-'<^''
1^''-
'■V
fcrr'?:
'f:M.
^$&->
fyi^
,j-.-;.'v.- -.-i-.'
^^':
;^'^-
1
.<b
LIBRARY
OF THE
UNIVERSITY OF CALIFORNIA.
i
THE RETURN TO PROTECTION
JB^ tbe Same Butbor.
STUDIES IN ECONOMICS.
Crown 8vo. Net 8s. 6d.
THE
DISTRIBUTION OF INCOME.
Crown 8vo. Net 5s.
MACMILLAN AND CO., LIMITED.
THE RETURN TO
PROTECTION
BY
WILLIAM SMART
M.A., D.PHIL., LL.D. ; ADAM SMITH PROFESSOR OF POLITICAL ECONOMY
IN THE UNIVERSITY OF GLASGOW
"En cticrg countrg it altoaus is anb must be the interest
of the great botiD of tlic people to buij luliateber theij toant
of those toho sell it cheapest."— Adam Smith.
MACMILLAN AND CO., Limited
NEW YORK : THE MACMILLAN COMPANY
1904
All rights reserved
r-F^'
»n
GLASGOW : PRINTED AT THE UNIVERSITY PRESS
BY ROBERT MACLEHOSE AND CO. LTD.
'=^0 mp Mitt
PREFACE.
This book is based on a series of lectures de-
livered to popular audiences in Glasgow and
Edinburgh during February and March of the
present year. I had no thought or intention of
publishing them, and I have done so only in
deference to the many friends and hearers who
urged it on me.
Those — if there are any — who read this in
future years, may be reminded that it was written
during the universal discussion which accompanied
and followed Mr. Chamberlain's propagandism of
Preferential Tariffs, and Mr. Balfour's advocacy
of Retaliation. It seemed to me that both these
proposals led back to the system discarded in
1846, and that any adequate discussion of them
must begin with some consideration of the theory
of international trade and of the principles which
underlie the rival policies. Mindful of M. Yves
Guyot's warning that we, in this country, are so
used to the blessings of Free Trade that we do
not appreciate its merits — "just as a man is in
good health when his organs work without his
feeling them " — I have given some space to the
viii PREFACE
consideration of Protection, especially to its aspect
as delegated taxation. There are two sides to
the question now before the nation ; the gain or
loss, economically and politically, of the return to
Protection, and the gain or loss, economically and
politically, of the abandonment of Free Trade.
It is only, I think, when these two sides are fully
considered, that the dangers of the present pro-
posals reveal themselves.
The fourteen teachers of Political Economy
who signed the Manifesto for Free Trade in
August of last year have been much abused as
" men of theory " — as if theory were not the soul
of facts. But, although proud to be one of the
fourteen, I may claim exemption from the re-
proach of knowing nothing practically about
business. I was a Free Trade manufacturer in
this country, and a Protected manufacturer in
the United States, long before I became a
teacher.
My most grateful thanks are due to the staff
of my department for their affectionate help in
revising, suggesting, and, particularly, in the col-
lection and checking of statistics. And I am
under deep obligation to the anxious care of one
who read the proofs with microscopic eye, and
let no careless expression pass without a note
of interrogation and remonstrance.
WILLIAM SMART.
University of Glasgow,
April, 1904.
CONTENTS.
CHAP. PAGE
I. What Trade is, i
II. Our Foreign Trade, . . . . 7^
III. The Balance of Trade, • - - - 15
IV, The Equivalence of Imports and Ex-
ports, 28
V. Some Conclusions and a Moral, - - 36
VI. The Rival Policies, 45
VII. Protection, 53
^iii. The Principle of a Protective Tariff, 67
IX. Possibility of a Scientific Tariff, - 76
^ X. Conclusions as to Protection, - - 89
XI. Protection as Indirect and Delegated
Taxation, 93
XII. Protection Judged by the Canons of
Taxation, 108
XIII. Retaliation, 118
xiv. Retaliation on Protective Tariffs:
Prospects of Success, - - - 123
XV. Retaliation on Protective Tariffs :
Method and Effects, - - - 136
XVI, Dumping, 144
XVII, Retaliation on Dumping, - - - 160
XVIII. Tests of Prosperity, - - - - 170
CONTENTS
CHAP. PAGE
XIX. Exports as a Test of Prosperity, - 179
XX. The Stagnation of Exports,- - - 186
— XXI. Employment as Affected by Exports
and Imports, 20c
XXII. Preferential Tariffs, . - . . 216
XXIII. The Canadian Preference, - - - 219
XXIV. Our Possible Gain from Colonial
Preference, 227
XXV. The Price of Preference, - - - 234
XXVI. How Preference will Affect Agricul-
ture, 245
xxvn. The Price of Empire, - . . . 249
XXVIII. Taking Stock, 260
Appendix. The Abuse of Shipping Statistics, - 275
INDEX, 281
CHAPTER I.
WHAT TRADE IS.
All Trade, home orfoi-eign, is an exchange of goods. In modern
societies, the real co-operatioii of producers to serve each other as
constimers takes the form of competition with each other. Btit, in
home trade, the competition is most prominent ; in foreign trade, the
co-operation.
It is impossible to come to a fair judgment
on the comparative merits of Free Trade and
Protection without understanding, not only how
trade between nations is carried on, but what all
trade essentially is.
Trade is an exchange of Services. The services
are generally embodied in material goods, and
then called Commodities, but in many cases they
are simply rendered by personal acts. It is these
mutual services which explain the whole industrial
organisation. As received, they fill and satisfy
our lives : as rendered, they are our claim for
wages, salaries, interest, profits, and we take our
payment in them.
We are all servants of each other — sitting in
a ring, as it were, making goods to our own
demand, and throwing them into a heap in the
A
2 THE STRUGGLE chap.
centre. If we could see more clearly, it would be
our pride and pleasure, as it is our interest, to add
more and more to the heap ; for, the greater the
heap, the more there is to eat, to wear, to use, to
satisfy that strange complex of wants and desires
and energies which we call Life. But, in his-
torical development, this essential co-operation of
the working life has taken on the outward form
of competition. Producers no longer work for
their own hand and to satisfy their own wants.
Industry is divided up and organised into pro-
ducing units. The simple " hand-process " has
developed into the "production-process," extending
over long periods and gathering its material from
all quarters. It becomes more difficult to see the
end from the beginning — to realise that, as always,
it is the Services for which we work, and the
Services in which we get paid. And, with this,
the great common issue and goal of producing
more goods is obscured by the differences of
interest which emerge as to the distribution of the
goods ; that is to say, the essential co-operation of
the workers to make and increase the heap of goods
becomes more difficult to remember ; the com-
petition of the workers to get their share comes
more to the front. Thus it seems to those
engaged in the industrial life as if they were all
struggling against each other. The working man
thinks he is bargaining with a greedy employer,
and fighting against " blacklegs " who would
fain take his job. The employer thinks he is
struggling to keep his feet with workers ready
to revolt, and knows that he is fighting for life or
TO SERVE
death with his brother employer in the next
street. All the time, the truth is that we are
sitting in a ring, just as before, feverishly adding
to the heap of things in the centre — competing
with each other for the chance of adding most.
It seems as if I were trying to steal your thread,
and you were trying to sneak away my needle.
So, often enough, it is ; but, all the same, the heap
of things in the centre grows. And the end of
the things is Life.
It reminds one of a foursome at golf Two of
us are partners, and we play into each other's
hands. But each couple fights for all it is worth
against the other couple. In the end one couple
wins. Does the other lose ? Yes ; it loses the
match. But both have won, — both have gained
in what, after all, is the end of the game : both
go home to their dinner, richer in skill, in
exercise, in health, in appetite. Or, perhaps, it
would be truer to say that, after being one up and
one down all the round, the two couples come in
square. This is merely a lighter reading of the
phenomenon we put in economic terms when we
say : Industry is the making and exchanging of
Commodities and Services for the support of man's
life.
It is a hierarchy of Service. A gang of negroes,
under a burning sun, cultivate and gather cotton ;
fighting among themselves, with lowering glances
at their overseer, but — gathering cotton. Ships
compete to carry it home ; the lowest freight gets
the cargo ; fighting again, but — the cotton is
shipped. In a Lancashire mill, workers are on
4 IN HOME TRADE, STRUGGLE; CHAP.
the brink of a strike ; trade union men watching
the owners, watching the " blacklegs " ; employers
keeping a smiling face with fear in their hearts ;
fighting all, but — the cotton is spun and woven.
In a Manchester warehouse, are half a dozen
travellers trying to sell cloth, watching and wait-
ing, fawning or bullying ; fighting again, but —
the cotton is sold. In a London street lines of
shops are offering the same cloth ; some keeping
back the truth, others adding to it ; all advertising
that this and this only is the best ; and we —
for whom the whole long struggle of competitive
service is undergone — we carry it off to cover
our shivery bodies withal.
All the long struggle ends in Service to us. It
is a struggle to serve — Service through Competi-
tion.
What, in a word, is the constant and daily
struggle of competitive industrial life but the
effort to make goods " cheap " ? But what is
Cheapness ? It is only another expression for
Abundance. Things fall in value and in price
just as we get more of them. In the Garden of
Eden there could be neither value nor price.
In home trade, it is the Struggle that catches
the eye more than the Service — for, indeed, in the
long production-process the end is so far from the
beginning, and each worker makes such a little
bit of a thing, that it is difficult to realise that,
what men work for, is the things that support
our many-sided Life. A man who spends his
life turning threads on a screw can scarcely be
I. IN FOREIGN TRADE, SERVICE 5
expected to realise that he is making part of his
own kitchen table.
But, in trade between nations, it is the Service
that is brought out rather than the Struggle.
For the chief phenomenon here is that countries
supplement each other. Almost no modern civil-
ised life can be supported, no breakfast table
covered, by anything less than the co-operation of
goods and services from all the world we know.
Nations send to each other what they alone can
grow, or dig, or make ; or what they can grow, or
dig, or make better and cheaper than the others.
In this view, the type of mutual service is,
say, an exchange of oatmeal from Scotland for
claret from France, or, better perhaps, an ex-
change of steam coal from Wales for hematite
ore from Spain.
The Struggle does come in, and, in late years,
has come in very bitterly. It scarcely emerged
so long as each country had the " natural pro-
tection " of distance, and accordingly exported
only products for which it had obvious natural
advantages — in days when France sent wines, and
America maize, and Norway timber. We do not
grow these things, and we had to pay heavy
freights, and so a heavy price, if we wanted them.
But now when America sends wheat, and France
woollens, and Norway butter, the Service they
render becomes somewhat obscured by the
Struggle which ensues with our own producers.
We sell cheap ships to Germany and cut the feet
from under her own builders. She sells cheap
steel to us, and our makers cry out.
6 SERVICE THROUGH COMPETITION CH. i.
That is to say, as nations become drawn
together by steam, and electricity, and the inter-
national post, and international banking, and as
sea carriage becomes cheaper than railway car-
riage, the struggle to serve becomes almost as keen
between Britain and Germany as between Lan-
cashire and Glasgow ; and we British makers do
not like it, any more than Glasgow weavers like
Lancashire competition. But, seen from above, it
is just the same old struggle to serve on the
larger scale — Germans and Englishmen competing
to serve Germany, and Englishmen and Germans
competing to serve England.
There are, of course, some who speak against
Competition in itself as a bad thing. So it would
be, if it were that kind of struggle where nations
try to blow each other to pieces. But when com-
petition is clearly seen to mean the struggle to
provide you and me with Abundance, the matter
puts on another aspect. If we ever get that all-
sided Free Trade which everybody seems to think
so desirable, there will be a struggle to serve
such as we have never seen before, and I only
hope that England may be able to hold her own
in it. Anyhow, through it international trade
is, on a large scale, what home trade is on a
more restricted one — the Struggle to Serve. If
we shut out foreign competition, we shut out
foreign service. These things will come out
pretty clearly when we go on to ask what our
Foreign Trade consists of
CHAPTER II.
OUR FOREIGN TRADE.
A glance at our Imports and Exports shows, as we should expect,
the special importance to us of foreign trade, hi essence, it is an
extettsion of home trade — an exchange of goods ; similar in its motive
and conduct ; similar, too, in its method of payment, for, as gold
does not pass, the values of goods either way a?-e put in contra-
account, and Exports tend to balance Imports.
It would be rather short-sighted to gauge the
importance to us of foreign trade by the fact that
it is perhaps only one tenth or one eighth of our
total trade. If the United States were to shut
herself up inside a prohibitive wall of tariffs, she
would still be almost self-sufficient.^ But we lie
between 50 and 60 degrees north latitude; ours
is a very small country at best, with a dense
population ; and we have, besides, sunk much of
our capital and specialised much of our labour
in industries which depend on other countries for
^ "When, on Pike's Peak in Colorado, the thermometer is down
to 12° or 13°, and, in the North-west is only a few degrees above
freezing point, in New England it will be moderately cool — say 43°;
in the Mississippi valley it will be comparatively warm — say 52°;
and in Florida it will be at summer heat — 75"." — Lawson, American
Industrial Problems, p. 43.
8 THE IMPORTANCE TO US chap.
their material and for their market. It seems,
too, as if we were destined by nature to be
ocean carriers.
Take one short excerpt of our Imports for the
last fiscal year. It comprises, in round figures,
£^ millions of Wines, ^5 millions of Petroleum,
£^\ millions of Tobacco, £,6\ millions of
Caoutchouc and Gum, ;i^8 millions of Leather,
£Z\ millions of Tea, ;^ii-| millions of Maize,
^14! millions of Sugar, £>2^ millions of Timber,
£\\\ millions of Raw Cotton. It is needless to
say that we require all these things for immediate
consumption and as materials for our industries,
and that we must, for the most part, import
them.
Another excerpt comprises £,6\ millions of
Eggs, £6\ millions of Cheese, £\2 millions of
Barley and Oats, £\'j\ millions of Bacon and
Hams, ;^20 millions of Wool, i^20^ millions of
Butter, £2']\ millions of Meat living and dead,
;^36 millions of Wheat and Wheat Flour. These,
indeed, are all products which we could raise or
make at home, but we could scarcely provide
the whole of them without encroaching seriously
on the provision of other things.
Take, again, a few of our Exports. There are
£^\ millions of Linen Manufactures, ;^ 5 f millions
of Ships, £6\ millions of Apparel and Slops, ^17
millions of Machinery, £2\\ millions of Woollen
Manufactures and Yarn, £26^ millions of Coal,
;;^29:^ millions of Iron and Steel, £6^ millions
of Cotton Manufactures and Yarn. These figures
show how much we have specialised in making
II. OF FOREIGN TRADE q
goods for foreign countries. But a more gratify-
ing feature is that the long h'st of our exports
shows that, in addition to these great staples, we
are exporters of " odds and ends " : it indicates
a healthy state of things that there is scarcely an
industry one could name which does not export
something.
Our foreign trade, then, altogether amounts
to ;^877,ooo,ooo ; made up of iJ" 5 28,000,000
of Imports, and ;^349,ooo,ooo of Exports
(^65,000,000 of these being re-exports). These
are values of solid Commodities brought in and
taken out over British seas ; and — partly as reflex
and consequence — of the 32,000,000 gross tons
of shipping i^ the world, we own the half^
How is this foreign trade done?
A good deal of the mystery which seems to
surround the subject would disappear, if it were
realised that it is done /reefy by individual mer-
chants and manufacturers in the various countries,
working for a profit, with no consideration for
1 The above figures of Imports and Exports, taken from the
Statistical Abstract 1903, do not inchide Bullion and Specie, of
which we imported, in 1902, ;^2i,629,ooo of gold (^8 millions
from South Africa, £^^ millions from India, £^ millions from
Australia), and ;,^9, 764,000 of silver (;i^8 millions from the United
States), and exported ;,^ 15,409,000 of gold and ^10,716,000 of
silver. Nor do they include, either as imports, exports, or re-
exports, excisable foreign merchandise transhipped under Bond,
(;^ 1 3,683,000). To the imports should be added ;i^5, 380,000 of
diamonds from the Cape, not declared to the Customs. It may be
noted that fish of British take, landed in the United Kingdom, are
not included among imports. The value of these in 1901 was
/9,ooo,ooo.
lo FOREIGN TRADE AN CHAP.
national interests ; and that it would not be done
unless there were a profit in it.
A sugar merchant here, for instance, appoints
an agent abroad and supplies him with samples
and quotations. The agent either sends orders
at these quotations, or wires home what price
he can get. If the price is below the quota-
tion, the merchant goes down to Greenock, and
sees if he can induce some refiner or other to
quote lower. But there is no reason that the
refiner should sacrifice his profit because the sugar
is wanted for a foreign country. And, although
the sugar merchant may do so on occasion, it is
only from considerations of future profit.
Or, say that the manufacturer is the exporter —
as, evidently, he is tending to become. He has not
one cost for goods sold at home and another for
goods sold abroad. He will sell at cost (including
profit) in the one market as in the other. Some-
times, indeed, he will sell under this cost abroad in
order to " get in," but so he does at home.
There is nothing preferable in foreign trade unless
he gets a better profit by it, or, it may be, gets
his cash more easily, or sells in larger bulk. The
motive in both cases, then, is the same — profit.
Nor is the method different. A merchant here
receives an order from a town in Great Britain,
and sends down the goods packed to the railway.
By the same post comes an order from New
York, and the goods packed are sent down to the
harbour. In the latter case, the goods require to
be more carefully invoiced and described, and the
invoice has sometimes to be sworn to before a
II. EXTENSION OF HOME TRADE ii
consul as accurate, but this should not be very
difficult for an honest man.
Nor yet is the way in which payment is
made essentially different. In due time, home
goods are paid by a cheque ; foreign goods, by a
bill of exchange.^ Indeed, in many cases, when
goods are put on board ship, the Bill of
Lading is given to a bank here, which does
not give it up till cash is paid abroad, the
bank meantime giving an advance to the
exporter to a large proportion of the value.
In either case, the sender gets his payment, in
British money, through his own bank, and each
transaction ends with a payment. The export
of goods, again, from other countries to us
takes place in exactly the same way — mer-
chants and manufacturers, there also, sending out
goods for a profit, getting paid in their own
money, and the transaction ending with the pay-
ment.
What we have, then, in international trade is
just an extension of home trade. We send goods
as naturally to France as we send them across
the other channel to Ireland.
If there is one thing more prominent than
another as to the means of payment in home
trade, it is that Gold does not pass between
buyer and seller, debtor and creditor. It might
' Without going into the mysteries of banking, it may suffice to
say that the reason why payment for foreign goods is not made by
cheque is that each country's banking system does not extend be-
yond its own shores.
/
12 GOLD DOES NOT PASS chap.
pass ; but it never occurs to anyone to take
this cumbrous method when an easier and more
economic one is within everybody's reach, and
when there is one great class of traders waiting
and anxious to make a profit by arranging pay-
ments through their books. Why, then, this
persistent assumption on the part of some people
that, when goods are sold to foreign countries,
they are paid for in gold ?
As in home trade, they may be paid for in gold.
Gold will pay for them, and sometimes it may be
more convenient to pay in gold than in anything
else : — it is quite clear, for instance, that gold-pro-
ducing countries pay for much of their imports
with gold. But it is just as true that they may
be paid for in any other kind of goods.
It takes a little thinking to realise that, in home
trade, payments are made by setting debts against
debts, and that this is merely another way of say-
ing, "setting goods against goods." You send me
;^ioo worth of goods, and I, for the moment,
am in debt, and send you a record of it in the
shape of a promise to pay in three months.
On the other hand, I send you ;^ioo worth of
goods, and you give me a promise to pay in three
months. The promises may be bought and sold
and pass into other hands ; in any case, they
remain in existence as debts for three months.
At the end of that time they are brought together
and cancel each other.^ What really has happened,
■■It is strong testimony to the literal "trust" which under-
lies the credit system that, in the great majority of home transac-
tions, the promise is not put in documentary shape at all ; goods are.
II. A CONTRA-ACCOUNT IN GOODS 13
of course, is that the one sending of goods has
been put in contra-account against the other. So
banking is just a vast complex system of contra-
accounting — value of goods represented for the
moment by documents put to the debit and credit
sides of bankers' books. Happily, this need not
be dwelt on, because, in international trade, the
foundation of the contra-account is quite obvious
and prominent.
To one standing at Gravesend, and watching
the innumerable ships that pass in and out of
the Port of London, it must be evident that
valuable goods are being brought in and valuable
goods are being sent out of the country. All these
goods must be paid for. i\.nd if there is, in all
countries, a special trade set aside for, and doing
almost nothing else than, arranging payments
between buyers and sellers, debtors and creditors,
it is evident that these valuable cargoes will
be set against each other. There are bills
drawn from the one side and bills drawn from
the other ; these put the values of the goods into
figures, and afford documentary records of the
transactions ; and these records can be easily set
against each other in debtor and creditor account.
But, underlying all these records, is the something
recorded, and that something is the valuable goods
sent either way.
As has been said, all these cargoes could be paid
sold on customary terms of credit, and paid on a mere reminder
that payment is due. Perhaps there is no belter instance of the
recognition of a "common interest" and a "general will" among
whole peoples than this.
14 EXPORTS PA V FOP IMPORTS CH. ii.
for in gold. It is conceivable that there might be
a constant current of gold crossing the seas either
way. But, as the chief function of gold is not
for consumption but for circulation, it would be
a singularly futile and wasteful proceeding to
send gold oversea, only to get it sent back
again.
Gold does, indeed, pass between nations : every
week, the financial journals tell of so much bullion
or so many sovereigns sent out or brought in.
But this gold current evidently pursues a course
of its own, regulated for the most part by the
needs of the nations for bank reserves : instead
of making payment, it is, perhaps, more often than
not, going counter to the course it would take if
it were being sent in payment of goods.
If, then, the only object of sending goods
abroad is to sell them ; if the only object of
selling them is to get paid for them ; if goods
cannot be paid in mere promises ; if they are not
paid in the universal commodity, gold ; and if,
as a rule, no man is conscious of not being paid
— why, then, we should naturally expect to find
that there is a contra-account in goods : that
Imports are paid for and balanced by Exports.
CHAPTER III.
THE BALANCE OF TRADE.
The constant excess in our Imports over our Exports is due to
statistical necessities. It is explained, fro?n the side of exports, (i)
by shippiftg charges ; (2) by bankers' and other comtiiissions — these
two are " invisible exports " : frotn the side of imports, (3) by returns
on capital lent and invested abroad ; (4) by boarding expenses, and
by some smaller items.
Allowing for time and accidental disturbances,
there should, apparently, be equivalence in
value between the Exports and Imports of a
country.
No sooner, however, do we get this length in
deductive reasoning than we have to face the fact
that, according to the last statistics, Spain is
the only country whose exports and imports
do balance each other. Germany has a balance
of Imports over Exports of some £^'j millions;
France, some £2}^ millions; Holland, ^^22.4
millions; Belgium, £>\2 millions; Italy, ^^8.7
millions ; Norway, £j millions ; Denmark, £6\
millions ; Sweden, £6 millions ; Portugal, £^
millions ; Japan, £^.Z millions. On the other
hand, the United States has a balance of Exports
i6 THE BALANCE OF TRADE chap.
over Imports of ;^ii8 millions; Russia, £^
millions ; Austro-Hungary, £6 millions ; Egypt,
£\.6 millions; Argentine Republic, ;^7. 7 millions;
Chili, £1-2) millions ; Uruguay, £\.^ millions.^
This is the phenomenon called the Balance of
Trade, of which we hear so much.^ Practically
every country has a balance the one way or the
other, and, as a rule, the balance is a persistent
^ The above figures are averages of the last five years, taken
from the Statistical Abstract for Foreign Countries of 1903.
^ The expression Balance of Trade is intelligible ; not so, to
modern ideas, the adjective "favourable," applied to a balance of
exports over imports, and "adverse" to a balance of imports over
exports. The explanation is historical, and rests on the import-
ance attached to gold and silver by early mercantilist writers.
"Adverse" related to the effect, or supposed effect, of carr}'ing
gold and silver out of the country, caused by an excess of imports.
The extraordinary importance attached to the precious metals was
perhaps justified in times when there were no bankers ; when
Europe was starving for a sound currency, and industry hampered
by the want of it. All countries took strong measures to attract
and retain gold and silver ; even Spain — the depot of these
metals — prohibited their export under the most drastic penalties.
When in time it was seen that such measures were useless, it
was conceived that there was a more natural way of effecting the
same object ; if encouragement were given to exports while imports
were handicapped, there would tend to be a " favourable balance "
— that is, the excess of value would come in gold and silver ; hence
bounties on exports and duties on imports. So, said Adam Smith,
" the attention of Government was turned away from guarding against
the exportation of gold and silver to watch over the balance of
trade as the only cause which could occasion any augmentation or
diminution of these metals. From one fruitless care it was turned
away to another, much more intricate, much more embarrassing,
and just equally fruitless." It is notable that, in this regard, duties
on imports were not, primarily at least, intended for the protection
of home industries so much as for the protection of gold and silver.
III. SHIPPING SERVICES 17
and not a passing one. And the state of the
case with us is that, taking the average of the
last ten years, excluding bullion and specie, our
country shows a Balance of Imports over Exports
of .^ I 55,000,000, or, taking 1902, .^^ 179,000,000.
If, however, exports tend to be equivalent in value
to imports, how is this balance to be explained ?
I. The first item in the explanation is not
very difficult to understand. Those who love
things in the concrete might consider what would
be the state of imports and exports in Tyre when
the Phoenician fleet set sail from the east, with
cargoes of dyed wool, gems, and spices, and, after
many days, brought back tin and other pro-
ducts of the western isles. If the voyage were
conducted on commercial principles, the imports
would exceed the exports in value.
In international as in home trade, payment
is made for goods, not only by other goods but
occasionally by Services — ^just as a physician may
square his butcher's bill by medical attendance
on the butcher's family. It happens that there
is a trade, and a great trade, which is carried on
outside our national boundaries, and, equally, out-
side the boundaries of any other nation — on the
No Man's Land of the sea. It is peculiarly a
British trade. But it has no material product.
It is a transport service — the service of ocean
carriage, including insurance. It sums up a
great number and variety of costs incurred after
goods have left our shores, or other shores, as
statistical exports, and these costs must be added
i8 SHIPPING SERVICES CHAP.
to the selling price of the imported goods if other
nations are to get our goods, and if we are to
get other nations' goods.
Where these Services, then, are rendered to
foreigners by persons residing in Great Britain,
they must be paid for to Great Britain. They
are paid, as usual, in goods, and the payment
appears as an import against which there is no
export recorded in our official trade returns —
for, as I say, this trade is carried on outside the
national boundaries.
It is merely another way of stating this, to
say that our Exports are entered F.O.B. and
our Imports C.I.F, In the official returns of
imports and exports, occur the words : " The
values of the Imports represent the cost, insur-
ance, and freight ; or, when goods are consigned
for sale, the latest sale value of such goods. The
values of the Exports represent the cost and the
charges of delivering the goods on board the ship,
and are known as ' free on board ' values." In
other words, our Exports are entered at home
prices — that is, free on board ship — the same
prices at which they would be delivered to a
warehouse in this country. But they appear
as Imports in other countries at our home price
plus freight and insurance. On the other hand,
goods which appear in the official books of other
countries as their Exports at their "free on board"
price, are entered in our official books as Imports
at their foreign or exported price plus freight and
insurance. Thus, where our ships carry the goods,
the exports will always appear as less than the
I. AN INVISIBLE EXPORT 19
imports which pay for them by the amount of
the freight and insurance.^
One can see the reason of Sir Robert Giffen's
suggestive name for this — " Invisible Exports."
Suppose that neither England nor France owned
any ships ; that all the trade between the two
was conducted by the Channel Islands ; and that
these islands did no other foreign trade — as was
very much the case with Venice in old days —
would it not be true that the Channel Islands'
official returns would show all imports and no
exports ? And if the Channel Islands' returns
were not entered separately, but lumped with the
British returns, would there not be a permanent
excess in our statistical imports over our statistical
exports, while France showed a balance the other
way about ?
It may be expected, then, that a nation which
owns half the world's shipping, and carries for
foreigners as well as for British merchants, will be
paid a very large sum for this service. The
amount was estimated by Gififen, in 1898, as
;^90,ooo,ooo. An independent calculation,^ on
^ A convenient formula for this is as follows : Suppose that freight
is 5 per cent, on the value of goods, and that our ships carry the
goods both ways, then ^100 worth of our exports appears as ;[^io5
worth of another country's imports, and ^xo'-) worth of the other
country's exports appear as^^iio worth of our imports.
"^Memoranda, Statistical Tables, and Charts, with reference to
various matters bearing on British and Foreign Trcuie and Indus-
trial Conditions, p. 99. This is the Blue Book called out by the
present fiscal enquiry (Cd. 1761), and published in August, 1903.
It should certainly be in the hands of all who wish to make a serious
study of the fiscal question. As I shall have constantly to refer to
20 A SECOND INVISIBLE EXPORT CHAP.
quite different lines, was put forward by the
Board of Trade in 1903, and makes it ^89^
millions.^
This is the first item which explains our appa-
rent Balance of Imports. Our exports are really
;^90,ooo,ooo more than the statistical exports
shown by the official returns.^
II. There is another Export of Services, or
Invisible Export, which works out in the same
way. It is not only ships that do business outside
the boundaries of our country, but Men.
If a journalist, sitting in his study in London,
writes an article for a German newspaper, that
newspaper has, presumably, to pay him. His
export of service goes under a postage stamp, but
it, I may, for convenience sake, call it in future references the
Board of Trade Blue Book.
^ Gifi'en's calculation was first made in 1882 {Essays in Finance^
Second Series, p. 132), and was revised in 1898 {Royal Statistical
Society's Journal, 1899, p. 11). His method was to take the British
gross tonnage earnings at ;^I5 and ;i^5, for steamers and sailers re-
spectively, at the former date, and at ;^I2 and £i, at the latter. The
Board of Trade, on the other hand, took the total exports and im-
ports of the principal countries of the world, which are, of course,
the same goods valued at points of departure and arrival ; accepted
the ;if224,ooo,ooo difference in their value (see p. 41) as represent-
ing freights and insurance ; halved this sum to represent our share
of the carrying tonnage of the world ; deducted 9 per cent, for
colonial ships, and further deducted ^12^ millions for coals and
stores purchased abroad, harbour and other dues ; and arrived at the
figure of £^0)\ millions.
^ The importance of Shipping as a British export industry may be
realised by remembering that ;i{^90, 000,000 is just about the value
of our colton and woollen exports combined.
III. BANKERS' SERVICES 21
the value of what is contained in the wrapper is
not, one may hope, represented by the stamp.
If the German paper pays him by sending a
couple of guineas' worth of German books, then
this is an import of goods, although, as passing
through the post it would not appear among
official imports.
This is merely an illustration of the fact that
there are very large classes in this country who
perform services for foreigners which have no
embodiment in material goods. If one considers
what is involved in the statement that London is
the clearing house of the world— that a bill or draft
on London is the best and most widely known
form of international currency — one will under-
stand that British bankers, sitting in London, do
business all over the world, and that the payment
for these services must come in goods, or in other
services. But, besides bankers, there are the
fire and life insurance companies, and the great
army of commission merchants, who do business
very much in the same way.
Services like these cannot be put into statistical
figures — there is no possible means of getting at
them — but, the more one considers the magnitude
of this business, the more one will be disposed
to say that several millions should be added to
our statistical exports on this account.
One may question the exactness of any figure
put on these invisible exports — take a few
millions off it, or add a few millions to it. But a
country which does half the shipping trade of the
world, and is, at the same time, the headquarters
22 INTEREST AND PROFITS chap.
of the banking trade of the world, must have a
very large sum due to it by way of payment, and
this must come in some valuable shape. If it
does not come in imports of goods or services,
in what does it come? Or where does this
" invisible " export appear as a statistical export ?
III. There still remains a good deal to make
up the Balance. But there still remains a large
department of international relations which has
not yet been taken into account. Nations buy
from and sell to each other. But they are also
connected with each other as debtors and creditors.
Let us see how this affects imports and exports.
The third item of the balance is due to the
fact that we have, notoriously, been lending to
all the world and investing capital all over the
world, and that the returns come home annually
in the shape of goods.
How much our capital lent and invested
abroad may amount to, is a matter of rather
rough calculation. It is variously estimated from
^2,000,000,000 to ;^2, 500,000,000.
The corresponding returns which pay income
tax in our country amount to £62\ millions, but
this includes only the interest on foreign and
colonial securities, coupons, and railways. To
this must be added the dividends on miscellaneous
industrial undertakings abroad. After all de-
ductions on account of other countries which
have lent and invested capital with us,^ we
^ " Unfortunately, there are no official figures with regard to the
investments of foreigners in this country, though they are certainly
III. ON FOREIGN INVESTMENTS 23
may accept the Board of Trade conclusion
that " £62\ millions is a minimum figure, which
is probably largely exceeded." In 1898, Sir
Robert Giffen estimated it at £(^Q millions, and
probably more,^
It will be noticed that, while the Invisible
Exports should be added to the statistical exports,
the income from capital invested abroad takes
shape as, and accounts for, a permanent excess of
Imports. In other words, if from this moment we
stopped lending and investing abroad, we should
still receive, year after year, till the capital was
repaid, some £60 to ^90 millions worth of value,
and most of that value would be embodied in
goods.
It is not quite correct to say that this repre-
sents an import against which there is no export.
In many cases, there may have been an export of
goods, at the time when the loan was made, to the
full amount of the loan, as, for instance, when a
colonial government borrows to build a railway,
and gets the rails and rolling stock from England.
It may, on the other hand, represent no sending
of goods at all. If India wants to borrow
another million from us, and is owing us ;^i8
very much smaller in the aggregate than British investments
abroad. America is the only foreign country, so far as known,
whichh as made important investments in the United Kingdom in
recent years," Board of Trcuie Blue Book, p. 102. On this whole
subject, the admirable article in the Blue Book should be referred to.
'^ Royal Statistical Society's Journal, March, 1899. Giffen's calcu-
lation, however, includes Pensions, etc., from India and other
countries to civil servants living here, of which the Board of Trade
says nothing.
24 BOARDING EXPENSES chap.
millions a year as it is, all she has to do is to
lay hands on a million's worth of goods that
otherwise would have come home to us as imports,
and keep them — in which case the loan would
take shape as a diminution of imports into this
country.
The point to emphasise is that, in any case,
the contracting of the debt, or the investment of
the capital, is in the past. But the obligation
to pay the interest is a permanent obligation to
export a stream of value from foreign countries
to our shores as imports.
Here, again, one may question the exactness of
the figures. But if Great Britain has sent out
capital to other countries and these countries
have not sent a corresponding amount of capital
to it, it seems undeniable that there must be a
permanent excess of imports into Great Britain
to pay the interest.
IV. There is another class of Imports which
stands on the same line with the returns from
capital invested abroad. It has been happily
called " Boarding Expenses " — values sent from
one country to another, not to sell or invest, but
to consume. This is not a small item. Italy has
been credited with i^ 14,000,000, and Switzerland
with ;^8,ooo,ooo spent by sightseers. Americans
are said to spend some ;^20,ooo,ooo a year in
foreign travel. How much of such boarding ex-
penses comes to this country, it is impossible to
say, but it must be very large. London is the
centre of the world, where everybody who can
III. PAID IN IMPORTS 25
afford it goes once in a lifetime at any rate. Our
own Highland hotels get a considerable share.
This category includes remittances sent home to
families and schools in England by Civil Servants
and military men abroad, furlough expenses, and
the like ; and under it, perhaps, fall professional
earnings of Englishmen temporarily abroad, such
as the gains of theatrical and concert companies
on tour. These all represent imports against
which there is no corresponding export.^ It must,
however, be remembered that large sums are sent
abroad by us to other countries for similar pur-
poses, and, as Englishmen travel perhaps more
than any other nation, the imports on this account
may not very greatly overbalance the exports.
^ At the rislc of being tedious, I may repeat here that such board-
ing expenses involve sending of goods to pay for any balance there
may be between countries. All the traveller knows, of course, is
that he takes with hiin, say, circular notes, and, on presenting
these, gets money of the country handed over to him. But, suppose
that English tourists, in the course of a year, have cashed ;f 100,000
of circular notes in Rome, and that Italian travellers have cashed
;^ 50,000 of their circular notes in London, the Italian and English
bankers have simply honoured each other's promises. England is
now in debt to Italy to the amount of £\oo,ooo, and Italy is
in debt to England to the amount of ^{^50,000. The two sets of
promises are set against each other, but there remains a sum of value
of ;i{^5o,ooo due to Italian bankers. How is this to be paid ? If the
London bankers send drafts on London, this only gives the Italian
bankers a claim on gold in London — promises to pay gold there.
Even a Bank of England note is, after all, only a promise to pay
gold on presentation of the note at the Bank. Some time or other,
unless London is to run deeper and deeper in debt to Italy, the
accounts must be squared. But, as has been demonstrated, it is
usually more convenient to send Bills of Exchange than gold — that
is, to give claims on goods sent to Italy in the ordinary course of
business — in which case the real payment of the balance is in goods.
26 SMALLER LTEMS chap.
Smaller or more occasional items are :
{a) The price of old ships sold on the high
seas. It is well known that we are continually
selling our ships and replacing them with new
ones, and these ships do not appear as exports.^
{b) Profits which accrue from capital that was
neither lent nor invested abroad, but is yet owned.
There are many businesses, or branches of busi-
nesses, which have grown up from small beginnings
into dividend-paying concerns. Many English-
men, again, own land in foreign countries which
may have risen indefinitely in value owing to
growth of population or the finding of minerals,
etc.
{c) Gifts, Charities, and Subscriptions, such as
the sums sent home from Irishmen in the United
States.
All these go to swell the stream of imports
against which there is no, or practically no, cor-
responding export. Together, they must run into
many millions.
The summing up, then, is this :
Our Statistical Imports are ;^5 28,000,000.
Our Statistical Exports are ^^^349,000,000 ; to
which fall . to be added, at least, another
;^90,ooo,ooo of Invisible Exports of shipping ;
making a total of ;^43 9,000,000. This leaves a
Balance of Imports of ^^89,000,000. But it has
^ It should be noted, in comparing exports of past years with
present figures, that new ships, sold from this country, were not
included among our exports before the year 1899, and are properly
excluded in comparisons with years before that date.
III. PROBABLE BALANCE OF EXPORTS 27
been shown that what we should expect is from
;^6o,ooo,ooo to ^^90,000,000 of annual imports
from capital lent and invested abroad, not balanced
by any annual exports. All this is to leave out
of account the many millions of imports which
we receive as Bankers' and other Commissions,
as Boarding Expenses, and from the smaller items
just mentioned.
The probability, in fact, is that our real Balance
of Trade is the other way about from what it is
usually considered to be ; that it is a Balance of
Exports. The excess may be accounted for by
the fact that a good deal of interest and profit
never comes home, but is invested as capital in
the countries where it is made.^
In all this, certainly, there is nothing to shake
our faith in the deductive conclusion that, given
the exceptions and disturbances noted above,
Imports and E^^ports tend to balance each other.
1 Compare the calculation of the French balance by Professor
Gide : "As regards France, if, on the one hand, we put to her
debit 4500 million francs of imports, 360 millions for carriage of
that part of her merchandise which sails under a foreign flag,
some hundreds of millions (say 500) for Frenchmen travelling
abroad, or against French property held by foreigners — in all,
5400 million francs : and if, on the other hand, we put to her
credit 4000 million francs of exports, 1 100 millions as interest on
capital lent or invested abroad, 600 millions for expenses of
foreigners living in France — in all 5770 million francs ; we see
that not only is the required equivalence restored, but that there
should remain a considerable surplus to her credit." — Principes
d' Economic Politique, 8th edition (1903), p. 283. See also Giffen's
remarks on the Balance of other countries : Royal Statistical
Society's Jotirnnl, March, 1899, p. 12.
CHAPTER IV.
THE EQUIVALENCE OF IMPORTS AND
EXPORTS.
The equivalence we should expect is equivalence simply bctiveen
a country's total imports from, and its total exports to, the rest of
the world. Imports call out a return current of exports, and exports
of imports, through the rise or fall of (i) the foreign exchanges,
(2) the freights. But paymeitt is made in very roundabout ways ;
not necessarily in imports from the country to which exports are
sent, but _/)'<?;« any other country with ivhich there are comme7xial
relatiojis.
What we have found in the phenomena of im-
ports and exports is, first and most important, the
Trade Current — a cross-current of exchange —
goods sold to other countries calHng out return
goods from other countries, and vice versa.
Omitting smaller services, this would tend to
equivalence between imports and exports if the
great item of sea carriage could be dispensed with,
or if the carrying for all the world were done
entirely by an independent maritime nation whose
only outside industry it was. But, as it is, when
our invisible services are added to our statistical
exports, the two sides tend to equivalence.
CH. IV. EXPORT OF CAPITAL
29
Into these main cross-currents, however, are
constantly injected, from one side or other,
feeders which make the total cross-currents in
any one year quite unequal. The principal
factor of disturbance appears under the third
head ; a steady stream of goods bringing home
the interest and profits of foreign loans and
investments. But the lending: and investing'
themselves cause a disturbance. The transfer of
capital may appear as a temporary excess of
exports : it may appear as a temporary diminution
of imports. It is clear, for instance, that, if
Australia borrows a million to build railways, the
rails, rolling stock, etc., are probably sent from
here, and the whole million appears among our
exports of goods. But suppose she borrows in
order to build reservoirs, what she wants is not
English machinery so much as money to pay
wages. Here the lending body buys up bills
representing goods already sent or being sent to
Australia, and remits them to the Australian
Government. In the ordinary course of trade,
the goods thus sent would have called out a
return current of goods (imports) to pay for them ;
but, as it is, the money is retained in Australia
as a loan. It is, in fact, as if the Australian
Government laid hands on a million worth of
goods intended for export into this country, sold
them, and kept the proceeds. Here the loan ex-
presses itself, not as an excess in our exports, but
as a diminution in our imports. A similar but
converse disturbance occurs in the rarer cases where
capital, whether loans or investments, is paid back.
30 THE EQUIVALENCE IS NOT chap.
When our Balance of Trade is thus explained,
it becomes evident that what we have in the
relation between the two sides, is not an
equivalence of imports and exports so much as
an equivalence of debts and credits — an equation
of indebtedness.
It must, however, be carefully noted that the
equivalence spoken of is ^equivalence between the
total imports and the total exports of a country
— the import and export relations between it and
the rest of the world. When, as is often the case,
this balance sheet of a nation's total exports and
total imports is understood as implying or suggest-
ing the real equivalence of exports ^nd imports
between a particular country and any other parti-
cular country, and as demonstrating that there is
something far wrong where there is a discrepancy
which cannot be explained by " invisible exports,"
or other disturbing causes, the conclusion 1j quite
illegitimate. There is no such equivalence except
by chance.
There is no doubt that, in still undeveloped
countries, if the merchant who brings goods to
them will not take in exchange the goods which
the home merchants have to offer, the attempt to
trade speedily comes to an end ; and so it was in
earlier times when the exporter and importer were
one, or, much later, when agents abroad sent home
the proceeds of a consignment in produce. And
if we were confined to trading with one nation,
that nation would have to take what we offered or
we should not sell ; if there were exchange at all,
there would be equivalence.
