 305., dispenses with 
 
xx INTERFERENCE WITH FOREIGN TRADE 
 
 the new hat and his comforts are less by one, 
 the new hat. The hat makers for their part 
 are presumably conducting their manufacture in 
 a more costly way than their rivals ; they are 
 exactly on the plane of the users of obsolete 
 imperfect tools, as compared with the possessors 
 of the latest and best instruments. We might 
 go farther and say they are on a level with those 
 who work without tools against those who work 
 with tools. As the working without tools is the 
 more costly, there is a loss by the working that 
 means no human gain ; it is labour ill-spent 
 against nature ; and to keep it going is to defeat 
 the attempt to conquer nature by invention. 
 When we reap with the hand sickle instead of 
 the reaping machine, we are wasting our resources 
 and preferring scarcity to abundance. The ideal 
 economy is the greatest possible abundance at 
 the least possible cost in labour and materials. 
 We secure this by invention, if we freely use the 
 effects of the invention. We secure it by free 
 imports. Modern science and invention have 
 tended to lessen distance, and make common 
 property of the fruits of the least costly produc- 
 tion. A duty on imports does what it can to 
 undo the achievements of science and invention 
 in this particular. Science has brought Paris 
 nearer to the frontier by a railway ; but, as far 
 as certain goods are concerned, the French 
 
PROHIBITION OR FREE TRADE xxi 
 
 Government by protective duties removes Paris 
 to its old position. 
 
 This is what happens if a duty is so truly 
 protective as to be prohibitive, so high as 
 absolutely to exclude all imports. There are 
 many degrees between prohibition and free trade, 
 between prohibitive duties and nominal duties ; 
 but all duties, being so many obstacles in the way 
 of trade, must tend to raise prices. For the time 
 being, and so far as they go, they are the cause 
 of a diminished supply ; and, as human nature 
 is at present, there is a consequent advantage 
 to the seller of which he will try to take 
 advantage. The home producer will not sell at 
 a low price if he can get a high price ; and with 
 an effective protective duty his only rivals are 
 his own countrymen. It is quite conceivable that 
 a lively home competition might lead producers to 
 invent new ways of lessening cost, and thereby of 
 selling more cheaply and making the protective 
 duty superfluous. But in most old countries, at 
 least, to remove foreign rivals is to tempt the 
 producer to rely on the ways of production to 
 which he has been long accustomed. The pro- 
 duction is too likely to lose both in quality and 
 quantity. The acuteness of home competition 
 when all the home competitors are lulled by the 
 tariff into a sense of false security, is less likely 
 to lead to the constant improvement of methods 
 
xxii INTERFERENCE WITH FOREIGN TRADE 
 
 of production than the felt presence of energetic 
 rivals outside, keenly alert to lay hold of oppor- 
 tunities to undersell the home producer in his 
 own market. 
 
 On the other hand, home competition is in most 
 cases enough to prevent a higher range of profits 
 than prevails in other trades not protected. If 
 a protective duty on its first appearance tempts 
 new capital into the protected trade, prices and 
 profits will tend to go down to the new cost 
 price, and there will be, as before, weak sellers 
 who will see their market taken away from them. 
 Even the protective duty is unable to save all the 
 weakest and worst managed businesses from ex- 
 tinction. It raises the cost price, but in most 
 cases not without limit, even if it has reached 
 prohibition. 
 
 There are, of course, cases in which a pro- 
 hibitive duty would advance the cost without 
 assignable limit. If foreign imports of food were 
 prohibited, and the population of the country had 
 passed the stage at which the good lands of its 
 own territory could supply it with food, the cost 
 of the supply would then be that of the food raised 
 in more costly ways from the better lands, or else 
 raised on inferior lands, sandy, rocky, and ill- 
 favoured by climate. For some time even in the 
 case of England the supply might be forthcoming, 
 but at a cost that would tend to be greater and 
 
THE CASE OF FOOD xxiii 
 
 greater. The market price of the whole supply, 
 as human nature now is, would be that of 
 the portion of it raised at greatest cost and 
 yet indispensable. If the price of such a 
 quarter of wheat was 8os., the price of every 
 quarter of wheat will tend to be 8os. The 
 outlay on food of every inhabitant of the 
 country will tend to become greater to that 
 extent ; and less of his income will be left for 
 other purchases. It is not that the agricul- 
 tural classes would gain all that was lost by 
 the rest. The landlords would no doubt be 
 considerable gainers. But the actual work of 
 production has been made more costly to the 
 producers on the margin ; and a larger and larger 
 proportion of the total gains of the agricultural 
 class would be not profit but outlay, an outlay 
 exactly analogous to the making of cloth by 
 hand-looms in private houses instead of by power- 
 looms in modern factories. To adopt deliberately 
 a plan that involves waste instead of economy, 
 is no doubt held to be justified in the case 
 of war and preparations for war ; but it is not 
 easy to show that such a policy tends towards 
 the enrichment of a people. In the case of food 
 it is more dangerous than in the case of other 
 comforts and even of other necessaries. But the 
 essential characteristic in all the cases is waste- 
 fulness. 
 
xxiv INTERFERENCE WITH FOREIGN TRADE 
 
 We are told, however, that the indirect effects 
 may be good, and that the end justifies the 
 means. We are told that by Protection employ- 
 ment is found or kept for those that would other- 
 wise be left unemployed. -We are told that if 
 our people lose as consumers, they gain as pro- 
 ducers, for a just system of protection will extend 
 to all industries, or at least all that need to be 
 protected. The circle once closed, wages, we 
 are told, will be kept from falling, or will even 
 rise. We are told that the capital we spend, un- 
 productively to the country, on foreign imports, 
 will under Protection be invested in concerns at 
 home, so that we shall be in a position to export 
 rather than to import ; indeed, the balance will 
 be turned ; instead of importing more than we 
 export, we shall have an excess of exports, and 
 it is more blessed to give than to receive. More- 
 over, we are told, industries that are weak now, 
 may after a short period of protection become 
 strong enough to live without protection. Finally, 
 it is said that it is well we should imitate other 
 nations, and raise a large revenue from the 
 taxation of goods, our basis of taxation having 
 hitherto been too narrow and the taxation, there- 
 fore, having pressed too hard on the middle and 
 upper classes. We need not (it is said) have 
 any scruple in doing this, for the duties can be 
 so contrived that the foreign exporter really pays 
 
IMPORTED COMMERCIAL POLICY xxv 
 
 them, and our Government gains without our 
 people losing. Instead of being tributary to the 
 foreigner, we shall, it is said, make him tributary 
 to us. We are reminded that nearly all other 
 nations have gone the way of protection, and 
 that we ought not to believe ourselves wiser than 
 our neighbours. 
 
 If we accept the last argument, the case is 
 settled ; and we have simply to import our com- 
 mercial policy from abroad, instead of the goods 
 which have hitherto made the life of an English 
 citizen larger and better equipped with the com- 
 forts of life than the life of a citizen of France, 
 Italy, or Germany. It is, perhaps, a sufficient 
 answer that our rivals are not more nearly infallible 
 than our own ancestors, and that we have hitherto 
 found it better, without fear of man, to take a 
 way of our own in politics, religion, and social 
 reform. For some four hundred years we have 
 admitted the exiles of all countries, to our great 
 industrial benefit, with no examples to guide us. 
 Factory legislation was adopted by us as reso- 
 lutely as Free Trade ; and we have not been 
 deterred from extending it by the reluctance of 
 our rivals to follow our example. If we stood 
 alone, our policy would not therefore be wrong. 
 
 We must consequently take the earlier argu- 
 ments on their merits, and not be too modest to 
 pronounce them bad if they seem so to us. 
 
xxvi INTERFERENCE WITH FOREIGN TRADE 
 
 First, it is said, Protection creates employ- 
 ment. The same was said once of labour by 
 hand as against labour with machinery. More 
 hands will be needed to reap a field with sickles 
 than with the reaping machine. But the end of 
 all economy is to lessen labour ; when we have 
 done all we can in this direction, there will still 
 be work for all to do, in ways that lead to new 
 triumphs over nature. To refuse to lessen labour 
 where it can be lessened, is to waste labour. 
 Labour is not an end in itself ; we work in order 
 to have the good things of life. The workman 
 himself, on whose behalf the argument is urged, 
 wants wages not work. If all were to use the 
 most laborious and costly ways of production, 
 his wages at a given rate would lose in power of 
 purchasing. Not only his food, but his clothes 
 and his little luxuries would all be dearer ; instead 
 of abundance, he would have scarcity. If he 
 were already very poor, he would be brought to 
 destitution. The dearness of the protected 
 articles would leave the buyers with less to spend 
 on other articles, and would thereby decrease the 
 " demand for labour." 
 
 The answer usually made to this criticism is 
 that where all (which is equitable), and not only 
 a few, are protected, the rate of wages would go 
 up for all, and all would fare as before. We may 
 reply that, if all fare only as before, there seems no 
 
THE RISE OF WAGES xxvii 
 
 virtue in the change ; the change would only 
 mean that the purchasing power of money had 
 fallen. But, though it is true that prices would 
 go up for all if all articles were to be made in a 
 costly instead of an economical way, wages are 
 slow to follow prices. Wages tend to be greater, 
 only (i) if the productiveness of labour or the 
 value of its product generally, has increased ; 
 (2) if the strength of the workman, as compared 
 with the employer, is greater, either through few- 
 ness of numbers in face of a large demand, or 
 through organisation. Wages are high in 
 America and Australia ; they are low in Italy, 
 Germany, and Russia ; yet those countries are all 
 alike " protected." There is nothing in Protection 
 to imply either of the two causes of increase, but 
 rather the reverse. If it be said that the way to 
 enrich every one is to close the circle and confine 
 the citizens entirely to the productions of its small 
 area, the plan might be tried with counties, or 
 even cities, of a State ; a besieged city would fare 
 excellently, from this point of view. But States 
 have so little belief in the economical benefits of 
 thus closing the doors, that within their own 
 boundaries no county or city is thus closed ; a 
 new territory added to the State has Free Trade 
 with all the rest, and the others inundate it with 
 free imports. All the forty-five States and seven 
 Territories of the American Union are in this 
 
xxviii INTERFERENCE WITH FOREIGN TRADE 
 
 position. What is deemed good for the whole 
 in relation to other wholes is not deemed so for 
 the parts in relation to each other. 
 