IV. BETWEEN TWO COUNTRIES 31
But in modern circumstances, when each nation
does a foreign trade with many nations, it is
entirely different. It would, indeed, be a curious
coincidence if one country were to find just the
things it wanted to buy for home consumption in
another country where it found it profitable to sell
what it made, and were to buy there just to the
same value as it sold. But does any one now
think that commerce is impossible between, say, a
nation of teetotallers and a nation of wine growers,
because, although the wine growers want the
cotton of the teetotallers, the teetotallers will not ,
take wine, and the wine growers have nothing else
to sell ? Surely if a Canadian friend sends me a
barrel of apples and has no fancy for Scotch
oatmeal, I may pay him by sending a bag of
oatmeal to another friend in Seville and getting
him to send on a box of oranges to Canada. So
the wine growers import the cotton, sell wine to a
wine-drinking nation, give claims on the proceeds
to the teetotallers, and, finally, though it may be
round a long chain, the claims are liquidated by
goods imported from some country which has
goods to sell such as the teetotallers want. But
in this case there is no equivalence between the
imports and exports of the two.
The great improbability of equivalence between
any two countries may be easily seen if we give
up our abstract way of speaking as if "countries"
traded, and realise that it is single individuals
in each country who trade. Let us consult
the facts of importing and exporting between
say, Canada and Great Britain. The Canadian
CAUSAL RELATIONS chap.
sends his wheat to this country on consignment.
There is always a market here for wheat, and it
sells at the market price. The proceeds are put
to his credit ; he gets paid finally in Canadian
" money " ; and the transaction is finished so far as
he is concerned. He may go on increasing his
sending of wheat indefinitely; still he sells and
gets paid. He knows nothing of any limit in
imports. He knows nothing of any payment but
in " money." He is simply a grain exporter.
There is no direct connection between his exports
and any import. On this side, again, is an exporter
of cotton goods. He sends them on consignment to
Canada ; sells them ; gets paid in English money;
and this transaction also is finished and stands by
itself There is this difference — that the English
exporter has to think more carefully of what he
is doing ; the market is more limited ; the goods
must suit a particular purpose or fashion ; and he
has to pass through a tariff of 23J per cent. But
the difference is not essential. Experience tells
him that there is a demand at a certain price — the
price being determined by competition of Canadian-
made cottons and similar goods from the outside
world — and, so long as he gets this price, he sends
his goods and sells them.
The point — and it is one of real difficulty — is
that there is no visible or conscious or arranged
connection between the exports of wheat and the
imports of cotton as regards Canada, or between
the exports of cotton and the imports of wheat
as regards England. The exporters and importers
have no knowledge of each other's doings. There
IV. OF IMPORTS AND EXPORTS 33
is no occasion or motive, thus far, to equivalence
of value. May it not be the case, then, that
Canada, finding a free market for a universal
necessary, may send us hundreds, while we, find-
ing a more contracted market for cotton, may
send Canada tens ?
The answer is, that there is a real, though un-
seen, connection between the cross currents. If
hundreds are sent from Canada and tens from
England, there is an urgent demand for the
technical means of payment to Canada, the bills,
and an over-supply of the technical means of
payment to England. There is something to be
gained on the exchange by sending more goods
to Canada, and there is something of a handicap
in exchange on the sending of goods from Canada.
On such inducements, those who make their living
by small percentages and large turnover are not
slow to accelerate or retard the movement of goods.
There is another connection of a similar nature
in freights. If, to put it popularly, ten ships
come from Canada and there is return freight for
only one from England, shipowners are conten
to take a low return freight from England ; ship-
owners command a high freight from Canada ;
and this calls out sendings in the one case and
discourages further sendings in the other.
The point is that it does not matter to the
exporter how he makes his profit, so long as he
makes it. He will not go on sending goods abroad
unless he makes the same profit as at home.
But there are three items on which he may gain
or lose : the goods themselves, the freight, and
c
34 THE CIRCULAR PAYMENT chap.
the remittance. If the freights come down, or
if the exchange be favourable, he can afford to
invoice his goods a Httle cheaper ; and, if an
extra profit is to be made on freight or exchange,
this will tend to increase his sendings.
Where, then, the sendings to and from two
countries consist of widely used commodities like
wheat and cottons, the sendings on either side
will be very sensitive to such inducements, and
there will be a tendency to equivalence of imports
and exports between these two countries.
But where one country is sending a universal
necessary like grain, and the oth sending
manufactured articles t-hat meet a bmall and
fluctuating demand, it is hard to believe that the
advantages to be gained by exchange or cheap
freights will ever call out sufficient sendings to
adjust the balance. It seems as if, in the absence
of any direct and ca^isal connection between im-
porters and exporters, there might be any amount
of margin between the real exports and imports
of either country — that is, even when freights
both ways, commissions, interest, etc., are fully
calculated and allowed for.
But why should we expect equivalence between
Canada and Great Britain if there is any signifi-
cance in the illustration of the wine-growers ? If
Canada sends us hundreds and we send her only
tens, it is as certain that the Canadian is getting
paid for his hundreds as that we are getting paid
for our tens, but it by no means follows that we
are paying the difference by exports, visible or
invisible, to Canada. Precisely as in the case of
IV. IN THE COMMERCIAL COMMONWEALTH 35
the wine-growers, we may be squaring the trans-
action by exports, visible or invisible, to some
other country.
It is misleading to describe this, as the text-
books do, as " triangular exchange," as if goods
exported from A to B were paid for by a third
country, C, with which both countries have com-
mercial relations. The notorious fact is, that the
whole world is now such a network of commercial,
banking, and debt relations, that every country has
become a mere province of the great industrial
and commercial commonwealth ; and we should
no more look for equivalence between the exports
and imports of any two countries than we should
look for equal sendings of goods between London
and Glasgow, or, indeed, should expect a cotton
spinner to pay for his coals by sending yarn to
the colliery. Every sending of goods from one
country to another takes for the moment the
form of a debt ; these debts are bought and sold
as " third commodities," or cancelled by being set
against each other ; and the debt relations, created
by one country sending goods to another, may be
balanced by debts created by sendings . of goods
between quite other groups of nations. The only
equivalence, I repeat, which we ought to look for,
is that between the total of a nation's exports and
the total of its imports, or, more scientifically, the
equation of its debts and credits.^
* On the subject of this chapter, the reader should consult Clare's
A B C of the Foreign Exchanges, or Mr. Ewing Matheson's
pamphlet, The Principles of Foreign Exchange as affectitig Pre-
ferential Dealing with the Colonies.
CHAPTER V.
SOME CONCLUSIONS AND A MORAL.
Conclusion L : the foregoing explanation disposes of, the suggestion
that our excess of imports is paid h^ '''' selling securities''- — which is,
in any case, an appeal to the unknown. Conclusion II. : the Balance
of Trade iji itself never indicates either prosperity or decay. Moral :
whatever checks imports, checks exportSi
If what has been said is true, there seem to
be two obvious deductions to be drawn, and at
least one practical warning to be given,
I. The first is that, if the balance sheet of our
foreign trade, as drawn up in Chapter III., be
accepted, anfl the apparent discrepancy between
our exports and imports acknowledged to be
statistical and not real, there seems no place for
the rival explan ation that Great Britain is " living
on its capital."
I confess I have some difficulty in under-
standing this explanation, particularly i«n face of
Sir Robert Giffen's rejoinder that a nation cannot
be living on its capital till it has ceased to save.^
^ In 1877 he calculated that the national savings were some
;,^200, 000,000 a year. In a letter to the Times of 3rd December,
190J, he puts them down at ;,^264,ooo,ooo.
CH. V. SELLING SECURITIES 37
It assumes that the statistical discrepancy is
a real one ; or, at least, that the invisible ex-
ports, the stream of interest and profits from
abroad, the boarding expenses, etc., are much
over-stated ; and it finds another " invisible ex-
port " in the shape of Securities.
John Bull is like a spendthrift farmer, sending
out £zA9 vvorth of crops to sell, and spending
;^528 on his household expenses. If one asks,
"Is John Bull then running into debt?" there
are some who do not hesitate to answer that
he is. " A statement was actually brought to
me on one occasion," says Giffen, " showing
that the country had become indebted to
foreigners in twenty years to the extent of
i^ 1, 000,000,000, which had never been paid and
was all represented by bills, the non-payment
of which would bring out, some day, a financial
collapse." ^ Considering that it is not nations
which import and run into debt, but individuals,
and that our importers have not as yet shown
any sign of being in any such parlous state,
this ridiculous explanation may be passed by.
The other answer is to the effect that John
Bull's father left him some money in United States
Bonds and other good securities, and that this
reckless son is taking these out of his safe, and
selling them to pay the balance. He is " draw-
ing on his capital," and everybody knows what
that ends in !
But, to follow out the simile, suppose it were
discovered that John Bull had other sources of
^Essays in Finance, Second Series, p. 1 61.
38 SELLING SECURITIES chap.
income — say that, in addition to selling his i^349
worth of crops, he was getting £go for doing
the carting for his neighbours ; that he was doing
a little quiet insurance business among them,
which brought him in something ; that he was
boarding a maiden aunt as a "paying guest";
that he got a good many presents from married
sons at Christmas ; and that, besides, he had,
some years before, invested money in a gold
mine, which was sending him another ^90 in
dividends ; — why, there would seem every justi-
fication for him spending ^^528 on his household
expenses, and for the suspicion that he was pro-
bably laying by money besides. And, if it were
still found that John Bull was selling out his
United States Bonds, would it be reasonable to
say that he was doing so because he had to
pay his debts ?
It may very well be that our people every now
and then sell out their securities — wise men
often do when they get a good price. It does
not seem to me that it is any sign of distress
to withdraw capital from foreign investments and
employ it at home, or even to build a house with
it. Or, assume that it be true — as is often asserted
— that, ten years ago, two-thirds of the Pennsyl-
vania Railway Company's stock were held in
Europe, while now two-thirds are held in the
United States, what does that prove ? I suppose
the Americans know their own business ; but, if
they parted with Caledonians in order to buy
Pennsylvanians, it is difficult to see that they are
any better off, or we any worse.
V. AN APPEAL TO THE UNKNOWN 39
If Englishmen do sell their foreign securities,
they get value for them. Why is it assumed
that capital is a good thing abroad and a bad
thing at home ? Is it possible that some people
yet think that selling a thing for money is part-
ing with a good thing in exchange for a bad ;
or imagine that, when a man " realises his
money," he goes straight away and drinks it,
or throws it into the sea ?
There is undoubtedly much movement of
national securities as a recognised form of in-
ternational currency. What the extent of this
movement may be, it is impossible to say, seeing
that securities go through the post, and that no
periodical census of the stock — whether national
securities or industrial scrip — held by people of
different nations is possible. For one class of
prominent securities that is largely sold on any
special occasion, there may be hundreds of lesser
known securities that are being quietly bought.
All this, then, is an appeal from the known
to the unknown — I rather think, to the unknow-
able. But there is one thing we do know ; — that
the returns to Income Tax of interest on
colonial and foreign securities, coupons, and
railways, were ^3oi millions in 1881, £>^\\
millions in 1891, and £62^ millions in 1901 —
over 100 per cent, increase in twenty years.
With these figures before us, it seems as if we
might rest satisfied that we are not selling out our
foreign securities at any rate.
II. The second deduction is, that the Balance
40 THE BALANCE INDICATES CHAP.
of Trade tells us almost nothing as to the pro-
sperity or adversity of a nation.
Our own Balance indicates two things. One
is that several of our greatest trades, such as
Shipping, Banking, and Insurance, are engaged
in producing and sending abroad goods that never
take any material form, and are not entered in
any table of exports. The returns to these trades
come to us in imports, and make up an appa-
rent excess of something over ;^90,ooo,ooo,
the reason being that the real exports which
balance and pay for them are not counted at
all. The other is that we have for long been
the money lenders of the world, and that we
have invested very large sums abroad. This
accounts for a permanent excess of imports of
some ;^6o,ooo,ooo to ^90,000,000.
The presumption, of course, is that these
trades are prosperous — the Income Tax returns
seem to show that they are — and that the
interest and profits represent a fair return to
our capital abroad. But, from the Balance of
Trade, all we know for certain is the two facts,
that we have these large trades, and that we
have large investments abroad.
But another country, from choice or necessity,
may not number Shipping among its industries,
and yet be employing all its labour and capital
profitably. And it may not only find a remunera-
tive use for all its savings at home, but may
find it cheaper to borrow largely from other
countries, getting a better return from the using
of the capital borrowed than another country gets
V. NEITHER PROGRESS NOR DECAY 41
by lending it — just as one sometimes finds a
very rich man borrowing from a very poor re-
lation. As consequence of this, such a country
may have a balance the other way about.
No one now-a-days thinks that America is any
the less prosperous that, in 1902, she had a
Balance of Exports of ;i^ 100,000,000.
If this be true, it follows that even a posi-
tive fall- in our exports might indicate nothing
but a change in our industries or in our fields
of investment — just as, in the converse case,
America seems no less prosperous that, this year,
her imports show a large increase and her ex-
ports a considerable diminution. One is disposed
to think that the enormious activity in our
Municipal enterprises of late years, and the ease
with which such local bodies have borrowed
huge sums, would have some effect in putting
the drag on our exports. And yet it is by no
means certain that Municipal industries may
not be as profitable as gold mines.
But if anyone still thinks that an excess of
imports is a proof of growing decay, let him
consider this. We have statistical records, more
or less accurate, of the exports and imports of all
the great nations. The total imports of these
nations are ;^2, 5 16,000,000 ; their total exports
are ;^2, 292,000,000. Here is a " debit balance," a
balance of imports over exports of ii^2 24,000,000.
Either it must be believed that more goods arrive
in port than ever set sail, which seems a little
curious ; or that all the great nations are going
downhill at a very rapid rate — for the balance is
42 WHATEVER CHECKS IMPORTS chap.
growing ; or the Board of Trade explanation
must be taken, that the balance is accounted for
by shipping charges ; — that is, costs incurred
after the goods have left any shore as statistical
exports.
The practical warning conveyed by the ten-
dency towards equivalence of exports and imports
seems to stare us in the face. It is that anything
which checks imports is a check to exports. This
follows inevitably from the fact that foreign trade
is an exchange of goods and services, goods sent
out paying for goods brought in, A tariff not
only shuts out foreign goods ; it shuts in home
goods. If we were to set up absolutely prohibi-
tive tariffs against imports, we should make it
impossible to export. For, if the consignee in
the foreign country found that, since no goods
had been sent to England, he could not buy a
bill to cover his remittance, he would send gold.
If this were to continue on any large scale, the
export of gold from the foreign country would
be reflected there in a fall of prices — the prices
of imported goods among others. As the only
object of exporting goods is to sell them, the
low prices realised by our exports would make
further exporting on our part unprofitable.
If, again, we were to set up tariffs which did
not exclude foreign goods but made them dear,
we should diminish the consumption of and so
the demand for them, and reduce the amount of
the exports which we could send in return. If,
in these circumstances, we still exported goods in
CHECKS EXPORTS 43
the former amounts, the consignee in the foreign
country would find that there was a premium on
the means of remittance, which would make the
transaction pro tanto less profitable, and act as
a check on our further exports.^
These things are not less real because they are
unseen — hidden by the fact that, in foreign trade,
each transaction of exporting and importing
stands by itself, and ends with a payment in
money. Only those who do not see, or who
choose to ignore, any mutual and causal relation
between imports and exports, can believe that
putting a tariff on imports will have no effect in
checking exports. This is the meaning of the
^This is amply confirmed by experience. When Peel, in 1842,
took off or reduced duties on over a hundred articles, the exports
rose from £a,'o millions to £(iQ millions in 1845. When the Corn
Laws were repealed, the exports rose from ^60 millions to nearly
;^IOO millions in 1853. In the late tariff wars, exports suffered
correspondingly with imports. See Cd. 1938 : Commercial,
No. I. {1904). "Every time," says Gide, "that a treaty of com-
merce or any other cause has considerably increased a country's
imports, its exports have never failed to increase in like pro-
portion. Thus when, in i860, France threw open her ports
to foreign products, her imports rose from 2,521,000,000 francs
(the average of the previous five years) to 3,231,000,000 francs
(the average of the next five years) ; but her exports like-
wise rose, between the one period and the other, from
2,813,000,000 francs to 3,449,000,000 francs. Thus the increase
in imports was 23 per cent., in exports, 28 per cent." On the
whole question, the chapters on International Trade, in Professor
Gide's Principes d^ Economic Politique, as the utterances of a
French economist, are particularly interesting and suggestive.
The above quotation is from the 3rd edition, p. 261, but, as
very considerable changes have been made, the 8th edition (Larose,
Paris, 1903) should be studied.
44 LOOK AFTER THE IMPORTS CH. v.
homely adage : — " Look after the imports and the
exports will look after themselves." It simply
suggests that, if no restrictions are put on imports,
there will be competition from all nations to send
in what goods they can, and the necessity of
paying for them will bring out a return flow of
exports to the same value.
CHAPTER VL
THE RIVAL POLICIES.
Every nation needs a revenue, and so levies customs duties. But,
while a Free Trade country has in this no object ulterior to revenue,
a protected country has. Apart from political considerations, which,
in many cases, determine fiscal policy, the protectionist argument is^
based on the assumption that the interests of the producer are not the
same as those of the consumer, and come first.
The difficulty of defining Free Trade seems very-
much due to this ; that the word " free " is itself
so entirely ambiguous.
Freedom, as a philosophical conception and
as a practical thing, never means the absence
of restraint. It is not opposed to Law or
Morality. It means putting ourselves under con-
scious and purposed restraint — the drunkard who
drinks as much as he likes is the very last man
we should call " free."
For this reason, internal trade is never free in
the sense of having no restrictions placed on it.
We are a Free Trade country, but we keep as
sharp an eye on the manufacture and sale of
liquors as any other nation does on their entry :
there is no freedom to purvey these as we like.
This reminder gives us the cue to a definition.
46 TAXATION FOR REVENUE CHAP.
Every nation needs a revenue for national
purposes. A Free Trade country is one which
imposes duties on imports with no other con-
sideration than that of revenue. This comes out
quite clearly in the case of spirits and beer. We
make them pay Customs duties when they come
from abroad, whether from other nations or from
our own Colonies ; but any idea that we make
them pay because they come from abroad is at
once dissipated by the knowledge that we put
similar and equivalent duties on spirits and beer
made at home, calling the duty, in this latter
case, Excise. A distillery or a brewery, in fact,
is a kind of island on a lake. We do not allow
their products to be imported from them into the
surrounding country, without paying the same
amount of duty as is paid on similar products
coming from countries which are really outside.
The actual figures suggest the extent and
intention of this government interference. We
raise by Customs on foreign beer and spirits, at
the gateways of our island, £a^\ millions. But
we raise by Excise on our own distilleries and
breweries no less than £'^ i \ millions. These two
things hang together. It is for the purpose of
taxation that we put a duty on home spirits and
beer, and we put a similar duty on imported spirits
and beer that the foreign articles may not be
favoured. Thus the sole explanation of this
Customs duty is Taxation : not taxation of the
foreigner, not a price for admission, but taxation
of the home consumer.
In our country, then, we have Import Duties,
VI. TAXATION WITH ULTERIOR AIM 47
and heavy import duties, but there is not a
shadow of anything ulterior to revenue purposes.
It is pure and simple taxation, imposed, as it
should be, on ourselves by ourselves, — the special
mark of a free nation.
What, on the other hand, we call a Protected
country is one that frames its Customs duties
with an aim ulterior to simple taxation of its
own citizens. It does not object to the revenue,
but the revenue is not its sole purpose, nor even
its main purpose. How such a system works out
may be understood if one notices what would
happen if we imposed duties on spirits and beer
from abroad, and imposed no excise at home.
Whatever the object of this might be, it is
evident that it would handicap foreign imports
and favour the home distiller and brewer.
These, then, are the rival policies which we are
asked to set against each other.
Free Trade, it may be said at once, is the econo-
mist's policy. From his point of view, it seems as
if there were no question between Protection and
Free Trade. He looks on men as wealth pro-
ducers and wealth consumers. To g-et the largest
amount of wealth-production with the least amount
of human exertion, the greater the division of
labour the better. He would like the boundary
walls of empires broken down entirely as regards
trade and industry, and the division of labour
made territorial. Whether goods come from Ire-
land or from France, is to him the same, so long
as they are good and abundant. The whole
48 THIS DEAR DEAR LAND chap.
world of man ought to be a vast co-operation of
industrial servants, and all hindrances to this
co-operation should be removed. So far as pure
economic theory goes — and putting aside consider-
ations of revenue — customs, excise, duties, tolls,
octrois, are remainders of the dark ages. . For all
these things cause friction and expense, and the
resources of the world, are not fully -exploited.
It looks almost' as foolish to im'pose a tariff at
Calais and Hamburg, as it would be to tax goods
passing through Berwick-on-Tweed.
All the same, I am inclined to accuse English
economists of being too economic. I think they
forget that it suits us to put economic interests
first, and the rest nowhere ; they forget how
peculiarly favoured we are as compared with most
other countries.
Shakespeare put it long ago, in words that ring
through us like the blast of a trumpet :
" This royal throne of kings, this sceptred isle,
This fortress, built by nature for herself
Against infection and the hand of war ;
This happy breed of men, this Httle world,
This precious stone set in the silver sea
Which serves it in the office of a wall,
Or as a moat defensive to a house
Against the envy of less happier lands j
This blessed plot, this earth, this realm, this England
This land of such dear souls, this dear, dear land
Dear for her reputation thro' the world —
England, bound in with the triumphant sea."'
^ King Richard II.
VI. THE POLITICAL CONSIDERATION 49
But the very words which emphasise our insular
strength also bring out how peculiar our position
is among nations. Between us and attack lies the
silver sea — a wall or moat defensive of our house.
We have no Alsace and Lorraine to atone for.
Our boundary is not a river across which one may
throw a stone, like the Rhine, crossed and re-
crossed in the past by invading armies. We are
not like an old Hanse town, set in a plain, within
whose walls we might be shut up, and forced to
grow our food in the city streets and make our
arms in the city smithies. Our little island is
what Venice and Holland were a few centuries
ago — a country too small to have many internal
resources, but seated, like a spider in its web, at
the cross roads which lead to and from the great
world.
Thus it is that, secure against invasion and the
hand of war, our island life is more purely eco-
nomic than that of any continental country.
Hence, perhaps, the angry jibe of Napoleon at
the " nation of shopkeepers " — a very poor jibe,
as the Parisian is notoriously the very type of
shopkeeper. It annoyed him that we, and we
alone, of European nations, could give most of
our time and energies to industry. No conti-
nental economist, I imagine, would hesitate to
say that Free Trade is the policy for us, and
that nothing but Free Trade would have given
us the position we hold.
But Frenchmen and Germans are like Nehe-
miah's men ; they have still to hold the trowel
in one hand and the sword in the other. The
D
so THE POLITICAL CONSIDERATION CHAP.
atmosphere of two centuries ago is still around
them. Wars, in which they personally take part
— and not by a shilling a day deputies — keep
alive a narrowed national and patriotic life which
is strange to us. To guard it, they have to
sacrifice — not, like us, in pocket only, but in time,
in ease, and sometimes in blood.
This is the defence and explanation of the
fact that continental economists are, many of
them. Protectionists. They aim at making their
countries self-sufficient first and rich afterwards.
They are not willing to depend too much on nations
that might some day encircle them with fire.
And so we might imagine that our economic
policy of Free Trade is the " natural " policy —
the policy to which they have yet to come
when the barbarism of war disappears.
Here, however, we come right against the fact
that there is a country where economic pursuits
are even more absorbing than with us ; a country
with no army to speak of; with absolutely no
foreign question except what she brings on her-
self; perfectly secure against attack or invasion ;
and that in it Protection has reached its highest
point. The country in question is, of course, the
United States. Evidently we must find another
explanation of Protection beyond the political
point of view.
There is an explanation, which, if not economic,
is at least based on an economic consideration.
It is that the continued existence of a nation, as
a nation, depends on its finding employment for
its own people.
VI. PRODUCER VERSUS CONSUMER 51
The Protectionist finds that the world of man is
divided into two categories, although the people
who occupy these categories are pretty much the
same, Consumers and Producers. As a consumer,
everybody's anxiety is to get things plentiful and
cheap ; and there is no difficulty so long as he
has plenty of money in his pocket to buy with.
But the only way in which, as a rule, he can get
the money is ^by industry. Thus industry comes
first. Although the producers, numerically, are a
smaller body, they are, economically, more im-
portant. Give a man plenty of work and he will
have the money.
Here seems a plausible case: that the interests
of the consumer are selfish, short-sighted, tending
to national disintegration. It is especially plaus-
ible in the ears of the working man. " The rich
are those who have the means of benefiting by
cheap goods. The poor — well, there is a previous
process with them before they get any goods at
all, cheap or dear." Therefore, it is said, the
attention of government must be directed to pro-
tecting the interests of the producer qua producer.
One part of the argument certainly appeals to
the economist. He could wish that every man
had so much capital at his back as not to be
dependent altogether for his daily bread on his
daily work. As things are, however, the great
majority of the nation have nothing to earn
money with but their two hands. Continuous,
steady employment, then, is certainly a much
more important thing than a halfpenny off the
loaf. .
52 STEADY EMPLOYMENT CH. vi.
It is a common idea that economists underrate
the importance of steady employment. Only
very ignorant people can think so. What can
be worse than intermittent work, if the object of
work be the increasing of the wealth that sup-
ports and satisfies life ? What can be worse for the
skill and habits of industry than days spent out
of work ? Nay — although it is often said that
the economist has nothing to do with any but
material things — what can be worse for moral
beings than compulsory idleness ? I confess I
have never been able to find a satisfactory place
in economic theory for the Non-Worker. Cer-
tainly he has no place in God's universe. He
is not even a sponge — for one can wash with a
sponge. Work — independent of its product, but
necessitated by its product — is the education in
which, and only in which, we become men. In
idleness alone, as Carlyle said, is there Eternal
Despair.
Prove, then, that Protection will permanently
give the people of this nation fuller employment
at the same rate of real wages, or more continuous
employment even at a slightly lower rate of wages
— to say nothing of higher rates of wages — and
we economists will at least reconsider the ques-
tion. But what we must ask is, first, to be assured
that producers need the help of government, and,
second, that government can give this help. This
is what we are inclined to deny.
CHAPTER VII.
PROTECTION.
P>-otcction is protection against competition from outside. It does
not say that home producers must for ever be subsidised. It uses
generally the Itifant Industry argument, which mighty indeed, have
some weight if it were not for the notorious fact that these infants
never groiv up. What does grow Jip is the Vested Interest, against
which nothing short of an economic revolution seems strong enough
to prevail.
One may very well deprecate the word Pro-
tection. It seems to assume that industry can be
put under the government as the citizen is put
under police — that is, under a power which can
protect honest people against those who woulcj do
them harm.
But the Protection with which we are dealing ,
is not protection against evil doers: in spite of
the militant expressions of many of its advocates,
the foreigner who sends us cheap goods is not an
evil doer. It is protection against Competition
from outside, and therefore from Service from
outside. It always seems to me remarkably like
that kind of protection which closes the entries
of village sports against the, presumably, stronger
54 PROTECTION AGAINST CHEAPNESS chap.
outsider, and so secures the prizes — raised by
subscription from the countryside, of course — to
the villagers. And, being protection against com-
petition, it is protection against Cheapness —
protection against Abundance.
Other nations want to send in their goods at
what we may, roughly, call " cost price " — mean-
ing cost plus carriage. The protected country
says, " No, you shall not, because our people can-
not produce so cheaply even when the ' natural
protection ' of distance is taken into account ; they
must not be undersold ; they must be allowed to
sell at their cost price." That is to say, the home
consumer must pay a higher price in order to let
the home producer sell his goods at all. For, if
the protected country could make as cheaply or
more cheaply, the argument for Protection would
disappear.
The rationale of the matter comes out in the
absurd provision of the United States, that
" works of art by American artists temporarily
residing abroad are admitted free ; all other
works of art, including paintings, pastels, pen
and ink drawings, and statuary, pay a duty of
20 per cent." American artists, evidently, are
regarded by their government as tradesmen. No
wicked nonsense of Art for Art's sake there. If
Americans will buy pictures from Italy and
France — well, they must pay for passing by their
own countrymen. It is a very good illustration
of the contagion of Protection : if a people, with
government funds and powers, protect one industry,
they must protect all, even the professions !
VII. HOW PROTECTION PROTECTS 55
How, then, does Protection protect ? 1
Let us suppose that, in England and America,
the cost price of equal goods is lOOs. And, for 1
clearness sake, let us disregard the additional cost
of ocean carriage. America puts on a tariff of
50 per cent. English goods, then, would require
to be sold in America for 150s.
At these prices, if the American goods are of
equal quality, the English goods will not be sold
at all. In this case, American producers find that \^
they have the monopoly of their own market, and it
would be remarkable if they did not take advantage
of it to raise their prices. So long as they can get
something under i 50s., they keep the English goods
shut out and that is all they want. This is certainly
protection of American producers. But the ques-
tion, of course, is, Where, in this case, is the need
of Protection? If there were no tariff, the ;
American would sell at lOOs. and have his profit.
Why penalise the American consumer to give
the American producer an extra profit ?
Take another extreme case. Suppose that the
English cost price is lOOs. and the American
cost price 200s. Then the English goods sell in
America at 150s. The result, of course, is that
the Americans cannot sell at all. The Ameri-
can consumer gets his goods cheap enough, but
there is no American manufacture.
Take, lastly, the more likely case, that the
English cost is lOOs. and the American cost
I 50s. Then the English goods come in on an
equal footing of competition with the American
goods. The American consumer has, indeed, to
56 INFANT INDUSTRY ARGUMENT chap.
pay 50 per cent, more for his goods than he need
have paid if he had taken them all from England,
but the American manufacturer has his profit, and
his industry is " protected."
Of course it would not appeal to anybody,
if the claim were baldly put forward that a
country must, permanently, pay a half more for
its goods than it need pay, in order that certain
home manufacturers may get a living. The
nation would naturally ask, " Cannot we get on
without these manufacturers ; are there not other
industries that do not need such a costly poor-
rate ; would it not be wise to devote our labour
and capital to these, taking the cheap goods from
abroad with thanks ? " And, certainly, a nation
like America, which sends us every year some
£121 millions, mostly the produce of her magnifi-
cent natural resources, would know that she had
plenty of industries which need no protection,
and that the exported products of these industries
would pay for all the imports she wanted.
; But this bare-faced claim, of home producers
to live permanently at the expense of home con-
sumers, is not put forward. What is put forward
is an argument that appeals to everyone on the
face of it, and has even met with some counten-
ance from economists, the Infant Industry argu-
( ment.^ Here Protection is defended as a kind
^ This argument, unanimously adopted by American protectionists
on the appearance of Alexander Hamilton's famous Report on
Manufactures in 1791, was elaborated by Friedrich List in his
National System of Political Economy, published 1841. Protec-
tion, he said, was a "national apprenticeship"; a stage in a
VII. INFANT INDUSTRY ARGUMENT 57
of Patent Law privilege, or Copyright for a certain
limited period ; or, to use a favourite metaphor,
a kind of apprenticeship, during which the
apprentice simply spoils things, and cannot earn
a wage. It is the contention, not so much that
manufactures are profitable /^r se, as that a varied
industry is necessary to a nation's continuous
growth, just as a varied diet is. Free Trade,
it is said, would condemn a young country
too long to mere exploitation of its natural re-
sources, to the neglect of industries for which
the country is naturally fitted, or is, at least,
under no disadvantage : these industries are pre-
vented from rising by this exclusive attention to
what is easiest, or by some artificial or removable
cause. Cotton spinning and weaving in America
are cases in point. It seems most natural that
they should be carried on where the raw material
grows, and where power and coal are abundant.
But how are these industries to arise among
a population bred in agriculture, unskilled in
machinery, unaccustomed to an indoor life,
unless steps are taken to protect them in their
first stages ?
nation's progress, not its final form. List is oflen quoted as an
out-and-out Protectionist. He was nothing of the kind. He said,
for instance, that the maintenance of Protection in England at
the time he wrote was a mistake due to the stupidity of the ruling
class. Going over the history of the great nations, he showed that
they had all had this period of apprenticeship : first, Free Trade in
the agricultural stage, when there were no separate manufactures on
a great scale ; then Protection ; last, he said, should come Free
Trade. The same ideas, and the same moderation, are found in
Alexander Hamilton.
58 /. S. MILL CHAP.
The argument is very plausible. Owing to
the progress of science and invention, quick and
cheap transit, the mobility of capital and of
highly skilled men, Mill's words are much more
true now than when they were written, that
" the superiority of one country over another in a
branch of production often arises only from having
begun it sooner," and that a country which can get
I or hire skill and experience may, in other respects,
\ be better adapted to the production than those
) which were earlier in the field. I am not, how-
\ever, going to contest Mill's statement that "a
/protecting duty, continued for a reasonable time,
will sometimes be the least inconvenient mode in
which the nation can tax itself for the support
of such an experiment," ^ because it has no
bearing on our present problem,
^This concession of Mill has so often been torn from its con-
) text and used to support doctrines which he would have abhorred,
that it is advisable to quote the next sentence : ' ' But the protection
should be confined to cases in which there is good ground of
assurance that the industry which it fosters will, after a time, be
able to dispense with it ; nor should the domestic producers ever
be allowed to expect that it will be continued to them beyond
the time necessary for a fair trial of what they are capable of
accomplishing." — Principles of Political Economy, v. x., i. One
may read along with this Sidgwick's statement : " I hold that,
when the matter is considered from the point of view of abstract
theory, it is easy to show that Protection, under certain not im-
probable circumstances, would yield a direct economic gain to the
protecting country ; but that, from the difficulty of securing in
any actual government sufficient wisdom, strength, and singleness
of aim to introduce protection only so far as it is advantageous to
the community, and withdraw it inexorably so soon as the public
interests require its withdrawal, it is practically best for a states-
man to adhere to the broad and simple rule of taxation for revenue
VII. A DIVERSIFIED INDUSTRY 59
I consider it fallacious to say that Protection
is necessary for the rise of a diversified industry.
Industries would naturally take root in an agri-
cultural country by the growth of what one might
call the supplementary industries ; beginning with
the jobbing and repairing trades that merely put
things together, and make things that cannot be
imported — just as the smith and the joiner set
up repairing sheds in country districts, and are
found ere long to be taking contracts for making
and building.^ But the argument has no applica-
tion to us. If we are going to adopt Protection,
it will certainly not be because our industries
are infants. And, as it happens, this is exactly
where the argument breaks down as regards
America.
only." — Principles of Political Economy, book iii., chap. v. It
may be said that we, in this country, have statesmen with such
wisdom, strength, and singleness of aim. But how long should we
have them if they were exposed to the influences which attend
Protection ?
^ What is meant may be illustrated from the history of Barrow-
in-Furness. Fifty years ago it was a sandhill. Then hematite
ore deposits were discovered, and steel-making settled down beside
the raw material. Next came shipbuilding to take advantage of
the steel. Clustered round this are now all manner of subsidiary
industries, making machinery and other auxiliaries for shipbuilding
and steel-making, and the prosperity of the town is no longer
dependent on any one industry. Or take the familiar pheno-
menon of the overflow of capital in South Africa from the gold
mines to coal fields, water supplies, machinery making, etc. Does
any one think that the working out of the gold mines would leave
nothing but a few holes in the ground ? Has not, indeed, gold-
mining set many communities on their feet, and left them with
the " varied industry" desiderated?
6o ONCE INFANT, ALWAYS INFANT chap.
The suggestion is that manufacture, in a new
country, is a child which requires to be protected
against winter and rough weather, till such time
as it is fuller grown and is able to take its place
in the competition of nations. Unfortunately,
experience shows us that this time never arrives.
Once an infant, always an infant.
Sir Charles Tupper declared long ago that,
given fifteen years of Protection, the infant
industries of Canada would be able to stand
alone. The fifteen years are gone ; twenty-five
years are gone. The infants are still in arms.
So with America, whose favourite argument
this still is, even as regards that Mellin's Food
baby, the Steel Trust. Practically, all industries
there are protected. We must conclude, then,
either that all the industries are yet in their
infancy — and a century is a long time for long
clothes — or else we commit ourselves to some
theory of permanent infancy.
When the question, then, is put — as it should
be put — why America is still protectionist, the
answer may be given in a sentence. It is the
strength of the Vested Interest.
It is not sufficiently remembered that, while
Free Trade may be called the " natural " policy,
inasmuch as it applies to foreign trade the policy
and principles which we find every country adopt-
ing in its home trade, it is not the historical policy.
It is only since the Reformation that the
idea of the Nation-State began to evolve. The
Nation then became an entity — a whole, which
Vii. PROTECTION ONCE UNIVERSAL 6i
it was worth any sacrifice to hold together, and
inspire with a common purpose. Naturally, for
some centuries, the course of evolution was that
each nation became an object of jealousy, sus-
picion, and dislike to other nations. When
Colbert, Louis XIV.'s great Minister, established
a heavy tariff against all other countries, he did
indeed draw the French nation together. But,
at the same time, he accentuated the enmity of
other states, and thus, says Adam Smith, " began
the. spirit of hostility which has subsisted be-
tween the two nations ever since."
This policy was followed by every other country,
under the pernicious idea that one nation's gain
is another nation's loss. Consequently, down
till the middle of last century, all nations were
shut in by a tariff based on the principle
known in Scotland as " keeping their ain fish
guts for their ain sea maws." We ourselves
were as heavily protected as other countries ;
and we had, moreover, enjoyed the very special
protection of the twenty years of the Napoleonic
war, during which we had freedom to apply the
new discoveries and inventions to manufacture,
while the rest of Europe was devastated by in-
vading armies, and had enough to do to live.
The abolition of the Corn Laws in 1846,
and the adoption of Free Trade, was an almost
revolutionary movement, made possible perhaps
by the dread of a bloodier revolution. It was
a quick, sharp spasm, like the cut of the surgeon's
knife. It introduced the " natural " system at
great loss and suffering to some, but it cleared
62 VESTED INTERESTS chap
the way for the free development and full use
of the great inventions and cheap communication
which were changing the face of the world.
That is to say, the innumerable vested interests,
which had grown up under Protection, were ruth-
lessly cut at the root. But in other countries
they remained, still remain, and tend to grow
stronger the older they grow.
I should not like it to be thought that I
mention " vested interests " with any contempt,
or that the expression carries its own condemna-
tion. Most of our interests are vested, in greater
or lesser degree. I only take it as a fact of human
nature that, when a man's bread and butter is
bound up with the continuance of a system, how-
ever bad, the vested interest that appeals to him
is the interest of the wife and children at home ;
and these interests sometimes make him singularly
shortsighted as to the real interests of himself and
others.
In early days, it is said, the joiners in Japan
protested against the introduction of the • fire
engine, on the ground that it interfered with
their industry of rebuilding the wooden houses.^
This seems absurd enough, but it is absurd only
because the interest is a small one. But consider
this case. Of the 39 millions of population in
France, nearly one-half are interested in agricul-
ture. Most of them are small peasant proprietors.
' At the end of the eighteenth century, the southern counties of
England petitioned Parliament against the opening of the Great
North Road, on the ground that it would bring the products of the
northern counties into the London market.
VII. REQUIRE A REVOLUTION 63
They are the salt of France. But these peasants
could not compete with foreign grain introduced
free. Free Trade would mean an entire re-
organisation of agriculture, and, probably, of the
land system. It would be an economic revolution.
Here is one vested interest which extends over
half a nation, and makes it impossible for any
ministry such as France has known for thirty
years to even mention the free import of grain.
But America never had an economic revolution
such as we had. She had no need to protect her
agriculture. Hence her people could always get
the prime necessaries of life cheap and good.
They never knew what it was to have wheat
at 80s. — the price which, it was thought, the
agricultural interests in this country should have
for their own safety ; and they, consequently,
never saw rents rising, and one privileged class
flourishing, while the people starved. This cheap
agricultural produce, moreover, they could export,
and with it buy what they wanted of other things.
But at an early stage they adopted Protection for
their manufactures, and the beginning of it was
perfectly natural and explicable.
Up till 1808, the nation had remained very
much as when it was a number of British
colonies — exclusivelyagricultural; importing manu-
factures, and paying for them (i) by exports of
agricultural produce to the West Indies and to
those countries of Europe where the French
armies were trampling down the fields, and (2)
by the invisible exports of shipping, shipbuilding
being then a chief industry of New England.
64 HISTORY OF PROTECTION chap.
Then came the Berlin and Milan Decrees of
Napoleon, the Embargo, and the Non-Intercourse
Act of 1809, followed by the war with England in
1 8 1 2. Practically all foreign trade was stopped,
and America thrown on her home resources.
This, of course, gave an enormous stimulus to
those branches of industry whose produce had
before been imported, and the manufacture of
jcotton goods, woollen cloth, iron, glass, pottery,
and other articles sprang up like mushrooms.
1 When the war was over, there remained,
naturally, a feeling in favour of these manu-
factures, and higher duties were imposed to give
tpem a chance in competition with the English
goods which then began to pour in.^ This was
^ " The manufacturers of Great Britain, well knowing the needs of
the American markets, made haste to send over their goods, which,
in the early summer of 1815, began to arrive in fleets of merchant
vessels, in such quantities as had never before been known. Coming
over consigned to nobody, the goods were hurried by the super-
cargoes and captains in charge of them to the auction block, where,
to the surprise of the owners, high prices were obtained by the sharp
competition of eager buyers. . . . During April, May, and June,
1 81 5, the duties paid at the New York custom houses on goods,
waies, and merchandise brought from England amounted to
3,960,000 dollars. When the news of the quick sales and great
profits at auction reached Great Britain, whole fleets of vessels were
loaded and despatched to America. One day in November, 1815.
twenty square-rigged ships came up the harbour of New York. On
another day fifteen ships and eight brigs arrive ; and what went on
at New York was repeated at every seaport along the Atlantic coast.
The gainers by this unusual trade were the British manufacturers,
the British ship-owners, the auctioneers, and the Federal and State
treasuries. The sufferers were the American importers, manufac-
turers, and wholesale merchants, who without delay appealed to
Congress for protection." — Prof. M 'Master in Cambridge Modern
History, vol. vii. p. 354.
VII. IN AMERICA 65
Strengthened by the shutting out of agricultural
produce from England under the Corn Laws. It
was, in fact, very much our stringent protective
policy which forced America into manufacturing
for herself She was not allowed to pay for her
imports by agricultural exports. For twenty years
from 1 8 16, the protective policy was continuous,
and it was based on the Infant Industry argument.
By 1830, or perhaps earlier, the "diversified
industry" was attained ; the Infant Industry argu-
ment lost its force. In 1833, for instance, it was
said that the cotton industry was ready and able to
meet imports on a free-trade footing. Between that
and i860, there was great vacillation in the tariff
policy ; high and low tariffs succeeding each other
in a very unprincipled way. From i 846, indeed,
the country seemed to be approaching Free Trade.