 Moreover, though in equity protection should 
 be extended to all, in no country is this the case, 
 and for the obvious reason that in no country are 
 all the industries in equal need of protection. A 
 country where all the trades would die without 
 protection, would be a country where every 
 business was bankrupt, unless supported by the 
 State ; and it would be hard to see from what 
 quarter the Exchequer would find resources 
 to give the support ; the State itself would 
 be quickly bankrupt. As a matter of fact, the 
 industries that are in no need of protection 
 support the rest, as truly as the ratepayers support 
 the poor by a poor rate. The richer a country is, 
 the more lightly it feels such a burden. In the 
 United States, the wealthiest country in the whole 
 world, both in men and in material resources, the 
 sacrifice involved in Protection might be doubled 
 without being felt to be serious. It is, perhaps, 
 the one country which could afford to be a closed 
 State. Wages are high because the productive 
 power of labour, largely assisted by inventive 
 enterprise, is very great, and the organisation of 
 working-men, though not equal to that of the 
 English trade unions, is still effective enough to 
 enable the men to seize opportunities when they 
 
FREE TRADE IN EUROPE xxlx 
 
 appear. The foreign trade of the country is a 
 comparatively small portion of the whole, the 
 imports for home consumption being valued in 
 1900 at about ^168,000,000, and the exports of 
 home produce at ^303,000,000 (Statist. Abstr., 
 Foreign Countries, No. XXVIII., publ. 1902, 
 pp. 45, 49), though the population in 1900 was 
 seventy-six millions (ib. t p. 9). The largest trade 
 of all (in corn and " bread stuffs"), needs no pro- 
 tection ; and the wages of the protected trades, 
 trades which are a fraction of a fraction, could 
 hardly set the standard for all the rest, or be 
 much disturbed by the introduction of free 
 imports. 
 
 It is otherwise with many countries of 
 Europe ; and a change from Protection to Free 
 Trade, if suddenly made, might have all the 
 effects of a new invention in the temporary dis- 
 placement and sufferings of workmen. There 
 might be a positive advantage to the community 
 in a direct subvention given to such sufferers. 
 Such a grant would not have the evils of a 
 protective duty. It would be a burden on the 
 rates or taxes, of known and definite amount, 
 leaving the new invention and the free imports to 
 benefit the whole body of consumers, and make 
 them more able than before to give such help. 
 It would be temporary, for the surplus labour is 
 soon absorbed by the new industry itself. But a 
 
 c 
 
xxx INTERFERENCE WITH FOREIGN TRADE 
 
 tax on imports or on inventions would tend to 
 raise the price over the whole area of the market, 
 with a loss to the whole body of consumers far 
 beyond what was received by the Government. 
 The threatened producers would be saved from 
 bankruptcy and poverty at an extravagant cost 
 to the country, and would be too likely to be a 
 permanent burden on it. 
 
 A tax on imports, like all other taxes, may 
 have a tendency that is concealed or counteracted 
 by the plurality of causes, characteristic of large 
 civilised communities. Its tendency none the less 
 is to raise the price of the article taxed ; as pro- 
 tective, it is meant to do so, and as an undoubted 
 obstacle to supply it will tend to do so. Suppose 
 a Government to place a tax of 55. a quarter on 
 wheat. Against each payment of 53. must be 
 set the expense of collecting it. To widen the 
 range of the tariff means to swell the number of 
 salaried officials and their equipment. The net 
 sum received by the Exchequer will be less than 
 55. But, if the imported wheat is, say, half of the 
 whole supply, being presumably needed quite as 
 much as the other half it will fix the price of the 
 whole supply ; the price of both halves will tend 
 to be raised by 55. All consumers will pay 53. 
 more, but the Government will receive barely 55. for 
 half of the total number of quarters. The people 
 lose more than the Government gains. They have 
 
A TAX ON WHEAT xxxi 
 
 53. the less to devote to other purchases. Now a 
 grant or subvention to the amount of the number 
 of imported quarters multiplied by 55. would not 
 have inflicted this loss on the consumers, but 
 would have cost them only the stated sum in 
 taxes, with an allowance for collection. In both 
 cases we should be relieving one class of men at 
 the expense of all the other classes ; but in the 
 case of the grant we should be frankly relieving 
 them out of the rates and taxes ; in the case of the 
 duty, we should be relieving them in a way that 
 caused more loss to the community than gain to 
 the individuals relieved, though the community 
 would be made less plainly aware of its loss. 
 
 If the example taken had not been a necessary 
 but a luxury, the effects would have seemed less 
 striking, because you injure a man less by raising 
 the price of his luxuries than by raising the price 
 of his daily food. But the wastefulness would 
 have been precisely similar. The community 
 would have sacrificed more than was gained either 
 by the Government or by the sufferers. If the 
 protection is effective, the duty would bring little or 
 nothing to the Government at all. The traders 
 above the margin who needed no protection would 
 nevertheless gain by it. Those just at or under the 
 margin without protection, would be raised above 
 it by the aid of the duty. Their impending fate 
 was bankruptcy, and the duty saves them from it. 
 
xxxii INTERFERENCE WITH FOREIGN TRADE 
 
 This is in fact the service contemplated in the 
 argument above mentioned that Protection 
 enables capital to be invested at home. It is 
 invested at home in businesses confessedly too 
 weak to live without it. We are told that, even 
 if they be weak, they are carried on in this 
 country to the encouragement of trade in their 
 whole neighbourhood, whereas capital invested 
 abroad gives three-fourths of its benefits to the 
 foreign place where it is invested. The case is 
 again analogous to the case of machinery. To 
 use the power-loom in place of the hand-loom is 
 to do in an hour what might have employed many 
 men for days. But to do it by hand-loom is to 
 do it in a needlessly costly manner, and therefore 
 to waste labour. Instead of creating abundance 
 among our people, we might give work and wages, 
 and profits and rent, to a very few in a corner of 
 the kingdom, at the cost of all the rest of the 
 population. Imports are a discouragement not 
 of labour but of useless labour. If instead of 
 making an article we import it, we are not dis- 
 pensed from making the equivalent in which to 
 pay for it ; but the labour of making the equiva- 
 lent is on the assumptions a less costly labour 
 and therefore better for all concerned. 
 
 The investment of capital at home is praised 
 so highly from the idea that, though an individual 
 gains by what he receives, a nation gains by what 
 
IMPORTS PURCHASE EXPORTS xxxiii 
 
 she gives away. It is the idea that it is good for 
 a nation to export more than she imports, but 
 unsafe to have the contrary experience. Yet 
 trade does not cease to be an exchange of equiva- 
 lents because it is between individuals of different 
 nations. In every bargain, we may be sure 
 nothing is given for nothing ; and therefore there 
 can be no exports without imports, or imports 
 without exports. It might appear from the 
 English balance (Statist. Abstr., United King- 
 dom, xlix., publ. 1902, p. 49) that the imports 
 are far ahead of the exports. The imports in 
 1900 were ^523,000,000, in 1901 ^521,000,000; 
 the exports in 1900 were ,354,000,000, in 1901 
 ^347,000,000. 
 
 But the foreigner is not really so generous as 
 might thus appear. He owes us large sums, for 
 which exports went out long ago without imme- 
 diate equivalent, and he is now paying his interest 
 to us in the shape of imports that come here with- 
 out present equivalent. He is, besides, constantly 
 paying freights for the service of our ships in 
 conveyance of goods, without any entry on the 
 registers of our officials of this " service," of which 
 the freights are the value, and which is really one 
 of our exports. In the Government returns, the 
 imports are taken at their price on landing, and 
 the exports at their price on starting. It might 
 truly be said, therefore, that the exports are always 
 
xxxiv INTERFERENCE WITH FOREIGN TRADE 
 
 greater than they are declared to be by the Board 
 of Trade. 
 
 If the excess of imports had been a clear 
 profit or free gift to our merchants, there would 
 surely have been little grievance. Some have had 
 an uneasy suspicion that the difference was paid 
 in the precious metals, and that all the gold and 
 silver would soon be drained away from England 
 to pay for her imports. But the recorded exports 
 of gold and silver were for 1900 ,18,000,000, 
 for 1901 ,13,000,000, while the imports of 
 them were for 1900 ,26,000,000, and for 1901 
 ,20,000,000 (Statist. Abstr., United Kingdom, 
 as above, pp. 139, 145). There was no drain of 
 gold and silver; we received ,15,000,000 more 
 than we sent away. The private trader usually 
 counts it more blessed to receive than to give, 
 whether it be gold or goods. We may be sure 
 that our foreign customers will see to it that 
 against every purchase there is a sale. If our 
 sales ever fall off, it is no remedy to obstruct 
 our purchases, for he who purchases from us must 
 in one form or another receive our goods in pay- 
 ment. Every private trader knows this ; but it 
 seems to be the aim of some Governments to make 
 their merchants sell without buying. In the case, 
 not of a whole group of countries but of two par- 
 ticular countries, it may sometimes appear that 
 this idea has been carried out ; one may export 
 