Then, unhappily, came again the old spring
and excuse of Protection. To raise revenue for
carrying on the Civil War which began in i860,
every possible article, home and foreign, was taxed,
and taxed heavily. The statesmen in power were
protectionists, and Protection ran riot. After the
war, the removal of internal and excise taxation
was not accompanied by removal of the customs
tariff. The war tariff of 1864 remained in force
for twenty years without reduction. The growing
feeling towards Free Trade disappeared. Many
industries had grown up, or been greatly extended,
under the influence of the war legislation. That
some were unsuitable to the country did not
appeal to those who had sunk their fortunes in
them. The infant industry, crippled from its
E
66 PROTECTION IN AMERICA CH. vii.
birth, appeared as good a subject for protection as
the infant industry that only required benevolent
care during its early years.^
And, ever since, the Vested Interest has riveted
its hold. What appears, then, in America is the
phenomenon of the employers in practically all
manufacturing industries crying out, in the name
of justice, for equal Protection ; and the workers
are easily persuaded that their living depends on
the continuance of these industries.
At the back of it all are the two facts : that
America is a country of such vast natural resources
that it would be difficult for any fiscal system to
keep back the progress of the nation, and that,
within its great area, there is absolute free trade.
1 See passim Taussig's Tariff History of the United States, and
Rabbeno's American Commercial Policy,
CHAPTER VIII.
THE PRINCIPLE OF A PROTECTIVE TARIFF.
IVhat principle regulates the differeiitiation of rates in a tariff?
Is it prohibition, or equalisation of labour costs, or equalisation of
costs generally? Whatever principle be alleged, experience shows
that rates are determined by warring interests, either as a victory
or as a compromise.
So much for the genesis of Protection and its con-
tinuance. It does not arise from a thought-out
poHcy : the economists are not consulted. During
the restriction of a war, a country starts making
things for itself, without regard to " natural ad-
vantages," or, indeed, to anything but necessity.
When the war is over, it is thought that the pro-
ducers have deserved well of their countrymen ;
the government undertakes to secure them from
rapid extinction at the hands of more advanced
nations ; and it is only a question of time till
the vested interests can neither be overlooked nor
silenced.^
1 This, of course, does not account for the rise of Protection in
our self-governing Colonies. Here the explanation is the natural
tendency of a tariff for revenue to pass into a tariff" for protec-
tion. Every colony, however new, needs a revenue. It is diflicult to
68 PRINCIPLE OF A TARIFF chap.
But a tariff is not a simple thing. It is not
a uniform rate. It consists of a great range
of differential duties, some low, others high,
some few prohibitive. And, inevitably, at every
revision — and the American tariff has been altered 1
some forty times since 1789 — the question is|
raised as to what is the principle of these differ- j
ences.
I cannot answer this question. It is not as
if the protected country drew up a tariff with the
object of getting the largest revenue at the least
hardship to the consumers. It admits foreign
goods of compulsion and unwillingly. A self-
sufficient country like the United States, for
get it from internal taxation (whether levied directly on income or
land, or, levied indirectly, on commodities), on account of the small
and scattered population ; and the obvious course is taken of imposing
heavy taxes on imports. Behind these import duties, gradually
rise vested interests. It is represented, in the usual way, that a
" diversified industry " is necessary, and cannot spring up without
enough protection to overcome the natural handicaps. The infant
industries, once supported by government crutches, never willingly
abandon them, and the vested interest does the rest.
There is another explanation forcibly put by Fawcett {Free Trade
and Protection, p. ii). It is that emigrant artizans have difficulty
in finding in a colony the kind of employment to which they have
been accustomed. They do not take willingly to the land ; even
gold mining is found not always a short cut to wealth. So they
naturally favour the establishment by Protection of industries
where their old skill can find opportunity. And, in several of our
Colonies, "labour legislation," as it is called, is almost alarmingly
prominent. While these sheets were passing through the press, the
Premier of New South Wales had to point out to a deputation of
men unemployed through the cessation of public works that the
government did not borrow money merely to find employment for
the citizens.
VIII. M'KINLEY: ROOSEVELT 69
instance, might be quite content to have no
imports. But, as Sumner says, " As soon as we
get the home market firmly shut, so that nobody
else can get in, we find that it is a question of
life and death with us to get out ourselves." ^
And the exports inevitably bring the imports
which pay for them. Hence the need of differ-
entiating the tariff, so as to admit imports with
the least harm to home producers. In such
circumstances, a principle is scarcely to be looked
for. But I may quote some utterances which
seem to admit that the need of a principle is felt
— if it be only to make the tariff respectable.
President M'Kinley, presented his revised tariff
Bill with the following words: "The object of tariff
taxation is not the raising of revenue, but, on the
contrary, the reduction of revenue, and ultimately
the extinction of revenue, by duties to be raised
to a height sufficient for the accomplishment of
this end."
Here is a confession that the aim of Protection
is Prohibition. First put on a tariff If foreign
goods come in, raise it higher. If they still come
in, raise it again, till " revenue is extinguished " ;
that is, till no goods come in at all.
With more plausibility. President Roosevelt, in
the Message to Congress, December, 1901, said: \
" Every application of our tariff policy to meet
our shifting national needs must be conditional
upon the cardinal fact that the duties must never
be reduced below the point that will cover the
difference between the labour here and abroad."
^Protectionism, p. SS.
/
70 EQUALISATION OF LABOUR COSTS CHAP.
This seems to assume that the American labourer
has, somehow or other, got his wages up so high
that the wages have raised the cost of production
of American goods, and that the goods coming
from other nations must be taxed to raise them
to the same price, or else wages will be brought
down. It is the so-called Pauper Labour argu-
ment — an argument, by the way, which was used
by ourselves in 1779 in regard to Irish labour,
when Lord North proposed to allow Ireland to trade
with the Colonies and with foreigners on the same
footing as England. But it reads very strangely
to those who remember that France and Germany
urge the need of protection against America
for precisely the opposite reason, namely, that
American labour is so well paid and productive !
One could understand this if the high wages of
America were artificial ; if, for instance, Trade
Unionism were there so powerful that wages were
raised quite apart from the product of work. But,
notoriously, this is not the case. Trade Unionism
in America is weak. The high wage is evidently
the result — the natural and happy result — of high
industrial skill, working with cheap raw material,
and fed on abundant food. " This claim for Pro-
tection to American industry, founded on the high
scale of American remuneration, is a demand for
special legislation and in consideration of the
possession of special industrial facilities — a com-
plaint, in short, against the exceptional bounty of
nature."^
If the proposition is read in any other way,
^ Cairnes, Some Leading Principles, p. 385.
VIII. EQUALISATION OF COSTS 71
it seems to amount to this : that prices generally
in a protected country are high ; living, accord-
ingly, is dear; and workers need high wages to
pay the high prices. But, as wages are " labour
cost," the high prices are assumed to be the
result of high wages ! High prices explain high
wages, and high wages explain high prices — a
very pretty example of circular reasoning.
All this is exceedingly crude ; so I turn to a
principle suggested by an American economist, for
whom we all have a very high respect. Professor
J. B. Clark, of Columbia University.^ " It would
be entirely reasonable," he says, " to reduce each
duty to an amount that equals the difference in
cost between the American and the foreign article.
Find out accurately how much the owner of an
'^ The Control of Trusts: Macmillan, 1901. Economists in
America are in rather a difficult position. If they speak in defence
of Protection, they lose their scientific reputation. If they speak
fearlessly against it, even if they escape being turned out of their
Universities, they lose their influence with the people — for Political
Economy in America, it has been said, is regarded as the science
of tariff regulation. Besides, they have always the consciousness
that an industrial system which is protected from head to heel re-
quires a revolution to change it, and they have to weigh the
advantages of setting industry on a sound economic basis against
the gigantic disturbance and loss which would, in the first instance,
accrue. "Whatever may be said about the wisdom of having
tariffs at all," says Professor Clark, "a country which actually has
one, and which under it has built up industries that are still in some
degree dependent on it, will be cautious in abolishing it." But they
are all tariff reformers ; and, in the present case, Professor Clark,
acknowledging that the actual tariff is "irrationally protective,"
puts forward a principle which, without saying anything for the
abolition of Protection, would show that a reduction of tariff'
was "entirely reasonable."
A
72 y. B. CLARK CHAP.
American mill has to spend in the creating of
a particular product, ascertain with the same
accuracy how much the European spends for the
same purpose, and make the duty on the com-
pleted article equal to the difference between the
two sums. The European can then place his
goods on the American market at an outlay
which, when duties are paid, equals the outlay in-
curred by his American rival. The two will then
be more nearly on an equal footing, and success will
come to the one who improves his processes more
rapidly, and makes the largest savings in the
advertising and selling of his wares. The public
will get the benefit of this rivalry in economical
production, and will get its goods at the maximum
of cheapness."^ The principle is, that a tariff
should put home producer and foreign producer
on a footing of perfect competition ; competition,
in Professor Clark's view, being " the regulator of
prices and wages, and the general protector of the
interests of the public." ^ The idea that a tariff
should give any monopoly to the home producer
is expressly disclaimed.
This is not the place to go into any detailed
criticism of the principle thus laid down. It is
enough, perhaps, to say that, when Professor Clark
says " European," he seems to have been thinking
of " British " ; in other words, to have been think-
ing of the difference of cost as between a protected
and a free-trade country. But other protected
nations send their goods into America, and every
nation has a different cost. A tariff based on his
1 The Control of Trusts, p. 43. "^ Ibid. Preface, p. v.
VIII. THE REAL DETERMINANT 73
principle, then, would seem to involve differential
duties against every separate country. And I do
not think he has sufficiently considered the diffi-
culty of arriving " accurately " at cost in any
country except by taking the selling price. Apart
from all this, it seems clear that few Protectionists
would admit that the end of a tariff is merely
to equalise costs and secure competition. They
always aim at partial or total monopoly.
But one gets tired of seeking for a principle in
a tariff where, at each revision, the changes are so
obviously determined, not by sober scientific and
economic calculation, but by the weight of the
influence brought to bear on the politicians.^ In
1882, Congress appointed a Tariff Commission to
collect evidence and report. With the exception
of one person, it consisted entirely of Protec-
tionists. It recommended a reduction of 25
per cent, saying wisely : " Excessive duties are
positively injurious to the interests which they are
supposed to benefit. They encourage the invest-
ment of capital in manufacturing enterprises by
rash and unskilled speculators, to be followed by
disaster to the adventurers and their employes,
and a plethora of commodities which deranges
the operation of skilled and prudent enterprise."
Its recommendations were simply put aside ; and
the new tariff of the next year was " kicked about
^ I once asked a manufacturer in the United States why the duty
on his goods was 40 per cent. — not 30 per cent, or 50 per cent.
His answer, I fancy, put the truth in a nutshell. "Our Congress-
man," he said, "came round and asked, what duty do you want?
and we said 40 per cent, would do."
74 WES GUYOT CHAP.
in committee till it came out a grotesque com-
promise of warring interests."
The experience of France is the same. To
quote M. Yves Guyot : " Not only does Protec-
tionism plunge the country which adopts it into ^
a war of tariffs with all other countries, but, even
within the country, it rouses a spirit of antagonism
in every district which thinks itself sacrificed to
other districts, and in every industry which de-
mands to be protected over and above other
industries, and at their expense. Under Protec-
tion, economic rivalry gives place to political
rivalry. This is confirmed by the daily experi-
ence of every Protectionist country. I have had
special opportunities of seeing how private in-
terests combine against the public interest in the
French Parliament, The whole art of M. Meline,
who has been the Protectionist leader for close on
25 years, has consisted in uniting groups of often
contradictory interests, paying court to them,
effecting bargains between this and that party,
always to the detriment of the consumer, who is
the general public. ' Beetroot strikes a bargain
with Wine ; Cotton and Iron come to an under-
standing.' There, in a nutshell, you have the
part which Protection plays in parliamentary
life." ^
Lastly, take our own experience. In 1840 a
Committee of the House of Commons reported as
follows : " The tariff of the United Kingdom
presents neither congruity nor unity of purpose.
No general principles seem to have been applied.
'^ Fortnightly Review, ]\i\yy igo'^.
VIII. OUR OWN EXPERIENCE 75
The tariff often aims at incompatible ends ; the
duties are sometimes meant to be both productive
of revenue and for protection, objects which are
frequently inconsistent with each other. Hence
they sometimes operate to the complete exclusion
of foreign produce, and' in so far no revenue can
of course be received ; and sometimes, when the
duty is inordinately high, the amount of revenue
is, in consequence, trifling. They do not make
the receipt of revenue the main consideration, but
allow that primary object of fiscal regulations to
be thwarted by the attempt to protect a great
variety of particular interests at the expense of
revenue, and of the commercfal intercourse with
other countries. Whilst the tariff has been made
subordinate to many small producing interests at
home, by the sacrifice of revenue, in order to
support their interest, the same principle of inter-
ference js largely applied by the various dis-
criminating duties, to the produce of our colonies, j
by which exclusive advantages are given to the
colonial interests at the expense of the mother
countr}^"
The conclusion seems inevitable ; that, where
duties are differentiated with the view of protect-
ing, not the industries which should exist but the {
industries which do exist, and where the amount
of the differentiation is arrived at by a struggle
of competing interests and unequal weight of
influence, it is useless to look for a principle.
■ /
I
CHAPTER IX.
POSSIBILITY OF A SCIENTIFIC TARIFF.
In the framing of a tariff by a country hitherto Free Trade, certain
broad principles would be cucepted, but each presents its own diffi-
culties, (i) Exotic goods allowed in free wotdd not, indeed, cot)ipete
with home industries, but they are the favotirite objects of revenue
taxation. (2) Free food conflicts with the interest of the home agri-
culturist. (3) Free raw materials conflict, not only with agricul-
tural atid mining industries, but with those who use home-produced
ra'iv material. But the attempt to define ^^raw" material presetiis
endless difficulties. And the importance of cheap raiv materials,
as compared with the importance of cheap manufacttired materials^
if these should happen to be the basis of national industries, is not
obvious. (4) Taxed manufactures encounte) the latter objection, and,
besides, include tools. One begins to see why it is that a country
which once adopts Protection ends by taxing every thittg.
But even if one is convinced of the impossi-
bility of revising a tariff on anything Hke
economic principles, when once vested interests
have tightened their hold, there may remain a
belief that a scientific tariff could be drawn up
by a country which had hitherto been Free
Trade.
Without attempting to define the adjective
" scientific," which would, perhaps, prejudge the
CH. IX. TAXING EXOTIC GOODS AND FOOD 77
case, let us look at certain deductions of ex-
perience as to the taxing of imports.
I. Common sense dictates the free admission
of things a country cannot grow or make.
Dear goods, as dear goods, are bad. If, then,
a government, in order to protect certain indus-
tries, is going to make many things dear, there
is all the more reason that it should let in j
non-competing things cheap.
But here steps in the Chancellor of the
Exchequer. He must have a revenue, and he
cannot raise all that revenue by direct taxes. He
knows that, in proportion as the protective tariff
is successful, there will be little revenue ; if it
be completel}' successful, none. Such luxuries,
then, as Tea, Tobacco, and Spirits are the
things on which he can most easily raise an
assured revenue, with a minimum expense of col-
lection. So, under a protective tariff like that of
Canada, heavy import duties, amounting to an
average of 170 per cent., are put on such goods.
n. Common sense seems to dictate the free
admission of Food. The prosperity of a com-
munity surely depends, fundamentally, on getting
the animal basis of life as cheap as possible.
The human worker is, after all, the great Tool.
The argument is strengthened, in our case, by
the consideration that many of the countries
with which we compete do not require to protect
their agriculture. Nature has done it for them.
For us to put on such a duty, seems like
78 TAXING FOOD chap.
deliberately handicapping ourselves in the inter-
national race by raising the cost of production
of Man. Hence, up till the present, it was
thought that, if there be a form of Protection
which would be totally indefensible in this country,
it is the taxation of food.
But here steps in the agriculturist, and asks,
with some heat, if the manufacturing classes are
to be favoured, while the oldest industry in the
world, and still the largest, is to be left to
merciless competition with cheap food from every
country under heaven? Indeed, in our case, if
there is an argument for the protection of any
class of producers, it almost seems as if it should
be protection for the producers of food, seeing
that we are actually at a natural disadvantage, as
compared with many other countries, by reason of
our climate and the narrow area of land suitable
for each crop. And if there is an industry in
the country which has some reason to think
meanly of Free Trade, it is Agriculture — remem-
bering, always, that the agricultural interest
which can and does make itself heard most, is
the interest of the landowner. In fact, it was
made a special claim for Ireland — in a Royal
Commission — that its agriculture was destroyed
by Free Trade, and that it never had the
manufacturing industries on which to make up
the loss.
III. If a country has sunk most of its capital
I and specialised most of its energies in manufac-
( turing, the free import of raw materials seems
IX. TAXING RAW MATERIALS 79
almost necessary. This has generally been re-
cognised by the most protectionist countries.
There is scarcely room for difference of opinion
as to the admission of materials a country cannot
produce for itself But, beyond such imports, the
free admission of raw materials encounters the
opposition of those who raise similar or com-
peting raw materials at home, and naturally
object to the competition of countries which can
raise them more cheaply. At this point arise
the most serious conflicts of interest. Wool, for
instance, is a raw material of many manufac-
tures. But if, to suit the woollen manufacturer,
it is admitted free, this comes into rough colli-/
sion with the interests of the farmer — one of his
staple products being sheep. Say, however, that
wool is not admitted free, then, in many coun-
tries, the silk, cotton, and linen manufacturers are
favoured ; as using foreign raw material, they get
the basis of their industries presumably more
cheaply. For it should not be forgotten that
woollens do compete in use with cotton and linen
and silk. Everyone knows the position which
flannelette — a cotton fabric — has taken in the
clothing of the poor. In certain shop windows,
one sees a strenuous attempt — backed by expert
evidence — to prove that linen is a healthier under-
wear than wool, while Dr. Jaeger brings his own
evidence to prove the contrary. Silk, of course,
is an active competitor with wool in the same
line, except that it is so expensive. In socks and
stockings, again, there is competition between
Lisle thread, silk, worsted, and mixtures. So in
8o TAXING RA W MA TERIALS chap.
carpets, hangings, table covers, and the like,
with the addition here of jute as a serious
competitor.^
The endeavour to secure cheap raw material
for the manufacturer who employs imported
material as his base, and yet to give equal treat-
ment to the manufacturer who uses home raw
material, becomes almost hopeless where the pro-
tected country not only produces the raw
material, but works it up. Here the grower
clamours for protection and the manufacturer for
free admission. One would think that, if there
is a raw material which should be admitted free
into France, it is silk fibre, silks being,
of course, the traditional export of France.
Yet, in 1892, the Communes could scarcely
resist the agitation for the protection of the
home cultivated cocoon, and only escaped it
by offering a bribe to the home producers, in
the form of a grant of over 3,000,000 francs
for primary and technical education in agri-
culture.2
Here is another case, difficult to put under a
category. It is where two raw materials are
necessary for one fabric, and the one material
comes from abroad, while the other is produced at
^ In 1902, the Agrarian Party in Austria asked for a duty
against raw cotton, with the avowed object of protecting wool
and flax. The argument used was : If raw cotton from
abroad is admitted free, cotton goods are produced more cheaply
than woollen and linen goods, whose raw material is grown at
home, and a blow is struck at the farmer and flax grower.
^ Economic /otirnal, September, 1896.
IX. TAXING RAW MATERIALS 8i
home, Farrer gives an example which might be
paralleled, in all probability, from other industries.
Everyone knows those mixed cotton and silk
fabrics, made in the factories of Lyons. Here
cotton yarn is woven along with silk yarn. But
cotton yarn is an import heavily taxed in order to
protect the cotton spinners of Lille. The Lyons
weavers, then, complained that many of their
yarns could not be obtained except from Eng-
land, and, moreover, that they were suffering
competition from Switzerland, where cotton yarns
were admitted free. The Lille spinners, on the
other hand, urged that " the distress among
the Lyons weavers was nothing to that prevail-
ing among the Lille spinners." Here it is French
spinners against French weavers.^
The fact is, that any particular raw material
may be the sole base of one manufacturing in-
dustry, or one of the bases, or only a trifling
auxiliary ; while it may, at the same time, occupy
a different position, as basis or auxiliary, in several
competing industries. It is impossible to recon-
cile all these interests.
But what is a " Raw Material " ? The term
is not a scientific one. No definition of it appears
in the Dictionary of Political Economy. It is not
even a Board of Trade or Custom-house category.
^ The remedy suggested by the President of the Lille Chamber of
Commerce shows the ridiculous impasse in which attempts to recon-
cile warring interests often land. It was to raise the duty on agri-
cultural products, in order that French agriculturists might grow
rich and become better purchasers of French manufactures ! — Farrer,
Free Trade versus Fair Trade, p. 167.
F
82 WHAT IS RAW MATERIAL? chap.
Generally, we are left to infer that what does not
appear under the category " manufactured," is raw
material — so long as it is not " food and drink."
According to our official trade accounts, Sawn
Timber is not a raw material, which would seem
to show that only tree trunks are "raw"; in which
case a thing remains raw if an axe is laid upon
it, and is manufactured when passed through a
saw mill. In the German and French tariffs.
Pig-iron is a raw material, excluded from the
category of " manufactured " ; with us, and with
the United States, it is included. Even Slates
and Stones with us are manufactures.
In highly protective countries, one has to infer
what is counted raw material from the fact of its
paying the lowest rate of duty. With us wool,
dirty or clean, is considered raw material. But
there is a refinement in the American tariff which
is very suggestive.
Unwashed wools are wools shorn from the
sheep's back without any cleansing. Washed wools
are wools washed with water only, on the sheep's
back or on the skin. Wools washed in any other
manner are " scoured." The importance of the
subtle distinction comes out in the provision that
washed wools pay double the duty of unwashed
wools, and that scoured wools pay three times
the duty. So that, if a bottle of sheep-dip is
put into the water at the washing, it would
seem that treble duty is payable, while leaving
sheep altogether unwashed allows the wool to
get in at the lowest figure — a premium on dirt
and disease which, I imagine, would not be
IX. TAXING MANUFACTURED MATERIAL 83
without its effects. So far as this goes, it
seems to indicate that the difference betvveei
" raw material " and " partly manufactured
material is a question of soap and water. Thos^
people, then, who speak so glibly about letting
in raw material free, have evidently some work
before them when they try to determine at what
stage any material is " raw," and at what stage
it should be taxed.
But this is not a mere difficulty of classifica-
tion. Even if we could define a raw material
with absolute accuracy, the proposal to admit it
free, while taxing all other " material," is exceed-
ingly serious. What affects the home producer is
not in the least whether the material he buys is
really " raw " or something very far from being
raw. The thing that affects him, and his trade,
is that the material with which he starts should
be cheap. Why is it that the non-taxation of
raw material appeals to everybody as reasonable?
Is it not that it is the interest of the producer, of
the consumer, and of the exporter, that goods
should cost as little as possible? If the raw
material accounts for a large part of the selling
price of the manufacture, and we tax that mate-
rial, we make the finished article proportionally
dear. But if our national manufactures happen
to begin with a material which is not " raw," but
has already passed through some processes of pre-
paration before it comes here, is not the hurt of
import duties to these industries — their producers,
consumers, and exporters — exactly the same as if
we taxed the raw material? Can anyone say
84 TAXING MANUFACTURED MATERIAL chap.
why our manufacturers should begin with the
so-called raw material, or be penalised because
they do not? Is it not as profitable perhaps
to begin with material already partly manufac-
tured ?
It is quite clear that, in home trade, the manu-
factured product of one industry becomes the
material and substance of another. Our weavers
do not spin ; they buy yarn from the spinners and
weave it. The tailor begins with the cloth. The
watchmaker begins with a whole complex of ready-
made components. Why should it be made a
misfortune that the first — and, presumably, less
skilled — process of manufacture should not be
done in this country? Is it a misfortune that
our silk manufacturers begin with silk that has
already passed through several stages ; that our
cycle makers begin with a few components
bought from America ; that our joiners do not
begin with tree trunks, but with sawn timber,
or even with ready-made doors and window
sashes? Is not the taxation of partly manu-
factured materials in flat contradiction to all
we have been taught, since Adam Smith, of the
advantages of the division of labour?^
The only ground I can find for the belief that
raw material should be admitted free, as compared
^As regards the Brewing trade, it has been pointed out that
staves come from Norway, hoops from Holland, capsules from
Germany, casks from Sweden, hops and grain from various
countries: that, as a matter of fact, all this country contributes
in the way of raw material is the water used in the manufacture,
and the straw for packing. But brewing is one of our staple
British industries.
IX. FOOD AND RAW MATERIAL 85
with everything which has passed through a pro-
cess, is the ineradicable belief of some people that
we ought to do everything ourselves ; and that, if
an article passes through six stages before it
comes out a finished good for consumption, we
are somehow defrauded if we do not secure more
than five of them. It seems to me almost as
absurd as insisting that we teachers should read
nothing but English books, or, perhaps, should
write our own books.
One would think these are difficulties enough,
but I should like to note one more. It is
that of distinguishing between Food and raw
material. For, as it happens, imported food is
the raw material of much of our new agriculture.
It is said, indeed, that the salvation of modern
farming has come from the possibility of getting
cheap feeding for cattle. Mr. Balfour put this
strongly, in May of 1903, when defending the
abolition of the tax on grain. " Let me ask
farmers," he said, " if they really think that, from
the point of view of feeding stuffs, the tax is
really to their advantage? ... I maintain that
the tax has operated as a burden on the raw
viaterial used by farmers!'
Flour, again, is a Food. But is it not also
the raw material of several things we undoubtedly
call manufactures ? Maize is the substance of
corn-flour, and corn-flour is a food ; but the
spoiled corn-flour goes into starch, and starch is
a manufacture. If, again, meat is taxed as food,
is this not a tax on leather, the raw material of
many industries ?
86 TAXING MANUFACTURES chap.
IV. The only class of goods remaining for con-
i' sideration, after foreign products that we cannot
make, food, and raw materials, is what we call
Manufactures. And generally, ever since the
days of Colbert, the opinion of rising countries is
\ that the import of manufactures should be pro-
hibited or handicapped wherever they interfere
with or threaten similar home manufactures.
Manufactured commodities, it is assumed, are the
goal of industry. It is in order to manufacture
them cheaply that we admit food and raw material
free. If we allow free entry to the manufactures
of other countries, we give away the case for free
entry of food and raw materials.
The inadequacy of this argument appears the
moment we notice our own classification of
manufactures, as " manufactured and partly
manufactured." Suppose that we could put the
" manufactured " into a category of their own
called Consumption Goods, meaning by that,
goods ready for being consumed in the support
of human life and not requiring any further pro-
cess of labour, the difficulty would at least remain
as regards all the others. For all " partly manu-
factured " goods are simply the substance and
I base — the " material " — of further home industries.
■ To tax them, as I say, has exactly the same effect
as to tax raw materials.
But, again, among " manufactures " — one would
say, among " finished manufactures " — appear
tools of all descriptions. But tools surely
stand on the same line as raw materials ; they
also are necessaries and foundations of all in-
IX. TAXING MANUFACTURES 8;
dustry. To agricultural countries, the taxing
of agricultural implements is a recognised and
serious evil. To judge of its effect, one has
only to take a walk anywhere in rural France,
and witness the peasant working with ploughs
only fit for a museum — such ploughs as might
be seen on a Roman frieze, but never in English
fields.
So it comes that, if a country adopt this pro-
tection against manufactures, it is driven to make
such a complex and detailed tariff, that it is very
expensive, very difficult to work, very vexatious,
and, at the same time, very open to evasion of
all kinds. The contents of any shop window,
with its huge variety of articles which must be
called " manufactures," show how impossible it is
to group them into intelligible classes. And thusj
one finds in tariffs such absurdities as that o
certain house furnishings being taxed, not a
single goods, but as complexes of wood, steel,
copper, brass, etc., on each item of which is levied
a different duty. It reminds one of the old rail-
way casuistry whereby a bicycle was charged for
under the classification of " a perambulator with
two wheels." ^
From all these considerations, one begins to see
^ Cf. a recent decision affecting an American fruit dealer who
imported from Italy, along with a shipment of lemons, a bushel of
snails intended for his own table. The authorities decided that a
duty on the snails was necessar}', but were for a long time at a loss
under what category to place them. Finally, they paid duty as
" wild animals " !
88 TAXING EVERYTHING CH. ix.
why it is that, when a government once adopts the
protectionist faith, it is driven by force of circum-
stances, not to select and categorise, but to tax
everything ; and when it tries to let in some
things free, or at a reduced rate, is met with a
storm of opposition from hundreds of vested
interests.^
^ The kind of problems presented may be illustrated by the treat-
ment of colza oil in France. It is manvifactured from the seeds of
a kind of turnip, which is also a valuable feeding stuff. To protect
the growers, in 1890-2 the Commission of Customs proposed that
colza should be protected by a 6 per cent. duty. But the oil is
burned in lamps, and the consumers rebelled. To protect their
interests, it was proposed that other illuminating oils should be
admitted free. Again, colza is largely used in the making of cer-
tain soaps, and these soap makers rose in arms. To propitiate
them, it was proposed that oleaginous substitutes used in the
making of other soaps should also be taxed, and all soap makers
put on an equal footing of disadvantage. Thus, to favour the
farmer, colza was taxed and lamp oil made dear ; oleaginous sub-
stitutes were taxed and all soap made dear. The later develop-
ment, I believe, is that, in 1903, the home colza growers asked for
the taxation of all oil-producing grains as well. To propitiate the
French Colonies on the West Coast of Africa, it was proposed to
admit their colza free. The Colonies refused the offer, knowing
that they "would have to pay for it" in other ways! One may
judge if Sumner exaggerated when he said: "Tax A to favour B.
If A complains, tax C to make it up to A. If C complains, tax B
to favour C. If any of them still complain, begin all over again."
— Protectionism, p. 78.
V-
CHAPTER X.
CONCLUSIONS AS TO PROTECTION.
A protective tariff which does not present all manner of anomalies
and inequities is impossible. Protection tends to political and com-
mercial immorality. It raises cost and checks exports.
From what has been said, four conclusions seem
to suggest themselves.
I. That it is beyond the wit of man to draw
up a tariff which will protect whole ranges of
industries without causing all sorts of anomalies
and inequities.
Under Free Trade, self-interest, urged by com-
petition, directs capital into the industries which
pay, and buys its material and tools wherever
it gets them cheapest and best. But Protection,
having for its object the restriction of competi-
tion, even where it allows the free entrance of food
and raw material, taxes other material and tools
differentially, according to the circumstances and
needs of particular home trades ; that is, not
according to any principle of suiting the needs of
those trades which use the material and tools,
but according to the circumstances and needs of
\y
/
\
90 PROTECTION TENDS TO POLITICAL chap.
Other home trades. Thus one industry may-
get in its material at a low rate because the
home producers of that material do not need
much protection ; another industry, which com-
petes with it, may have to pay a high rate for
its materia] because the home producers are at
a natural disadvantage. Every industry, again,
in this artificial system knows its own weakness
or strength against outside competition ; but out-
siders do not know, and every man keeps his
own trade secrets. Even granted, then, that
there are, in each business, experts or men
who know just what amount of Protection is
needed to " protect," no Legislature has the
knowledge or the means of getting at the
knowledge. If the Legislature simply asks
each industry how much Protection it needs,
what kind of answer will it get ? Or suppose
a tariff is based on the cost of thoroughly
efficient home producers, how will this suit the
average, or the inefficient ? Will it not tend to
throw industry, as it has done in other countries,
into the hands of great combinations, and end in
monopoly ?
II. That Protection tends to political immor-
ality.
Under Free Trade, the statesman is the voice
of the nation. He is elected, indeed, by a section,
and he is bound, to a certain extent, to look after
; the particular interests of that section, but the
interests of the wider community are always par-
amount. He takes his seat as a member of one
political party, but that party has, and tries to
X. AND COMMERCIAL IMMORALITY 91
carry out, a national programme. At the very-
worst, he stands for no selfish or sordid interest.
But what becomes of the purity of political life
when every elector looks to his member, not to
think of the local and national interests, but to
give him a tariff high enough to let him earn a
profit ? Nay, what becomes of the party to
which he belongs when the whip calls one way
and the vested interest another ? How, in these
circumstances, can the State remain the " armed
conscience of the community " ? ^
III. That Protection tends to commercial im-
morality.
Law ought not to lead men into tempta-
'tion. And nations should have some regard
to the temptation which their laws put in
the way of other nations. We are all too
apt to think that our obligations to obey stop
at the boundaries of our own country and the
limits of our own laws. There are very few
Englishmen who will not do a little smuggling
when they cross the channel — the tariffs of other
countries, they argue, are " so irrational." And
when it is found, not only that tariffs are irra-
tional, but that, on the one hand, the adminis-
* Where an industry can be made or unmade by a few lines in
a tariff schedule, the interest which people take in politics tends
to become absorbing in a wrong direction. Although one does not
like to cast reflections on one's neighbours, there is some truth in
the statement that Americans regard politics as a "business pro-
position," and spend large sums in it and on politicians as
a business investment. "The day we adopt Protection," said Sir
John Brunner, "we may say goodbye to honesty in the House
of Commons."
92 PROTECTION HANDICAPS EXPORTS CH. x.
tration of them is modifiable by influence or
bribery, while, on the other, custom-house officers
are ready to pounce, with fine or confiscation,
on the error of a careless invoice-clerk, the
temptation to regard the tariff as a fair mark
for ingenuity is all but irresistible. But this need
not be dwelt on. The annals of Protection are
full of tales of evasion, of connivance, of bribery
— to say nothing of smuggling.
IV. That Protection, as it raises the price of
everything imported, and, as consequence, the
price of everything raised or made at home,
increases cost and handicaps exports to neutral
markets. Only great natural resources, great
superiority of skill, or production on a very large
scale, can outweigh this handicap. Unless, in-
deed, recourse is had to the complicated and
mischievous machinery of " drawbacks " on export,
with the extraordinary corollary that the pro-
ducer charges dear for his goods at home and
sells them cheap to the foreigner !
CHAPTER XI.
PROTECTION AS INDIRECT AND
DELEGATED TAXATION.
Taxation is a price paid to government for common seivices
rendered. In its indirect form, certain goods are charged customs
and excise ditties, and the extra ive pay goes first to the government,
and then comes back to 7<s, minus the expenses of collection, in benefit.
But, lender Protection, the government, -wishing to benefit its
producing classes, delegates the pozver of taxation to them ; it shuts
out foreign competition ; and the extra price, made possible by taxing
foreign goods, is taken by these producing classes. It is as if a
government, recognising the services of distillers as employers of
labour, were to impose custoius duties on foreign spirits and no excise
on home spirits. Protection, then, is paid for by the nation in
indirect taxation.
We know that government does certain things
for us. We realise, probably, that these things
cannot be done for nothing, and that our taxation
is the price of these services. In the annual
Finance Accounts is found, on the one hand,
the cost of the services which the State renders,
and, on the other, the price we pa)'. Last year
the price was £\'^\\ millions.
What, then, is Taxation? It is, as a whole,
the annual sum paid to the government— and the
94 TAXATION NO BURDEN chap.
government, of course, is just a grand committee
of ourselves, put in power by our own votes to
carry out our own wishes — in exchange for
which the government gives back to us the whole
amount, less the expenses of collection and
administration, in Common Benefits. If Pro-
tection, then, be added to the recognised functions
of the State, it is not to be expected that such
a function can be performed without heavily
adding to the taxation.
But we are so accustomed to hear that
Protection " taxes " the people — meaning, by that,
" burdens " the people — that we do not so readily
realise that, if a tax does burden the people, it
is a bad tax. It seems, then, of the last import-
ance that we should understand where Protection
stands in the scheme of taxation. For, indeed,
the term Taxation is too good for it.
The thesis of the present chapter is that, by
Protection, a government delegates and gives
away its sacred and sovereign power of taxation,
and permits certain of its citizens to impose
taxes in their own interest.
In old times, when a sovereign wished to
befriend a favourite, he gave him a monopoly of
some import. The favourite, having a monopoly
of the goods, charged what prices he liked, or
could get, and the public bore this burden. They
paid the subsidy to the favourite in high prices
just as certainly as if they had given a sum
out of their pockets. This, in ordinary cir-
cumstances, was Burden. It was quartering a
THE DELEGATION OF TAXATION 95
worthless character on the homes of England.
Only in form was it taxation.
Suppose, however, that Elizabeth gave the Earl
of Essex leave to levy sixpence a barrel on every
cask of wine that came into the port of London,
because Essex manned and maintained a fleet
of ships to patrol the entrance to the Thames
against pirates and foreign fleets, then the mon-
opoly was only payment for services rendered
to the nation. It might be a bad way of paying
him — bad taxation ; that is all that could be said
against it.
This, however, is the kind of taxation that
Protection is. The government might go straight
to the people ; take a sum openly out of their
pockets called, perhaps, the Industrial Subsidy ;
and spend this in giving each deserving manufac-
turer a sum equivalent to what he would have
got in profits under Protection. There is no
doubt that this would be direct taxation. As it
is, the government gives a monopoly of the home
market ; not indeed to a favourite, but to a
favoured class, the producers — they being con-
sidered to render services which deserve recog-
nition — and by this allows them to charge as
high a price as they can get under the monopoly.
Thus all who buy the goods are forced by the
government to pay a subsidy out of their pocket
for the maintenance of this favoured class.
Fully to understand the difference between the
two systems and the difference between their
effects, we must go a little deeper into what
Taxation always means and always does. Usually
96 TAXATION A PRICE chap.
the individuals of a nation provide each other
with goods and services by each making and
selling what he likes. But, as a nation, we have
many common interests which can best be pro-
vided for in common. National Defence is one
of these. In times not very long ago, the noble
surrounded himself with a band of retainers,
whom he fed, uniformed, and housed. Many
of them were domestic servants of various sorts ;
many of them were merely private policemen.
When, again, a rich citizen went to supper at a
late hour through one of the parks, he hired an
armed escort. When we learn that Sir Robert
Peel first established the splendid force we still,
in grateful remembrance, call Bobbies or Peelers,
the fact suggests — what was true — that, before his
day, men took their local defence into their
own hands ; they carried swords, and their
servants were armed. But from very early times
it was seen that national, as distinct from local
and personal defence, was not a matter for private
effort. An army and navy were provided by the
central authority, and were paid for by a subsidy
levied on the citizens. Justice is another common
interest. No man should get more than justice
because he is rich and able to hire lawyers or
employ strength, and no man should get less than
justice because he is poor ; it was to secure this
even-handed justice that the expenses of courts,
judges, and administration generally were got from
the citizens by way of a general levy. So even
with the more ornamental parts of the constitu-
tion. For some time after the Conquest, kings
XI. FOR COMMON BENEFITS 97
paid to be kings. They had immense expenses
for armies, the administration of justice, etc.,
and they paid for these out of their own estates.
When they spent more than they could afford,
they generally took simple ways of getting their
subjects to assist them. Taxation was called
Benevolence, Aids, Gifts, Contributions, and,
when appealed for on higher motives. Duty.
And one reason given for the fact that there
was so little friction between our early kings
and their people, was that the Scottish kings
lived within their incomes, and did not come on
the people for taxes. But, some time ago, it
was discovered that it was a bad thing for the
sovereign to defray anything of his kingly duties
out of his own purse. We do not like unpaid
secretaries even now. We were not willing to
be under an obligation ; we wanted to have
some control of what he spent. So we put
him on a salary like any other government
servant, and the " Civil List " of ^470,000
appears in the same category of the Finance
Accounts as the £$ paid to the Precentor of
the Town Church of Glasgow.
The idea of taxation, then, is that of a sum,
contributed by each man out of his income, in
payment for the great common services. It is
compulsory indeed. It could not be otherwise.
However good the things we buy, we all natur-
ally want to escape paying for them if we can :
and, as natural men, I have no doubt we should
be quite willing that Mr. Carnegie should pay
the heavy end of our taxes, as he does our
G
98 INDIRECT TAXATION ALL chap.
University fees. But this is not consistent with
political freedom. We want every man to pay
taxes ; to know that he is paying taxes ; and to
have the right to say to the government, " You
shall not spend my money except in a way that
I approve." By imposing the duty of paying, we
give him the right of dictating the spending. In
this, as in many other directions, we compel a man
to be free — just as we ourselves are not free till
we put ourselves under the compulsion of the
Good Will.
Unfortunately, we cannot carry out the idea
of taxation as we should like. Although we are
the most enlightened of all peoples as regards
the bearing of taxation, even we cannot stand a
I5d. income tax unless in time of war. It seems
too much to give up all at once. Besides, if we
raised all our taxation by income tax, we should
get no contribution from the poorer incomes — at
least more would be spent in collection than
was collected. Yet as all men should pay taxes,
we get them to pay in another way — both
those who object to pay too much income tax
and those who would escape because their in-
comes are too small. We stop tobacco, spirits,
tea, etc., at the Custom House. We make the
importer pay a certain duty on them, and then
he recovers that duty in the price which he
charges us for the tobacco, spirits, and tea. Thus
every one who purchases these commodities,
pays part of his taxes every time he buys.
This we call the " indirect taxation " of Customs
Duties.
XI. COMES BACK IN SERVICE 99
Here, then, is taxation taking the shape of a
raised price — an extra above the price at which
the goods would otherwise be put in the shops.
And this is the form which protective taxation
takes. It is an extension of the Customs Duties
for revenue. If the United States had no internal
taxes, but raised a sufficient revenue from a tariff
on goods coming into the country, this might
very well be the sole taxation of the United
States. It would all be indirect taxation, but
there is no doubt whatever that it would be
taxation. So when the tariff is not for revenue
purposes but for protective purposes, it is not
essentially different in form. It taxes the con- 1
sumers inside the country in high prices.
But there is a difference. We tax tea by
Customs Duties, and so tax all tea, for we have
no tea but what comes into the country. Hence
government gets all the revenue ; that is, all the
tariff charges. I say the government gets it all,
and, when we pay the extra price, we know that
the extra is coming back to us in services. The
natural man might grumble at having to pay a
tax on tea which amounted to 6d. a week, but
he could have little reason to do so if he found
that the government was paying this 6d. to a
policeman to guard his house. This, then, is the
idea of taxation : we pay, but it all comes back
to us.
In the case of a protective tariff, however, we
pay, but it does not all come back to us. The
government taxes foreign cotton cloth, and
raises, say, ;^iooo by this tax. The money
lOO
AN EXCISE GIVEN chap.
goes to the Exchequer. When the cloth is sold,
the ;^iooo is added to its price, and the con-
sumers of the cotton cloth pay their taxes to the
\ amount of ;!fi^iooo in proportion to their purchases.
But, unlike the tea, other cotton cloth is made
inside the country — say, as much again. If it
also passed through the custom house, it also
would pay ;^iooo, and here again i^iooo would
come back to us. But it does not. There is no
excise. The home-made cloth pays nothing.
But, nevertheless, we are charged the same
price for it as we are for the imported cloth.
Where does this second ^looo go? To
the home makers of cloth. We are being
taxed ;!^iooo for their benefit. Notice, then,
that, if there were no home trade, a double
quantity of cloth would be imported from abroad ;
^2000 would be raised from it ; we should pay
higher prices as in the other case : but we should
get all the ^2000 back. Taxation, indeed, is like
evaporation. The moisture is taken out of the
ground and rises into the clouds. But the clouds
dissolve in rain, and give it back again. And
what I am trying to bring out may be suggested
by this ; the moisture may be taken out of the
soil of Great Britain, but the rain may fall in
Ireland.