THE FUNCTION OF GOLD xxxv 
 
 to another a great deal more than it receives from 
 that other. But in such cases there is a round- 
 about trade ; there is a third country which is 
 debtor to the one receiving the exports, and be- 
 comes the means of paying for them with her 
 own exports, to the settlement of the debt. If a 
 single State, say Russia, were to become in regard 
 to imports a closed State, not against one or two 
 others, but against all and sundry, trade might go 
 on for some little time perhaps, if gold were not 
 included in the embargo. It would be a trade of a 
 highly costly nature. The exported goods would 
 be carried for gold without any return cargoes of 
 other goods. Gold would soon become a drug in 
 the closed country, and more valuable in the im- 
 porting country, with the usual effects on prices. 
 On the other hand, if the closing included gold, 
 there would no longer be any trade. It takes two 
 articles to keep up a trade, and to confine it to 
 one is to essay an impossibility. The history 
 of the Berlin Decree and the Orders in Council 
 of a hundred years ago may show that no Govern- 
 ments are strong enough to enforce such em- 
 bargoes on a great scale. Few Governments 
 would attempt them on the small scale. If Suffolk 
 were to resent being " tributary " to Lancashire, 
 and were to exclude not only the goods of Lanca- 
 shire, but the goods of all other counties and 
 countries that might serve as intermediaries, the 
 
xxxvi INTERFERENCE WITH FOREIGN TRADE 
 
 only result would be the impoverishment of Suffolk. 
 We see the mistake clearly enough where we are 
 dealing with our own counties ; but good economy 
 does not cease to be good economy when applied 
 on the larger scale. 
 
 The excess of imports wears quite a different 
 appearance even to the eye of vulgar logic, 
 when we look at quantities instead of values. If 
 15,000,000 cwt. of bacon, and beef, and mutton 
 were imported in 1901 into this country, and all 
 but a quarter of a million stayed there (Statist. 
 Abstr., U.K., as above cited, pp. 59, 65, 129), 
 we may be sure that the gainers were not only 
 our rich men, whose power of consumption is 
 limited, but the great mass of our people ; and 
 this is so whether the profits of the import- 
 ing merchants were high or low. The great 
 argument for free imports is not that it 
 increases the profits of our traders, but that it 
 multiplies the comforts of our people. It creates 
 abundance. Protection, to keep up the profits of 
 certain classes, tends to create a scarcity for all 
 the rest. In statistics of imports quantities are 
 of more importance than values for an insight 
 into this fact. The fortunes of merchants may 
 depend on the values ; the real national income 
 from foreign trade depends on the quantities. 
 
 It is said, however, that though not good 
 as a standing policy, Protection may be good 
 
OF THE 
 
 UNIVERSITY 
 
 F 
 
 TEMPORARY PROTECTION xxxvii 
 
 for a time when applied to a few trades just 
 trembling on the verge of failure, but capable 
 of vigorous growth by and by. This principle 
 has been often applied in our own Colonies. But 
 few of these nurslings seem ever to reach man- 
 hood, and admit that they can stand alone. 
 Once protected, a trade tends to secure a vested 
 right to be always protected. Temporary pro- 
 tection is apt to mean permanent protection. 
 In giving any such protection at all, the com- 
 munity is making a distinct sacrifice. The future 
 may repay the sacrifice ; the political results may 
 conceivably justify it. But it is not for the 
 time an economy ; it is a sacrifice of economy. 
 Considering the effects of such a proceeding on 
 the whole range of prices for the articles con- 
 cerned, we might fairly be led to conclude that 
 an encouragement by direct grant would serve 
 the same purpose with less mischief. As a rule, 
 in the older countries the cry for Protection is 
 raised, not by the young industries but by the 
 feeble and old, disinclined to bestir themselves and 
 adopt new methods. The claim for protection is 
 everywhere a claim either of weakness addressed 
 to a strong Government, or of interested strength 
 only too capable of controlling a weak Government. 
 Here in England we need to remember that, if 
 we revive Protection, we are laying new burdens 
 on a legislature already unequal to the old tasks, 
 
xxxviii INTERFERENCE WITH FOREIGN TRADE 
 
 In addition to all the old political work, the 
 care of all the trades and industries would be 
 laid on the legislator ; and the motive of encourag- 
 ing his own business or that of his constituents 
 could hardly be absent from his decisions, where 
 there were constant temptations and opportunities. 
 Such motives were rampant in our own Parliament 
 at the beginning of the nineteenth century ; and 
 we have not hitherto been proud of this feature 
 of our unreformed Parliaments. 
 
 It would be a dear price to pay for widening 
 the basis of taxation. Sir Robert Peel stated 
 in Parliament on nth March 1842, that the 
 tariff then included 1200 articles, of which he 
 proposed to remove 750 from the list, still leaving 
 450. The present tariff may be said to include 
 20, taxed for revenue only, with an Excise to 
 supplement the Customs. The fiscal system of 
 1842 still retained the distinctive treatment of 
 raw materials and manufactured articles, and of 
 Canada and foreign countries. The special treat- 
 ment of raw materials, giving them free entrance 
 while manufactures are taxed, may be criticised as 
 involving the fallacy that labour is profitably ex- 
 pended on raw material to be afterwards exported 
 as a manufacture, but not profitably expended 
 on the home articles of manufacture exported as 
 equivalents for the foreign imported manufac- 
 tures. We can, however, get no foreign articles, 
 
SUGAR BOUNTY xxxix 
 
 raw or manufactured, without such equivalent, 
 and our labour may be quite profitably expended 
 on either. 
 
 At present in many European countries the 
 distinction still remains ; and in the case of 
 sugar in particular it has led to international 
 heartburnings. 
 