The difference emerges in the absence of an
excise. We tax spirits coming into the country,
and the government gets the whole of the customs
duty. We tax spirits made in the country —
isolating the distillery as if it were an island on
a lake — and, again, the whole of the excise goes
XL TO PRIVATE PRODUCERS loi
to the government. The price of all spirits,
whether imported or made at home, is raised by
the same amount in either case, and the whole of
the tax comes back to us in services. But if
there were no excise, the home distiller would be
in the position of the home producer of cotton
cloth under Protection. He would charge the
same — or nearly the same — price as the importer,^
but the whole of the sum, which otherwise would
have gone in duty, goes to him as private gain.
The question is : — Is this as good a bargain
for the nation? Is it as good that £\OQO should
go to the few makers of cloth as if it came to all
who wear cotton ?
The answer may be this, " No ; it is not so
good ; but it is advisable as a temporary measure
— on the Infant Industry argument. It only
needs time till the home maker can set up on a
large scale, and then the cost of making at home
will come down. In time, the home-made cloth
will be able to undersell the duty-paid cloth.
Given more time still, and the duty can be
' This, of course, would not be true in all circumstances. There
would remain competition among the home producers, and, if
foreign goods were shut out by the duty, the high profits would
induce a rush of capital which probably would for a time make the
competition very severe and reduce prices. This, indeed, is a
common phenomenon of Protection, and has already been em-
phasised in the quotation from the Tariff Commission of 1882, on
P^ge 73- But such competition, under Protection, usually ends in
a Trust or price agreement, whereby prices are put up again to a
monopoly level just sufficient to prevent the competing foreign
goods coming in — in which case, the country loses the revenue it
would otherwise have had, and the consumers do not get either
relief or compensation.
I02 IN MUNICIPAL INDUSTRIES chap.
removed altogether. Then we shall have no
;^iooo of revenue, but we shall have cheap cloth.
We lose in one way to gain in another."
All this may be admitted. But, if the desired
does not happen : if the manufacture of cotton
remains an Infant Industry all its days, and the
cost of making does not come down : what does
it mean but that the nation continues to be taxed
and burdened as Consumers, to give a profit to
the Producers ?
The momentous point of difference is, perhaps,
better illustrated from Local Taxation, where
the government services rendered are largely
industrial.
The Municipality of Glasgow has raised large
sums by borrowing, and sunk them, as capital, in
providing the machinery for the great common
services of water, gas, and tramways. For these
sums, it has to pay interest ; and, to cover the
interest and the running expenses, to provide for
depreciation, and to lay aside a sinking fund to
wipe out the capital borrowed, it charges a price in
the shape of water rates, gas rates, and tramway
fares. Here, then, are three great industries
carried on by the local government. Who pay
for them ? Those who burn gas ; those who use
water ; and those who ride in tramway cars ; — in
other words, the Consumers.
Perhaps it has never occurred to many people
that, when they pay id. for a Municipal car fare,
they are paying taxes.^ It would be quite clear,
^ It should be said that, in the literature of economic science,
there is considerable difference of opinion as to what payments to
XI. THE CONSUMERS PAY 103
were it not for the obstinate idea that a tax is
a " burden " — something one does not get full
value for. Suppose that, each morning, the Muni-
cipal scavengers cleared our ash bins, and charged
us each morning a halfpenny for the service.
Would this be different from charging 3d. a
week? Would it be different from charging is. a
month or 1 3s. a year ? Suppose, then, that the
Municipality, instead of charging by an ordinary
bill, sends in a blue tax paper saying that, under
the Statute Labour provisions, the tax — or rate as
it is called — for cleansing amounts to 13s.: what
is the difference? In this case, we should see
clearly enough that a tax or a rate is a payment
made to the Municipality as doing certain things
for the great body of the citizens, which otherwise
the citizens would have to do for themselves, or
get others to do for them.
If this is clear as to the carrying away of
ashes, is there any difference between this and
the carrying of persons in a tramway car ? The
difference, of course, is merely in the mode of
government are properly called Taxes and what called " fees " or
" prices." Many restrict the word to cases where the attempt to
measure and assess benefit, if present at all, is a minor matter, thus
making the method of assessment the criterion of whether the
payment is a tax or not. This would exclude such charges as
postage stamps, gas rates, tramway fares. Others, again, while
including such services as those of the Post Office in the purview of
taxation, would restrict the tax proper to the net revenue or
"profits." There are great difficulties in any classification. But,
for the present purpose, the academic distinctions may be left out of
account, and the word may be used to include all payments for
government services to large bodies of general consumers, however
rendered, and however assessed and measured.
I04 IN PROTECTION ALSO chap.
payment and the basis of assessment. We pay
the car every journey ; we pay the rate once a
year. If there were "free ferries" across the
Clyde, does anyone think that we should not pay
for them ? We should, of course, have to pay for
them by an annual rate.
But, in the case of Tramways, it is only a few
years since the Municipality followed another
method. It gave a private company the mon-
opoly of the car lines, and charged them a rent
of several thousands a year for it, allowing them
within limits to charge what fares they liked.
This rent was paid by the private company out
of the car fares, and a dividend was earned
besides.
In this latter case, the tramway fares represent
the kind of taxation the protected consumer pays.
The protective government — with one significant
exception, that it charges nothing for the grant of
monopoly — deals with the industries of the country
as the Glasgow Municipality formerly did with
the tramways. It gives its producers a partial
or total monopoly of the national market. It
charges importers a heavy sum on foreign goods,
which they pay on entry of the goods, and this is
the indirect taxation called Customs Duties. The
people who bear this taxation are not the im-
porters, but the consumers, who thereafter buy
the goods and pay the heightened price. This
is very simple and quite unexceptionable. It is,
so far, merely taxation for revenue — the same
kind of taxation as is levied in colonies where
the tariff is not primarily protective.
XI. THE CONSUMERS PAY 105
But something else ensues. Within the country,
there are a number of manufacturers making the
same kind of goods as those imported. Probabh'
they cannot make the goods at the same cost. But,
whether they can or cannot, one thing is certain :
that they will not sell their goods under the
price of the imported articles — except in so far
as they have over-production, and cannot dispose
of all the goods at the high price. Thus it
comes that all these goods, imported and home-
made alike, carry a tax contained in the price.
The government has practically said to its home
producers : " We know that you cannot produce
so cheaply as an old country, and that your prices
must, accordingly, be higher if you are to exist
at all. But we want you to exist ; and, instead
of giving you a direct subsidy or bounty, we shall
shut out, wholly or partially, the goods of other
countries. This will cut off a good deal of the
competition " — it would probably be called the
"unfair competition" — "at least, it will prevent
your being undersold ; and you will be permitted
in peace to charge a price that will cover your
necessarily higher costs."
The result is, that all who buy goods in a
protected country — that is, the Consumers — are
taxed, although they do not know it, for the
benefit of their own Producers. Only now and
then does it seem to occur to the citizen of a
protected country that he does not gain much
if he gets twice the wage and profits that we
get, on condition of paying twice as much as we
do for everything he buys.
io6 COLLECTION ALSO MAKES chap.
What this indirect subsidy costs in figures, it
is impossible to say. It was an American who
said : " The tribute which a few rich men are
enabled by this system to levy upon the rest of
the community — at the most moderate estimate
— is three times the amount of duties actually
collected by the government upon such pro-
ducts " ^ — which means, one may suppose, that,
for every £\ which the government gets in cus-
toms duties, private individuals get i^3 in excise.
What should we say if our breweries and dis-
tilleries were managed on such a system ?
This, then, is the answer to the question, Who
pays for Protection ? The Nation pays for it in
Indirect Taxation.
And what it pays in this way is quite addi-
tional to, and independent of, the costly — indeed
extravagant — machinery of collection of import
duties. This is always an expense. When I
said that the community gets its taxation back —
that it is not a burden but a price — I should
have added " minus the expenses of collec-
tion." These expenses are always and necessarily
Burden.
Happily, with us, the expense of collection is
reduced to a minimum. One of the things we
aim at is a system of taxation which shall
take out, and keep out, of the pockets of the
people as little as possible. But in Protection,
where everything entering is watched, and
generally taxed, the machinery of collection is
^ T. G. Shearman, Natural Taxation, Putnams, p. 24.
XL THE PRICE A HEAVY ONE 107
enormously costly, and all this must be paid for,
as pure burden, by the nation through its ordi-
nary taxation. So that, apart from this heavy
indirect taxation just spoken of, there is a
second taxation — both of them for the benefit of
the protected industries.
CHAPTER XII.
PROTECTION JUDGED BY THE CANONS OF
TAXATION.
Such taxation, as indirect taxation spread over a targe field of
commodities, cannot distribute the charge equitably ; it is an income
tax levied on all consumers without abatement or exemption. Pro-
tection introduced in our country, then, would throiu out the whole
of our carefully arranged scheme of taxation ; would tax, not ac-
cording to the circumstances of the tax payer, but according to the
circumstances of the producer ; and so give a legitimate grievanie
against those who benefited by the high prices.
Suppose, then, we grant that Protection is taxa-
tion of the people ; that it is of the nature of a
subsidy given to producers : it must, as such, be
gauged by the ordinary canons of taxation. Is
it good taxation or bad ? Does it spread the
inevitable charge equitably ?
It might be an argument for it if it could
assure the community a better distribution of
the charge of taxation. But all our experience
of indirect taxation is that its incidence is en-
tirely indeterminate. When we put a full income
tax on incomes above £yoo, and a degressive
rate on certain incomes under it, and no tax at
CH. XII. BAD INDIRECT TAXATION 109
all on incomes under £\6o, we at least know
where we are. We have made the attempt to
free small incomes, to put a moderate rate on
moderate incomes, and to lay the heavy end of
the charge on the rich. But if we tax con-
sumption — as is done in indirect taxation — we
cannot secure this.^ If liquor is taxed, and the
rich man is a teetotaller, he escapes ; if the poor
man spends a third of his income on liquor, he
pays enormous taxation.
But if a man is forced to pay taxes on all
goods he buys, and if the amount of tax which
the goods contain is determined, not by anything
in the circumstances of the consumer, but simply
by the needs — often, I am afraid, the needs of in-
efficiency — of the producer qua producer, what
guarantee is there that there will be even an
approach to equitable taxation ? If the poor
man buys woollens, and the woollen manu-
facturers are protected by 100 per cent, duty,
while the rich man buys silks, and the silk
manufacturers are protected only by 50 per cent,
duty, how can this work out but inequitably ?
This disposes of the shallow idea that Protec-
tion takes from the rich and gives to the poor.
It is difficult to see how raising the prices of
everything, and raising them unequally, affects the
poor more favourably than it affects the rich.
In the matter of prices, it is the rich who know
where to find the bargains, not the poor. Given
one man who spends his wage on a small range
^ The ordinary, but necessarily very rough, calculation is that
the poor pay three-fourths of the taxes on consumption.
no INCOME TAX WITHOUT EXEMPTIONS CH.
of articles, as compared with another man who
can distribute his income over a very wide range,
it is evident who can avoid the dear, and double
on the cheap.
The objection was well put by Fawcett : " A
protective duty, by making the commodity on
which it is imposed, unnecessarily dear, virtually
levies a tax from all those who purchase it.
When such commodities are in general use, the
effect of the duty is precisely the same as if
an income tax were levied from the entire com-
munity. Such a tax cannot, however, be adjusted
or equalised as is the case with the income tax in
our own country. Small incomes cannot be ex-
empted ; for, however poor a man may be, the
tax will fall with unerring certainty on all that
portion of his income or his wages which is
expended in the purchase of the protected articles.
But, besides, when, by protection, the instruments
and the plant of industry are made more costly,
their products become necessarily more expen-
sive." 1
When we pay a tax for police, we get police
service in return for it. And, if a man is con-
sidering whether he should take a house in any
particular city or not, he always asks, " What
police rates shall I have to pay ? " He first, as a
natural man, thinks of police rates as a burden,
and then, as an economic man, he puts against
that what he gets in return, the security which
the police give him. So when an Englishman
emigrates to the United States, he finds and
1 Free Trade and Protection, p. Ii8.
XII. CAN TAXATION INCREASE WEALTH? in
grumbles, as a natural man, that he has to pay
much higher prices for almost everything he
buys. But, as an economic man, he asks him-
self what he gets in return for the high prices.
If he finds that he gets no better goods, he seeks
some other explanation. Possibly he finds it in
the fact that, in his own business, whatever it is,
he gets high prices for the goods he makes. But,
again, he has to weigh against this, the high price
he has to pay for all his material where similar
material is taxed on entry, the high wages he pays
because high prices need high wages to pay the
high prices, and so on. In short, he never thinks
that high prices are an unmixed good ; he finds
all sorts of makeweights against them. He is
told then that the duties put on goods are taxes
levied on the citizens to ensure the prosperity of
the citizens. He is not stupid enough to think
that taxes, as taxes, are anything but money
taken out of his pocket — deductions — and so he
asks how the deduction on the one hand is
balanced by the " value received " on the other.
If it is simply a game of raising prices all round
how can that do him any good, unless the system
allows him to impose miore taxes than his
neighbours ?
It comes down to this : Can the wealth of a
country be increased by its tax system ? The
first aspect of taxation is deduction from income;
and, to this extent, the citizen is poorer by his
taxation. But the sums handed over to the
government, even after allowing for the expense
of collection, may be used by the government
112 PROTECTION WOULD THROW chap.
more wisely and beneficently than they could be
by the private citizen, and wealth thus econo-
mised is wealth gained. It all depends on how
the money is used. If Protection is taxation of
this kind, then Protection is justified in the same
way as our Telegraph service is justified : the
citizen pays sixpence for services which, we may
say, he could not get otherwise for less than
sevenpence. If this economy cannot be proved,
then the argument for Protection must be that
of the Infant Industry ; — that the tax is the
seed which the husbandman buries in the ground
with tears, in the hope of, some time, rejoicing
in a more abundant harvest. If this argu-
ment is not proven, what is to be said for
the tax ? What is the sense in paying six-
pence to the government to get back sixpence ?
Who pays for collecting the sixpence ? And if a
penny is paid for collecting the sixpence, is not
the net result this ; — that the citizen pays sixpence
to get back fivepence ?
There is, then, one great objection to any
change in our fiscal system which would re-
introduce Protection in however modified a form,
and I do not think it has been fully weighed. It
is that it would make a serious change in our
system of taxation. The taxation of a country is
always one of its greatest problems. With all its
faults, we in Great Britain have probably the most
perfect tax system of any nation. It did not come
to us out of the brain of one man. It is the result
of the labour and study of Chancellor after Chan-
cellor, each thinking how he could adjust the taxes
XII. OUT OUR TAXING SYSTEM 113
so as to raise larger and larger sums, and yet throw
the burden on those who were best able to bear
it — to tax according to Ability. We have, as the
backbone of our system, the degressive Income
Tax, to get at the incomes of the well-to-do and
yet not burden the smaller incomes unduly — a tax
which can be increased on due occasion with least
disturbance to industry. We have the Death
Duties, a kind of cumulative income tax, de-
signed to further get at the larger incomes ; and
these follow the principle of Progression, so that
the very rich pay very heavily, and pay at the
time they feel it least — that is, when they can
feel nothing at all. We have the Indirect Taxes
to get at incomes which escape — taxation which
can be avoided by the thrifty poor, and strikes
particularly at those who buy superfluities and
luxuries. We have the Postal and Telegraph
services, by which a man pays strictly according
to the measurable Benefit that he gets.
Of course, these are merely the great broad
lines of theory on which our system is conducted.
It does not always work out equitably. But, at
least, it has a principle, and its defects are the
subject of anxious thought and attempted remedy.
And, besides, when a tax is old and can be
counted on, it is generally found that the burden
has gradually been shifted and shifted till it rests
where there is a surplus which can bear it. It
has, moreover, the crowning merit that it cuts
the cloth according to the coat. The government
does not first get a sum of money, and then
think how it is to spend it. It finds what the
H
114 PROTECTIVE TAXATION chap
necessary services will cost, and then imposes
taxes to raise the necessary sum.
And is all this old and thought-out system
to be interfered with by a form of taxation of
which no one can say on whom it will fall ? All
that is known is that it will fall upon those who
buy certain goods and in proportion to their
purchases : that the home producers will be per-
mitted to tax their consumers in high prices —
all their consumers, rich and poor. And, of the
amount that will be raised in this way, all we
can know is that, if the taxation be successful in
its end — that is, the keeping out of foreign pro-
duce — it will yield nothing.
It is only when we consider this indirect
taxation aspect of it, as well as the directly
protective one, that we understand how an
American economist should describe Protection
as " at the same time a social abuse, an econo-
mic blunder, and a political evil." ^ It exhibits
such faith in the power, and wisdom, and im-
partiality of governments, while, at the same
time, it makes impartiality impossible. Govern-
ment, with our money, can maintain an army
and navy to protect us against invasion —
justice and police to protect us against criminals
— poor rates to protect us against starvation.
Therefore, government can protect us against
Competition ! And then, the government, being
given this terrific power, delegates it ; allows pro-
ducers to collect the taxes and police their own
* Sumner, Protectionism. Preface, p. vi.
XII. GIVES TARGETS FOR ATTACK 115
interests. It is simply another form of the old
abuse of " farming out the taxes " — giving in-
dividuals a right to supply the city with bad
water, and bad gas, and inefficient service, at
non-competitive prices.
One admirable feature of our British taxation
is that it gives us no class to complain of Before
the abolition of the Corn Laws, whenever there
was depression of any sort, there was one target
for all attacks — the landowners ; those who were
supposed to be keeping up the price of food in
their own interests. But under our present system,
even in the misery of a strike, when the poor man
has to cut his expenses down to bare bread, he
cannot feel resentment against any class which is
making his bread dear. We see distillers, brewers,
publicans grow rich, but we do not ascribe it to
the high prices they charge us. When a man is
reminded that he is paying part of his taxes
every time he buys tobacco, he feels no
grievance against any one connected with the
tobacco trade. It may be that he is a very
heavy smoker, and so is paying more taxation
than he need pay, but, at any rate, it is like money
spent at a bazaar — " for a good cause." He
knows that the government will do its best to use
his money in the interests of everybody. But
if it were ever to come into his head, that he
was paying taxes in order that some tobacco
company should make a profit ; if he were
further to suspect that, although he might be a
very poor man, he was paying a very high price
for his necessaries in order to add to the fortune
ii6 TIN PLATES chap.
of some millionaire; — he would have a real griev-
ance, and that even though he paid just a very
little in taxation every time he bought a dutiable
article.
What needs to be emphasised is that the
amount of taxation which one pays in a protected
country is not determined, as it should be, by the
circumstances of the taxpayer, but by the circum-
stances of the home producer. This annihilates
the very idea of taxation. Take Tinplates. Sup-
pose the American government had consciously
resolved to spend their ;!^5, 000,000 on rooting
this industry in America. There was nothing
against that in itself: the Americans may be
presumed to know their own business. But they
should have said to themselves : This is taxation ;
we must see that the payment of these ;!f 5,000,000
falls on the right people ; that, at the very least,
the rich pay the heavy end of it. As it is, they
have levied it in such a form that everybody who
buys a tin of canned anything has to pay accord-
ing to his purchases. No one knows where such
a tax will light with most severity : we only know
that it is the poor who must buy, and the rich
who can choose not to buy. Then, making tin-
plates dear, they damage their own growing trade
in canned fruits ; that is to say, they fix the
tinplate trade as a parasite on the canned fruit
trade. Finally, their steel makers throw their
steel below cost into England, and our makers
selling cheap tinplates to Germany, Canada,
Australasia, etc., give these countries the canning
trade.
XII. JV//V CONSUMERS STAND IT ii;
But why, it may be asked, do the consumers in
protected countries not rebel against the system
if it be, demonstrably, so bad ?
Two reasons have been suggested, at any rate
as regards America. One is that, where there is
no tax on food, the badness of the system does
not come home to the poor. The other is that,
even if Americans were aware of the truth, they
would rather submit to taxation than be thrown
back, as they fancy they would be, to the dull
monotony of purely agricultural life.
I suggest a third. It is that the great mass
of the people do not compare prices — have not,
indeed, knowledge sufficient to enable them to do
so. Without knowing the prices of goods in
other countries, they cannot compare home
prices. Nor can they judge of prices of differ-
ent things within their own country, for they
do not know what should be cheap and what
must be dear. One knows how thoroughly de-
ceived a man may be in an auction room. He
is tempted to buy this, that, and the other thing
by the assurance that they are cheap ; but the
shop prices are not within his range of experience,
and, when he goes home, he may find that he
has paid twice what he should. Very much the
same is it in a protected country where there is
no experience of anything else than a range of
prices dictated b}^ the interests of the producing
classes.
CHAPTER XIII.
RETALIATION.
If Retaliation be not Revenge, the suggestions concealed in the
word require careful analysis. We find action called for on tioo
perfectly distinct grounds :—[\) hostile tariffs abroad, (2) dumping
here.
It may be that I am a man of peace, but I
cannot see that the case for Retaliation is self-
evident. " Revenge," said Adam Smith in a
celebrated passage,^ "naturally dictates retalia-
tion." But revenge is perhaps the stupidest and
most immoral gratification in which man can
indulge. That you hurt me, is no reason why I
should hurt you — although I grant that, in the
heat of a blow, one does not pause to think
of that. It is a very good reason why I should
recover damages from you, but that is not
because the damages hurt you, but because they
recoup me. To do people justice, revenge does
not play any important part in the real world,
however largely it bulks in innumerable novels.
It generally takes time to plan and to carry
^ Wealth of Nations, book iv., chap ii.
CH. XIII. TWO DISTINCT GRIEVANCES 119
through, and I, personally, have never met the
nasty sort of person who "harbours a grudge,"
and is really pleased when he pays the other
party out. I do not believe he exists in decent
society. What is often called " revenge " is
something very different. It is best seen in
that pleasant form of retaliation called the lovers'
quarrel, where the one does not want to hurt the
other, but only to show how much he or she
has been hurt. It is a compliment, indeed, which
hurts one to pay! The very first glance, then,
shows that the word Retaliation covers and con-
ceals suggestions as to motive, purpose, and
policy, and requires most careful analysis.^
The subject of Retaliation seems to divide
itself into two according to the grievance which
calls for it. The first grievance is, that we are
injured by foreign tariffs ; the second, that we
are injured by what is called " Dumping."
I. When we ask what is the harm done to us
by foreign countries which prompts Retaliation
^ Again and again, during this fiscal enquiry, I have been
reminded of my old friend's warning: "There are masked words
droning and skulking about us in Europe just now, which
nobody understands, but which everybody uses, and most people
will also fight for, live for, or even die for, fancying they mean
this or that, or the other, of things dear to them. There never
were creatures of prey so mischievous, never diplomatists so
cunning, never poisoners so deadly, as these masked words ; they
are the unjust stewards of all men's ideas : whatever fancy or
favourite instinct a man most cherishes, he gives to his favourite
masked word to take care of for him ; the word at last comes
to have an infinite power over him, — you cannot get at him
but by its ministry." — Ruskin, Sesame and Lilies, p. 20.
I20 IV//V "RETALIATION"? chap.
on our part, we are told that they have raised
hostile tariffs against us so that we cannot, or
can with difficulty, get our goods through.
I confess I cannot see that this calls for retalia-
tion. If they want to keep themselves to them-
selves, they have as much right to do so as
we have to lock our front doors. We cannot
very well deny to foreign nations what we have
allowed to our Colonies — the right to surround
themselves with tariff walls. Is it reasonable for
Englishmen to arrogate to themselves the right to
dictate to other nations wh^t they are to do with
their own property ?
But, it is said, they have taken unfair advantage
of our free ports ; they send and sell us what they
like.
The reply is obvious: Is not "open ports" the
policy deliberately adopted in 1846 as one that
suited us ? There was no bargain with other
powers. It was our own selfish policy ; ^ and, for
sixty years, we have been boasting that it was the
very best policy that ever was. Are we, in sober
earnest, complaining that these nations enter our
free ports ? I thought we were always saying
how good a thing it was for us that they did ; we
got cheap food, cheap material, cheap everything.
How is it we have only now discovered that
some wrong is done us when we get what we
asked for ?
It must come to this : not that any wrong is
done us, but that we made a mistake in not
making a bargain for reciprocity, and that we are
^See Peel's words, Jan. 27th, 1846, Hansard,
Xlll. PUTTING ON TO TAKE OFF '^x^l^.S^^^
v..
now going to try back and find the means of
making one. This is a quite sound and intel-
ligible proposition. Entire free trade on our part,
it may be said, suited us for half a century and
more. So long as nations kept their tariffs
moderately low, we could pass through them.
But now they have raised them higher and higher ;
we find it more and more difficult to get our
goods in ; and we mean to call a parley. But why
call this " retaliation " ? Why cause bad blood
among nations, and stir warlike feelings among
ourselves, by speaking of " big revolvers " — of
" hitting back " ? Let us return to common
sense. We said, and we thought, that our free
imports would be balanced by at least moderate
protective tariffs abroad. They have not been
sc. Then, as Mr. Balfour says : " The only
alternative is to do to foreign nations what
they always do to each other, and, instead
of appealing to economic theories in which
they wholly disbelieve, to use fiscal inducements
which they thoroughly understand."
The first proposal of Retaliation, then, is : that,
on due occasion, we should put on import duties
against certain nations, in order to take them off
again when they have succeeded in bringing these
nations to their senses ; which, being translated,
means, when they come prepared to make some
modification in our favour. " At no time during
my career," says Mr. Chamberlain, " either as a
business man or as a politician, was I ever able
to make a satisfactory bargain unless I had
something to give."
122 AGAINST CHEAP GOODS CH. xiii.
II. The second argument for Retaliation takes
entirely different ground. Up till lately, as was
said, we congratulated ourselves that, under free
trade, we got all goods cheap, and we used to
point out that other countries, by taxing imports,
were making everything dear, and so preventing
themselves from competing with us in neutral
markets. But now we have an outcry against
the admission of certain goods on the ground
that they are too cheap. And the proposal
is, that we should take measures against other
countries to prevent this evil.
The essential difference of these two grievances
should be realised before we assume that one
remedy will cure both; — will lower other countries'
tariffs to admit our cheap goods, and will prevent
them sending us their cheap goods.
CHAPTER XIV.
RETALIATION ON PROTECTIVE TARIFFS:
PROSPECTS OF SUCCESS.
The only justificatio7i of Retaliation is success. Bid the retaliation
before 1846 succeed? Have the tariff wars since succeeded? Granted,
however, that other nations are anxious to keep our great Free Trade
tnarket, and are open to conviction through force ; ( I ) we are qtdte
unprepared for a retaliatory policy ; (2) they believe in Protection,
and, besides, could not give tts better terms without giving the satne
to others.
In this and in the succeeding chapter, we shall
consider Retaliation simply as a weapon em-
ployed to lower the protective tariffs of other
nations in our favour.
As those who advocate Retaliation generally
call themselves Free Traders, we must assume
that it is a temporary measure. If retaliatory
duties are imposed, it must be on the under-
standing that they are to be taken off whenever
they have served their purpose. Retaliation is a
weapon used solely " for the purpose of increas-
ing free trade." ^
The first thing that strikes one as to this pro-
posal is : that, as putting on duties will evidently
^ The words are Mr. Balfour's.
124 ADAM SMITH ON RETALIATION CHAP.
do some harm to our own people, in preventing
them getting the cheap goods which other nations
wish to sell, it must be shown that the advantage
which certain of our producers are to gain at
least warrants the sacrifice.
If, then, Retaliation aims at anything u^orth
doing, its justification must be its success ; that
it will give us what we want, and not merely inflict
an injury ; particularly when — as in the lovers'
quarrel — the Retaliation is likely to hurt most
the person who retaliates. Has Retaliation of
this kind ever succeeded ?
Adam Smith, at least, did not think it had,
and he lived in a time of bitter tariff wars. He
said there " might be good policy in retaliations
when there is a probability that they will secure
the repeal of high duties and prohibition," and
then he went on to show that the first result
of Colbert's tariff was actual war between France
and Holland, and " the rise of that spirit of hos-
tility between France and this country which has
subsisted ever since, and prevented either nation
from moderating its duties against the other."
Adam Smith, then, can scarcely be cited as a
witness for Retaliation.
Coming down three-quarters of a century, what
do we find? In 1843, J- L. Ricardo spoke of
the commercial wars as " now bringing us such
calamities." In 1 844, the tariffs of France,
Austria, and Germany were " restrictive," that of
Spain was " tyrannical," that of Portugal, " incon-
sistent and capricious " — I am quoting the words
of a former Secretary of the Board of Trade.
XIV. RUSSO-GERMAN TARIFF WAR 125
In 1 84 s, the Edinburgh Review said that a war
of tariffs was being carried on between the civil-
ised nations of the world.
It was amid such circumstances of Retaliation
and Counter-Retaliation that Peel said : " Wearied
with our long and unavailing efforts to enter into
satisfactory commercial treaties with other coun-
tries, we have resolved at length to consult our
own interests, and not to punish other countries,
for the wrong they do us in continuing their high
tariffs upon the importation of our products and
manufactures, by continuing high duties ourselves."
But this is ancient history, and it may be
reasonable to think that we can manage better
now. Take, then, more recent experience. We
have had tariff wars within the last few years.
In 1893, Russia raised the duties on all German
goods by 50 per cent. Germany replied by
raising her own tariff — already higher for Russian
exports than for those of any other country —
against Russian goods. The war lasted only
eight months — not long enough to dislocate per-
manently the conditions of trade, particularly as
it took place during the winter, when, for most
of the time, the Baltic ports were closed by ice.
Nevertheless the suffering and loss caused by it
were very considerable, as appears from the con-
fessions made on both sides when the struggle
was concluded. In the opinion of both govern-
ments, a continuation of the war would have led
to very serious consequences — some of a political
character — and there appears to have been great
relief when peace was concluded.
126 OTHER TARIFF WARS chap.
There was another tariff war between France
and Switzerland from 1893 ^o 1895. By the
substitution of the general for the minimum tariff,
Swiss goods entered France at an increase of duty
of 41 per cent, French goods entered Switzer-
land at an increase of 190 per cent. The decline
in the French exports to Switzerland, in three
years, amounted to nearly 45 per cent., while the
decline in Swiss exports to France was nearly
35 per cent. In the end, Switzerland obtained
some small concessions from France. The trade
relations between the two countries have not even
yet recovered their prosperity of thirteen years ago.
France and Italy played the same game from
1889 to 1898. Special duties were imposed
by the two nations on each other's goods, and
differential dues and surtaxes were imposed on
each other's shipping. In ten years, the import of
Italian goods for consumption into France fell
off by 57 1 per cent, and the imports of French
goods into Italy fell by fully 50 per cent. The
whole loss of trade to the two countries during
the continuance of the war has been estimated
at i^ 1 20,000,000. Italy now finds the French
market practically closed to her exports of silks
and wines, which formerly represented the most
important part of her trade with France. In spite
of the new Commercial Treaty, Franco-Italian
trade has not shown any permanent indication
of improvement since — the total volume not ex-
ceeding the half of what it was before.^
^The above details are taken from Reports on Tariff Wars
between certain European States, Cd. 1938 : Commercial No. i
XIV. WE GAIN BY THEM 127
As a fact, the explanation of the monstrous
tariffs of continental countries is not hostility to
England, so much as hostility to and fear of
each other ; each country keeping a very high
general tariff in order that it may be able to
"give something off"; one tariff rising as another
rises, on the principle that one bad turn deserves
another. Meantime, during those tariff wars, Eng-
land stood by, holding the hats ; stealing away
what trade she could ; and enjoying afterwards,
under the Most Favoured Nation Clause, what
little good result came from it. It is not, perhaps,
known that we have forty-two treaties with foreign
powers which contain this clause, giving us the
same minimum tariff as they give to any other —
even to the nation with which they may have just
been fighting.^
Perhaps, too, the corollary is still less realised ;
that, if we engage in Retaliation against any one
nation, and manage to reduce its duties, other
nations, under this clause, get the same advantage
(1904). These reports are particularly interesting as indicating
the diversion of trade during the struggle to other countries and
other routes.
^ The Most Favoured Nation Clause may be defined as that
clause in a commercial treaty which binds the parties to give to
each other, in certain matters, the same treatment they give, or
may afterwards give, to the natipn which receives from them the
most favourable terms in respect of these matters. Of course, the
clause does not operate in our favour in two cases : where we
cannot export, and where we should probably be the largest ex-
porters but for the duty. The German reduction on petroleum to
Russia does us no good ; and duties, say, on textiles, are not likely
to be lowered to any other country.
128 OTHER COUNTRIES chap.
as we do. There is a beautiful unselfishness about
Retaliation which one cannot but admire.
This is worth remembering when we are told that
we made a mistake in giving up our duties ; that, if
we had kept them on, we should at any rate have
had " something to give away." Other nations
have not made this mistake : they have always had
plenty to give away : if they offered to conclude
treaties giving mutual concessions, and failed, then
they put on something more, in order to give it
away : and what has it all ended in ? That the
tariffs of protected countries against each other
have risen and risen, and that we are at least as
well off as any of them — under the Most Favoured
Nation Clause.
If, then, it be the case that other nations have
not been conspicuously successful in their re-
taliatory wars, while we have gained by them,
the question comes to be if there is any good
reason for thinking that we shall succeed better
than they have.
The chief argument for the success of Retalia-
tion on our part is that we are the largest market
for the foreign trade of most other countries ; that
the stake which they have in keeping this market
open is very great ; and that they are, accordingly,
very open to conviction if our persuasion takes
the shape of a " revolver." Indeed, it is freely
said that the only reason why we have not got
better terms is that we have done no more than
show uneasiness ; we have not even asked for
them. So, it is argued, quite honestly I believe,
XIV. MUST HAVE OUR MARKET 129
that Retaliation will be no more than an unloaded
revolver ; it will not require to be fired.
This is a respectable argument, and respectable
arguments deserve respectful answers. One sees
quite well that the industries of new countries
to-day are a kind of hot-house growth. These
countries do not pass slowly and by centuries from
the wilds and wastes of barbarism to the condi-
tion of England. They have — what no state in
past time had — every rich nation waiting at their
gates, hat in hand, offering to lend them money.
They pledge their future against loans, and in-
stantly the whole resources of civilisation are
at work turning the desert into a rose garden.
" Take our money," we say. " Let us send you
goods and men ; build your towns ; reclaim
your land ; net it over with railways. We
simply ask your note of hand for the amount,
and an annual sum for interest." This explains
their rapid growth. But that growth would
be arrested were it not that the old countries
provide them with a market infinitely larger
than their own. Could the United States, for
instance, or Canada, or Australia, have developed
so fast were it not that this great hungry Eng-
land has taken all their millions of wheat and
maize and meat and wool and timber? This,
too, explains why new countries, when they start
industries, go in for buildings and plant on the
same large scale as ours : they cannot afford, they
say truly, to manufacture at greater cost than old
countries ; they want the best and they get the
best. And then, perhaps, they discover, when
I
I30 JVE ARE UNPREPARED chap.
the mills are up, that they have forgotten to ask
where the trade is to come from ; for the new
country cannot buy more than it has wealth to
buy with, and a nation of corn growers may not
have a use for millions of yards of fine cloth, or
even for steel girders. But what matters ? They
have this great free market of Great Britain to
fall back on. They can sell their goods in their
own country, under Protection, at a high price,
and they can get rid of the balance to us. Surely
such countries are very open to the " argument of
the revolver."
Undoubtedly, the contention is a strong one.
Our gigantic imports show that it is. The
amount that the great nations send us in com-
parison with what they take from us, shows that
it is. One is tempted to believe that the mere
showing of our teeth would bring other nations
to their senses. And certainly if, by a threat,
we could lower the tariffs of other nations, we
should have done a great thing.
But "bluff" is a game which a nation dare
not play without showing that it is ready to
follow up the threat, and we must look into a
good many things before we begin.
I. The first consideration I would put forward
is, that retaliation by import duties is a thing
for which we are utterly unprepared. It is like
an English civilian accepting a challenge from a
German officer when he has forgotten his fencing
— if he ever knew it. Putting on duties and
taking them off — heightening and lowering — is
XIV. FOR RETALIATION 131
part of the day's work with other countries.
They have all the machinery for Retaliation. A
few instructions to the port officers, that such and
such goods are to be taxed 10 per cent, or 50
per cent, more, and the thing is done. But we
have no such machinery except the limited tariff
for revenue goods, and we chose these revenue
goods for taxation very much because they in-
volved so little machinery in their collection.^ We
have, as I say, forgotten our duelling weapons.^
II. The second consideration I would put for-
ward, is to ask : How will other nations take this
new departure ?
To answer that such a question is " pusil-
lanimous " ; that we have nothing to do with how
^ It is, of course, quite misleading to point to our action as
regards bounty-fed sugar as an example of how easily Retaliation
may be carried out. To say nothing of the facts that sugar is
already a revenue article, and that, as coming in bulk— often in whole
cargoes — it is easily watched and detected, it cannot already be
forgotten that we are only one member in an international com-
bination, all taking similar prohibitory measures.
-There is a special difficulty which comes of our freer political
organisation. Other countries have a much stronger and more
irresponsible Executive than we have. A German Chancellor "hits
back," and afterwards comes to Parliament to confirm the mandate :
the German government is not liable to votes of censure. We
should not allow our Executive any such power. Every act of
Retaliation would have to be submitted to Parliament ; argued out
there ; all the details made public, so that our enemies might be
well prepared ; and, if there were a strong Opposition, I am not
sanguine that any government would get a very clear mandate at
the best. For this is not a political matter. Every interest hurt,
as well as every interest advantaged, would make itself heard, and
the most rigorous party discipline would not be able to secure a
party vote.
132 FORCE NO ARGUMENT chap.
other nations take it ; that they have done as
they Hked, and we are going to do as we like ; —
is mere folly. Looked at from the standpoint of
other countries, this Retaliation of ours seems
to me, as regards the end it proposes, little short
of an impertinence. We are urged to retaliate
in order to force other nations into free or freer
trade. Force, however, is not usually the weapon
by which you make a person reason ; you may
" bring him to reason," but it is not his own idea
of reason you bring him to. It is an old theo-
logical argument that the fear of hell was a
means of compelling people to walk straight ; I
never heard of it being of any use to make a
person love God.
One must remember that Protection is not
mere stupid adherence to a shibboleth. It is at
least a respectable creed. Rightly or wrongly,
the protectionist country believes in Protection
just as firmly as we believe — or did believe — in
Free Trade, and is as little disposed to be patient
under dictation or compulsion as we should be.
Nor should it be forgotten that the taxation
system of protected countries is bound up with
Protection — that they calculate on it to provide
them with a great part of their revenue — that
their peoples have become accustomed to be
without internal taxes which are familiar to us.
One may see how this works out by the obstinate
refusal of France and America to face a direct
Income Tax.
If, then, we practically declare : We shall tax
your products in order to make you go against
XIV. VERY LIKE IMPERTINENCE 133
your own cherished convictions ; how will a
strong nation take it ? It is only to be expected
that, in the first instance, it will re-retaliate — for
this, of course, is not in the very least contrary
to its policy. Indeed, the adoption of Protection
on our part would be less of a challenge. A
protected nation cannot possibly object to other
countries becoming protective, but it may very
well object to be threatened with the object of
making it give up its own Protection.
Thus if our Retaliation is aimed undisguisedly
at making Germany or the United States reduce
their duties, so as to allow us to send in our
goods, surely the first answer of these nations will
be : We did not frame our tariffs primarily to
shut you out. It was not a hostile measure,
but a policy framed to " protect " our own manu-
facturers. That you are kept out, is an incident.
At any rate, the intention to favour our own
people must not be interpreted to be the same
thing as the intention to injure other people.
Be sure that, if we forbid you the house,
it is not to punish you, but to keep our family
from your influence. And now you ask us to
drop our tariff because it hurts you ; that is, to
abandon the policy which we have deliberately
entered on for the protection of our own children ;
and you threaten us that, if we don't comply with
your demand, you will do us an injury. It is an
impertinence which we resent.
And their second answer will be : Suppose that,
as an incidence of our policy, our tariffs shut
you out, they shut other nations out as well.
134 THE MOST FAVOURED NATION chap.
Whether, then, it might or might not suit us to
reduce our duties to you, we have no intention to
reduce them to other nations which either do not
treat us so well or cannot use so big a revolver
as you can.
This brings us back to the Most Favoured
Nation Clause. It seems to me that this clause
makes it very difficult for any protected country
to " back down " over our Retaliation — even if it
wished to — even if it suited it to do so. With true
British conceit, we are always thinking our-
selves first and other nations nowhere. So we
ask indignantly, " Why do these countries not
give better terms to us — us, who give them free
ports, while the rest of the world shuts its doors ? "
What we forget is, that, in its commercial
policy, every other nation has to think of its
tariff relations with the whole of the world — of
which we are not always the largest part. And
what we should remember is, that it would be a
very serious thing for a protected country to give
us advantages that it might otherwise be inclined
to give us, when, under its Most Favoured Nation
Clause, it would have to give the same advantages
to other nations.
Here, then, is a consideration which may well
make us doubtful of the success of Retaliation.
We are asked to engage in a war at which the
other nations stand by rejoicing. We fight their
battles and our victory is theirs. And, in refusing
our demand and fighting, the other country is not
fighting us alone, but fighting all our temporary
allies — those who will get the Most Favoured
XIV. CLA USE PREVENTS " BACKING DOWN'' 135
Nation treatment whatever happens. America,
for instance, might be very sensible of our claims
to better treatment, and inclined to give it, while
she would not be willing to give the same to,
say, Germany This seems to me a very strong
presumption against our success.
CHAPTER XV.
RETALIATION ON PROTECTIVE TARIFFS :
METHOD AND EFFECTS.
If we retaliate by Import Djiiies, what kinds of goods are tve to
tax without gi-eatly hurting ourselves ? And will any possible
Retaliation seriously hurt the country retaliated on? Meanwhile,
the effect in disturbing ottr own industries T?iay be serious enough.
Protective tariffs already do us two injuries ; let us see that Retaliation
does not add a third.
Suppose, however, that, in spite of all the con-
siderations just advanced, the government gets a
mandate from the country to retaliate.^ How is
it to retaliate ? The only way suggested as yet
is by Import Duties against the offending country.
But import duties cannot be imposed without
raising prices, and the bearing of this must now
be considered.
It is not a small matter for Great Britain
to shut out anything. We have so long been
free traders that our industrial organisation is
very much based on buying everything as cheap
^ There is nothing in the theory of Free Trade against Retaliation
as retaliation. It is "an expedient; not a policy." It must be
judged by its success and its effects.
CH.xv, WHAT SHALL WE TAX? 137
as the world has offered it. If, then, we resolve
to* make a retaliatory attack on a country whose
tariff, in our opinion, is too high, we must look
at the various kinds of imports which we might
tax, and consider the effects.
I. Are we to tax goods we cannot make or
grow ourselves ? What would be most promin-
ent in such a case is the cost of it — and the
futility of it. It would be taxing a foreign
monopoly. Say we tax Bechstein pianos from
Germany. This would mean dear Bechsteins
here. But would it hurt Germany ? Would
not our consumers, as for the most part rich
persons, pay the extra price, and the import from
Germany continue as merrily as before ? There
might be a slight falling off in demand ; that
is all.