 One difficulty of the distinction is, that, like 
 other human distinctions, it depends on cir- 
 cumstances and varies with them. What is 
 finished article to one manufacturer may be 
 raw material to another. Cut timber is a 
 finished article to the forester whose tree is his 
 raw material ; the cut timber is raw material to 
 the builder. The unrefined juice of the sugar 
 cane or beetroot is raw material to the sugar 
 refiner ; but the refiner's refined sugar, which is his 
 finished article, is raw material to the confectioner 
 and maker of jam. It had been the practice in 
 many European States to tax the raw sugar, but 
 to give a drawback of the duty when the refined 
 sugar was exported. In experience it was found 
 that these drawbacks tended to exceed the amount 
 actually paid as duty. The officials based their 
 tax of the raw sugar on a calculation of the 
 amount of refined sugar that could be got out 
 of it or out of the roots on an average ; and their 
 drawback was granted on the actually produced 
 amount of refined sugar. The calculation was 
 
xl INTERFERENCE WITH FOREIGN TRADE 
 
 often an underestimate ; and the drawback became 
 in this way a bounty, at which the Governments 
 were led by the sugar refiners to connive. The 
 ordinary French or Austrian citizen who was 
 not a sugar refiner paid taxes to keep up the 
 bounty, and also paid more for his sugar, or 
 (what is the same thing) got it of an inferior 
 quality. By an International Convention which 
 comes into force at the end of this year (1903), 
 this system it is hoped will be brought to an end. 
 We need not regret the disappearance of it. 
 It seems clear that for many years our people 
 have gained more by it than our sugar pro- 
 ducers have lost. Not only is sugar an article 
 of universal consumption, but it is a raw material 
 the cheapness of which has led to a corresponding 
 cheapness of confectionery and kindred products. 
 Still the situation had all the precariousness of 
 a situation artificially created by manipulation 
 of tariffs. Its lesson for us is the bad effects 
 on long-suffering foreign peoples of the domina- 
 tion of a single powerful manufacturing interest 
 in the counsels of their Governments. A bounty 
 tends to have all the effects of a duty, by arti- 
 ficially lessening the abundance of the article 
 concerned in the home market itself, and giving 
 to a few producers a market they would other- 
 wise have lost. Protection is avowedly intended 
 to benefit one nation at the expense of all the 
 
PREFERENTIAL TARIFFS xli 
 
 rest ; but what it succeeds in doing, is to benefit 
 one section of its own people at the cost of all 
 the other sections. 
 
 Protection, not so much for our own benefit 
 as for that of our Colonies, has a more insidious 
 attraction. It is at least better than the old 
 policy of exhausting the Colonies for the benefit 
 of the Mother Country. But the mischievous 
 effects of Protection, being beyond control of 
 Parliaments, do not cease to act because the 
 intentions of Parliament are good, or because 
 statesmen have new motives for adopting Pro- 
 tection. 
 
 The fiscal system of 1842 retained the prefer- 
 ence given to the Colonies, especially to Canada. 
 The timber of Canada entered at a nominal duty ; 
 foreign timber, which had hitherto paid a tax of 
 about 4 is. a load, was now to be taxed at about 
 303. " I think it is most desirable to act upon 
 this principle as far as you can with safety to the 
 general interest, namely, that you should treat 
 Canada as if she were an integral part of the 
 kingdom " (Speech of Sir R. Peel above quoted). 
 The reduction was a boon not to be measured 
 by the loss to the Treasury of ,600,000 a year. 
 Yet, though under a "nominal" duty of is., 
 Canada, having the sea as an obstacle, was 
 scarcely treated as an integral part of the Empire, 
 the protection of her against the Baltic was suffi- 
 
xlii INTERFERENCE WITH FOREIGN TRADE 
 
 ciently complete, and British builders of houses 
 and ships endured unnecessary dearness, and 
 often indifferent quality of wood, a little longer. 
 
 Now, in 1903, we are asked to revert to the 
 like Colonial Preferences. We are told that one 
 essential condition of the integral union and 
 federation of England with the self-governing 
 Colonies, is the revival of duties against foreign 
 imports, in order that we may have them to 
 remit in the case of the Colonial imports. For 
 all British possessions we are to have Free 
 Trade ; for all foreign countries a Protective 
 Tariff, wherever they have one. It is argued 
 that in this way not only do we give our Colonies 
 an encouragement that they do not now possess, 
 but we put it in our power to retaliate against 
 the countries which now exclude our own goods, 
 or which tax them or the goods of our Colonies 
 severely. In the first case we may, it is said, 
 further a political advantage by the system of pre- 
 ferential duties ; in the second, we may coerce 
 foreign rivals into Free Trade by retaliation. 
 