II. Are we to tax Food? This would be very
serious. It would not only raise the price of
imported grain, but raise the price of our own
grain ; thus raising for us the cost of production
of everything made by human hands.
III. Are we to tax Raw Materials? But we
have held the lead in the world's manufacture so
long because we got the cheapest raw materials
from all countries.
IV. Are we to tax Manufactures ? It has
already been pointed out that there are certain
manufactures, the taxation of which is open to
all the objections urged against the taxation of
raw materials. It does not matter to us whether
a material is " raw " or " partly manufactured," so
long as it is the foundation and substance of our
138 THE FIFTY MILLIONS ARE chap.
industries.^ And to tax machinerv and tools
seems suicidal.
Beyond these, a somewhat careful calculation
seems to show that there are some i^5 0,000,000
of manufactures which it would be possible to
tax without hurting British industries. On these
fifty millions, then, we might retaliate, in some
confidence that the only hurt would be to our
consumers who would pay dearer prices. This is,
perhaps, the most innocuous form of Retaliation
in which we could indulge.
This is the one side — the side of what we
suffer. But I suppose we are going to retaliate
to make other countries suffer ; for, unless they
suffer, we should have all the trouble and expense
for nothing. I do not believe in kicking a
bicycle that has thrown me. Nor do I believe in
the blow that hurts the man who gives it, and
falls on a person who does not feel it. If we are
going to retaliate, let us first see what it is going
to cost us, and then make sure that we hit hard.
Perhaps ;!^5 0,000,000 looks a large figure —
large enough to retaliate on at any rate. But the
fifty millions come from all the world, and we are
^ It may be thought that no harm is done if we accompany such
taxation by drawbacks on exports — a drawback system, as has
been said, being the safety-valve of Protection. This is very short-
sighted. Does it seem reasonable to make it easy for our producers
to sell goods abroad cheap, while the same goods are sold to us
dear ? Is foreign trade the only thing to be considered ? Have our
own people not some claim on us for cheap goods? But, even if
there were no other arguments against it, the drawback system is
notoriously an inadequate compensation for dear material.
XV. SCATTERED OVER ALL NATLONS 139
not going to retaliate on all the world. And
some of the goods we do not make ; while others
of them are goods — even if "made in Germany" —
which are better than anything of the kind we
do make. It is when we come to Retaliation
in practice that the full difficulty meets us.
Take Russia, sending us i^2 5| millions of
exports. ^132 millions of these are food-stuffs,
and ^10 millions are raw materials. This leaves
a field for retaliation of -^2,000,000. Would it
be common sense to retaliate on a couple of
millions worth of goods ? Really, it reminds one
of the " Private Secretary " : — " If you don't stop,
I shall be compelled to give you a little knock."
Or take the United States, sending us
£\ 27,000,000 of exports. Of this, p^i 06,000,000
are raw material and food-stuffs, leaving
^21,000,000 on which to retaliate. But these
i^2 1,000,000 are scattered over forty categories,
of which only five are over a million ; namely,
Leather manufactures, ;^3| millions ; Iron and
Steel manufactures, ;^3 1 millions; unwrought and
partly wrought Copper, £2\ millions ; Oil, ;^i.3
millions; Oilseed Cake, £\.\ millions.
The possibility of retaliating on Germany is a
great deal less. Of her manufactured exports,
only two categories are over the million ; namely.
Woollen manufactures, i^ 1 1 millions, and Cotton
manufactures, £i.\ millions. The next items
are Musical Instruments and Toys, some three-
quarters of a million each.
Consider, again, what must be done in the
process of giving this " little knock." One,
I40 EVEN TEMPORARY DUTIES chap.
perhaps, thinks of a million and a half worth
of Musical Instruments and Toys coming over
from Germany all in one ship ; it seems so easy
to put lo per cent, duty on the cargo. But
these goods come in small lots, in perhaps hun-
dreds of ships, along with other cargo which is
not being retaliated on ; yet every ship must be
arrested and searched to see if there are not a
few toys or fiddles on board. Nor is it only
German ships that are to be arrested and searched.
It is all ships from Germany, including our own
that carry for Germany. Duties, again, call out
smuggling devices. So Belgian imports must be
watched, and Dutch, and Austrian, and Italian ;
even French and Swiss, in case the German goods
should be sent through these countries.
I can only say that, if this is the answer to
how we are to retaliate, it seems to be a very
inadequate one. The Retaliation is calculated to
take the most skin off our own knuckles with the
least damage to the skin of the foreigner.
*fc.^
But there is another effect besides the raising
of prices to our consumers, and hurting the
foreigner. According to our principles, we are
bound to take off the retaliatory duties whenever
the policy has secured its object. Under tariff
duties, as we have seen, vested interests spring
up, and have a claim on consideration. Under
retaliatory duties, it may be said, there will be
no time for vested interests to spring up. But
the Retaliation may last long enough to have
very unpleasant effects.
XV. AfAY HAVE UNPLEASANT EFFECTS 141
Suppose that we decide to retaliate on
Germany, for the injury done us in that she
sends us £zzh millions of goods and takes from
us only iS^2 2f millions ; and that we impose a
retaliatory duty on Toys.^ The immediate result
is a rise in the price of toys here. This comes,
not from the " rapacity " of the English toy
makers, but from the sudden shutting off of so
large a part of the supply : the old demand
cannot be met at the price. And, it may be
added that prices are likely to rise all the higher
if competition has hitherto been very keen, and if
it is suspected that the " close time " will be short.
The further consequence will be — perhaps not that
capital will rush into this trade and give hos-
tages to fortune in the shape of new mills and
machinery, but — that those who are already in the
trade will spread their sails to catch the favouring
breeze. They will extend their operations as far
as they can ; probably add to their buildings,
certainly, to their plant. Meanwhile our children
suffer so far as the family purse cannot afford
the raised price of Noah's Arks.
This, let us say, brings Germany to her senses.
She gives in, and reduces her tariff, on condition
of our taking off the retaliatory duties. What
now is the position of the English toy makers ?
^The illustration looks a little ridiculous, but that is the fault
of circumstances. The alternative to taxing toys seems to lie
between taxing woollen or cotton manufactures and taxing musical
instruments. The consequences of the incidental protection to
our woollen and cotton manufactures would, probably, be too
serious, while a tax on pianos at any rate would not have any
appreciable effect in diminishing the sale.
142 THE INJURY PROTECTION DOES US chap.
For a time, they have been sunning themselves
in the warmth of Protection — a Protection they
did not ask. Unaccountably, so far as they were
concerned, the British government gave them
Protection. As unaccountably, from their point
of view, the government withdraws it. The
favouring breeze dies down, and the free import
of German toys begins again. The British toy
maker finds himself with extended premises and
increased plant, and possibly with long contracts
for supply of material. And a large part of his
demand has suddenly fallen away. Will it not be
a little difficult to convince him that his trade
should have been trifled with and upset, for the
benefit of the trades which export to Germany ?
The question is not, Are we injured by foreign
protective tariffs ? Of course we are. We are
not injured so much as we appear to be when
we look at our small direct exports to such
countries ; for, happily, other countries are always
anxious to export, and the door that opens
outward opens inward. They must be paid for
their exports ; and, though they may not take the
payment from us direct, they must take it from
other nations to which we export. But, all the
same, we are injured. And we are injured in
another way that does not so readily meet the eye.
Protection, in itself, as I have tried to show, does
not increase the wealth of a nation ; so far as it
is indirect taxation, it fetters its growth by re-
distributing its wealth in the wrong way, giving
to the rich and taking from the poor. But this
hurts us, for these nations are our customers,
XV. BLUFF 143
and our exports depend on their purchasing
power. It is not only, then, that we are not
allowed to send them so much as we would, but
that they, not being so rich as they might be,
have not so much to send us. We are doubly
injured by protective tariffs.
But this Protection is the settled and believed-
in policy of other nations. It is a pity, perhaps,
that they were not content that we should remain
the " workshop of the world." But they were not
content. They determined to be manufacturing
nations. At great cost, as we believe, they have
made themselves so by Protection, and, rightly
or wrongly, they consider that their manufacturing
still needs the protection of high tariffs. And
before we try to break down these tariffs by
Retaliation, I should like to be sure that we are
not going to make things dear in this country,
and so inflict a third injury on ourselves all to
no purpose. Certainly we shall expose ourselves
to the ridicule of the protected world as well, if
we have no thought-out policy of how to retaliate
beyond the expedient of Bluff.
But, so far as I can see, the only part of Re-
taliation for which we are prepared is the threat
of it. So great is the power of the British Lion's
roar that it even seems enough to show that he is
opening his mouth ominously. Suppose the other
beasts of the forest do not fall down and creep
to his feet, what then ? Would it not be better
to change his mind ? It will scarcely be digni-
fied to pretend that he was only going to yawn.
CHAPTER XVI.
DUMPING.
We cannot object to the import of " naturally cheap " goods. But
the double 7notiopoly of Trusts, dumping their surplus, presents new
features, the most serious being that the dumping is intermittent,
Biit (i) it has compensations, not so juuch in cheap goods as in
cheap material for many of our industries — a Nemesis which the
dumping coufttries are beginning to notice. And (2) its extent as
yet seems exaggerated; ^^ duf?iping" is often blamed for inability
to compete when ^^ inefficiency''^ would be a bettei- word.
We do not and cannot object to the importation
of cheap goods as cheap goods. Our fruit growers
may find it hard when the weather is more
friendly to France than to us, and the imports
of French fruit prevent them raising their prices
to compensate for a short crop at home ; but
this is an incident in Free Trade. We have not
refused cheap wheat, although it meant ruin for
many agricultural interests. Nor shall we object to
Belgian iron or American steel if the reason of their
coming in is that they are more cheaply produced
in Belgium and America than they are here. Show
us, in short, that cheap goods mean " naturally
cheap goods," whether the cause of cheapness lies
XVI. NATURALLY CHEAP GOODS 145
in better natural resources, in better labour, or in
better organisation, and we shall accept them —
just as we should never have signed a Sugar Con-
vention if it had been the case that beet was, by
nature and not by subsidy, a cheaper sugar than
cane.
It would, indeed, be rather unreasonable if, after
having for years pinned our faith to a policy based
on the international division of labour, and deluged
foreign markets with cheaper goods than they
could make for themselves, we should now
object to the import of their naturally cheap
goods. As a fact, England went far beyond
" natural cheapness." We very often sent our
goods to other countries at a loss — either a loss of
profit or an absolute loss. I have known articles
sent to India year after year at half the home
price, in order to accustom the natives to the
goods, with the view of ultimately raising the
price to a paying level. In this we did nothing
more internationally than we do nationally. If
any home manufacturer wants to introduce his
goods, the " natural way " and the first thing he
does, is to sell them cheaper than other people.
If a man wants to "get in" to the London
market, he will sell his goods there under the
price at which he sells them in Glasgow, so long
as he is not afraid of their being brought back
and underselling himself And it was generally
safer to undersell abroad, for goods would not
usually pay the carriage back. We could not,
then, in reason, complain if foreign producers
treated us in the same way.
K
146 TRUSTS AND KARTELLS chap.
But, a few years ago, there appeared, in several
countries, the phenomenon known as the Trust
or Kartell. This phenomenon altered things very
considerably, and made a good many of the old
arguments against Protection not quite up-to-
date.^
Twenty years ago, Fawcett could say : " The
amount of manufactured goods which is sent
from America to England is so extremely small
that it could make scarcely any difference if
this particular part of the trade between the two
countries were to cease altogether." And again :
" No single case can be brought forward in which
English trade suffers, to any appreciable extent,
by foreign products underselling in our own
markets the same articles of English manufac-
ture." 2 This could scarcely be said now.
^ The Continental Kartells are looser forms of combination than
the Trust. The constituent firms, retaining their separate organisa-
tions, sell to a central agency, the output and the price being both
fixed. The methods in which Kartells are formed and worked are
not always similar, but the principle is generally the same — the
regulation of prices, by curtailment of home production and so of
home competition. The way in which this system affects other
countries is most clearly seen in the Austrian Iron Kartell. Here each
constituent member is limited in the amount which it is allowed
to produce, but "in the contract of limitation are not reckoned
products which are exported, either by being sold directly into the
foreign country, or through being sold to manufacturing establish-
ments {e.g. manufacturers of wagons or locomotives), and by them
used for export." Thus large production and cheap production are
secured ; and, even if the maker makes nothing on what he exports,
he gains an extra profit on what he sells to or through his Kartell.
See the exhaustive memorandum in the Board of Trade Blue
Book, p. 297.
"^ Free Trade and Protection, pp. 75, 83,
XVI. THE DOUBLE MONOPOLY 147
A Trust, in itself, is quite unexceptionable. It
is simply the amalgamation of a great number of
businesses, to get the well-known economies of
large production. The one great firm does all
the business that was done formerly by the
smaller firms then in competition ; only it reduces
costs in a dozen ways.^ The danger of Trusts, of
course, is that they become monopolies, and use
their economies not to reduce prices, but to make
excessive profits. But a Trust, under a Protec-
tive system, is a double monopoly. In virtue of
Protection, it gets rid of competition from outside,
and, in virtue of being a Trust, it has got rid
of competition at home. There is thus every
encouragement and motive to keep its prices
high and its profits high. But the largest Trust
can do so only up to a certain point. It is, after
all, no more than a producing unit. There is a
limit to the consumption of everything produced :
there comes a point in production where any
further output can be got rid of only by reducing
price.
Take, merely for purposes of illustration, Motor
Cars. When the price is, say, i^8oo, only a
comparatively few people will buy motor cars.
Suppose the price should come down to ;^5oo,
it will probably not much increase the demand.
If, however, it came down, say, to ^250, the
demand might easily double. Suppose, then, a
Trust has started this manufacture : its interest
is to make cars as cheaply as possible, and, the
^ On the whole question, see my paper on " Industrial Trusts" in
Xht Journal of the Society of Arls, ]din. 16, 1903.
148 . DEFINITION OF DUMPING CHAP.
larger the trade, the more cheaply it can produce.
But there is this limit I speak of. If it produces
more than will be taken off its hands at ;!^8oo,
it will not be able to sell appreciably more unless
it reduces the price to ;^2 5o. So what happens
is, that it makes more cars than it can sell at
the high figure in the protected country ; but
sells abroad the surplus it cannot sell at home
without bringing down the price. Thus it may
pay quite well to sell the surplus cars abroad at
or under cost, while it sells the limited number at
home at the high price : the gain being in the
cheap cost consequent on making the larger
quantity. This is the phenomenon to which the
term " Dumping " seems now to be confined :
where a protective system enables makers to
charge an artificially high price and obtain arti-
ficially high profits in the home market, and to
sell their products abroad at or under cost.^
This is freely called " Unfair Competition." It
is a special grievance of a free-trade country.
It looks like an abuse of our hospitality. The
^The expression "at or under cost " may very well be objected
to. Total Cost in a producing unit includes, roughly, Fixed
Charges and Running Expenses. A manufacturer, unless he is
selling in agreement with others at a fixed price list extending over
all markets, very seldom distributes his fixed charges proportion-
ally ; he adds to some goods, or in some markets, more of the fixed
and less of the running expenses, and he may, indeed, lay the
whole of the fixed charges on certain goods, or certain markets,
selling in the others at what is usually called Prime Cost. So, if a
manufacturer sells some goods at high prices and others at low, it
may be questioned if he is selling "under cost," so long as, in the
price of his total output, he covers all his cost, fixed and running,
and has his profit over.
XVI. SERIOUSNESS OF DUMPING 149
protected country, on the one hand, forbids our
entry to its market, and, on the other, comes into
our market, and undersells our makers in virtue
of the tax it is enabled to levy on its own
countrymen. It is not that such countries com-
pete with us in neutral markets ; it is that they
invade us in our own market under the en-
couragement of a kind of bounty.
Dumping, then, depends on two things — on
Protection and on the Trust. Without Protection,
the Trust, as an economic producer, would be
formidable enough, but it might be met by similar
economic combinations on our side. And, with-
out the Trust, Protection would scarcely allow the
manufacturer to dump, as there would generally
be enough competition at home to prevent mono-
poly prices and profits. It is this combination
of evils that we have to reckon with.
Dumping is a very serious thing for the home
manufacturers whom it affects. I am not con-
vinced that we should welcome it from any point
of view. I have heard it said : — " If anybody
would dump . me my breakfast every morning
for nothing, I should only feel grateful." This
seems to me rather short-sighted. Timco Danaos
et do7ia ferentes.
If we knew that, for all time, some kind
foreigner would send us our pig iron and steel
sheets 50 per cent, under our price, we should
know what to expect, and no one in this country
would make pig iron or sheet steel. But what
we know is. that this dumped supply will be
I50 ITS INTERMITTENT CHARACTER chap.
intermittent, and that it will remain cheap only
so long as we continue making the same goods.
Its uncertainty is its evil. When other countries
are prosperous, little comes in, and our makers
get a decent price ; when those countries are
depressed, in come the dumped goods, and wipe
out the profits. I can scarcely believe that this
intermittent underselling is a good thing for us.
It is not a spur to invention and economy. I
hesitate, indeed, to call it " unfair competition."
But it is not competition that can be counted on
and prepared for. No watching and economy of
costs will meet it. At any moment, a manufac-
turer may be put on short time, because a good
line is snatched from his fingers by a foreign
firm which wishes to get rid of its surplus.
But, as the dumping is intermittent,^ em-
ployers do not sacrifice their fixed capital and
change their trade. They hang on, hoping that it
will stop. They go on short time — which means
waste of fixed capital, waste of organisation, waste
of labour. Similarly, workers do not change into
other trades. They put up with the short time,
hoping that it will be short. And short time
^ See, for instance, the statement in the Board of Trade Blue
Book, page 326: "The details given in the appendix show that,
while the manufacturers of this country were free from the com-
petition of American iron and steel in 1899, the first months of
1900 saw the United States begin an invasion of the British market,
which was carried on with remarkable energy until the early part
of the following year, after which this campaign came to an end."
But the United States Steel Corporation has just now announced
its intention of selling steel rails abroad at $20 per ton, while its
price at home is $28.
XVI. COMPENSATIONS OF DUMPING 151
is wasted time. Our manufacturers may deserve
well of the community. They may have done
all that men can do : kept profits low and prices
low. It does not seem healthy that, for no fault
of theirs, they should now and then be thrown
idle. If there had been makers of manna among
the Israelites, who had specialised and sunk their
fortunes and energies in supplying their fellows
with the morning bread, I think they would
have had something of a grievance even against
high Heaven that sent it for nothing.
On the other side, however, there is a good
deal to be said.
I. Dumping has compensations. One re-
members the argument used against doing any-
thing to check the Sugar Bounties ; not only that
we enjoyed cheap sugar for home consumption,
but that, on cheap sugar, was based a new group
of industries — Jam, Confectionery, Biscuits, Con-
densed Milk, and others — employing larger
numbers than Sugar Refining ever employed.^
^ A good deal has been made in controversy of the threatened
destruction of our "primary" and "staple" industries. "Free
imports have destroyed sugar refining," said Mr. Chamberlain,
"one of the great staple industries of the country, which
it ought always to have remained. . . . Sugar has gone ; let
us not weep for it : jam and pickles remain." The sarcasm takes
a good deal for granted. It may be questioned whether sugar
refining was ever more than a local industry, and whether it was
one which we could expect to keep. It may be questioned whether
a few large staples are a healthier basis of prosperity than a great
many smaller ones — particularly as regards exports. It may be
questioned whether any peculiar sacredness attaches to a " primary"
industry which begins with raw material as compared with an
152 THE NEMESIS OF DUMPING CHAP.
So now the argument is, not so much that the
consumer gets cheap goods, as that other pro-
ducers get cheap raw material. The steel maker
cannot be expected to rejoice in dumping, but
the shipbuilder, the galvaniser, and the tinplate
worker openly do.
There is an almost ludicrous Nemesis in the
compensation. America makes her own tin
plates excessively dear, and spoils her own trade
in canned goods. At the same time she dumps
cheap steel into South Wales. Our tinplate
manufacturers, in consequence, send out cheap tin
plates to Germany, Russia, Australia, and Canada,
and give them a hold on the canned fruit and
meat trade which otherwise America might have
kept from them. It reminds one of a besieging
army smuggling ammunition and food into the
beleaguered town.
. The Board of Trade Blue Book, quoting our
Consul-General at Hamburg, says that there are
four surveyors from Lloyd's Registry stationed at
Diisseldorf to superintend and standardise the
shafts and other heavy iron forgings which are
being sold to English shipbuilders at cheaper
prices than they are to German. So Germany, at
great expense, is doing all she knows to establish
a shipbuilding and shipping trade, while her own
manufacturers are giving us the materials for
underselling her. It is playing our game as
"inferior subsidiary" one which begins with partly manufactured
material. And it may be questioned, in the present case, whether
sugar refining ever employed as much capital and labour as the
group represented by "jam and pickles" does.
XVI. A LITTLE PATIENCE 153
effectually as if Germany sent her best football
players to play for us against a German team ! ^
In face of this Nemesis, then, even if we
consider that the compensations do not out-
weigh the injury, it would be well to have a
little patience. It is not unnoticed in Ger-
many at least. Even protectionist Chambers of
Commerce are complaining, in so many words,
that " cheap German exports of materials make it
possible for firms abroad to offer serious competi-
tion in Germany." Suppose we found that our
Clyde steamers were being built in Germany
because our Lanarkshire steel makers were sup-
plying that country with plates cheaper than
they would supply to Glasgow, we should, I
think, have something to say. But this is what
is happening with the Rhine steamers. " The
building of boats," says the Board of Trade
Blue Book, " for the Rhine river navigation has
passed over almost entirely to Holland, because
the works in the Rhenish Westphalian district,
producing heavy plates, deliver in Holland at
lower prices than in the interior of Germany."
Evidence, in fact, is accumulating that this selling
of material below cost to the industries of a rival
country is pulling down with one hand what is
being built up with the other.
^At the annual meeting of the Palmer Shipbuilding and Iron
Company in 1903, the chairman, announcing a large increase in
their exports to Germany and the United States, said that, for the
past three years, the firm had purchased in Germany steel castings
and forgings at 30 per cent, below English prices, built them into
ships and machines, and sent them back to Germany.
154 EXTENT OF DUMPING chap.
II. The amount and value of the goods dumped
is not, as yet, very serious.
It cannot have escaped notice that the word
Dumping is being appHed very loosely ; that
everything coming in from abroad cheap is said
to be " dumped," from aliens to French plays.
It is not correct, according to our definition, to
speak of Belgian joists, girders, rails, and plate
glass as dumped ; nor yet of the light-blown glass
and chemical apparatus from Germany : if we
say that such imports are dumped, we must
admit that we ourselves deserve the name of
the " champion dumpers" of the world.-^ It would
be well, then, to remember the statement of the
Board of Trade in 1902, as regards the imports
from the United States and Germany, in a
Meuiorandmn on Comparative Statistics : " The
increases have been comparatively small in
amount, and there is nothing which can in any
way be described as an inroad on our home
market. "
It is, of course, from our iron and steel in-
dustries that we hear most complaints about
dumping. Germany exports to us pig iron,
blooms, angle iron, girders, rails, rolled wire,
rolled tubes, wire nails. America exports pig
iron, iron pipes, bars, bedstead angles, steel,
ship plates, rails, boring machines. Most of
these are products of Kartells and Trusts ; but,
^ I have heard an east coast fanner say that he was suffering from
the dumping of German potatoes. Considering that he was a seller
of that highly- favoured monopoly article, the Dunbar red-soil
potato, the complaint seemed to nie rather suggestive.
XVI. IN IRON AND STEEL 155
considering the cheapness of coal and trans-
port, and the difficulty of getting comparative
prices — German bars, for instance, have often been
of inferior quality — it is impossible to say what,
and how much of them, are, properly speaking,
" dumped."
The total value of the iron and steel trade
of Great Britain, Mr. Hugh Bell tells us, is
something between ;^i5o and £160 millions.
Of this very large total, i^iSf millions come
as imports ; the remainder is home produced.
Of this p^i5| millions, ;^8 millions come from
Germany, Holland, and Belgium. " Is this paltry
quantity," he asks, " going to destroy the whole
of our great industry ? In the year in which
they sent us the ;^8 millions, we sent them
£6\ millions of similar articles. In the same
year, we sent America upwards of ;^io millions
of iron and steel. I should be interested in
knowing," he continues relentlessly, " the names
of firms whose liquidation has been due to
foreign dumping. I know of none, but I do
know of many who would have had the greatest
difficulty in weathering the bad trade of the last
three years had cheap foreign steel been denied
them."
It almost seems that the iron and steel
makers who most complain of dumping are
crying out before they are much hurt. Like
many, perhaps most, manufacturers, they would
welcome Protection, restriction of competition,
and high prices ; and one may expect to hear
them saying that the future contains terrible
156 AN OBJECT LESSON chap.
possibilities.^ But when official returns tell us
that, in 1891-2, the gross income returned to
Income Tax as " Profits of Iron Works," was
^ It would not be fair to quote any single case unless the facts had
been examined in the fierce light of the public press. But the fol-
lowing, which was discussed for weeks, may be taken as an
instance. Mr. Joseph Brailsford, the Chairman of the Ebbw Vale
Steel, Iron, and Coal Company, wrote an alarmist letter to Mr.
Chamberlain, which Mr. Chamberlain sent to the Thnes on 31st
November, 1903. In this letter, he said : " It is only a matter of
a few months before the English steel makers will be crushed out of
existence, and the English market will be at the German's mercy."
He was promptly reminded that, in the years when dumping was
unknown, before 1892, his firm had paid practically no dividend ;
that, in the eleven years since, it had paid 4I per cent., and in the
present year, 5 per cent. — which, he had said, considering that
their stock stood at £2, in 1892, and at;!^; now, was equal to 15 per
cent, to the great majority of the shareholders. Mr. Brailsford
replied that his Company made its profits by coal mining as well as
by iron and steel making, and that it was only the steel that was
hurt by dumping. Then his own words were brought up against
him : that, in coal, the improvement in gross profits was ;^49,ooo,
while, in steel, the improvement was ;^84,ooo. Further reference
to his Chairman's speech of June, 1903, showed that, in 1892, " the
concern was insolvent" — "on the verge of bankruptcy" — its
•' machinery and rolling stock fallen into disrepair " — its steel plant
"entirely obsolete." Since 1892, when the new management
came into power, the net profits, which for ten years before had
shown an average of ;i{^Soo a year, had jumped to ;i^5o,ooo a year
for the last eleven years — to say nothing of a trifle of ;i^25o,ooo laid
aside out of net profits, during these eleven years, to reserve and
improvement account. The assets had doubled ; the yearly output
had increased by 40,000 tons ; wages for the last year had increased
by ;i^2000. And, finally, he recommended an expenditure of
;if 150,000 on new plant.
When a responsible gentleman says that the steel industry in
England will be crushed out of existence within a year, and yet re-
commends a new expenditure of ;^i 50,000, it reminds one of nothing
so much as the action of the late Mr. Baxter, who prophesied that
XVI. INEFFICIENCY MORE TO BLAME 157
under ;^3, 000,000 ; in 1 900-1, was nearly 5 J
millions; and, in 190 1-2, was ^6,000,000, one
is tempted to say that the iron and steel trade
is a very majestic ruin.
There are, undoubtedly, a good many concerns
which are heavily hit. But when so many others
are doing well, one suspects that the causes of this
may be found nearer home. It has been said of
textile factories in America that no firm can
compete which is not content and able to put
in new plant every ten years : perhaps, in
view of modern improvements and changes of
process, the unwillingness to make rapid and
expensive changes may explain the general
statement that " our iron trade is in a bad
way." South Wales certainly needed a lesson.
Its mills were, many of them, ill-situated, in
valleys far away from the sea and dependent
the world was coming to an end within twelve months, and took a
new lease of his house for twenty years !
The instance points a moral. There is not the slightest doubt
that great employers like Mr. Brailsford and Sir Thomas Wright-
son — who said the same kind of things before, and met with a
similar rejoinder, that in five years his concern had paid dividends
to the amount of three-quarters of its capital — are perfectly
honourable men. They think their case so clear that they do
not hesitate to put it before the nation and to ask Protection.
The case is examined from all sides, and the verdict is, at least,
Not-Proven. But if these same gentlemen had been living under a
government which was very willing to lend its ear to those who cried
out before they were much hurt, and could have put their case,
thus persuasively and strongly, before their representatives and
before members of the Cabinet who had not the means of checking
their statements by cross-examination or public discussion, is it
not in the highest degree probable that they would have got
Protection ?
158 DUMPING NOT A chap.
on single railways ; and many were " family
affairs," "seething in corruption and bristling
with abuses," as the Ebbw Vale Company
itself was eleven years ago. The future
course of this industry must be in the direction
of consolidation, amalgamation, and economy.
We can only meet gigantic Trusts like the
American Steel Corporation by combinations at
least large enough to secure the same efficiency
— and, remembering that, beyond a certain point,
size is a weakness and not a strength, this
should be quite possible. Certainly, regret it or
not as we may, the day of the small iron and
steel maker is as much past as the day of the
small miller.
Two facts should not be forgotten. The first
is that, except where it is the "selling off" of
practically bankrupt stock, as has been the case
with Germany for the last two years, dumping
is possible only where it is a small proportion
of the total output that is thus sacrificed.
"You can afford to sell lo per cent, of your
make at a loss if you thereby reduce the
cost of your whole production by an amount
greater than the loss on the lO per cent.
But this proposition cannot be true if you are
consuming lO per cent, and dumping 90 per
cent., and the advantage of dumping disappears
long before you have got anything like these
figures." ^
The second is that, where there is any con-
siderable elasticity of demand, it would generally
1 Mr. Hugh Bell, in Spectator, 1st November, 1903.
XVI. PERMANENT TRADE POLICY 159
be more profitable for the Trust to reduce its
prices and sell all its output at home, than to
sell a smaller quantity at home at a high price
and sacrifice the surplus abroad. There are com-
paratively few things for which the demand would
not increase in greater proportion than the reduc-
tion of price.
These two considerations seem to suggest that,
annoying and depressing as it is, dumping can
scarcely be considered an established trade policy
of other countries.^
1 " Some of us may easily be misled into supposing that a Cartel
or Syndicate is created for the express purpose of dumping. No
doubt the severe economic depression of Germany during the years
1900-2 (caused by over production) forced the syndicates into their
export policy for the purpose of relieving the congested home market.
But that was an incident, like the blood-letting of an apoplectic
patient. The real object of German Cartels is to proportion pro-
duction to the market demand, and so to avoid overproduction. In
other v^fords, the Cartels exist to do away with the necessity fur
dumping, so far as human foresight can do it. The dumping is not
calculation, it is mis-calculation." — C. H. Oldham, in current issue
of the Jou7-nal of the Statistical Inqtmy Society of Ireland. Mr.
Oldham calls attention to the latest development of the Kartell
system, the syndication of syndicates, in the Steel Works Association
now being formed for the whole of Germany, and already signed
by all but two of the great groups. " What has brought about this
Association seems to have been the necessity of doing away with the
dumping policy of the syndicates controlling raw materials (coal,
coke, pig iron, and half finished steel products) by which German
home manufacturers of finished iron and steel goods have been placed
at a disadvantage as compared with foreign firms in the exploitation
of the mineral resources of Germany."
CHAPTER XVII.
RETALIATION ON DUMPING.
We cannot very well ask a foreigii government to stop its indivi-
dual citizens doing in foreign trade what it cannot stop them doing
itt home trade. We know how underselling is met in home trade —
by similar underselling. But the only retaliation yet proposed
against miderselling nations is the imposing of Import Duties here,
and this, surely, is merely a defensive measure. Will this, however,
cure dutnping in our case wheti it has not cured it elsewhere ? But,
once adfnitted that dumping constitutes a claim on government protec-
tion, whei-e are we to stop? And who or what is to define what
' ' selling at or under cost " means ?
Granting, however, all the compensations of
Dumping ; granting that it is more harmful to
the nations that dump than it is to us ; and grant-
ing that the extent of the dumping is small : let
us assume that the actualities are so annoying,
and the possibilities so great, that we must seek a
remedy. In the present chapter, then, we shall
consider Retaliation as the proposed remedy. We
premise, as before, that we have no thought or
intention of protecting home industries ; that we
are Free Traders in theory, and mean to return
to Free Trade in practice whenever we have
attained the end aimed at.
XVII. DUMPING NOT A NATIONAL POLICY i6i
Is it duly realised that Dumping is not a
government policy like a protective tariff, but a
thing done by the individuals of a nation as one
of their business methods — "unfair" competition,
perhaps, but still individual competition ? It is
not even a bounty ; it is only an indirect result
of two things, the government policy of Protection
and the private Trust.
In other words, protective duties by them-
selves are part of a specific government policy.
We can fight them either by free imports,
as Cobden advised us to do, or by another
government policy, namely, counter protection.
But this dumping is not an organised attack
of the American or German nation on the
English ; it is not, indeed, a thing recognised
by the American or German nation at all : it is
an act done by individuals, by Trusts or Kartells,
in their own self-interest. What happens is that
some individual foreign exporter, for one reason
or other, offers goods for sale in this country to
some individual firm of importers at a low price.
All the nonsense one hears about dumping as a
" national conspiracy," is derived from that falla-
cious idea which thinks of another nation as an
industrial unit.
When, then, we find our trade interfered with by
foreign Trusts and their policy of dumping, are we
to go to the Government of these countries and say,
" You must stop this or we shall — do something " ?
Why, the American government is as convinced as
we are of the evils of Trusts, but it can do nothing ;
it cannot even prevent one State dumping in
L
i62 RETALIATION BY IMPORT DUTIES chap.
another State. Is it reasonable to ask it to muzzle
its Trusts when they affect us — to stop this in-
ternational dumping — to prevent underselling in
other countries, when it cannot stop underselling
at home ?
In what way, then, isthe proposed remedy to be
worked ? What the merely academic person, who
assumes that words have a meaning, understands
by Retaliation, is "hitting back," and, from long
experience of a trade where cutting of prices was
one of the commonest incidents, I venture to say
that this is what the business man means by it.
The " negotiation " to which I was accustomed
usually took this form : " You are underselling
us in X, where you have a small trade and we
have a large one. It doesn't hurt you much,
but it is serious to us. If you don't stop it,
we shall go to Y, where you have nearly all
the trade and we have very little, and cut prices
30 per cent, or so. This won't hurt us, but it
will be very serious to you." This was Retalia-
tion ; and, as between a large firm and a small,
it was very effective. There was simply no answer
to it — on the part of the small one. As between
two large firms, however, it usually involved a
bitter war of cutting prices, much bad feeling,
and great loss to both parties and to the whole
trade.
But, being curious to find out if the advocates
of international retaliation meant this or anything
like this — if, perhaps, they contemplated some
method of government subsidy by which we
could attack some large, and therefore vulnerable
XVII. IS PROTECTION OF HOME INDUSTRIES 163
and sensitive trade of other nations, without much
hurting ourselves — I put this question in a letter
to several of the leading newspapers last autumn :
How is our Government to take effective measures
against the actions of individuals not recognised by
their Government ?
The answer I got was the answer I expected — ■
that the way to stop dumping was to put a tax
on the dumped articles.
Precisely. But why is this called Retaliation ?
It is not " reprisals " ; it is not a counter attack.
It is simple defence. America and Germany
dump steel on us ; we are to answer by
putting a duty on American and German steel.
May one ask in what this differs from what
we used to call Protection of the steel industry ?
If it differs in nothing, then I submit that
the retaliation has overshot its mark. It stops
the "unfair" competition, but it does a great
deal more. It presumably aims at securing our
manufacturers against loss, — against being obliged
to meet dumping, and bring down the home
prices to, or under, cost. What it does, is to
secure them in a quasi-monopoly profit, by
giving them the power to raise the price of
home steel by something under the amount of
the retaliatory duty. What I think we must ask,
then, is : Is Mr. Balfour's Retaliation, after all,
anything different from Mr. Chamberlain's undis-
guised Protection of home manufactures ?
The next question is fairly obvious : Will this
stop dumping ?
i64 WILL THIS STOP DUMPING? chap
Why should it? Suppose we put a lo per
cent, tax on foreign steel, it is pretty certain that
our price in England — the price of home steel as
well as the price of imported steel generall}- —
will go up, either lo per cent, or a little less.
Say it goes up lo per cent. Then we shall be
precisely as we were. The foreigner will dump
his steel at lo per cent, higher price than he did
before, but he will be as much under our price
as before. In other words : If our home price
for steel is lOO, and America has been dumping
at 90; then, if our price goes up to iio, the
American will dump at 100, will still be 10 per
cent below our price, and will not make a
farthing more sacrifice.
It would be different if, when the 10 per cent,
duty was put on, our steel makers kept their
prices unchanged. Then the foreigner who meant
to undersell as before would have to pay the 10
per cent, duty, and would be 10 per cent, worse
off than he was. But it is more than human
nature to suppose that the price of home steel
would not go up. Suppose it went up only 5 per
cent. Then the foreigner would have to sacrifice
5 per cent, in addition to what he sacrificed
before in dumping. This would make dump-
ing a little more expensive, but I am by no
means convinced that it would stop it. Whether
it would stop it or not, depends on the pro-
portion of his home trade to his dumping
trade. If the home trade is 96 per cent, of
the whole output in the United States, as Mr.
Carnegie says it is, then it might pay to send
xvn. PROTECTED COUNTRIES CANNOT 165
away the other 4 per cent, to be sunk in the
sea.^ It paid the Dutch East India Company in
past times to destroy some of its produce, and even
some of its plantations, rather than sell the pro-
duce too cheap. It used to pay Billingsgate to
destroy its fish rather than let the surplus spoil
the market and bring down prices. Similarly, it
might pay America to get nothing for her surplus
if the surplus is a small proportion of the total
output.
But, as it happens, we have an instance of what
a 10 per cent, import duty cannot do. Belgium
has a tariff, not of 10 per cent., but of some i 3 per
cent, ad valorem. The imports of wrought iron and
steel into Belgium were 6,885,000 kilos in 1891 ;
13,223,000 kilos in 1900; 21,423,000 kilos in
1 90 1.- These imports were, I believe, dumped
from Germany. How did Belgium save herself?
In the Consular Report, No. 3104, on the state of
Belgium in 1902, Mr. Hertslet says: "The iron
and steel industries suffered, not only from local
over-production, but from that in the neighbouring
countries. A market, however, was found for a
large quantity in the United States. The crisis
was thus averted, and the end of the year saw a
general improvement."
^ The Census statisticians say 93 per cent. Giving the figures for
1900 as follows : — Agricultural products, £^y^ millions ; manufac-
tured products, £2(iOQ millions; mining products, £,2\o millions
—total, ;f 3760 millions ; they add: — "This was all consumed at
home, except the sum of ^^275 millions, or about 7 per cent., repre-
senting the value of all articles of domestic merchandise exported in
the year 1900.'' T'uelfth Census of U.S., 1900, vol. vii., p. Iviii.
'^Foreign Statistical Abstract, p. 98.
1 66 THE RETURN TO PROTECTION chap.
Here, then, is a much needed correction of an
ordinary assumption ; that we, as the great Free-
Trade country, are " the one dumping ground of
the world." ^ In the above case, we have first Ger-
many dumping wrought iron and steel into Belgium
— a protected country — and then Belgium saving
herself by dumping her iron and steel into a much
more heavily protected country. Similarly, we find
from the Board of Trade Blue Book, that Germany
dumps coke into Austria and France, and coal
into Holland and Belgium ; and that Bohemia in
turn dumps lignite into Germany " at any price
obtainable." Finally, we hear that German manu-
facturers are in a panic at the promised invasion
of the United States Steel Trust.^
What it all comes to is ; — that this Retaliation,
which was to prevent dumping, and may or may
not do so, is to end in Protection of the iron and
steel industries, and, as a probable sequence, the
formation of Trusts on the American model. Our
steel makers are to have the privilege of making
steel dear at home, and the second privilege
of selling it at or under cost to other countries,
our rivals. And the Times, in its issue of 5 th
December, 1903, confirms this by telling us that
" an average 10 per cent, duty may be reached by
charging 100 per cent, upon some, 50 per cent.
^The words are Mr. Chamberlain's.
^ This possibility of dumping into other countries may remind us
that, if the dumping is diverted from us to neutral markets in which
we compete, any success we may have in excluding dumped goods
from our own country will not necessarily protect our exporting
industries at any rate.
XVII. WHAT IS ''COST PRICE"? 167
upon others, i 5 per cent, upon another category,
and nothing at all upon the remainder," and that
the principle upon which Mr. Chamberlain would
act is, that, "when the Germans charge 30 per
cent, upon steel bars, he would put the business
on a free-trade footing {sic) by putting the same
duty on German bars." It reminds one of the
simple-minded proposal of some people, that we
should "let other countries make our tariff for us,"
by putting on their goods precisely the duty they
put upon ours !
If, however. Protection is the only remedy
for Dumping, we may well hesitate. A man
may be suffering from a slight cold, but may
object to take a medicine that will throw him
into fits.
The moment we admit that Dumping is a
claim for counter duties, we seem to have taken a
long step and a perilous one. At what stage in
the dumping is the aid of the State to be
invoked ? Is it when a thousand tons have
been dumped, or a hundred thousand, or a
million ? Surely, a smaller trade may be ruined
by dumping before any large figure is reached.
Or are we to stop the danger before it emerges,
by putting an "average duty of 10 per cent."
on all manufactures ?
And who is to decide what is Dumping, as dis-
tinguished from " fair competition " ? Is it selling
at cost ? — or under cost ? — or far under cost ?
What is " cost " ? When students in a Political
Economy class have got the length of answering
i68 EVERY CLAIM WOULD REQUIRE chap.
that question, they have very little more to learn.
Even economists are not agreed as to what
elements should be regarded as entering into
" cost " and what should not. The wonderful
ideas of some Municipalities, as to the place,
function, and extent of Depreciation Funds and
Sinking Funds, emphasise this.
Or may one take the rough and ready way of
saying that a country dumps when she sells at a
higher price at home than she does abroad? This,
however, as I have hinted, would be to admit the
contention of other countries that we are the
" champion dumpers," and justify them in retalia-
tion. I cut this out of an interview with a Canadian
woollen manufacturer last autumn: "The outlook
is gloomy. Canadian manufacturers are menaced
by conditions that make it profitable for British
woollen manufacturers to dump their goods
in Canada at prices which the home industry
simply cannot meet. Canada is being used as a
slaughter market."
Finally, when dumping is so glibly spoken of,
has it been considered that low prices are a con-
comitant of large orders, as well as of dumping ?
A million tons of coal will not be sold to Germany
at the price per cwt. here. Who is to determine
that a low price in a foreign country is not due
to the economies of having a large order, or to
a long contract taken at a time when prices were
low?
It is not too much to say that every claim
for counter duties against dumping would require
a Royal Commission to itself. And one can see
XVII. A ROYAL COMMISSION 169
the probable corruption and bribery that would be
let loose to secure this government aid.^
' In the present chapter, I have assumed that Retaliation is
directed against foreign nations. But our own Colonies dump. In
1 901 -2, Germany, Holland, and Belgium together landed 78,615
tons of pig iron on our shores. The United States landed 45,973
tons. Canada, under a direct bounty, landed no less than 103,262
tons. Dumping by kinsfolk is very much the same as dumping by
strangers.