 Our Colonies themselves, as soon as they 
 have been endowed by us with self-government 
 have, with very few exceptions (such as New 
 South Wales before Confederation), shown at 
 once that they did not regard themselves, for 
 commercial purposes, as integral parts of the 
 Empire. Fiscal autonomy has not led to fiscal 
 
IMPERIAL FREE TRADE xliii 
 
 uniformity, and will probably do so only after the 
 whole Empire is really of one mind. It is per- 
 haps here as with the question of the universal 
 extension of Free Trade. When the nations 
 have the feelings that lead to international peace, 
 Free Trade will follow of itself. When the Colonies 
 feel really at one with us, they will have Free 
 Trade with us. There is no greater impediment 
 to Free Trade than political enmity, which is un- 
 willing to benefit a stranger, even if the benefit is 
 mutual. But to produce Free Trade or fiscal uni- 
 formity by legislation, will be too hard a task for 
 even the wisest statesmen. 
 
 Either we believe in the virtues of Protection, 
 or we do not. If we do, we can hardly be sur- 
 prised if Canada, and Australia, and New Zealand 
 continue to " protect" themselves against their 
 most formidable competitor in manufactures, the 
 English manufacturer. If we do not, it seems 
 scarcely reasonable for us to follow our children's 
 bad example, and come down to the continental 
 standard, instead of trying to raise the Colonies 
 to our own standard. With the hard-headed, 
 picked men of the Colonies, sound reasoning is 
 likely to prevail in the end ; economic motives 
 have freer play in the Colonies than even in 
 England, and appeal can be made to such 
 motives with the more confidence. 
 
 If Protection is good for the Empire against 
 
xliv INTERFERENCE WITH FOREIGN TRADE 
 
 the foreigner, our English producers are not 
 likely to allow the Colonies alone to have the 
 benefit of it ; and we shall have a system of 
 protective duties such as prevailed in the first 
 half of the nineteenth century. On the other 
 .hand, if Free Trade is good for the Empire within 
 itself, the Colonies make no more' sacrihue LA 
 adopting it with us there than Kent or Sussex, 
 which have long ceased to be protected against 
 the other counties which were fatal rivals to 
 some of their industries. 
 
 It is to be feared that as yet the Colonies do 
 not see the matter in this light, and will not take 
 the first step to integral commercial union, by 
 consenting to absolute Free Trade within the 
 Empire, still less by consenting to absolute Free 
 Trade thereafter, with the foreigner. 
 
 If we suppose for the moment that they agree 
 to Free Trade within the Empire, they will prob- 
 ably have enough of the old Adam left in them 
 to ask that as against the foreigner they shall be 
 protected, and, as they are many, that they shall 
 be equally protected, not one more than another. 
 If the corn of Canada is to be protected, the 
 wool of Australia must be. It is argued, in the 
 case of Canadian corn, that the half-developed 
 agricultural resources of Canada may, in a 
 generation perhaps, be equal to the task of 
 supplying our whole corn market. Meanwhile 
 
A PRESENT SACRIFICE xlv 
 
 we shall be confronted with the free trader's 
 criticism that during the interval the taxed corn 
 will mean dear corn, and the dearness will not 
 merely be that of the foreign imported supplies 
 actually taxed, but of our whole stock home, 
 colonial, and foreign, the dearest necessary part 
 r --ix-g the price of the whole. We shall, perhaps, 
 after a generation has passed, be fully provided 
 with corn by our Colonies. During the interval, 
 English agriculture will be protected, except as 
 against its Colonial rivals, whose success it may 
 never challenge. At the end of the interval, 
 English agriculture will be placed as it is 
 now ; and the revenue derived from the tax will 
 have ceased, as the need of the taxed corn will no 
 longer exist. Our widened basis of taxation, in 
 regard to corn, will only serve us well financially 
 during the trying times of unnecessary dearness 
 due to our self-denying ordinance ; our poor will 
 suffer most hardship at the time when, from this 
 source at least, the Exchequer is enjoying most 
 prosperity. To endure this great present sacrifice, 
 the nation must be wealthier than any of us have 
 thought. There is every reason to believe that 
 wealth is greater, and even more widely diffused 
 now, than ever before. But there are still large 
 strata of the very poor to whom the dearness of 
 common articles means a deeper poverty than the 
 wealthier classes can easily imagine. Our Colonies 
 
 d 
 
xlvi INTERFERENCE WITH FOREIGN TRADE 
 
 themselves are not so poor as to need such a 
 sacrifice from our poorest for a problematical 
 gain to them which, except in sentiment, is no 
 gain to us. There is, in the long run, no essential 
 difference between the proposal that we should 
 be confined to the produce of Greater England, 
 and the old project that we should be confined to 
 the produce of the Smaller England a project 
 which our rulers tried to carry out a hundred 
 years ago, with immense suffering to our people, 
 till after thirty years the hand of Parliament was 
 . forced from the outside by the popular agitation 
 against the Corn Laws. 
 
 It is urged, however, that new times require 
 a new policy, that, from having been so long 
 discarded, the weapons of Protection may now be 
 regarded as new, and against an enemy that 
 employs them, they are likely to be the best 
 weapons. But in war we do not attack the 
 enemy with the arms most effective in his hands, 
 but with the arms most effective in ours, and we 
 do not consult him in the matter. If he has only 
 infantry, we should not scruple to use our cavalry ; 
 and the reproach that we used it sixty years ago 
 would not deter us. In matters of common sense, 
 le temps ne fait rien a r affaire. 
 