CHAPTER XVIII.
TESTS OF PROSPERITY.
National Income : Patipe^-isni : Wages : Income- Tax returns :
Savings: Banking statistics : Shipping: Import of Raw Material:
Leisure : little luxuries. Measured by all these tests, the count7y is
prosperous and progressing.
Before coming to the more drastic proposals now
before the country, we may profitably ask how the
nation stands as measured by the ordinary canons
of prosperity.
According to the famous calculation made by
Sir Robert Gififen, the National Income, in 1875,
was ;^i, 200,000,000. His revised calculations in
1885 put it at i^ 1, 3 50,000,000. In a paper read
by him before the British Association in 1903, it
was estimated at ;^ 1,7 50,000,000.^ At the other
end of the scale are the figures of Pauperism.
In 1862, 47 persons per 1000 were at some
^ This is the total money income earned by the people of this
country, based on the statistics of the Income-Tax Returns, and on
calculations for other earnings. As to the method in which the
figure was arrived at, see my Distribution of Income, book i. ,
chap. ii.
CH. XVIII. WAGES 171
time or other in receipt of poor relief in Eng-
land and Wales. In 1901, there were only 25
persons per 1000. Or, to take a more adequate
calculation, while population has increased 1 8 per
cent, in fifteen years, pauperism has decreased by
9 per cent.^
First, as to Wages, the earnings of the great
mass of the people. The Board of Trade Blue
Book takes five groups of trades — Building, Coal
Mining, Engineering, Textiles, and Agriculture —
and, going back twenty-five years, finds that
wages have risen, since 1878, in the five groups,
from a figure indicated by 85.27 (or, in the four
groups, excluding Agriculture, from 82.84) to 100
in 1900. Since then, there has been no fall in
wages as regards Building and Textiles, and there
has been a rise as regards Engineering and Agri-
culture. The average, however, has been brought
down to 97.70 by a fall of some I2| per cent,
in the wages of Coal Mining.
This seems fairly satisfactory, especially when
it is remembered how the purchasing power of
money has risen : that 69d. to-day buys as much
as lood. did in the average of years about 1873.
^ Pauperism, it should be noted, does not necessarily go pari
/a5.f« with Poverty. If one might amend Scripture, the statement
"the poor ye have always with you," might be changed to "the
pauper ye have always with you." There is nothing very opti-
mistic in saying that the time is near at hand when working-man
poverty will cease out of the land. But so long as we have drink,
thriftlessness, vice, insanity, and friendless old age ; so long as
there are men who marry, make their wives dependent and in-
capable of working for themselves, and then desert them ; so
long there will be pauperism.
172 INCOME-TAX RETURNS CHAP.
Or, to use another calculation, lood. to-day buys
as much as I40d. did twenty years ago.^
Comparing this with the progress of Germany,
an elaborate calculation in the same Blue Book,
p. 275, shows that German and British money
wages have risen about equally since 1886.
But, in the last twenty years, the purchasing
power of money in German}^ has risen only 1 2
per cent, as compared with 40 per cent, in
Great Britain. That is to say, taking quin-
quennial periods, " in the last five years, a
German worker has been able to purchase as
much food of the kind to which he is accustomed
for 100 marks as he could get previously for 112
marks, while the English workman has been able
to make 100 shillings go as far in purchasing
food as 140 shillings would have gone twenty
years before."^
Take, next, the earnings of the comfortable and
wealthy classes. The following is the comparison
which emerges from the Income-Tax returns;
that is, the incomes which people with over £\^o
of income ^ admitted to the government that they
were earning :
1868-9.
Gross Income,
- i^398,794.ooo
1875-6.
>j
544,376,000
1894-5.
]]
657,097,000
I90I-2.
5)
866,993,000
^ For the course of prices from 1873 till now, see p. 191.
''■Board of Trade Blue Book, p. 226.
^Before 1894-5, incomes over^^iso were taxed.
XVIII. COMPARE PRUSSIAN RETURNS 173
It should be noted that the comparison with
the decade 1868-76 is a comparison with years
of abnormal prosperity.
Confirmation of this is given by the well-known
calculation of what the Chancellor gets for every
penny he puts on the Income Tax.^
In 1872-3, the penny yielded - i^i, 741,088
In 1882-3, „ - 1,962,871
In 1892-3, „ - 2,239,856
In 1902-3, „ - 2,580,000
One must be careful in applying this compari-
son to the corresponding returns of other nations.
It has been asserted that Income-Tax returns in
Germany show even better than ours. But Prussia
taxes incomes down to ^45 : thirty per cent,
of the population show incomes between £\^ and
;^I50: less than five per cent, come under the
assessment over ^^150 — which permits us to guess
how many come under the ;^45-"^ But, as we do
not impose Income Tax till ^160 of income is
reached, and give degressive abatements on in-
comes under ;^700, our Income-Tax returns
witness to the prosperity of the comfortable
and wealthy class only. As regards those whose
income is under i^i6o, the evidence of prosperity
is got from the rise of wages.
Next, as to the Savings of the people. In
1882, Sir Robert Giffen calculated these, as a
^ The later yields per penny would be greater but for additional
abatements made to the smaller incomes.
2 It seems to be the case that about two-thirds of the population
of Prussia, the richest state of Germany, have wages under ^45.
174 FALLACIES OF COMPARISON chap.
whole, at ^200,000,000 per year. In a letter to
the Times of 3rd Dec, 1903, he estimated them
at ;^264,000,000.
The Post Office and Savings Banks deposits
have grown as under: In 1871, ;^5 5 millions;
in I 88 I, ;^8o millions ; in 1891, ;^ii4 millions;
in igoi, £ig2 millions; in 1902, £igy millions.
A very improper use of statistics is sometimes
made in comparing the amount per head of
Savings Bank deposits in protected countries with
that in our own. According to this, Denmark
appears at the top with ;^i 5 lis. 6hd., and Great
Britain at the bottom with £4 2s. 5|d. The
fallacy of the comparison may be suspected on
noticing that France appears second last on the
list, with £4 8s. 8^d. The reason, of course,
is that France limits her deposits to £60, and
Great Britain hers to ;^200, while, in most other
countries, there is no limit. Thus the savings of
the comfortable and richer classes are compared
with those of the working classes.
Such comparisons, too, are of no validity unless
account is taken of the other opportunities there
are for small investors. In a well-banked country
like our own, for instance, it may very well be the
case that people, having risen to thrifty habits
through the savings banks system, may pass on
to invest their money in other things — precisely
as, in the life of the individual, the money box is
exchanged for the savings bank, the savings bank
for the ordinary bank, and the bank deposit for
wider investments. Mr. Brabrook, indeed, called
savings bank deposits "infantile efforts in thrift."
XVIII.
BANKING STATISTICS I75
Unfortunately, though there are very many
ways of investing small savings in this country,
the figures are not easily obtainable, particularly
over periods of time. It is well known that great
numbers of the working classes own their own
houses and house property generally, and hold con-
siderable stock in industrial companies.^ Trade
Union Funds are all working men's money.^ Two
figures, happily, are available. One is the funds
invested in Co-operative Societies. Comparing
the returns for the United Kingdom for the years
ending December, 1891 and 1901, the increase
was from £\6^ millions to £^ol millions. The
other is the deposits in Friendly Societies. Here
the increase is from ;^8 millions in 1871 to i^i4
millions in 1881 ; to £26 millions in 1891 ; to
^43 millions in 1901.
Banking statistics offer another test of pros-
perity. The deposits of all the Joint-stock Banks
publishing accounts show the following advance :
in 1883, -^400 millions ; in i 888, ^^470 millions ;
in l893,;^633 millions; in 1898,^781 millions;
in 1903, ^^834 millions.
The Clearing-House returns — that is the value
of cheques, bills, etc., passed through the London
Clearing House — have increased as follows :
^ The 2000 Building Societies in Great Britain and Ireland have
jQdi millions of funds.
'^The 600 Trade Unions have more than a million and a half
members, and nearly £$ millions of funds. The figures here and
above are taken from the Presidential Address to Section F of
the British Association in 1903 by Mr. Brabrook, Chief Registrar of
Friendly Societies.
176 SHIPPING CHAP.
£df\ milliards in 1871 ; £6\ milliards in 1881 ;
£,^\ milliards in 1891 ; £(^\ milliards in 1901 ;
and ;^io milliards in 1903. Whatever the precise
importance attached to this as evidence, it shows
one thing at least — the universal use we make of
banks. But, for people to make use of banks,
at least shows that they have money enough to
open a banking account, and the figures are, of
course, generally, a witness to the increase of trade
and the position of London as the banking centre
of the world.
The state of Shipping is a test of prosperity
peculiarly significant as regards this country. The
increase in our net tonnage, from 5,690,798 in
1870, to 7,978,538 in 1890, and to 10,054,770
in 1902, speaks for itself, particularly if it is
remembered what the " net tonnage," of a nation,
constantly renewing its mercantile fleet, means
when translated into " carrying capacity." ^
Another test one might apply. It is notoriously
difficult to get any figures of home trade, inas-
much as every man keeps his business secrets
to himself: and yet such figures would give us,
perhaps, the best test of national prosperity.
But we can get at something that lies at the
foundation of many of our industries — the import
^ Statistical comparisons in regard to Shipping are very compli-
cated, and, therefore, very often misleading. See Appendix for a
full treatment of the subject. ('Reprinted, by kind permission of
the Editor, from an article contributed by me to the Glasgcw
Herald of 26th November, 1903.)
xvrii. IMPORT OF RAW MATERIALS 177
of raw material. We can do nothing with raw
material but make it up into finished goods. If
these goods are exported, there is a check on one
employment of it. But if they are not exported,
it shows that the raw material has been used
up by the industries of the country, and remains
in the shape of goods for consumption at home.
If, then, the quantity of raw materials coming
into a country increases, it is as good an indica-
tion as may be of progress in a great many
directions. The following is the increase in
quantities of imports from 1886 to 1901 :
India-rubber, in cwts., 194,000 to 466,000
Copper, in tons, 197,000 to 264,000
Timber, in loads, 5,500,000 to 9,200,000
Cotton, in cwts., 15,300,000 to 16,300,000
Leather, in lbs., 77,800,000 to 148,300,000
But, beyond these formal and statistical tests,
take some not so easily reducible to figures.
Where else are the hours of labour so short ?
Where is there a country that has an almost
universal half holiday on Saturdays and a
universal whole holiday on Sundays ? In what
other nation does one find whole populations of
cities pouring out for a week or ten days in
summer, and spending what must be called
lavishly at coast or country? Or take a little
thing, and therefore all the more significant.
The bicycle is, probably, the most beneficent
invention of the last generation as regards the
health of the people — men, women, and children,
M
178 BY ALL THESE TESTS CH. xviii.
One may go for twenty miles in the popu-
lous parts of rural France, and never meet a
working man riding a cycle. In what part of
Great Britain, outside of the mountainous
districts, would this be possible ?
Such, then, are some of the material evidences
of our prosperity at the present time. Let it be
granted that they are no evidence of national
character, of virtue, even of happiness. At least
they are not evidence of want of character, of
viciousness, of unhappiness. The moral life may
be difficult above a certain income ; below it, it
is impossible : considering how far most other
countries are below our level of income, there
seems no doubt, that we are ahead of almost
every nation in the material conditions of the
Good Life.
CHAPTER XIX.
EXPORTS AS A TEST OF PROSPERITY.
If a country is progressing, its Trade should increase : not
necessarily its foreign trade. Falling exports may indicate fuller
employment of home industries -which do not export, and increasing
exports may indicate Ti-iist dumping or home depression. Free
Trade exports, not being exports of superfluity, are no adequate
gauge of overflo'i.ving abundance.
Among the ordinary tests applied to measure a
nation's prosperity, there is one that has not yet
been mentioned, the Exports. Before discussing
statistics, it would be well, perhaps, to ask what
we should expect, as regards its exports, of a
country which was otherwise progressing.
There is no question that we should expect
such a country's total Trade to increase, for
the very obvious reasons that the number of
mouths to feed is increasing ; that the working
capital — the tools and instruments for creating
more wealth — is increasing far more rapidly ; and
that the Standard of Life is rising, which itself
involves that the wealth we are consuming, and
taking out of existence as wealth, is increasing,
and demands more labour to reproduce it. And
i8o FALLING EXPORTS chap.
if our trade were altogether foreign trade, or if our
foreign trade were, and must be, a constant pro-
portion of our total trade, then, of course, our
foreign trade ought to be increasing.
But, this is an altogether different thing from
saying that a nation's exports, by themselves,
are an}^ adequate measure of its prosperity and
progress, or that the evidence of exports out-
weighs the other evidences. Only a couple
of years ago, it was generally accepted that the
reason why America was not exporting steel, but,
on the contrary, importing it, was the extra-
ordinary demand for steel in America : her great
prosperity at that time was taking the form of
increasing fixed plant, railways, and buildings.
The same was said of us in the early nineties.
We were then so busy that we had relatively
little to send abroad. This was the time when
other countries got their chance. We absolutely
refused foreign orders, not that we did not wish
them, but because we could not execute them.
It is a suggestive reminder of what people
seem so often to forget — that our capital and
labour are limited, and that we cannot possiblj^
continue, at the rate of the world's progress, to
be the world's provider.
So, when one sees falling exports quoted as
a sign of national decay, the first thing to do is
to look around us at home. And when we do so,
and see the enormous development in the trade
called House Building ; when we inquire at the
Local Government accounts and find that the
Local Debt of England and Wales alone — to say
XIX. NO SIGN OF DECAY i8i
nothing of Scotland and Ireland — has increased
from ;^93,ooo,ooo in 1874-5 to ;^3 16,000,000
in 1 900- 1 ; and that ;^ 145,000,000 of that, or
46 per cent., is entered as Reproductive Debt,
this is, capital borrowed for the starting of what
are virtually State Industries ; — the question arises
if it may not very well be the case that the
growing capital and labour of this country are
finding fuller employment in occupations that do
not export. And one may ask, further, if the
vast sums now being sunk in better and more
sanitary housing for the working classes, are not
perhaps a better investment, as regards the nation,
than sending out steel rails to develop other
countries, or sinking gold mines in the Transvaal.
Suppose the vast bogs of Ireland were found to
contain a new fuel, or that new sources of coal,
petroleum, and the like were discovered in this
country, would not capital be withdrawn alike
from exporting and from foreign investments
and be employed at home ? ^
^ So, when Mr. Chamberlain compares the alleged 7^% increase
in our exports since 1872 with the 30% increase in our population
within the same period, and asks, " Can you go on supporting your
population at that rate of increase?" (Glasgow speech, 6th Oct.,
1903), the only rejoinder is, "What necessary connection is there
between exports and the support of the population?" But even
here one may join issue with Mr. Chamberlain. His inference
is that, if population has increased while exports have not, there
must have been less employment for the people. Sir Robert
Giffen, however, reminds us that this is not the case theoretically,
and is not the case as a fact. The value of manufactured exports
contains two elements, the price of the raw materials and the
expenses of manufacture. It is the latter only that indicates and
measures the employment of British capital and labour. Even
i82 WHAT A FREE TRADE NATION chap.
But, if falling exports are not necessarily any
sign of national decay, are increasing exports any
necessary sign of progress ? Look at other coun-
tries. The dumping of iron during the last two
years from Germany, it is acknowledged, was the
dumping of practically bankrupt stock. Yet, no
doubt, it accounted for a considerable increase in
her exports. Is the dumping from America a
sign of her prosperity ? It is a sign of Trusts,
but Trusts and prosperity are not synonymous.
We are told continually that it is in times of
suppose, then, that our manufactured exports, as expressed in terms
of value, have not increased, there has been more employment
for labour and capital if the price of the raw material has fallen.
Now, in 1877, Sir Robert calculated that "the net produce of
British labour and capital exported abroad was ;!f 140,000,000."
According to the Board of Trade estimate for 1902, it is no less
than ;^224, 000,000, the difi'erence being ;^84,ooo,ooo, or 70%
of an advance over 1877, in the part of the exports which concerns
us. This is confirmed by the calculations of Mr. Bowley. He
takes the year 1881 as starting point, "partly for convenience,
partly because by that date foreign trade had begun to recover from
the sustained depression of 1879." Between 1881 and 1902, the
fall in price of the imported raw materials of our textiles was from a
level of 100 to a level of 75, or 25%, while the fall in the price of
exported textile manufactures was from 100 to 84 only, or 16%. In
the same years, the fall in price of imported unmanufactured metals
was from 100 to 96, or 4%, while the exports of metal products
actually rose from 100 to 112. The conclusion seems inevitable
that, even if the values of our exports had remained constant within
these years, the amount of labour and capital employed by them had
greatly increased. — Economic Journal, Sept. and Dec, 1903, and
National Progress in Wealth and Trade. Mr. Bowley's calcula-
tion of and deductions from the changes in price of imports and
exports, and his comparison with the relative figures for Germany,
are among the most valuable contributions which the present
controversy has called out.
V
XIX. EXPORTS IS NOT ITS SURPLUS 183
depression abroad that we may expect dumping,
and that, in particular, the dumping we have
most occasion to fear is that of the United
States Steel Corporation, which is just now pay-
ing off its operatives by tens of thousands. But
this dumping will no doubt increase her exports.
To say that a country is going to the dogs
because her exports do not increase, seems to me
about as reasonable as saying that, if a man does
not go to the Riviera in spring but stays at home,
it is because he cannot afford it !
It is always interesting, and sometimes profit-
able, to ask the hidden reason of some wide-
spread belief Why should exports be counted
the gauge and measure of national progress ? It
seems to be the assumption that what a nation
exports is its Surplus.
In Professor Gide's Principles of Political
Economy occur these words : " It is certain that
for Tyre and Carthage in the old world, and for
Venice or the Hanse Towns in the middle ages,
trade was everything, and even to-day it holds a
very large place in the national life of England.
All the same, in great countries at the present time,
trade with other nations plays only a moderate
part in the general movement of their trade. In
this respect, the position of a country differs from
that of individuals : in our modern communities,
the division of occupation has been pushed to
its utmost limits ; no one of us produces almost
anything except on behalf of his neighbours,
or consumes anything but what has been
1 84 WHAT A FREE TRADE NATION chap.
produced by his neighbours. Thus everything we
produce and everything we consume must pass
by way of trade. It is not so in the case of
a country, and particularly of a great country.
If we wish to compare such a country with an
individual, we should compare it with a landed
proprietor living on his estate, who, himself pro-
ducing the greater part of what he consumes, has
no need of buying outside anything but what he
does not himself produce, and, consuming too the
greater part of what he produces, has no need
of selling outside anything beyond the surplus
of his crops." ^
All this is quite true from the standpoint and
ideal of a protected country. Since the days
of Colbert, France has set before herself the object
of being self-sufficient as regards agriculture and
manufacture. It is the Nemesis of Protection
that her very prosperity makes the realisation of
this ideal impossible ; she has a surplus and
exports it ; and, in spite of all her planning,
the imports which pay for these exports compete
with her home producers and prevent the self-
sufficiency.
But it is equally the aim of a Free-Trade
country to break down these national barriers,
and send its goods for sale anywhere in the world
that it can get a better price than, or even as good
a price as, at home. If, then, we think of our
exports as the sale of a surplus which we cannot
* Third edition, p. 257 ; English translation, p. 237. It is
characteristic of the author's anxious and laborious revision that
the words do not appear in the last (8th) edition.
XIX. EXPORTS IS NOT ITS SURPLUS 185
consume or do not want at home, we shall, of
course, regret to see our exports going down ; for
the exports, in this case, are thought of as the
superfluity of our wealth — the part we can spare
and send away in order to buy other things. But
when it is realised that foreign countries are not
the " dumping ground for surplus," but part of the
one common market of a free-trade country, all
that a diminution of exports tells us is, that we
are not doing so much trade abroad as we did —
which may be a good thing or may be a bad thing.
The point is that a country may gradually find
it more profitable to invest its capital at home, and
that the growing wealth may find full employment
in industries which do not export. If one con-
siders how much of the trained intellect of this
country is finding its way into personal services —
professional, journalistic, artistic, to say nothing of
domestic service — this should be clear enough.
CHAPTER XX.
THE STAGNATION OF EXPORTS.
The statistical stagnation proved by 7'eferefice to 1872 is quite
fallacious ; scarcely less so the comparisoti with the period 187 1-5.
For t/iese were years (1)0/ abnormal expansion and activity, due,
among other things, to the tvar ; {2) of the highest prices, just before
the great readjustment of the price level. True, other nations show
a greater percentage of total increase in statistical exports. But
the only real criterion is exports per head, 7iot per nation ; and here
we have a long lead and are increasing it.
Although we may freely admit that Exports
are not by themselves an adequate gauge and
measure of prosperity and progress, there is a
good deal to cause us uneasiness if our exports
fall off. At least the matter calls for investiga-
tion ; and one might have expected the appoint-
ment of a Royal Commission long before this
to examine and report on it. In 1882, our
exports were ^^14,000,000 under those of 1872.
In 1885 and in 1886, they were ;^43,ooo,ooo
under, and we did not take fright. There was
the further excuse for alarm that these were
years of great depression. But it was recognised
then that times of great prosperity were always
CH. XX. RECURRING DEPRESSIONS 187
succeeded by periods of dull trade. Depressions
were so regular that some people began to connect
them with the appearance of spots on the sun.^
We expected them, and some who were prudent
prepared for them. But when things were very
bright, producers generally went ahead rushing up
mills and increasing output as if the sun would
always shine. Then some trade found that it
had gone, for the moment, beyond the limits of
consumption at paying prices. This trade had to
call a halt, and went on short time ; wages and
profits were reduced ; purchasing power was thus
restricted ; the shops felt it, and curtailed their
buying from the manufacturers ; the manufacturers,
in turn, limited their demand for raw material
and stores ; and, in a short time — no one knew
how — trade was found to be " depressed."
Then, when we had just realised that the
outlook was looking very black, it was suspected
that things had taken a turn. Perhaps relief
works were started for the unemployed, only
to find that the unemployed were finding work
in their usual occupations. And, before we well
knew what was happening, we were going uphill
again, and we heard no more of the depression.
These ups and downs of trade were so common
that .sensible people accepted them as all in the
day's work, and no one thought of blaming
Free Trade for them — indeed, we were all ready
enough to point out how much worse things
were in protected countries. But it seems to
^ Jevons' explanation of the coincidence of the sun spots with bad
harvests is well known.
1 88 STAGNATION OF EXPORTS chap.
be the case that the past wave of prosperity
lasted so long before it broke, and carried us so
far, that we think there is something mightily far
wrong when there begin to emerge even signs of
depression, and we never think of grinning and
bearing it, but call lustily for government to " do
something."
Where, then, is this terrible handwriting on the
wall that tells of coming decay, and " descent to
the rank of a fifth-rate power ? " The answer
given is that, although, by all other tests, the
country is prosperous as it never was before,^ the
Exports are stagnant.
The first thing to do is to look into the facts.
If we go back ten years, our exports seem to
present a fairly continuous growth, from
^^2 1 6,000,000 in 1894 to ;^2 87,000,000 in
1903.
But when the protagonist of the new move-
ment opened his campaign in Glasgow on 6th
October, 1903, he looked back thirty years, and
saw that the increase in exports over 1872 was
the very moderate one of i^2 2,000,000.
^"Judged by all available tests, both the total wealth and the
diffused well-being of the country are greater than they have ever
been. We are not only rich and prosperous in appearance, but
also, I believe, in reality." — A. J. Balfour, Economic Notes on
Insula}- Free Trade, p. 28. Compare Mr. Chamberlain's words
in the beginning of 1902 : " I see no imminent and present danger
to the prosperity of this country. During the last five years we
have enjoyed an absolutely unparalleled condition of trade, and,
although we cannot expect that to last for ever ... to my mind
the prospects are extremely good. "
XX.
SINCE 1872
.89
There is great virtue in round numbers. " Thirty-
years ago " looks so much better in a speech than
thirty-two or thirty-three or thirty-four. But if he
had taken thirty-two years, the increase would
have been, not iJ^ 2 2,000,000, but ;^7 8,000,000.
If he had taken thirty-three years, it would have
been ;^8 8,000,000. If he had taken thirty-four
years, it would have been ^^^99,000,000.
But no statistician would ever take a single
year as his starting point, or compare one single
year with another. To eliminate special causes,
an average of years must be taken. Let us, then,
take quinquennial periods since 1856 — figures
before 1854 not being comparable. This comes
out as follows :
1856-60,
1861-65,
1866-70,
1871-75,
1876-80,
1881-85,
1886-90,
1891-95,
1896-1900,
1901, -
1902, -
1903, -
£124^.2 millions.
144.4
187.8
239-5
201.4
232.3
236.3
227.0
249.1
270.8
277.6
287.0
Here we have a very different story. The
average exports of the last three years are nearly
;^4O,O0O,ooo above the average of the " boom
years" of 187 1-5. For these were "boom
years " in two distinct senses : they were years
igo iSji—iSj^ CHAP.
of abnormal activity, and they were years of the
very highest prices,
I. They were years of rapid expansion, of
immense railway development, of great activity
in the coal and iron trades. But consider, besides,
what was happening in Europe, The proudest
military monarchy in the world had just collapsed.
The Franco-German war began in 1870. Napoleon
surrendered at Sedan within the year. Then came
the long agony of the beloved city, wrecked inside
by its own citizens, and ringed outside with fire ;
and the Third Republic was established in 1871,
The indemnity was ;^200,ooo,ooo, ^40,000,000,
payable the first year, and the remaining
«^ 1 60,000,000 in three years thereafter. In direct
cost, it was a cheap war, says Giffen, although two
great nations carried on unremitting hostilities
against each other for nearly eight months, em-
ploying altogether some 2| millions of men. But
it cost France, he calculates, ;^6oo,ooo,ooo in
permanent capital.^
One can understand that here was an immense
hole left in the middle of Europe which all
nations set themselves to fill up by the pro-
ducts of their industry. In particular, France
set our factories to work, buying our products to
pay Germany. No wonder our exports, which
had risen previously by five to ten millions
a year, rose with a bound from ^200,000,000
in 1870 to ;^2 5 6,000,000 in 1872. Nor was
this all ; while the two nations were at deadly
grips with one another, we slipped in, and
^ Essays in Finance : First Series, I.
XX. SAUERBECK'S INDEX NUMBER 191
took the increase of trade they naturally would
have had.
II. The figures given by the statistics of
export are, of course, Values, and values depend
not only on quantities, but on prices of these
quantities. Let us take, then, the movement of
prices during these years, using Sauerbeck's Index
Number.^
In 1 87 1, the price level was 100. In 1872, it
rose to 109. In 1873, it touched 1 1 1, the highest
point reached since modern prices were established
by the gold discoveries in the middle of the cen-
tury. In 1874, it fell to 102; in 1875, to 96;
^ It may be as well to explain the method of Index Numbers.
Sauerbeck selected 45 leading and distinct classes of commodities,
thus covering fairly the field of human consumption. He collected
the wholesale price of these in England between the years 1867 and
1877, so as to eliminate both the years before 1872 and the " boom
years" of 1872 and 1873. Taking the average price of each article
during these eleven years, he represented it by the figure 100, and
thereafter any rise or fall in its price appears as a percentage figure.
If wheat, e.g., rose from 25s. to 26s., the figure for wheat would rise
from 100 to 104. Thus are conveniently registered changes in the
Price Level. Objection may be taken on the ground that each
commodity of the 45 has as much importance attached to it as any
other ; a rise in pepper affects the price level as much as a rise in
wheat. To meet this, other Index Numbers, such as those of
Palgrave, have been "weighted"; that is, each article has been
given an importance relative to its consumption. Practically, how-
ever, it is found that all Index Numbers differ very little in results,
and Sauerbeck's, which appears each month in the columns of the
Statist, is generally taken as trustworthy. The Index Number
begun by Newmarch is still continued in the columns of the Econo-
mist. For full discussion of Index Numbers see C. M. Walsh,
The Mcasuremait of General Exchange Value, and Professor
Edgeworth's Memoranda in the Reports of the British Association
for 1887, 1888, and 1889.
192 THE GREAT FALL chap.
and from that year it fell fast and heavily till,
in 1886, it was 69. But this was not the
bottom. The lowest year was 1896, when it
touched 61. For the ten years, 1888- 1897, it
averaged 6'], and for the ten years 1893- 1902,
it averaged 66.
This was a stupendous fall of prices. It meant
that, as a whole, every article which sold for
100 shillings, or pence, or pounds in 1871,
was selling in 1896 for 61 shillings, or pence,
or pounds. The fall was due to the inter-
action of two causes. One was the immense
cheapening of costs, by the inventions which
increased the speed and carrying power of ships,
and by the opening of the Suez Canal, which
saved a journey from Western Europe to India
of 3750 miles, and brought goods direct into the
heart of the Continent. This stimulus to pro-
duction and increase of trade gave money more
work to do — just as an increase of traffic
would make a greater demand on railway
trucks. The other cause was that, just at
the same time, there was a great falling off
in the money supply available. Up till 1873,
silver was a full-valued money, used as legal
tender by France, Germany, Italy, Belgium,
Holland, and the United States. It was linked
with gold by the bimetallic system, formally
established at the beginning of the last century,
whereby 15^ oz. of silver were accepted as equal
in value to one oz. of gold practically all over
the world. That system collapsed in 1873,
and silver became no longer the money of
XX. IN PRICES 193
Europe. The whole of the money work had to
be done by gold, plus the credit instruments
superimposed. Unfortunately, the production of
gold did not respond to the call upon it. Its
output, after rushing up to a certain point, rather
fell off. It was not till near the end of the
century that the discoveries in the Transvaal and
Australia began steadily and greatly to increase
the output, and even this was checked by the
Boer War. The result was that the exchange
value of every commodity had to be named in
a smaller number of coins, at the same time that
the number of commodities which had to be
named had enormously increased.
We are still under the influence of that re-
adjustment. Prices went up from 1896 to 1900,
when they reached 75. Then they fell again.
Now they are at 69. That is, the prices of to-day
are practically the same as the prices of 1886.
The impropriety, then, of comparing the values
of exports in 1872 with the values of exports
in 1902, needs no further proof. It is com-
paring a time when prices were at a level of
9s. id. with a time when they were at a level
of 5s. 9d.
Thus "stagnation in exports," between 1872
and now, means that we are sending immensely
more goods than we were, and probably em-
ploying more labour and more machinery to
produce them, while the fall in prices alone
makes this appear as if the increase were
trifling. It is not stagnation ; it is change of
price.
N
194
FALLACY OF PERCENTAGES chap.
This is confirmed by the following cal-
culation. If the prices of 1873 had been
maintained till now, our exports would have
been as under :
1873, ;^2 5 5 millions.
1883, 295 millions, instead of ^240 millions.
1893. 329 » » 218
1902, 418 „ „ 278 „
On these grounds, it must be said that, to
take the year 1872 as the basis of a com-
parison, is utterly unpardonable ; at least, it
would be unpardonable in a statistician or an
economist. Indeed, one may go further, and
say that, to take even the quinquennial period
embracing the years 187 1-5, as a basis for com-
parison with any other quinquennial period, is
quite inadmissible.
But, it may be said, granted that our ex-
ports, by comparison with previous years, are
not stagnant, is it not the case that the exports
of other countries have increased faster than
ours?
This is quite true. It is the case that, between
the years 1891 and 1901, Norway has increased
her exports by 24.7 per cent. ; Portugal, by 31.3
per cent. ; Denmark, by 40.9 per cent. ; Italy, by
57.1 per cent; Japan, by 107.1 percent. Eng-
land, on the other hand, has increased hers only
by 13.3 per cent.
All the same, this is a good instance of what
is called the Fallacy of Percentages, now so
XX. FALLACY OF PERCENTAGES 195
common among careless or dishonest contro-
versialists. It was delightfully illustrated by
Mr. Asquith in a recent speech. During one of
our wars, he said, the temperance people in this
country set on foot an inquiry as to the relative
healthiness and powers of endurance of the total
abstainers in the army as compared with the
free drinkers, one regiment being taken as
sample. The return made was that, of the total
abstainers in this regiment, 50 per cent, had died
and the other 50 per cent, had been invalided
home, and this was very terrible and dishearten-
ing to the temperance people. But a different
aspect was put on the matter when it turned out
that, of the total abstainers in the regiment in
question, one was killed in action and the other
had had a sunstroke ! The truth or falsity of
such comparisons altogether depends on the
quantum with which they start. Thus, when
we notice that Japan, in 1891, showed
;^ 1 2,664,000 of exports, while Great Britain
showed ^247,235,000, the reason of the dis-
parity in percentages stands revealed. A girl
of twenty-five will double her age in twenty-five
years ; a man of fifty never will.
But there is no such fallacy in comparing, with
our own, countries like Germany and the United
States, whose exports are very much on the
same scale as ours. Taking 1872 as the year
of comparison, Mr. Chamberlain pointed out
that, while our increase, under Free Trade,
was only ;^2 2,000,000, the increase of Ger-
many in the same time, under Protection, was
196 THE TRUE TEST IS chap.
;^5 6,000,000, and the increase of the United
States ;^ 1 10,000,000.^
Assuming the accuracy of these figures, and
the propriety of taking 1872 as start, the ques-
tion immediately emerges whether this is a
legitimate comparison, and the answer is that
it is not. It is comparing nation with nation,
instead of the individuals of one nation with
the individuals of another. It is no better than
comparing the wealth of two households, with-
out asking whether the two households contain
the same number of persons.
This is a grave matter, and it cannot be put
too plainly. What does material progress mean
to us ? One may take it to mean that we, as indi-
viduals, are " making more money " as we say, and
the ordinary way of making more money is by
^ It is not necessary to say any more as to the alleged
;^22, 000,000, or 7^ per cent., of British increase since 1872. As for
the German increase of /56,ooo,ooo, it is impossible to say much,
for a different reason— that I do not know where Mr. Chamberlain
got the figure. The German Empire came into being only in 1872.
Bremen and the greater part of the State of Hamburg did not come
into the ZoUverein till 1888 and 1889 respectively. The Board of
Trade Blue Book, in its table of exports from Germany, leaves a
blank before 1880, with the words " information not available."
And again, in 1897, there was a complete break in continuity;
a large proportion of the " improvement" traffic was added to the
special exports, "so that for any years before and after that date,"
says a Foreign Office Report, No. 490, "no correct comparisons
can be made." As regards the American increase of £1 10,000,000,
it should be noted, in addition to the other considerations
mentioned, that America has meantime given up competing for
the oversea traffic, and that, if she increases her foreign trade,
either of importing or exporting, her visible exports must increase
from the mere necessity of paying for our invisible exports.
XX. EXPORTS PER HEAD 197
doing more trade. If then, we, individually, find
that we are doing more trade this year than we did
last, we are satisfied. If, again, we look across to
France, and find that their individuals are pro-
gressing in the same proportion, we may conclude
that both " nations " are doing equally well. In
short, it is the prosperity and progress of the
individual that concerns us. We should never
think of judging the " Standard of Life " of
a people by anything else than their consump-
tion per head. Neither should we count that a
firm of two partners was worse off than a firm of
four, if the latter firm was making ;!^2000 a year
and the former iJ"iooo. If this is true of income
and of trade generally, it is no less true of that
department of trade which exports. It is the
exports per head that concern us.
This calculation was made in 1899 by Sir
Alfred E. Bateman, then Comptroller General at
the Board of Trade. The figures were as follows :
Since 1875, the exports per head of the four
great countries remained nearly stationary, and
stood in the following rank : Great Britain, £6 ;
France, £1 15s.; Germany, ^3 7s.; America,
£2 I 8s.
Is it a deplorable thing that, head for head,
we should not have gone in front of our rivals ?
What better could we expect than to keep our
long lead ? Trade is done by individuals for
individuals. As individuals increase in numbers
it should be expected that they will col-
lectively do more trade, just because there are
more of them. If, to take an extreme example
198 EXPORTS PER HEAD chap.
all trade were foreign trade ; if all these millions
in the various countries were engaged in ex-
porting ; and if each was making just a living
wage by it : then, if the increasing numbers of
one generation were to remain in life, they would
each require to be exporting just as much per
head as the smaller numbers of the previous
generation were exporting ; in this case, it
would be seen that the absolute increase in ex-
ports of one nation over another is a natural
phenomenon of growing population, and not in
the least a sign of aggressive trade policy. Con-
sidering that Germany has a population of some
56,000,000, and America a population of nearly
80,000,000 ; considering also that our population
increases about i per cent, per year against
Germany's \\ per cent., and America's 3^ per
cent. ; it follows that, if German and American
exports did not increase absolutely, it would be a
sign that Germany and America were falling back
— assuming, of course, that exports are a fair
indication of progress. In light of these figures,
the idea that we are losing ground because
America makes up on us, or passes us, in total
value of exports, or that France is losing ground
because her total exports do not increase, dis-
appears.
There seems to be an idea abroad that we
should not only be ahead of the world in foreign
trade, and keeping our lead, but should be in-
creasing it. How, in reason, can we expect this ?
Even if the populations of the various countries
were the same, how could we expect it ? Is it
XX. OUR LONG AND INCREASING LEAD 199
true that we are the most enterprising, or best
educated, or most inventive ? But as neither
populations nor rates of increase are the same,
Germany and America may well be expected to
forge slowly ahead, because, in these countries,
there is a cumulative increase of producing units.
And this is not an increase of ill-fed, ill-educated,
lethargic black or yellow races, but an increase of
people as good as ourselves, and, in the case of
America at least, of people who have some busi-
ness qualities which are not so prominent in the
mother race. I submit that, unless we are to take
the absurd view that we should increase our foreign
trade as we increase our fleet — that is, on the
principle of being always equal to the two greatest
nations — we may rest pretty well content with the
fact that, in spite of our slowly increasing popu-
lation, we have such a long lead of other nations,
and keep neck for neck with them in increase.
But, as it happens, the latest figures show that
we are actually increasing our lead. Since the
above calculation was made, three years have
passed. Taking the triennial period 1900-2, we
find that Great Britain heads the list by no less
than £6 17s. 2d., while Germany shows £\ is.
I id., and the United States ;^3 i6s. 6d. That
is to say, Great Britain and the United States
have both added about i8s. per head, while
Germany has added only 14s. pd.
CHAPTER XXL
EMPLOYMENT AS AFFECTED BY EXPORTS
AND IMPORTS.
It is said that we are exporting raw tnaterials which employ little
labour, and importing manufactures which, made at home, might
employ much. Btit Coal employs t/ioj-e labour for its value than
j)iost marmfactures. Most of the manufactured imports, again, are
materials of our industries. Of the remainder, there are so??ie our
conszmters will have ; some, foreigners can 7>iake better ; some 'would
require skilled labour, which, probably, is already profitably employed
in other ways. But are we not forgetting that all these imports
must be paid for, and that, to take over the making of them ourselves,
is to displace those who now are making for export 1 Neither Free
Trade nor Protection, in themselves, can secure employment for a
nation.
If it is proved that there is no stagnation of
exports ; that the total exports are increasing
satisfactorily, and the exports per head even more
satisfactorily ; one would think that there is no
reason for alarm, or for any attempt to regulate
either demand or supply. The imports from
abroad are being paid for in goods produced at
home ; as the former increase, so do the latter.
But here we encounter an objection which seems
to strike many as plausible ; — that the things we
CH. XXI. DIMINUTION OF EMPLOYMENT 201
are exporting are not the right things, and that
the things we are importing are the wrong things.
England, it is said, has long been the workshop
of the world and should remain so ; to secure
this, we ought to be importing raw materials and
sending them out as manufactures, whereas, as a
fact, we are exporting more and more raw material,
and importing more and more manufactures.
The preliminary question, of course, is whether
this statement would be accepted if it were found
that the export of raw materials is relatively more
profitable than the export of manufactures.^ But
we may pass this by, and concentrate our attention
on the suggestion which has caught hold on the
public during the present controversy, that raw
materials employ little labour and manufactures
employ much ; and that, in these two ways, the
character of our foreign trade is diminishing the
Employment of the nation.
If one were content with a cheap victory, it
might be asked. Is it employment we want ?
Have we not, up till now, been rejoicing that we
are in such comfortable circumstances that we
could reduce the working day to nine hours ?
Have not many good people been saying that the
^ Mr. Bowley has done good service in raising this point. He
shows that, between 1S81 and 1902, while our exports of manufac-
tured textiles have fallen from a price level of 100 to a level of 84,
exported raw materials show a rise in price from 100 to 1 14, and he
adds that " the price of coal does not account to any great extent
for the phenomenon except in 1900 and 1901." This, of course, in
itself does not prove relative profitableness, but it suggests questions.
Compare footnote, p. 203.
G
202 DIMINUTION OF EMPLOYMENT chap.
time had come for the golden age : " eight hours
for sleep, eight hours for play, eight hours for
work, and eight shillings a day"? If, by all the
ordinary tests, our people are getting wealthy
hand over hand, may we not rest easy in our
minds about not having enough work to do ?
But the retort would be a little cheap, and is,
besides, not quite straightforward. That we have
been able to reduce the statutory hours of labour
in this country, is certainly not due to any cur-
tailment in our demand for goods, or to any con-
tentment with the amount of wealth we already
have. If, indeed, we were satisfied to live as our
ancestors did, a very few hours of labour would
produce over-supply. But as wealth increases and
the standard of living rises, wants increase, and
the new wants of a progressive people make more
demands on industry than the simpler ones did.
There is not less product from the working world,
but infinitely more, the explanation being that
we have been, in many directions, economising
human wear and tear by transferring the heavy
work to machinery, and, moreover, sending larger
amounts of the growing labour into occupations
which know no limit of factory acts and hours.
In the abstract, then, there is not the slightest
fear of labour, as a whole, having too little to do.
But it may be quite honestly argued that the
foreigner is taking some of our employment
from us.
I. Let us ask, then, what raw material it
is, the export of which should give us anxiety.
The answer, of course, is Coal. In 1897 and
XXI. COAL AN IRREPLACEABLE CAPITAL 203
1898, we exported 35 million tons; in 1899, 41
millions; in 1900, 44 millions; in 1901, 41
millions; in 1902, 43 millions — roughly, about a
fifth part of our total output.
There is an argument often advanced about
the export of coal which does deserve serious
attention. It is that coal is " natural capital,"
given us by a beneficent Creator ; that it is the
very source of our manufacturing greatness ; that,
unlike other forms of capital, it is irreplaceable;
and that, accordingly, it is shortsighted to dig
it out, as we are doing, and send it away to the
foreigner.^ It is very much the argument put
forward by the old-fashioned professor against
printing lectures he had repeated for many years ;
that, if he did, he would have nothing left to say.
Considering, however, that we are not merely
sending coal but selling it, it seems to me that
we are exchanging a very precarious form of
wealth for other forms which are, probably, less
^ It should be noted that a large proportion — probably as much
as one-half — of the coal which appears as exported is really for
navigation purposes. Very little is sent abroad for manufacturing.
It has been pointed out by Mr. D. A. Thomas that " coal enters
into the production of every manufactured article, and therefore the
export of such commodities indirectly involves the export of coal.
For instance, every ton of pig iron requires the consumption of
something like two tons in its production, and its shipment abroad
virtually means, therefore, the export of two tons of coal, while
the export of a ton of wrought iron or steel means considerably
more. Consequently if any restriction is placed on the export of
coal on tl\e ground that we are shipping abroad capital that cannot
be replaced, logically we must place a corresponding restriction on
the export of every manufactured article into the production of
which coal enters." — British Industries under Free Trade, p. 367.
204 LABOUR COST OF COAL CHAP.
precarious. Our coal will last, according to a
moderate estimate, for another hundred years
without the cost of raising it being increased. At
present it realises a comparatively high price.
But what will become of that high price if a
new fuel is found, as it probably will be long
before the century is out ; or if the long-sought-
for economy is discovered which will save the
90 per cent, energy that now goes out of the
chimney ; or if the opening up of coal deposits
nearer our foreign markets diverts the supply
from us ?
But when the export of Coal is objected to on
the entirely different ground that it is a product
which employs little labour in the getting, there
is no hesitation about the answer. It is that the
price of our ordinary coal is made up of 60 per
cent, of pure wages, while the price of Welsh coal
is made up of 80 per cent, of wages. That is
to say, coal, value for value, employs far more
labour than manufactures generally, the wages
element in our cotton manufactures, for instance,
being estimated at about 50 per cent, of the total
value, less that of the raw material.^ Is it possible
that those who make assertions in this irrespon-
sible way were comparing bulks and not values, and
thus came to the conclusion that, as compared
with a small parcel of jewellery, a cwt. of coals
must contain little labour, because it takes a cart
to hold a few shillings worth ?
II. What has just been said disposes of the
suggestion that, in importing manufactures, we
^ Board of Trade Blue Book, p. 360.
XXI. IMPORT OF MANUFACTURES 205
are curtailing the employment of our own people,
in so far as we are depriving ourselves of the
chance of making such manufactures for export.
If we export coal in payment of imports, we are
employing more labour than we should by ex-
porting manufactures.
But it does not dispose of the objection that
we have been, and should remain, the workshop
of the world, and that there is something wrong
if we are importing more and more manufactured
goods that compete with ourselves. Let us, then,
look at the imports complained of
According to the Board of Trade Blue Book,
p. 73, our imports of manufactured or partly
manufactured articles from the seven great nations,
in 1902, were as follows: Italy, £2 millions;
Russia, £2, millions; Germany, i^ 16 millions; Bel-
gium, i^20 millions ; Holland, i^20 millions ;
United States, ;^20 millions; France, ;^3 i millions.
In all, £\ 12,000,000.
Take, first, the partly manufactured articles,
and analyse the lists. A mere glance at the
;^20 millions from the United States shows that,
of this, £\oh millions are what certainly would
be called " raw materials " by an ordinary un-
instructed man. There are £2\ millions of
unwrought and partly wrought Copper, £2,^
millions of Leather, £i\ millions of various kinds of
Oil, £h million of pig and sheet Lead, ;i^900,ooo
of Paraffin and paraffin wax, i^i 36,000 of crude
Zinc, i^i 28,000 of Slates, ;^i 2,000 of Stones, etc.^
^ ' ' These are not the sort of things which we speak of as
manufactures' when our own export trade is concerned. It is
2o6 SUPPOSE WE COULD MAKE ALL chap.
There is nothing quite so obvious in the
imports from the other countries ; but a care-
ful examination would show that there are
comparatively few things in the i^i 12,000,000
which do not form the basal or auxiliary
materials of many of our industries.
Take, second, the wholly manufactured articles.
Among the larger categories, from Germany come
Works of Art, Bronzes, China, Machinery, Musical
Instruments, Toys : from Belgium, Clocks, Em-
broidery and Needlework, Hats and Bonnets,
Laces, Pictures, Silk Stuffs : from Holland, Buttons
and Studs, Leather goods. Silks, Pictures : from
France, Embroidery, Artificial Flowers, Hats and
Bonnets, Laces, Musical Instruments, £^ millions
of Silk manufactures, and over £^ millions of
Woollen manufactures : from Italy, Works of Art,
Stones. The list is a long one, and contains a
great number of small imports. There is no
doubt that we could make all these things.
But we forget three things. The first is that we
are not only the "workshop of the world," but the
wealthiest consuming nation of the world. We
demand whatever takes our fancy, and we should
not be in the least willing to limit our consumption
to the peculiar products of Great Britain. We do
not take the word of our milliners and dress-
makers that English goods are every bit as good
as French ; our womenkind send to Paris for hats
an obvious reflection that, if slates, stones, crude zinc, and copper
are to be spoken of as ' manufactures,' we might as well include
coal in the same category." — Sir Robert Giffen, in a letter to the
Times.
XXI. THE MANUFACTURES WE IMPORT 207
and dresses, and make special trips to the Bon
Marche for frills and furbelows. We should
never think of shutting out works of art from
Italy because there are artists in England, or
pianos from Germany in order to force our
musicians to play on English ones. We should
regard any such proposals as nothing better
than the old attempt to put back the clock of
civilisation and enact sumptuary laws to our
own hurt.
The second is that, as regards many of these
manufactures, there is a very good reason why
we do not prefer British made goods. We import,
for instance, £\\ millions of ladies' woollen dress
fabrics, mostly from Roubaix, because, rightly or
wrongly, we consider French colour-dyeing superior
to Bradford dyeing.
The third is that, even where we could make
things as beautiful, and as cheap, and as good
as the foreigner, we have not an unlimited
amount of capital, and the capital we have may be
fully and more profitably employed in making
other things. And we have very far from an
unlimited amount of skilled labour. True, in bad
times we have a good many unemployed, and,
at all times, we have several millions of wage
earners below the efficiency standard. But do
these millions consist of watch makers, musical
instrument makers, artists, and the like ? Or are
they people who could not be set to such skilled
work, whatever wages were offered them ? Are
the " unemployables " not vastly more than
the " unemployed " ? Is our employment really
2o8 IMPORTED COMMODITIES chap.
curtailed because we do not import things which
we might make ? ^
Yet this is persistently represented as " loss " —
as if one could lose what one never had ! " In
thirty years the total imports of manufactures
which could just as well be made in this country
have increased ;!^8 6,000,000, and the total ex-
ports have decreased i^6,ooo,ooo. We have lost
^92,000,000. ^^92,000,000 of trade that we
might have done here has gone to the foreigner,
and what has been the result for our own people ?
The Board of Trade tells you, you may take one-
1 If all the labour that is employable were employed, there would,
of course, be no question about the advantage of such imports. But
the unemployed are always with us. It is a little startling to find
that, in the best times, there are always some 2 per cent, of workers,
in the organised trades, who do not find work. To whatever cause
this may be ascribed, it certainly cannot be laid at the door of Free
Trade. But, as regards the present question, what would require
to be proved is that the amount of unemployment in protected
countries is less than in our own, and this would be difiicult to
do. There are no adequate and strictly comparable international
statistics as to skilled and unskilled labour— remembering that such
statistics, to be of any value, must extend over a period long enough
to allow of being put into rates of progress — and none which dis-
tinguish what Mr. Booth has called the three phases of irregularity,
the short, the seasonal, and the cyclical. In this country we have
the returns of unemployed made to the Board of Trade by the
principal trade unions, the figures including London dock labourers,
iron and steel workers, the building, textile, engineering and other
trades. It may be noted that the mean percentage of unemployed
during 1903 was 5.1. The average percentage for the ten years
1894-1903 was 4.1. Between 1888 and 1903 the percentage varied
from 2.1 to 7.5. "It is quite impossible to study these figures,"
says Mr. Bowley, "without coming to the conclusion that the years
1890 to 1900, at any rate, were years of exceptionally good employ-
ment."— Tiiw^;^, Nov., 1903.
XXI. ARE AT LEAST PAID FOR 209
half of the export as representing wages. We
therefore have lost ;^46,ooo,ooo a year in wages
during the thirty years. That would give em-
ployment to nearl}' 600,000 men at 30s. per week
of continuous employment. That would give a
fair subsistence for these men and their families,
amounting to 3,000,000 persons."^ This quota-
tion brings us back to first principles. Suppose
we did manufacture all these things at home and
stopped the imports from the foreigner, would
this be pure gain ? Have we forgotten the pro-
ducers here who have, all the time, been making
the exports that must be sent to pay for these
imports, and whose employment would be cur-
tailed in the same proportion as the new employ-
ment increased ? As Mill put it — and put it so
tersely that the completeness of the statement is
apt to be overlooked : " The alternative is not
between employing our own people and foreigners,
but between employing one class and another of
our own people. The imported commodity is
always paid for, directly or indirectly, with the
produce of our own industry ; that industry being,
at the same time, rendered more productive, since,
with the same labour and outlay, we are enabled
to possess ourselves of a greater quantity of the
article." ^
^ Mr. Chamberlain at Newcastle, Oct. 20, 1903. Observe that
the ;^6,ooo,ooo we once had is lumped with the ^46,000,000 we
never had, and both are called "loss"! Is this any better logic
than the schoolboy's "Pins have saved many thousands of lives —
by people not swallowing them " ?
^ Principles of Political Economy, v. 10, i.
O
2IO IMPORTS AS AN ''ATTACK'' chap.
This kind of appeal to popular ignorance is
thoroughly bad. It would be just as true, and
just as false, if " Englishmen " and " Scotsmen "
were substituted respectively for " home pro-
ducers " and " foreign producers," and the state-
ment were made to London working men that
they were losing employment by the goods that
Glasgow working men were making for them.
What the increase of foreign manufactured im-
ports shows is simply the increased division
and specialisation of industry — the area of com-
petitive service widening beyond the national
boundaries, in manufactures as in everything
else.^
What very much hides the absurdity from us
is the now fashionable way of speaking of foreign
competition in terms borrowed from warfare. Im-
ports are an " attack " ; when they become
numerous, they are a " conspiracy " ; and we are
asked if we are going " to take all that lying
^ Perhaps the case may be put shortly thus. Belgium has been
employing a capital of ;i^ioo,ooo in making goods for London and
Leeds. London and Leeds have each been employing a capital
of ;i^50,ooo in making goods for Belgium. The import of Belgian
goods is stopped by a prohibitive tariff. By the same act, the
export of English goods pro tanto is stopped. The London capital
finds a market for its products in Leeds, and the Leeds capital finds
a market for its products in London. Only British goods are
now found in the two markets. But has this increased employ-
ment? Increased employment could only come from London
and Leeds putting down new capital, and exchanging their pro-
ducts. But then they might just as well sell the goods produced
by this new capital to Belgium and import Belgian goods in
return. There is no more employment in the one case than in
the other.
XXI. EMPLOYMENT UNDER PROTECTION 211
down. " ^ Seeing that we have been doing just
the same kind of thing to foreign countries for
about a century, the question surely is : Are we
all, then, engaged in a mortal struggle to destroy
one another's industries ? Or are we sending
each other cheap goods to sell in one another's
markets — extending the area of Competitive Ser-
vice beyond our home boundaries ?
The subject of Employment as affected by the
character of goods imported and exported suggests
the wider subject of Employment as affected by a
protective system. It is sometimes assumed that
Protection secures the employment of the nation
better than Free Trade does. There are really
two questions here, and the issue is confused
unless they are kept distinct. The first is : Does
Protection give more employment ? the second :
Does it secure more regular employment ?
I. The idea that Protection gives more employ-
ment seems to argue rather dangerous ignorance
of what does employ the nation. Any govern-
ment can " make work " for its citizens so long as
the pockets of the taxpayers hold out ; but this is
^"Agriculture has been practically destroyed. Sugar has gone.
Silk has gone. Wool is threatened. Cotton will go. How long are
you going to stand it ? " says a great orator. And his hearers, being
Englishmen and born fighters, stand on the seals, and cheer. Sir
Edward Grey was not far wrong : "The time is coming when, if an
Englishman says that England is prosperous, he will be called a
Pro- Boer ; while if anybody writes telling of a trade that is doing
badly, he will very likely be called 'one of our leading experts,'
and have his letter sent to the Times, with Mr. Chamberlain's
imprimatur."
212 EMPLOYMENT UNDER PROTECTION chap.
simply diverting the employment of the people
from its ordinary channels into the channels on
which the government spends. Any war scare,
for instance, that sends the Clyde shipyards a few
cruisers to build, gives employment to one of the
great trades, and secures the activity of the many
subsidiary trades dependent on it. But the extra
money taken out of the taxpayers' pockets for
any such purpose leaves the citizens generally
with so much less to spend, and the other
parts of the kingdom suffer by Glasgow's gain.
The only thing that can increase general employ-
ment is the increase of productiveness ; that is to
say, in essence, the increase of wealth. The
" demand for labour " is not a fund of money in
the pockets of employers. If there were no out-
side employer, and each gang of workers paid one
of their number a wage to organise them, the
wages of these workers would depend on the
amount they could produce and the prices at
which they sold it. It is the whole product of
the working world that determines and limits
the " demand " for all the factors of production
which represent the working world ; the greater
that product, the greater the demand for labour
among other factors.^ In short, we employ each
^The whole matter is contained in these pregnant words of
Marshall: "The net aggregate of all the commodities produced
is itself the true source from which flow the demand prices for all
these commodities, and therefore for the agents of production used
in making them. Or, to put the same thing in another way, this
national dividend is at once the aggregate net product of, and the
sole source of payment for, all the agents of production within the
country ; it is divided up into earnings of labour ; interest of capital ;
XXI. REGULARITY OF EMPLOYMENT 213
Other. The more I produce, the more I hold up
in my hand as the price of the services which I
ask you to render me, and, the more we all pro-
duce, the more do we all have to offer. If we
call this product the National Income or National
Dividend, the question resolves itself into this :
whether the National Income is increased by Pro-
tection ; whether a government, by taking thought,
can secure that its individual producers produce
more. It is a pious imagination that a very wise
government, by taking over the industries of the
nation, might do better than private enterprise
and produce a greater net product. But this is
not the question ; all we are concerned with is
whether a government, by taxing goods from out-
side, can give its individual producers greater
stimulus and better direction than free competition
with other countries can. As a matter of theory,
this would be difficult to prove, and experience
does not seem to give it any support.
II. The idea that Protection ensures greater
regularity of employment seems to rest on the
belief that, under it, more security is given to
capital by the partial monopoly of the home
market. This also seems to verge on the dan-
gerous doctrine that the giving of employment is
the end of the matter: it has a family resemblance
to the popular belief that, by reducing the hours
of labour, the unemployed will be taken up. The
and, lastly, the producer's surplus, or rent, of land and of other
differential advantages for production.'"— /'/-/w/>/^^, p. 609. See
my Distribution of Income, which is, practically, a working out of
this single paragraph.
214 NEITHER SYSTEM CAN SECURE chap.
protected industries occupy much the same posi-
tion as particular industries favoured by govern-
ment orders at the expense of the taxpayers ;
regularity of employment is secured at the expense
of the quantity produced ; the demand for labour
ultimately suffers by the diminution of the national
product. Here, again, confirmation by statistics or
experience is entirely lacking. That an industry
declines and disappears under Free Trade is no
proof either that Free Trade has killed it or that
Protection would have kept it alive.^ The fact is
that neither Protection nor Free Trade will
ensure constant equilibrium of demand and
1 "The cotton manufacture is generally regarded as the most stable
and thoroughly organised of our great industries, but it appears
from the census returns that in the single state of Massachusetts 21
mills, with an aggregate of 154,016 spindles, and i mill with iSo
looms, which reported to the census of 1890, were not in existence
when the census of 1900 was taken. Seven of these mills with
47,680 spindles were dismantled and their machinery sold ; 13
mills, with 101,156 spindles, stood idle in 1900, or had been turned
to other manufacturing purposes. One mill was burnt and not
rebuilt ; and one was consolidated with a neighbouring mill under
new corporate organisation. In addition to these cotton mills there
were 15 mills manufacturing cotton small wares, which went out of
existence during the decade. Such a record indicates that unprofit-
able operation is constantly in progress side by side with more
successful enterprise. In this particular industry, advance in
machinery has been so rapid that it is calculated that a cotton
mill must practically renew its machinery once every ten years if
it would keep its plant in a condition that will permit profitable
production, in competition with other establishments manufacturing
the same class of goods, with the latest pattern of machinery, and
the most labour-saving devices, the most effective methods of
management, and facilities for the largest production at the lowest
labour cost." — Twelfth Census of the United States, 1900, vol. vii.
p. 65.
XXI. REGULAR EMPLOYMENT 215
supply, and this is the only way in which steadi-
ness of employment might be secured. Protected
producers, just like Free Trade producers, put
themselves at the mercy of demand ; they make,
for the most part, in anticipation of orders, and,
often enough, they find that their anticipations
were mistaken. All goes well so long as trade is
brisk. But when a lull comes, supply cannot
easily be slacked off; more is being turned out
than is taken off; and depression sets in, spread-
ing its contagion through the organised web. All
this is obviously independent either of Free Trade
or Protection. All one would say is that Pro-
tection, as tending to attract capital and labour
into artificial channels and oversupply them,
rather acts against the mobility which is the
best security of regular employment.
CHAPTER XXII.
PREFERENTIAL TARIFFS.
Preference to our Colonies involves ptttting on tariffs against the
eutside world. Disguise it as ive may, it is Protection.
The proposal of Preference to parts of the
British Empire over the outside world is not a
new one. It prevailed for two centuries from
the passing of the Commonwealth Navigation
Act, and was abolished only by the Whig
Government which succeeded Peel's, and received
his support. But there was this difference at
any rate. Nobody thought of calling it Free
Trade. It was part of the Protective system
under which we lived.
Suppose we now resume the discarded prin-
ciple of Preferential Tariffs. It is not capable of
being carried out unless there is a tariff on which
to give a preference — " the penniless traveller
sings in the presence of the robber." Thus, as
the first step in Preference, we must impose a
tariff. In the long contest between the Colonies
and ourselves whether they are to adopt Free
Trade or we are to resume Protection, the Colonies
CH. XXII. RECIPROCirV TREATIES 217
have won. The voices of Canada and Australia
have shouted down the old country.
We resume Protection then.^ But it is a very
peculiar Protection. Germany and America justify
their protective system, and escape its worst evils,
by the fact that they have Free Trade within
their Empires. The United States is by far
the largest Free Trade unit in the world —
some of her 45 states are larger than the entire
German Empire — and it may very reasonably
be contended that her prosperity is due, not
to Protection, but to this Free Trade. But
we are not to have free trade within our
Empire. Every constituent member of it is,
apparently, to have the liberty of erecting what
tariff it likes against other members, so long
as its duties are lower to Great Britain and
to British possessions than they are to the rest of
the world.- It is best described as a British
Empire Series of Reciprocity Treaties.^
' It shows what a hold the word has on the unpleasant memories
of the nation, that the name of Protection should be vigorously
protested against. Just as Mr. Gladstone thought that he had
gained something when he replaced the word Boycott by the word
Preferential Dealing, so do many try to insist that Preferential
Tarifts are not Protection. We want to admit our kinsmen free to
our house ; if we emphasise it by shutting the door in the faces
of our friends — well, it is merely a regrettable incident !
^ Even this is not clear. New Zealand proposes to give a prefer-
ence to Great Britain, but she adds that the same preference will be
given to any country which gives her equal terms. All the time, so
far as one can make out. Great Britain is the only pan of the
Empire which is not to have this privilege, but is always to give a
preference to the Colonies whatever they do.
^At present the scheme has scarcely advanced beyond the
2i8 PROTECTION FOR THE COLONIES CH. xxii
Disguise it as we may, it is preferential treat-
ment for themselves against the world outside the
Empire, that this small group of self-governing
colonies is asking. One might even say that
it is Protection for Canada and Australia. We
are to impose a tariff against the world, not
because we want to shut the world out, but in
order that we may take the tariff off the Colonies.
Considering that the imports from Canada and
Australia into this country amount to £df2\
millions, and that the imports from all the six
self-governing colonies put altogether amount to
only i^5 9,800,000 ; while the imports from the
Free Trade portion of the Empire amount to
;^47, 200,000, and the imports from foreign
countries to ^^421 millions, the demand needs
looking into.^
enunciation of the principle. What, for instance, is to be the
relation of one colony to another, or of the self-governing colonies
to the other colonies, or of any colony to a "possession"; whether
India and the Crown colonies are to remain free trade or to put on
tariffs ; whether the Protectorates, or countries in the anomalous
condition of Egypt, are to be included ; whether there is to be
preference as regards all the imports taxed ; or even what the posi-
tion of revenue taxes is to be : — all these are details waiting the
mandate of the country before they are discussed. One might
hint that the possibility of such a scheme — to say nothing of its
advantage — depends on the working out of the details.
^See Annual Statement of Trade (Cd. 1617), 1903, vol. ii.,
p. 6, and Board of Trade Blue Book, p. 408.
CHAPTER XXIII.
THE CANADIAN PREFERENCE.
Its results are disappointing. It changed a decline into an in-
crease, but the increase is not proportional to that of other countries
which have no preference. As differentiated, the tariff still presses
most heavily on us, and favours the foreigner.
There is at least one part of the scheme to
which we are not hkely to object. It was not
our wish that the Colonies ever adopted Protec-
tion, but, since they have done so, it seems as if
the least thing they could do is to give us a
Preference. Perhaps, then, we may begin by con-
sidering what has been the result of the Canadian
Preference.
For some years after the Federation of the
separate provinces into the Dominion, in 1868,
Canada enjo)'ed a comparatively low tariff. In
1874, there was a period of depression, and the
Conservative party, under Sir John Macdonald,
began an agitation for Protection. This " national
policy," as it was called, triumphed in 1879, ^"d,
for the next ten years, Protection ran riot. Still,
220 THE CANADIAN PREFERENCE chap.
our imports into Canada steadily increased, till, in
1885, a very severe tariff, directed, to all appear-
ance, against our manufactures, was imposed,
and the imports declined rapidly. In 1890,
began a reaction against Protection, and, in 1896,
Sir Wilfred Laurier came in on a programme of
tariff reform. Protection, however, had now estab-
lished the vested interest. In 1897, the Recipro-
cal Tariff came into force. Rates were reduced,
but not greatly reduced. The standard for the
highest duties became 35 per cent, ad valorem.
It was on this tariff that the first Preference of
I2| per cent, on British goods was given.
No reciprocal obligation on our part was ex-
pected. Sir Wilfred Laurier stated, in so many
words, that the Preference was not a quid pro quo;
that Canada did not ask anything in return ; it
was a recognition, he said, that the Canadians
got in the home market of the Mother Country
better treatment than in any of the foreign mar-
kets of the world.^
In 1898, the Preference was increased to
25 per cent. But, under our treaties with certain
foreign powers, it was found that the same pre-
ference was claimed by Belgium, France, Germany,
Spain, and many other countries. To remedy
this, in July, 1898, we denounced these treaties
as regards Belgium and Germany, and, in August
of the same year, the Reciprocal Tariff was super-
^ According to Professor Flux, of Montreal, the Preference was
given frankly for the benefit of the Canadian consumer, with no
idea whatever of it being a sacrifice. — Economic Journal, Decem-
ber, 1903.
XXIII. ITS DISAPPOINTING RESULTS 221
seded by the British Preferential Tarifif, which
gave 25 per cent, of reduction from the general
tariff to Great Britain, Bermuda, West Indies,
India, Ceylon, New South Wales, and the Straits
Settlements.^
The Preference, how^ever, was not extended to
all goods. Exception was made of Wines, Malt
liquors. Spirits and Spirituous liquors, Medicines,
articles containing Alcohol, Tobacco, Cigars, and
Cigarettes. The average rate of duty on these
is about 1 70 per cent, ad valorem.
On 1st July, 1900, the Preference was raised
^o ZZh Ps*" cent, at which it still stands. Sir
Charles Tupper, the Opposition leader, then took
the definite position that a quid pro quo should be
asked if the Preference were to be continued ; but
Sir Wilfred Laurier held his ground that the Pre-
ference was a free gift, and won with an un-
diminished majority.
The general results were summed up by Mr.
Chamberlain at the Conference with the Colonial
Premiers in 1902. In the five j^ears, our imports
into Canada which came under the preference
clause increased 5 5 per cent. But the general
trade, that is the imports from foreign countries
enjoying no preference, increased by 62 per
cent. And the imports which came in free —
that is, subject to no tariff and no prefer-
ence — increased by 67 per cent. Or, taking it
' At the same time, the bounty on pig iron made from Canadian
ores was raised from ^2 to $3 per ton, remaining at %z on that
made from imported ores. As consequence, the production of pig
iron rose from 58,000 tons in 1897 to 274,000 tons in 1901.
222 OUR EXPORTS INCREASED chap.
another way, the total increase of the trade of
Canada with foreigners was 69 per cent., while
the total increase of British trade was only 48
per cent. This unlooked-for result calls for closer
investigation.
Canada has been passing through a time
of extraordinary prosperity. In the last ten
years, the country has been filling up. Foreign
immigration has doubled. The great railways
and the Hudson's Bay Company have been selling
their lands rapidly. The Homestead entries have
increased 150 per cent,, owing to the enormous
influx of British settlers. Thousands of American
farmers have crossed the border and become
Canadians. And, among other phenomena, the
foreign trade has doubled in seven years.
It was to be expected, then, that British imports
into Canada should have increased. But up till
1897 they were steadily falling. In 1882 and
1883, they were above £\o\ millions. In 1890,
they were ;^8, 915,000; in 1896, -^6,776,000;
in 1897, iJ^6,043,ooo. Succeeding years, how-
ever, show as follows:
1898, - - 6,678,000
1899, - - 7,615,000
1900, - - 9,203,000
1901, - - 8,839,000
1902, - - 10,114,000
On the face of it, this seems very satisfactory.
But a glance at the imports from other countries
lessens the satisfaction. In the same period
xxiii. BUT NOT PROPORTIONALLY 223
France has increased her sendings from i^ 5 34,000
in 1897 to ^1,371,000 in 1902. Germany has
increased hers from i^i, 3 34,000 to i^2, 224,000.
But the most suggestive figures are those of the
United States. In 1 890, their imports into Canada
were ;^ 10,744,000, and, in 1896, ;^i 2,035,000.
The succeeding years show as follows :
1897, - - ;^I2,667,000
1898, - - 16,172,000
1899, - - 19,111,000
1900, - - 22,570,000
1901, - - 22,702,000
1902, - - 24,834,000^
The net result is that France's increase is
156 per cent; Germany's, 66 per cent.;
America's, 96 per cent. ; while ours is only 6^
per cent. And although France and Germany
started from a low figure, and a percentage com-
parison between their increase and ours is there-
fore not sound argument,'^ this is not the case with
'^Colonial Statistical Abstract, 1903, p. 210. The figures in-
clude bullion and specie.
2 A more detailed comparison with other countries brings out
much more startling results when stated in percentages. For in-
stance, in the same six years, Holland increased her sendings to
Canada by 133 per cent. ; Switzerland, 148 per cent. ; Portugal,
184 per cent. ; South America, other than British Guiana, 194
per cent. ; Italy, 223 per cent. But, as starting from compara-
tively small amounts, these are not adequate, but only suggestive
comparisons. How, in face of these figures, it could be said that
" the increase in our trade with Canada has been very great, but
// has not increased largely out of proportion to the increase of the
trade between Canada and other countries," passes my compre-
hension.
224 EXPLANATION OF FAILURE chap.
America, which started from a higher level. It
would be difficult to draw an argument for
the success of a Preference from figures like
these.
The explanation of our failure, however, is not
far to seek. What determines imports into a
country is not cheapness alone, but demand.
Canada wants our whisky because Canada likes
it, so our exports of whisky increase although
we get no preference, and although all whisky
is subject to a duty of $2.40 per gallon, Canada
finds the agricultural implements of America
more suitable for her soil, so she imports them,
although the duty on our implements is one-
third less.
Again, in judging of the effects of a tariff in
keeping out the goods of a particular country,
it is not the average rates of duty that have to
be considered, but the rates on the goods which
that country sends. There are certain things
admitted free into Canada, such as anthracite,
coal and coke, raw cotton, crude rubber, rough
sawn timber, undressed hemp, fur skins, hides,
steel rails. 70 per cent, of these free imports
come from the United States — for obvious reasons
— and this free entry does not do us much good.
Raw materials, again, of iron, steel, leather, and
wood, and many agricultural products, are ad-
mitted at comparatively low rates. Here, again,
the advantage America has over us is obvious.
The heaviest duties are on textiles — woollens,
cottons, silks, and linens. These are the goods
we wish to send into Canada, and these are the
XXIII. ''ALTOGETHER DISAPPOINTING" 225
goods which the Canadian consumer would very
gladly take from us. But they are also the
goods which Canada is bent on manufacturing
for herself, and here, allowing for the preference,
we have to pass our textiles through an actual
rate of 23-^ per cent.
The rivalry, in fact, which concerns us is not
that between foreign countries — particularly the
United States — and ourselves for the Canadian
trade, but the rivalry between the Canadian
manufacturer and the British manufacturer.
There is little wonder, then, that the result of
the Preference was pronounced " altogether dis-
appointing." " The tariff still presses with the
greatest severity on Canada's best customer, and
has favoured the foreigner." As Mr. Chamber-
lain put it to the Colonial Premiers at the Con-
ference : " So long as a preferential tariff is still
sufficiently protective to exclude us altogether, or
nearly so, from your markets, it is no satisfaction
to us that you have imposed even greater dis-
ability upon the same goods if they come from
foreign markets, especially if the articles in which
the foreigners are interested come in under more
favourable conditions." If England cannot get in
at the front door, it is small consolation that
America is kept at the garden gate.
It would not be reasonable to say that, in this
comparative failure, we have an argument against
Preference. It might have been the case that,
but for it, our exports to Canada would have
gone on declining, while those of the countries
which had no Preference increased. All that can
p
226 IS IT WORTH A SACRIFICE? CH. xxill.
be said is that it is impossible to see in it any
great argument for a Preference where the cir-
cumstances are similar.
It must be remembered, however, that the
Canadian Preference, such as it is, is a free gift.
We gave no quid pro quo : we made no sacrifice.
But how, in face of this failure, can any British
statesman ask his fellow-countrymen to make a
sacrifice ? Suppose we shut out the foreigner
from our market, in order to admit Canada free,
how will this help us to get into her' market?
She admits us at a third less than our rivals now,
and we cannot make headway. How shall we
be any more able to enter by giving her a
Preference on our imports ? The expectation
seems to be that, by doing so, we shall induce her
to increase the amount of her Preference to us.
But she has declared, in unequivocal terms, that
this is what she will, on no consideration, do.^
Whether it be from want of humour on her
part, or from under-estimation of our common
sense, all she does is to hint that she might
raise her tariff higher against the rest of the
world. Neither we nor our rivals can climb
the thirty foot wall ; to favour us, however, she
will raise it to forty feet against them !
^ In his Budget speech of April, 1903, Mr. Fielden said that
any change they made might favour Great Britain against the
foreign competitor — "not over the Canadian manufacturer."
CHAPTER XXIV.
OUR POSSIBLE GAIN FROM COLONIAL
PREFERENCE.
When we deduct ittiports we could not send, and imports we
cannot in reason hope to send, the amount of trade which we might
possibly take from the foreigner is quite insignificant.
The above, then, being the actual results of the
Canadian Preference, the next consideration is as
to what would be the possible gain to us from a
preference system adopted by all the self-govern-
ing Colonies, What we have to do evidently is
to ask how much foreign countries send into these
Colonies at present, and see how much of that trade
we could take from them under such a system.^
According to the last returns, June, 1901,
Canada imported from outside (exclusive of bullion
and specie) goods to the value of ^^3 8,400,000.
Of this, ;i^8, 8 29,000, or 23 per cent, came from
the United Kingdom; ^^^76 1,000, or 2 per cent,
came from British Possessions; .^28,810,000, or
75 per cent., came from Foreign Countries.
^ The details which follow are taken from the Board of Trade
Blue Book, p. 381.
228 OUR POSSIBLE GAIN FROM chap.
What we may possibly gain is some of the
trade represented by the ^28,810,000. But,
from this possibility we must deduct : —
(i) Goods which Great Britain does not grow
or make, such as Sugar, £\.6 millions; Maize,
£\.1 millions; Raw Cotton and Cotton Wool,
;^98 1,000 ; Tea, ^^463,000 ; Rubber, ;^363,ooo ;
Tobacco, i!^349,ooo ; Green Fruit, ;!^347,ooo ;
Dried Fruits, ^256,000, etc., etc. Such goods
make up a total of ^^6,273,000 of imports into
Canada which we could not take from the
foreigner.
(2) Many goods we do grow or make, but
could not, in reason, hope to supply Canada with
— they are almost all United States products —
such as Coal and Coal dust, ^2,737,000 ; Wheat,
;^i, 309,000; Wood, ;£^687,ooo; Oats, i^i 95,000;
Bacon and Hams, ^149,000; Coke, i^ 140,000;
Horses, i^ 12 5, 000; Cheese, ;^ 12 5,000; Pork,
;^94,ooo, etc., etc. These make up a total of
;^6, 583,000.
Deducting these two items, there is left ^16
millions of imports into Canada which we might
possibly take from foreign nations and secure for
our own producers. But we have had a Prefer-
ence since 1897, and we are further away from
getting any of it than ever. What new induce-
ment is there for our exporters to do any more
than they are doing ? Or what new inducement
is there for the Canadian consumer to demand
that these goods be British-made and not foreign-
made?
But, on looking into the details of the
XXIV. EXTENSION OF THE PREFERENCE 229
£\6 millions, we find something more that makes
the possibility still less of a probability. It is
that these foreign imports are scattered over some
seventy categories of different goods, only one of
them amounting to over a million. Is it to be
expected that seventy different trades, without
any new motive, will show enough new energy
and enterprise to wrest these imports from the
foreigner ?
Pursuing the same line of investigation as
regards the other self-governing Colonies, we get
the following results :
Cape Colony, in 1900, imported from outside
iTi;, 163,000. Of this, i^i 1,053,000, or 64^
per cent., came from the United Kingdom ;
;^2, 478,000, or 14! per cent, came from British
Possessions; ;^3,63 2,000, or 21 per cent., came
from Foreign Countries. The possible gain of
trade for us is ,^2,092,000, spread over some
forty categories, only five of them over iJ" 100,000.
New Zealand, in 1900, imported from outside
;^io,2o8,ooo. Of this, i^6,45 3,000, or 6t^ per
cent., came from the United Kingdom; i^2, 239,000,
or 22 per cent, came from British Possessions;
;^i,5 16,000, or 15 per cent, came from Foreign
Countries. The possible gain is i^ 1,2 76,000,
spread over some forty-five categories, only three
of them over ;^6o,ooo.
Australia, in 1900, imported from outside
i;40,i 88,000. Of this, ^^25,113,000, or 63
per cent, came from the United Kingdom ;
.^{^3,728,000, or 9 per cent, came from British
230 OUR POSSIBLE GAIN chap.
Possessions; ;^i 1,347,000, or 28 per cent, came
from Foreign Countries. The possible gain is
;i^8, 007,000, spread over some seventy categories,
only five of them over .^^250,000.
Natal, in 1900, imported from outside
;^5,9i2,ooo. Of this, ^3,726,000, or 63 per cent,
came from the United Kingdom; i^ 1,1 47,000,
or 19 per cent., came from British Possessions ;
iS^ 1, 03 9,000, or 18 per cent, came from Foreign
Countries. The possible gain is ;^5 39,000,
spread over twenty categories, only two of them
over ;^6o,ooo.
Newfoundland, in 1900, imported from out-
side ;^i,5i2,ooo. Of this, ;^45 8,000, or 30
per cent., came from the United Kingdom ;
;^5 82,000, or 39 per cent, came from British
Possessions; ;^47 2,000, or 31 per cent, came
from Foreign Countries. The possible gain is
iJ^2 20,000, spread over twenty categories, only
two of them over ;^20,ooo.
The total is : —
Canada, - - - i^i 5,954,000
Australia, - - - 8,007,000
Cape Colony, - - 2,092,000
New Zealand, - - 1,276,000
Natal, - - - - 539,000
Newfoundland, - - 220,000
;^28,o88,ooo
That is the magnificent total possibility ; the
limit of our possible extension of trade if we
could secure the whole of the Colonial imports
XXIV. /S SOME i\2 MILLIONS 231
which foreign countries now send.^ If we deduct
the Canadian £\6 millions on which we have a
Preference, there remain £\2 millions which we
might possibly take from the foreigner by the
extension of the preference system over all our
Colonies. But the probability, of course, is ever
so much less. In this list are numbers of things
that the Colonies will not take from us, even if
they are cheaper than competing goods from
other countries : we have seen how it is with
Canada — that what determines an import is not
so much cheapness as a demand for a special
quality or style of article.- We should be well
off if we gained a quarter of the £\2 millions.
If this possible but extremely improbable in-
crease of trade were the sole ground for overturn-
ing our Free Trade system, and establishing tariffs
against countries which send us some three-fourths
of the goods we import, then one would be
inclined to say that nothing so reckless and ill-
judged had ever been proposed in the British
Parliament.-'^
^ It is perhaps unnecessary to remind the reader that this sum of
£z%,ooo,<XiO is possible trade, not possible profit.
'^The New Zealand Premier unconsciously testifies to this, in the
details of his new scheme of Preference. Foreign goods are to be
surtaxed ; but that he does not in the least anticipate that the
surtax will exclude them, is evident from his estimate that he
will raise £^0,000 or ;,^8o,ooo on imports that amounted last year
to only ;^3i3,ooo.
8 "The foreign trade of this country is so large, and the foreign
trade of the Colonies is comparatively so small, that a small pre-
ference given to us upon that foreign trade would make so trifling a
232 OUR POSSIBLE GAIN BY chap.
But, it may be asked, what about the future ?
;6^2 8,000,000 is a small sum, but the Colonies are
a growing market. Think, it is said, of what
they will buy when their white people have
increased from eleven millions to forty millions.^
Is this to be taken seriously ? Is it not noto-
rious that Canada, though an agricultural country,
and therefore, presumably, a country where
population grows fast, is not " holding her own
population," but grows from outside?" In the five
years from 1897 to 1902, the total population
has increased from 5,141,508 to 5,456,931, or
under 8 per cent. — not very much more rapidly
than our own. At the census of 1901, the rate of
increase was found to be less than it had been in
I 891. The birth rate and the number of persons
to a family are both decreasing. And is it not
a fact bitterly commented on that the " natural
increase " of Australasia, like that of France, is
arrested ? ^
difference — would be so small a benefit to the total volume of our
trade — that I do not believe the working classes of this country
would consent to make a revolutionary change for what they would
think to be an infinitesimal gain." — Mr. Chamberlain, 9th June, 1896.
^"How long are we going to be four times as many as our
kinsfolk abroad." ... "It seems to me to be not at all an
impossible assumption that, before the end of this half century, we
may find that our fellow subjects beyond the seas may be more
numerous than we are at home." — Mr. Chamberlain at Birmingham,
May 15, 1903.
^In the year ending June 30th, 1902, the total immigrants num-
bered 64,634. Of these, 24,000 came from the United States.
" Mr. Coghlan, the Government Statistician for New South
Wales, reports in 1903: "Present indications give no hope of
a teeming population springing from Australasian parents, for
XXIV. INCREASE OF COLONIAL WEALTH 233
But, of course, increase of trade does not depend
altogether on increase of population ; trade increases
also with growing wealth. A family of five may
buy as much as a family of ten, if it is twice
as rich. Think, then, it may be urged, of the
importance of securing this increase of purchasing
power.
But, under present circumstances, we have
secured the large proportion of the purchasing
power in five out of the six Colonies. In Aus-
tralia, New Zealand, and Natal, we have 63 per
cent, of the import trade ; in Cape Colony, 64J
per cent. ; and that without Preference. Only
in the one Colony which gives us a preference is
the proportion the other way about — 23 per cent.
British to 75 per cent, foreign — and the propor-
tion is falling.
If, then, all that Canada's Preference has done
for us is to secure a small and a diminishing
proportion of Canada's imports, and if, without
Preference, we have already the larger proportion
of the imports of the other five Colonies, is it
common sense to ask us to become protectionist
in the hope that we may secure a still larger
proportion ? What guarantee or hope have we
that, under Preference, the five Colonies will serve
us any better than Canada has done?
But, if they do not, the argument for Prefer-
ence goes by the board.
the birth rate in all the States has declined very greatly, especially
during the last fifteen years, and, when compared with the total
population, the births in three of them are proportionately less
numerous than in any European country, France alone excepted."
CHAPTER XXV.
THE PRICE OF PREFERENCE.
If we give a Preference, it must be on articles of importance
to our Colonies ; hence the proposal to tax Food. This should
raise its price. Bnt, if it does not, the Preference has failed. If,
ho^uever, it does, we are taxed in hundreds to give an extra profit
of tens to the Colonies. Would not a direct subsidy be fnuck
cheaper ?
From our possible gain by getting a Preference,
we turn to ask what is the price we shall have
to pay in giving one.
An economist would say that the price is
the giving up of Free Trade with all that this
involves, and think he had said enough. Perhaps
he would add that we have already paid a heavy
price in hoisting the white flag at a time when
so many influences and experiences were working
for the lowering of tariffs abroad. But, passing
this by, it seems clear enough that, unless our
Preference to the Colonies is to be a mere empty
compliment, we must give them an advantage on
things which they send in considerable quantities.
This involves that we tax similar articles coming
from foreign countries.
CH. XXV. AN UNSELFISH PROTECTION 235
It is rather an absurd principle on which to
draw up a tariff. The defence of ordinary Pro-
tection is that it protects men as producers,
though it makes them pay for it as consumers.
But here we have a Protection which does not
protect our producers, and certainly cannot be a
gain to our consumers. It is taxing ourselves for
the protection of our children's industries. It is
often alleged of the co-operator that he pays
a dearer price at the Stores in order to pay him-
self a dividend. But this goes one better. The
British mother is to pay a dearer price to let
her daughters have the dividend. It is at least
a very unselfish form of Protection. Hence we
need not expect to find our new tariff conform to
any canons ever yet laid down by other nations
in their tariffs.
Accepting the principle, however, let us ex-
amine the imports into our country from the
principal Colonies, in order to ascertain which
articles are of importance to them.
The imports from Canada into this country,
in 1902, were ;^2 3,000,000, spread over yi
categories. Of this, Wheat, Wheatmeal, and
Flour accounted for £0^ millions ; Cheese, ^^4.3
millions; Oxen and bulls, ;^ 1.6 millions; Butter,
;^i.3 millions; Bacon, £\.2 millions. The only
other import above the million was sawn and split
Wood, £df.l millions.
The imports from Australia, in 1902, were
£\g\ millions, spread over 65 categories. Of
these, Wheat accounted for -^4.8 millions ; Meat,
;^i, 285,000 ; Fresh Mutton, ;<^543,ooo; Butter,
236 " YOU MUST TAX FOOD'' chap.
i^402,ooo ; Wool, ^^"9,738,000 ; Unwrought
Copper, ^909,000 ; Lead, pig and sheet, £^ 5 4,000 ;
Leather, £^ 1 3,000.
The imports from New Zealand, in 1902,
were ;^iof millions, spread over 30 categories.
Of this, Meat accounted for ^^3,91 5,000 (Fresh
Mutton alone constituting £^\ millions) ; Butter,
;^78i,ooo; Wool, ;^3, 798,000 ; Tallow and
Stearine, ^^650,000 ; Hemp, ^^470,000.