 It is no doubt perfectly true that Free Trade 
 on one side and Protection on the other are not 
 such a boon as Free Trade on both sides. But 
 
RETALIATION xlvii 
 
 the free trader, though he would like to see his 
 views universal, is convinced by his own argu- 
 ments that to have free right of purchase with 
 a limited right of sale is better than to have 
 obstruction to both purchase and sale. Though 
 he is not always allowed to sell in the best 
 market, he is glad to be still allowed to buy 
 in it. No private individual or family would 
 judge otherwise about its sales and purchases. 
 We are advised, however, to threaten those 
 Governments that refuse us free sale with a 
 withdrawal of our free purchase. This is the 
 negative side of the scheme of Preferential 
 Duties. 
 
 Those that exclude our goods or the goods 
 of our Colonies may, it is said, be induced to 
 admit them if we threaten to injure their traders 
 by taxing their goods on importation. But 
 retaliation means, that, to try to do a little right 
 and perhaps fail to do it, we should do a great 
 wrong beyond doubt of failure. Without laying 
 stress on the fact that English capital is widely 
 invested abroad, and its returns would share in 
 the injury we might hope to inflict on the 
 foreigner, we may simply say that to our own 
 citizens the immediate sacrifice is sure, and the 
 ultimate reward uncertain. In some of the most 
 important cases the retaliation could meet with 
 a retaliation of a like sort, to which our widely 
 
xlviii INTERFERENCE WITH FOREIGN TRADE 
 
 extended trade leaves us peculiarly sensitive. 
 If we taxed the imports from the United 
 States because of fiscal injuries received by us 
 or our Colonies, the result might be a restriction 
 of our supplies of cotton, or an obstruction of 
 the facilities granted to Canadian exporters of 
 corn in the winter months. No doubt, if in 
 face of the Constitution the exportation of 
 cotton were stopped or hindered, the injury 
 done by the United States to its own 
 citizens would be evident ; but it would not 
 be more real than the injury deliberately done 
 by ourselves to our own citizens in the first 
 instances. To begin a war of tariffs is, besides, 
 to sow the seeds of actual war. Germany, 
 though it has not the commanding position of 
 the United States, is sure to reply in kind, with 
 a growing desire to express its resentment in 
 military action. Long ago we levied high 
 duties on French claret in order to benefit the 
 Portuguese " who dealt at our shop," thus erecting 
 " the arts of underling tradesmen into political 
 maxims for the conduct of a great empire." 
 We even tried by our Navigation Acts to prevent 
 foreign ships from bringing our cargoes, which 
 was a plan quite analogous to the plan of exclud- 
 ing all vehicles from London that were not of 
 London manufacture. We have long ago aban- 
 doned this Chauvinism ; and experience does not 
 
PROTECTION ASSISTS TRUSTS xlix 
 
 teach us that the best way of converting our 
 neighbours is to become backsliders ourselves. 
 
 In dealing with these questions, we need 
 always to remember that we are on the same 
 plane with continental nations, but not on the 
 same plane with the United States. Even a 
 really integral fiscal union with our Colonies would 
 leave England far less able to bear the sacrifice 
 involved in Protection than the great Western 
 Republic. Our American neighbour is wealthy 
 enough, with her eighty millions of people, her 
 capital overflowing into our own country, and 
 her immense territory full of natural riches, to 
 enrich us as well as herself. It must be a blind 
 trade that does not benefit both parties. It is 
 not entirely a loss to us that the United States 
 have not adopted free trade. Free trade is a 
 contrivance for saving labour, and if they were 
 to add it to their large store of such devices, 
 they would increase their superiority over their 
 commercial rivals. To their own misfortune 
 in their Tariff they allow the interests of par- 
 ticular classes to control the commercial policy 
 of their Government ; and the American Trusts, 
 if not created by Protection are largely assisted 
 by it, though they are sometimes shrewd enough 
 to keep down prices in order not to tempt 
 destiny. 
 
 Governments are too often more anxious 
 
1 INTERFERENCE WITH FOREIGN TRADE 
 
 to help their subjects in groups, than to help 
 them as a whole. By the policy of free imports 
 on the contrary we provide for the whole, well 
 assured that self-interest and the stimulus of com- 
 petition will lead the separate classes to provide 
 for themselves. This policy involves the belief 
 that, if we secure our citizens against tyranny, 
 ignorance, fraud, and disease at home, they will 
 be well fitted to choose their own careers and play 
 their part in the world. It involves the belief 
 that our neighbours' prosperity is no injury to 
 us, but tends, if we are wise, to our benefit ; 
 that the Great Intercourse of trade in material 
 goods should be as beneficently free as, in spite 
 of distance, language, and habits, the exchange 
 of thoughts has been in literature, science, and 
 the fine arts. The policy of Open Doors is nobler 
 than that of Closed States. It is less good to 
 strive exclusively for the aggrandisement even 
 of Greater England, than to advocate for the 
 whole world that policy which will make the 
 resources of the whole world go farthest for the 
 good of all its inhabitants. 
 
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