The imports from the Cape, in 1902, were
£\o\ millions, spread over 24 categories. Of this,
Precious Stones accounted for i^5, 3 80,000; Wool,
;^3, 148,000; Ornamental Feathers, ;^934,ooo ;
Sheepskins, ;^3 34,000.
To anyone examining these lists with the view
of finding what goods from foreign countries
should be taxed in order to give the Colonies a
substantial Preference, it must have been evident
that the choice lay between Raw Materials and
Food. And so we find that the new Protection
does not, of a truth, conform to any ordinary
canons. For raw materials being barred out by
the fact that Great Britain is pre-eminently a
manufacturing country, the only alternative is the
taxation of food. And this, in all probability,
was the genesis of Mr. Chamberlain's famous
declaration at Glasgow : " You must tax Food." ^
^ His proposals are : 2S. on foreign corn, excluding maize, and
a "corresponding" (but apparently higher) tax on flour; 5 per
cent, on foreign dairy produce and meat, excluding bacon ; a
" substantial preference upon Colonial wines, and perhaps upon
Colonial fruits"; and "a moderate duty on all manufactured
goods, not exceeding 10 per cent, on the average, but varying
according to the amount of labour in these goods."
XXV. THE PRICE SHOULD RISE 237
It has generally been assumed, as needing no
proof, that the taxation of food will inevitably
raise its price.^ But, during the last few months,
it has so often been said that a small tax will not
have this effect, that the statement must be care-
fully examined.
I. The first thing I should say is, that it ought
to raise the price. The precedent is often
pointed out that a small rise in the tobacco duties
does not involve a rise in pipe-tobacco, or cigar-
ettes ; that the tax is spread over the producers
or borne by one class of them. And if the
statement above means that, if, and although,
i"I do not know whether the honourable member (Mr.
Ecroyd) thinks you can tax food without raising its price. I
would, at any rate, lay down the axiom, to begin with, that that
is impossible ; and that it is only by increasing the price that the
object of the honourable member can be achieved, and that you
can stimulate the growth and prosperity of our Colonies. The
modest proposal he makes (to tax grain 4s. or 5s. per quarter)
would raise the price of home-grown corn also, and the result
would be that the British consumer would have to pay a lax of
;i^40,ooo,ooo, ;^ 1 4, 000,000 of which would go to the revenue if
the foreign importations continue, and ;^26,ooo,ooo would go, not
to the farmer or labourer, for, if anything is proved by the
experience of the past, it is that it would go neither to the
farmer nor the labourer, but to the landed interests, to enable
them to keep up their rents. All I have to say, to a proposal
of that kind, is that it could never be adopted by the country ;
or, if adopted, it would be swept away upon the first recurrence
of serious distress."— (Mr. Chamberlain, in House of Commons,
24th March, 1882.) That Mr. Chamberlain holds to his old faith
is evident by his proposed exemption, from the Colonial prefer-
ence, of maize, "a food of some of the very poorest of the
population," and of bacon, " a popular food with some of the
poorest." Why should they be exempted, unless it be that, other-
wise, they would rise in price?
238 IF PRICE DOES NOT RISE chap.
2s. is added to the cost of a quarter of wheat,
the quartern loaf will sell for 6d. as before, I say
it is quite possible. A tax is only one consti-
tuent in cost ; everyone knows that the price of
cotton cloth is not necessarily higher because
oil happens to be dear, or if coal goes up, or
even when raw cotton rises. Taking the quarter
of wheat at 25s., two shillings on that means a
rise in the cost of the raw material of some 8
per cent. This additional cost must be paid
in some way, but it need not be by the eater
of bread. My thesis is, that it ought to be paid
by the eater of bread. The country, under this
scheme of Protection, is going to undertake a risk
— and perhaps a sacrifice — for a certain common
or national purpose. This is a kind of expense
that ought to be covered by taxation. If it is
added to the price of bread, it is indirect taxa-
tion and does tax everybody. In fact, it
is an Income Tax against which there is no
appeal or escape. It is not good taxation
according to any recognised canons, but it is
taxation. But if the 2s. charge falls on anybody
but the consumer, it falls on classes who, on any
principles of equity, should not be asked to bear it.
If it falls on the baker : — why, what has the poor
baker done that he should bear the burden of
a national experiment ? The same question arises
if it falls on the miller, or the farmer, or the
railways, or even the landlords.
I question if one might not go further, and say
it should not fall on the foreigner. To get other
people to pay our taxes for us is not an " ideal
XXV. THE PREFERENCE HAS FAILED 239
form of taxation," as it has been called : it is
contrary to the idea of taxation. If I am living
in my father's house and paying board to him
for my expenses, I should not consider it right
to take a good friend of mine by the collar when
he comes to the front door, and say to him :
" You must pay my board for me, or I shall not
let you in." Such an idea is just the old fallacy
that the foreigner is a stranger : " Let's 'eave 'arf
a brick at 'im."
II. The second thing I should say is that, if
the price of grain, dairy produce, meat, etc., does
not rise, the Preference has failed. Suppose that
the tax is imposed ; that the foreigner pays it as
the price of admission to Great Britain ; and
that, on account of its being a small one, he con-
tinues to send in his foodstuffs as before, what
is the good of the Preference to the Colonies ?
Canada just now is sending us £,d^ millions of
wheat, wheat meal, and flour, when the price is,
say, 25s. It may be presumed that she is send-
ing us all that it pays her to send at that price ;
that, in fact, she is sending us all she can.
What inducement, under the new system, has the
Canadian farmer to send more ? He must grow
more in order to send it. But, presumably, he
is growing as much as he can. The question,
then, is : What temptation is there for more
farmers to settle in Canada and raise wheat ?
The price of wheat has not risen, and demand
in England has not increased. Things are
exactly as they were ; as much grain coming in
from America and other countries ; as much
240 PROBABILITY OF THIS FAILURE chap.
being grown at home ; the same amount of
competition as now. Where is the inducement ?
And, if the Preference fails, why have we turned
everything upside down ?
This probabiHty of failure is surely evident.
The very curious thing is that so many people
do not see it. They mouth the magic word
Preference. He who gets a " preference " is
" favoured." He who is " favoured " must in-
crease his sendings. Give Canada a preference
and she will double her wheat acreage. Ask
what is the inducement to double the acreage,
and the bubble bursts. The only inducement to
a man to extend his business, is to make more
money. But how is this " more money " to be
made if the Canadian exporter does not get more
for his grain, and if the competition to sell it is
just as severe ? Suppose I am a poor thread
maker, not in the great combine, struggling
to keep a small trade against J. & P. Coats,
and suppose I am told that a beneficent govern-
ment, on my behalf, is going to tax J. & P. Coats'
profits lo per cent, how will this help me? I
shall not sell one spool more of thread, and the
price of thread will not rise. J. & P. Coats are
a little worse off, but I am no better.
The fallacy is, that the hurt of one man is
the healing of another.^ The American is hurt
undoubtedly. He gets 2s. less profit. But the
^Of course the revenue gains; it gets 2s. on every qr. imported
from foreign countries. This is a gain ; but it is a gain to us, not
to the Colonies, And we have been told that taxation for revenue
is not the aim of a preferential tariff.
XXV. THE ONLY POSSIBLE ADVANTAGE 241
Canadian gets no more profit than he is getting
now. And if the preference tax does not favour
the Colonies, it is useless.
The American, however, is hurt, and, at this
point, rises a question. Is it not true that the
prejudice to the American grower is, in some
sense, an advantage to the Canadian ? In one
sense, it is true. There is, just now, considerable
rivalry between the United States and Canada as
fields for emigration. Although Canada is grow-
ing from outside, America is growing much faster.
But, within the last year, hundreds of American,
farmers have crossed the boundary into the!
Dominion to get advantage of the better climate'
and the virgin soil. It seems reasonable to say
that the Preference will give an impetus to
emigration into Canada.
This, then, is the possible advantage which
the Preference may give to the Colony. It is
a little roundabout ; it certainly falls far short
of what is generally expected of a Preference.
It gives no help to the present colonist ; it
only helps to fill up his country faster. It
may be questioned if such a far-away gain
is worth the disturbance — if it is worth while
penalising our cousins, the Americans, for the
sake of an advantage to brothers who are not
yet in the country.^
^ It is no part of the idea of Preferential Tariffs and the taxation
of food, to protect our agriculture. But, as it is sometimes sug-
gested that it would not be a bad thing if they did so incidentally, it
may be pointed out that, if prices of food stuffs do not rise, the
agricultural interests remain in the same position as at present.
Q
242 WHAT IT WILL COST US chap.
If it be the case, then, that a small tax on
food will not raise prices, it would appear that,
if we do not gain much by getting a Preference,
we gain as little by giving one.
We pass now from possibility to probability.
Confining our attention to corn, let us assume that
corn rises in price by the full amount of the duty.
The position, then, is that the foreigner pays 2s.
to get in, but, as he gets 2s. more price, he is as
well off as he is now, though, of course, no
better off. The Colonies, on the other hand,
get their corn in free, and, obtaining 2s. more
price, are 2s. better off than they were. Our
farmers also get the extra price, and they are
2s. better off How does it affect us, the
Consumers ?
We consumed altogether, in 1902, 84,000,000
qrs. of wheat and grain.^ The rise in price on
this, at 2s. per qr., is ^^8,400,000. This is the
extra price which our consumers have to pay.
Of this total, 42,000,000 qrs. come from abroad,
and they pay 2s. to the Exchequer, or ;^4, 200,000.
This, at least, is not loss ; it comes back to
us in government services. But 7,000,000 qrs.
come from the Colonies, and these pay no tax.
The 28. on each quarter, or ^^700,000, goes to
the Colonies as their share of the new benefits —
Nor does the Empire come much nearer being "self-sufficient";
for, as we see, there is no inducement to the present colonist to
add a single acre to his holding.
^ The figures are taken from a calculation made before the Edin-
burgh Chamber of Commerce on 23rd June, 1903.
XXV. IF PRICE RISES 243
paid out of our pockets, of course, but, presum-
ably, a willing payment for the good of our poor
Colonial brethren. As to the 35,000,000 qrs.
grown at home, they pay no excise or tax, and
2s. on this, or i^3, 5 00,000, go to the agricultural
interest in the shape of higher prices.
If it be the case, then, that the taxation of
food will raise its price, we shall have to pay for
getting a Preference from our Colonies. In the
one item of grain alone, even when we have
deducted the duty levied on foreign grain and
paid into the Exchequer, it will cost us over
;^4,000,000.^
But perhaps it is time to remember again that
what all this scheme aims at is not our own
advantage but the advantage of the Colonies.
Its success, then, must be judged by this. Is not
the result a little inadequate? To give ;^700,ooo
to Canada and Australia — the others do not send
grain — we are to impose indirect taxation to the
amount of over ;^8,ooo,ooo. Sir Robert Peel
^ Granting that ;i^700,ooo of this is a free gift to the Colonies, it
may be said that £t^\ millions of the tax come back to a very con-
siderable section of the people, the agricultural classes. True ; but
even here two serious considerations must be taken into account.
The first is that, although these classes get £,l\ millions, they have to
pay more for their bread, just like the rest of us. The second is that
the great bulk of it will never go near the farmer or labourer, but
will, inevitably, go to the landowner in raised rents. Of course,
if it be true, as alleged by the protagonist of the movement, that
the prosperity of one class is the prosperity of all, it does not matter
if the farmers have to pay high rents : the landowners will have
more money to spend !
244 /^ THERE NO CHEAPER WAY? CH.xxv.
once said on a s*' nilar question : " If we must
do it, for God's sake, let us pay it directly." I
ask. Would it not be much cheaper to vote a
sum of ^700,000 direct from the Exchequer to
these Colonies?^
^ Mr. Chamberlain's ingenious calculation that, although food
rises, there "will be no sacrifice," deserves only passing mention.
All that is necessary, he says, is a "small transference of taxation
from certain kinds of foods to certain other kinds of food." Man
does not live by bread alone, but by sugar and tea. We can reduce
the sugar and tea duties in such a way that the working man and his
family will save as much on them as they pay extra in bread. His
proposal is to take off half the sugar duty and three-quarters of the
tea duty, thus relieving the price of these commodities by some £lh,
millions. The Exchequer would lose this, but it would be compen-
sated by the new Protective duties — the suggestion, I suppose, being
that, instead of the home consumer paying these taxes, the foreign
producer would pay them. But, of course, the scheme depends on
the sugar and tea duties remaining at the present high level. When
it is remembered that, before the war, there were no sugar duties
whatever, and a tea duty of 4d, instead of 6d., it is seen that we are
to get, as compensation for dear food, what we might have expected
to get by the mere return of peace.
CHAPTER XXVI.
HOW PREFERENCE WILL AFFECT
AGRICULTURE.
.4 rise in prices will induce the return to wheat growing here,
'luith the result that when, in time, prices fall again, our farmers
will be caught as they were sixty years ago.
As was said, the scheme of Preferential Tariffs
is not intended to protect any of our industries.
It has, indeed, been admitted that, incidentally,
it might do so, and, without much thought, the
suggestion may have been accepted that, if it
did, no great harm would be done. But what
if the incidental Protection does harm to the
very industry protected ?
According to the proposal, we are to give a
financial inducement to the Colonies to send us
wheat. It is always the first step that costs, and
the first step is the breaking in of new land. We
give a bounty to the Colonies to enable them to
take this first step, and the land afterwards is as
good, say, as our best land. Foot by foot the
Canadian acreage grows, till in time the Canadian
exports overtake the American exports.
246 THE RETURN CHAP.
One thing, however, has been forgotten. It is
that the American wheat grower is not suffering.
He is not, indeed, getting the 2s. extra like the
colonial, but he is getting as good a price for his
wheat as he does now — paying 2s. duty and
getting 2s. more price. Will the American
supply stop ? Why should it ? Will the mere
fact that the Canadian is getting 2s. more, in-
duce the American farmer to grow less ?
But as the Canadian import increases, while,
at the same time, there is no diminution of the
foreign import, there comes the inevitable effect
of an increase of supply, a fall in prices.^
Is there no harm in this ? Does it only mean,
after all, that our Colonies meanwhile have been
paid a bounty, and that our agricultural people
have got an extra price? It means much more.
The cost of raising colonial wheat, perhaps, will
fall ; but the cost of raising British wheat will
not. It is entirely different with us from what
it is with our Colonies. They have millions
of acres of virgin soil that only requires to be
brought under the plough to make it permanently
productive land. But we have no such surplus
soil. Just now, all the wheat lands that pay are
under wheat. If the inducement of 2s. a qr.
extends our wheat fields, it must be by growing
^This is recognised and welcomed. The confident expectation
of Sir Gilbert Parker, for instance, is that, under this induce-
ment, prices will rise in the first instance, then steadily begin
to fall, and, ultimately, come below the present level. When it
is confidently prophesied that Preferential Tariffs will lead to the
cultivation of our derelict land and empty the slums, this should
be remembered.
XXVI. TO WHEAT GROWING 247
wheat on lands more costly to cultivate than the
present. This pays so long as the price keeps up,
but what happens when it comes down again ?
Why, the fall catches our farmers just where the
withdrawal of Protection caught them sixty years
ago.
Before that time, wheat growing, under the
inducement of protective prices, was the staple
of farming. An East Coast farmer once told me
that, if he had been advised to grow potatoes
then, he would have answered that he was not a
gardener. Not only were lands entirely unsuit-
able for wheat put under the plough, but the old
pastures, rich in animal and vegetable remains —
literally capital accumulated in the course of
centuries — were broken up. Then came the
withdrawal of the artificial price. In many places,
the sweet, short herbage, so suitable for sheep, was
gone for ever. But, once a farmer, always a farmer;
and our people found there were other crops that
would pay, at anyrate if cultivated on a large
enough scale. Rents fell, and the landowner has
never ceased to sigh for the good old times when
rents were £^ an acre, even if the labourers got
only 7s. or 8s. a week, and lived on barley meal and
Swedish turnips boiled together. But farmers have
found a living in pasture and dairy farming, in grow-
ing early potatoes, turnips, celery, cabbage, mustard,
peas, beans, flowers, and fruit. It was becoming
recognised that the function of agriculture in this
country was to grow things that could be better
and more cheaply grown at home than abroad ;
that, as the cities extended their areas, the
248 WHEN WHEAT FALLS AGAIN CH.xxvi.
province of the home farm was to provide them
with produce that must be supplied fresh every
day ; that the farmer was an employer of labour,'
and, like other employers, must find his profit by
perpetual struggle after better methods, cheaper
production, larger results ; that the men with
small capital and less brains must be left behind ;
that the farmer — like the professional man — must
accept the " fine life " as part of his real wage.
On the whole, it was a beneficent revolution.
And now farming is to be attracted back again
into a channel that is artificial, and depends for
its continuance on the continuance of high prices.
Then this high price goes — and where are our
farmers ? They will have to take their capital
out of wheat growing, and go through the long
process of depression and loss over again. ^
^ Of course, it will be answered, and very reasonably, that a pro-
tection of 2s. will not do much to induce wheat growing at home.
I merely give the above as a statement of tendency — not unneeded,
perhaps, in face of Mr. Chamberlain's own words about other
nations : "They began perhaps with a low tariff. They continued
it so long as it was successful. If they found it ceased to do what
it was wanted to do, they increased it." For there is a danger in
the very futility of these proposals. If the 2s. is found to give the
Colonies either no advantage or this trifling one, is it likely that a
tariff of this amount will be continued when it is obviously futile, or
an experiment of this magnitude abandoned for want of trying the
"little more" that might transform it into a success? Now, as
always, it is the first step that costs.
\,
CHAPTER XXVII.
THE PRICE OF EMPIRE.
Summing up, the Return to Protection involved in preferential
tariffs is a heavy price to pay for an experiment. Granting all the
attractiveness of a '■^ unified empire" it is more than doubtful if this
would not be a long step towards its disintegration.
Thus we have summed up the gains and losses
of Preference. It seems to come to this : that the
demands of the self-governing Colonies are to
dictate the commercial policy of an Empire which
includes the not insignificant free-trade members
of the United Kingdom, the Crown Colonies, and
India. And, these " demands " are held as a
threat over us. It is " the only system by which
this Empire can be held together."
It looks a poor return for having given these
Colonies self-government. They have Protection ;
they are to retain it. They have unbounded pros-
perity ; they are to have more. They have cheap
bread ; they are to have it cheaper.
We have Free Trade ; we are to give it up.
We have prosperity ; we are to imperil it. We
have millions to whom cheap food is a vital con-
sideration ; we are to tax their bread and meat,
250 A STRAIGHT ISSUE: chap.
their tables and chairs, their pots and pans, the
few poor rags of bedding and napery they possess.
At last we are faced with a straight issue.
This is the price of Empire. The Colonies stood
by us in the war. Our hearts warmed with pride.
It is what we might have expected of the
native-born, but we were glad we found it. And
now the bill comes in.
The demand for a quid pro quo from a mother
country which already gives so much, reminds me
of a little girl I once knew, whose mother supplied
her with pans and flour and raisins, in return for
which the child sold the mother her cakes at "shop
prices ! " Did any other mother country ever
give her colonies, not only parliaments and legis-
latures of their own, but liberty to tax her goods
even to the extent of prohibition,^ while, all the
time, she paid almost the entire expenses for
the defence of the family ? Has she not lent
to them freely ? Has she not put their securities
among her trustee investments ? Does anyone
think that they could borrow as cheaply as they
do unless they were members of the British
Empire? Is a preference in their tariffs not " the
least they can do " ? ^
1 " Fiscal policy," says Earl Grey, "was not intended to cover
the liberty of establishing protective tariffs against us." His ex-
planation is, that, "at the time when Protection was exphcitly
introduced, we had people in power who had no hope — perhaps
no great wish — to keep the Colonies." — Commercial Policy of the
British Colonies, p. 14.
^In 1897, Sir Wilfred Laurier, introducing his Preference by
saying, ' ' We have done it because we owe a debt of gratitude to
Great Britain," used the significant words: "Suppose England
XXVII. THE QUID PRO QUO 251
Already the Colonies send us the most of their
exports. Naturally so ; not because they love us
and we love them, but because we are the one
great country which admits their goods free.
They do not, then, need to ask us for free trade,
or claim it as their British birthright ; they have
it. They want more ; like spoiled children, they
want it all — the right of free trade confined to
the children of the Empire. They ask us to tax
foreigners, that they may get some of the trade
which other nations are getting — trade on which
they think they have a claim. Is it unreason-
able to remind them that " reciprocity must not
be all on one side " ?
It is to be noted also that, in taxing foreign
people, we may be taxing British capital. If the
labour of other countries is foreign, a great deal
of the capital is ours. Possibly not less than
;^ 1 00,000,000 of British money is invested in
the Argentine Republic. The part of it sunk
in railways, docks, warehouses, depends for its
dividends on the handling and transport of
the wheat, maize, linseed, wool, meat, cattle,
raised very largely on British-owned estates. Is
it quite reasonable to tax our own capital, even
for the sake of our children ?
abandoned her Free-Trade record. She would inevitably curtail
the purchasing power of her people. And do you not think we
should suffer from that, we who alone have natural resources
enough to feed her millions from our fertile fields ? I have too
great a belief in English common sense to think they will ever
do any such thing. . . . We know that the English people will
not interfere with the policy of Free Trade, and we do not desire
them to do so. "
252 A UNITED EMPIRE chap.
There can be no question that the idea of a
" United Empire " is a very grand one. Believ-
ing that Great Britain stands for freedom and
peace, we must believe in its continued existence
and growth as a world power. The patches of
red on the map — these eleven million square miles
with their population of some 400,000,000 — are
connected just now, more closely than we quite
realise, by the coaling stations, dotted all over the
world, that almost secure us the command of the
seas. But can we not weld them together into
one indissoluble whole ? So Imperial Federation
has caught the national imagination, and will be
worked out in one way or another. But to make
Preferential Tariffs the method and the bond, and
to say that this is " the only system by which the
Empire can be held together," is not only, in my
opinion, quite wrong, but is to draw an antithesis
between Free Trade and Imperial Federation which
might compel us to choose between the two.
Will such a system really make for unity? It
looks plausible on the face of it. We are to
" prefer " colonial goods, not sentimentally, but at
some cost. Colonial merchants, being favoured
guests in our ports, will increase their trade
with us. The Preference will be a definite motive
to the Colonies for remaining within the British
Empire ; at least a deterrent from leaving it.
The preliminary question is : Is there any sign
that they wish to leave it ?
What Canada may do^ seems impossible to tell.
1 1 imagine the other Colonies may be left out of account ; thus
far, they have shown no thought of leaving the Empire.
XXVII. WHAT CANADA MAY DO 253
She is the most cosmopoh'tan community on the
face of the earth, and, though she speaks through
a government which is thoroughly loyal, the
government of to-day may not be the govern-
ment of to-morrow.
Some say that it is Canada's " manifest des-
tiny " to join the United States. The political
impulse is geographical continuity ; the com-
mercial attraction is that she would thus get
a market of 80,000,000 people on a Free
Trade basis — with, one supposes, the corollary
that she would still keep our Free Trade market
of 42,000,000 people, to say nothing of the
British possessions.
It may be so. On similar grounds, it might
be said that Austria's manifest destiny is to join
the German Empire ; yet she does not. Old
ties of kinship, pride in the British name and
traditions, will have something to say against
any such union. The name of republic does not
attract everybody as compared with the reality of
freedom. One would think that the people of
Canada, having all the liberty they want, have
little political inducement to join the United
States. It is not as if she were a colony in
the old sense. Do we not respectfully salute her
as the Dominion of Canada ?
Others say that she is only waiting on our
adverse decision to conclude a Reciprocity Treaty
with the United States. This, perhaps, would
mean the abandonment of her Preference to us,
or giving the same preference to America.
Against this, however, stands the consideration
254 WILL THIS SECURE UNITY? chap,
that Canadian manufacturers have as much reason
to fear American competition as they have to fear
ours. Evidently, what the Canadian manufac-
turers want, is to remain as they are, with suf-
ficient protection against us, America, and all
the world.
We hear, again, of aspirations for independ-
ence. This seems to me an argument made in
Ireland. How much better off Canada would
be as a Republic than as a Dominion, is a little
obscure, while the burdens she would have to
assume in making herself independent, are by no
means obscure. And it is not at all clear that
aspirations for independence would be in the
slightest degree checked by Preferential Tariffs.
But suppose it granted that the preference to
our own kinsfolk and the handicapping of the
foreigner is, in itself, an act which the Colonies
will welcome as at least a sign that we are willing
to make sacrifices to hold the Empire together,
the question remains : Will this make for unity?
Let us remember what Free Trade is. It is
the commercial side of our political faith. It
is the extension to the international sphere of the
freedom we have at home : the free buying of
what others as freely sell at " natural prices " —
the prices determined by free rivalry in service.
Sixty years ago, a free people exercised their
freedom of choice and adopted it. The same
freedom of choice this mother-country extended
to her self-governing Colonies. Unfortunately, as
we think, these colonies chose to restrict their
freedom to internal trade, and adopted Protec-
XXVII. EVEN-HANDED TREATMENT 255
tion against outsiders, including ourselves. Now,
under Preferential Tariffs, we are both to go back
on our choice ; we each of us restrict our freedom
and consent to be tied by each other's hands.
We form ourselves into a mechanical unity ;
lose our natural relations with the rest of the
world ; and seek compensation within our own
house. But will this secure unity among the
members of the household ?
The first consideration that strikes me is that
a family may enjoy the shelter of the one
roof and yet be very far from being a united
family. We are not, I imagine, going to step
down from our own position as the mother
country, and become only one of a league of
equal states : the family must still have a head,
and that head must be Great Britain. But the
children, be it remembered, have long ago enjoyed
houses of their own, and will not take kindly
to the resumption of parental government. And,
being the mother country, the question will
be continually emerging : Are the individual
children of the Empire all getting even-handed
treatment ?
In the present proposals, the mother country is
asked to favour her children in a way that seems,
at first glance, very unfair. One Colony has its
chief interest in wheat, and the wheat is to come in
free, as against 2s. on foreign wheat. But another
Colony has its chief interest in wool, and there is to
be no duty on foreign wool.^ The duty on meat
' Wool constitutes about half the total exports of Australia and
one-third of the total exports of New Zealand to the United
256 EVEN-HANDED TREATMENT chap.
would benefit New Zealand as regards £'i^\
millions of her exports, out of a total oi £\2
millions. But it would not benefit Australia in
anything like the same proportion. One hopes
that, in all this cut-and-dried scheme for the
taxation of food and the non-taxation of raw
materials, it has not been forgotten that it will
be the British Empire which concludes these
reciprocal treaties, and not Great Britain alone.
There is, indeed, a more fundamental difficulty
in these proposals. A reduction in our tariff to
certain Canadian products is not a preference to
" Canada " ; it is a preference to a certain group
of industries in Canada ; and any advantage there
is goes to the individuals in that group. Thus
a preference on grain benefits the North-West,
including Manitoba and the Territories — one-
eighth only of the whole population — and does
nothing for the other Provinces. A preference
on meat would be welcomed by Ontario, but
would do nothing for British Columbia and the
Maritime Provinces. It will be a little difficult
to convince the non-favoured provinces, and the
individuals of the non-favoured groups, that such
a preference is an inducement to loyalty. We,
in this country, know something of the bad feel-
ing which can be called forth by an " injustice "
to one member of the British Isles.
Kingdom (in 1902 £oi% millions out of ^igf millions for Australia,
and ;!^3| millions out of ;^io| millions for New Zealand). It is
one of the inevitable anomalies which would ensue under a Pre-
ference that, even if we gave a reduction on wool, Australasia
would not appreciably gain, as she already sends us ^13^ millions
out of our total import of sheep and lambs' wool of £20 millions.
XXVII. INCOMPATIBLE POLICIES 257
But if we are overborne by this consideration
of even-handed treatment, and so far sacrifice
our obvious interests as to extend our preference
to all the great exports of our Colonies, we place
ourselves in a very singular position as regards
other countries. We shall come into rude
collision with the very principle on which the
Retaliatory proposals are founded ; we shall, in
all probability, do serious injury to our trade with
many foreign countries which have treated us
well, and little prejudice to others which have
shown us no consideration. This, of course, is
only one illustration of the hopeless incompati-
bility of the two policies which Mr. Chamberlain
proposes to run in double harness. It might
conceivably be possible to adopt Retaliation with-
out becoming definitely protective, but it requires
little judgment to foresee that the adoption of
Retaliation and Preferential Tariffs together must
land us, in a very short time, in the most illogical
and incongruous tariff in all Europe.
All this takes account only of the relation
between the Mother Country, the Colonies, and the
rest of the world. But beyond this, again, is the
relation of the Colonies to each other. To each
Colony every other is a competitor, just as much as
foreign countries are ; and we may be sure that,
in drawing up its tariff, each will attempt to
get the greatest advantage from and give the
least advantage to ever}- other part of the fede-
rated Empire. But, to keep a United Empire,
all these diverging interests must be reconciled
with the interests of the mother country, and
R
2 58 A LONG STEP TOWARDS chap.
with those of the Free Trade members which
she has in her keeping. Such a task was never
yet attempted by any nation under heaven : it
seems to me quite beyond human power.
Lastly, there remains the question of perman-
ence. If this bond of Preferential tariffs is once
established, it cannot be broken but by the con-
sent of at least the majority. This means that our
fiscal liberty is gone, and that the fiscal liberty of
the Colonies is equally gone. What, then, if a
strong Protectionist party in the Colonies begins
preaching that their industries are being sacri-
ficed to English manufactures, and demands
drastic revision of the Preference clauses ? What,
again, if, after a temporary victory of Protection
and the establishment of Preferential tariffs, an
out-and-out Free Trade government comes into
power here, asking if the selfish interests of two or
three small sparsely populated Colonies are to
outweigh the interests of the Mother Country
and of her other possessions ?
It seems to me that, wherever we look, the
prospects are all of conflicting and comparative
interests, compromise tariffs, incessant bargainings,
incessant readjustments, incessant bickerings and
heart burnings, incessant temptation to disunity
and bad feeling. If this is " the only system by
which the Empire can be held together," we may
well despair of the future. Does not everyone
see, indeed, that the unity we now have has
already been perilled by the raising of questions
which should never have been raised ? Is not
XXVII. DISINTEGRATION 259
the very inquiry we have been forced to make
— the gain or loss to us of Preferential tariffs —
one which the true patriot must heartily wish had
never been necessary ?
CHAPTER XXVIII.
TAKING STOCK.
If the case for Free Trade remains unshaken, there are at least
tivo lessons we have learned. (/.) That Free Trade is merely a
condition under which men trade; it may be outweighed by the
natural resources of other countries ; by their wiser government
provisions ; by their better methods ; by their better habits of life.
{II.) That circutnstances have changed since 1846; the world's
growing wealth and poptilation make it quite impossible that
England should remain the world's sole ivorkshop and keep the
local trade of other countries ; the severer struggle of international
competition makes the demands on the individual heavier, and
the task of the employer inore onerous, though more honourable.
Finally, must be considered the position which Free Trade has given
us in making evety new acquisition of Great Britain an open
market for the whole world.
After nearly a year's unremitting discussion,
during which the old argument has been restated,
old history been retold, and present discontent
has found voice, one may ask, "Is the case for
Free Trade shaken ? "
I do not think it is. But the discussion has
not been wasted. It is a good thing for a faith
to be attacked as a fetichism and its creed as a
shibboleth. Free Trade was too easily taken on
CH.xxviii. FREE TRADE A CONDITION 261
trust, and economists at least have long known
that the man in the street had very little reason
in his mind for the faith on his lips. I think
that those who were willing to be taught have
learned two things which were worth learning.
I. The first is that Free Trade is after all only
a condition under which men trade. And it is
not freedom but the use men make of it which
tells. Nations may have less freedom, and yet
make better use of their opportunities. If we
had realised this earlier, we should not have spent
so much time over the question why it is that
Protected countries have flourished under a system
which seems to impose so many handicaps.
There are many reasons for it. Natural re-
sources may outweigh wrong methods of using
them. No fiscal system will fill a country with
minerals, nor change its climate, nor give its
people brains ; a country that is well equipped
in these respects will not easily be held back,
even by a mistaken effort of its government to
guide the employment of its people.
Again, a government that we count foolish in
its fiscal policy may be wise enough in other
directions. Germany devotes large sums to edu-
cation, general and technical : a university training
is not counted a disability for business life : even
her military system may drill the people into
habits that are useful for industrial occupations.
France has a land and succession system which
secures peasant proprietorship, keeps people on
the soil, and gives them the most personal
interest in their work. Denmark, lending a
262 IV/SE STATE AID CHAP.
helping hand to the co-operative organisations
initiated by her farmers, gives an example of
wise State aid which we might do well to follow.^
Free Traders do not in the least minimise the
work that governments can do. The proof of this
is that ours is pre-eminently the country where
Factory Acts, Education Acts, and all manner of
sanitary regulations have expressed the " broader
view " of freedom against unregulated laisser fah-e.
All that they insist on is that the sphere of
government shall be limited to laying down the
conditions which shall allow the citizens as a
whole to realise the best that is in them, and
1 1 am tempted to quote from Bulletin No. 6 : Department of
Agriculture, Ireland, 1903, on Agricultii7-al Co-operation and Credit,
p. 10: "In Denmark, as in France, the State, in its action in
assisting farmers, is closely dependent on the co-operation of the
farmers themselves in voluntary associations. A State Department
of Agriculture exists, but it aims at encouraging and seconding, not
displacing, these organisations. Though the State has aided agri-
culture for a considerable time, it was not till so recently as 1895
that a separate ' Department of Agriculture ' was formed, dealing
with agriculture proper, surveys, cattle diseases, forestry, etc. But
the staff of officials is small, and is mainly occupied with accounts
and statistics. The agriculturists are assisted directly through the
previously existing voluntary local organisation with which the
Minister of Agriculture consults through a system of experts. The
Government spends annually about ;^ 108,000 in aid of agriculture ;
most of this amount is administered through the voluntary asso-
ciations, such as the Royal Danish Agricultural Society and the
Federations of local Societies, which Federations in turn act
through the local Societies. These local Societies are, it may be
stated, largely co-operative in their nature and methods. In
almost every instance — and certainly in the most prosperous agri-
cultural countries — the co-operative organisation of agriculturists
has not been initiated by the State, but has preceded the giving of
any assistance from the State."
XXVIII. BETTER METHODS 263
to helping them to stand the firmer on their
own feet.
Another thing that may outweigh the handicap
of Protection is where other countries adopt
better methods of business than we do. Some
time ago, we found — I think I may say, with
some amazement — that these handicapped coun-
tries were disputing neutral markets with us ;
even coming into our own, and selling goods
in the making of which we thought we had a
clear advantage. One part of the explanation
at least was not far to seek. The American
Trust, though born of a bad ancestry, empha-
sised the neglected economic truth that there
is often immense waste in competition, and that
cost may be very greatly reduced by combination
of effort and enlargement of the unit of produc-
tion. The excesses and failures of the Trusts
leave this fact untouched. Another part expla-
nation is embodied in what we hear everywhere of
the German commercial traveller. Granted that
England is " dear for her reputation through the
world " for honest goods and straight dealing
merchants. Yet, when our consuls everywhere
inform us that German travellers, speaking the
native language, are waiting at every door, selling
in measures and money that are familiar to the
people, invoicing goods duty paid, making ever}--
thing easy for the buyers, meeting — we may even
call it " pandering " — to the wishes of the cus-
tomers, we cannot hope that similar success will
attend those who content themselves with sending
English circulars and price-lists through the post,
264 DRINK CHAP.
or send out travellers who have to use an in-
terpreter and remember cities only by the names
of the hotels in which they stayed, or " sell only
according to sample." A trade depression which
would force our manufacturers to realise that the
seller must now wait on the buyer, might not be
a calamity.
And there is still another thing that may
outweigh the handicap. Other countries may
have attained better habits of life than we have.
There is no social or industrial enquiry ever set
on foot, but brings up the fact that " England
free " is not " England sober." The fetters people
put on themselves are sometimes worse than
any that mistaken governments can make them
wear. No one who has thought out the matter
will contend that short hours and his^h wasfes
are in themselves a handicap in international com-
petition. But when the leisure gained is not spent
in healthy exercise and relaxation, and when the
extra wage goes to the public house, we are
terribly handicapped in the struggle with more
sober nations. Short hours, in fact, are only
possible, economically, if they go along with
high productiveness, and high wages are a com-
parative advantage only if the wages pass into
high efficiency. It does not seem too much to
say that, if our artizans would add to their other
good qualities that of coming into their work
when the whistle sounds on Monday morning,
and keeping at it till it sounds on Saturday, and
would not waste their sub.stance in an indulgence
which never ennobles and which generally de-
XXVIII. NEW CIRCUMSTANCES SINCE 1846 265
grades, we should hear Httle more of these twelve
millions on the brink of destitution, who are
continually thrown in our teeth whatever " tests
of prosperity " we put forward. There is a pos-
sible reduction of cost here — every great employer
witnesses to it — which would enable us to force
our way through almost any tariff. One can but
sigh for another Mr. Chamberlain to rouse the
country to this peril at home.
II. The second thing we have learned is,
I think, that circumstances have changed since
1 846. The national stock-taking period of the
last year has not been lost if it forces us to weigh
these new circumstances, strike the balance of profit
and loss, and decide what our future policy is
to be. Those who defend Free Trade on prin-
ciples and on experience borrowed unreservedly
from the circumstances of sixty years ago, and
who vex their souls defending Mr. Cobden and
his prophecies, are taking weak ground. It is not
seriously doubted that, in 1846 and for many
years after. Free Trade justified itself. It gave
us the condition we needed in order to make
the most of our resources, and to take full ad-
vantage of the great inventions. At that time
we had a long start of the world. It is ques-
tionable even if moderate Protection would have
kept us back.^
^ " Sixty years ago open ports were merely an important aid ; they
were not a necessity as now. Of course, our heavy duties on corn,
aggravated by the stupid 'sliding scales,' had to be removed. But,
though we had long outgrown the stage at which Protection could
benefit any one section of the nation without doing a greater harm
266 ENGLAND CANNOT REMAIN chap.
But now it is different. Other countries have
pulled up. Their Protection was not able to
keep them back. And I do not think we yet
recognise the truth that we cannot expect to
remain the " workshop of the world." We have
no natural monopoly of manufacturing, and we
send our capital, our employers, and our workmen
freely to other countries.
Two things are forgotten. The one is that it
is quite impossible that this little island can
supply a world, growing so fast in population
and in wealth, with all the manufactures it wants.
I have come across no more significant reminder
to others, I think we might have prospered in spite of a tariff
averaging, say, ten per cent. For many of our exports were such as
foreigners could get only from us, at all events at a reasonable
price ; and our manufacturers wanted very few foreign products,
except crude material, on which a drawback could be granted if
it had been taxed on entry. In fact, there never has been, and
never can be again a monopoly of so great a share of the best
business in the world as we then had. Its origin lay partly in
character. The English had combined order with freedom, and
therefore had lived strenuous lives longer than any other nation,
unless it were the Dutch. That was one cause. The second was
that the Continent of Europe was at short intervals the field of
barbarous wars, which were almost as hostile to the growth of
capital and of highly organised industry as the present ravages in
Macedonia. Meanwhile England, blessed for two hundred years by
peace at home, developed a steady enterprise, and a faculty for
master inventions which have not deserted her now, though she is
distanced by her great colony in the United States in fertility of
minor advantages. She has turned to full account her natural
advantages in waterways, in coal, and in iron, and even sixty
years ago she had brought almost to their present perfection those
broad principles of massive mechanical production which have now
spread over the world." — Professor Marshall, Journal of the
Institute of Bankers, Feb., 1904, p. 94.
XXVIII. THE WORKSHOP OF THE WORLD 267
of the limits of our powers than Mr. Whiteley's
words at Bradford, quoted by Mr. John Morley :
" If every man could buy an extra woollen vest
for himself; if every woman could buy an extra
blouse ; if every child could wear an extra pair of
stockings ; why, the demand from all these mil-
lions of population, male and female, would be
so enormous that the whole of your plant would
not be able to meet it." This should remind
us that a ver)- moderate return of good trade
would cause such a run on our capital and
labour that, as in the early nineties, we should
have more than enough to do at home, and should
have to do as we did then — refuse foreign orders.
The other is that, as other nations grow, the}'
naturally develop their own home trade as their
most immediate and their most profitable interest.
Under Free Trade they would have done exactly
the same. The fact is, that we are still supplying
many goods to other countries which they would
long ago have manufactured for themselves, if
they had not been intent on devoting so much
of their capital and labour to industries where
Protection gave them the hope of large profits
without the stress of competition.
Circumstances, then, having so greatly altered,
we might have expected that, when an oppor-
tunity was given, and a hope held out, ever)-
interest hurt or pressed by the change would
find voice. I grant, in the fullest waj-, that we
have to count the cost of Free Trade now
as we had not to do before. In 1846 the
cost was paid, for the most part, by the vested
268 EVEN FOR INTERNAL FREE TRADE chap.
interests, particularly the agricultural ; and the
advantages gained were immediate and obvious.
It is not so now. As I said in the first chapter,
it was all very well so long as each country had
the natural Protection of distance, and exports
accordingly were products for which the export-
ing country had obvious natural advantages — in
days when France sent wines, and America maize,
and Norway timber. But now when America
sends wheat, and France woollens, and Norway
butter, we begin to feel the hard side of the inter-
national struggle to serve, and to question whether
the service is not outweighed by the hardships
of the struggle.
In internal trade, all nations have, practically,
agreed that, on the whole, the more liberty they
allow to every man to make and sell what and
where he thinks best for his own interests, the
better will be the results to the community. And
here they have counted the cost, and decided to
pay it. The path of progress within every
country is strewn with failures. Changes in
demand and changes in method of supply have
wiped out many once prosperous men and many
once prosperous industries ; have arrested the
growth of some places, and overcrowded others.
And the sad debris of change lies around us in
men and women who have not been able to
keep up with the course of modern industry —
worse, who have not been able, from pressure of
poverty, to bring up their children to take advan-
tage of the new conditions. I need only instance
one case : the women-workers in our large cities
XXVIII. IVE PAY A PRICE 269
who used to get a living by their needle at home,
and who now find their occupation gone through
the growth — the beneficent growth — of the large
clothing factories.
But, heavy though the price is, no nation thinks
of going back to Protection within its national
boundaries. In this country, however, we have
extended our freedom to the international field.
However much we may concede to the circum-
stances, political and otherwise, of other countries,
we claim for our island that this Free Trade
allows us to make the most of our national
resources, and permits us to call in other countries
to make up what we lack. If it cannot giv^e our
workers brains, it at least sharpens the brains
they have, makes them resourceful, compels them
to adapt themselves to changes : putting them
in competition with the whole world, it makes
them able to compete with the whole world,
relying, not on weak props and crutches of
government, but on themselves.
In the professions, we have not the slightest
jealousy of foreign methods and discoveries ; we
count it treachery to ourselves and to our clients
if we do not adopt them and build on them.
So, in industry also, we copy the methods of
our rivals, although we, often enough, persist in
our old courses till some of our neutral markets
are captured and our own home market is
invaded. If we were late in recognising elec-
tricity as the light and force of the future, no
one can say that we are not making up for lost
time now. If we allowed France to get a con-
270 THE FEW MUST SUFFER chap.
siderable start of us in the making of motor
cars, it is perhaps not altogether bad that we
start now from the level which she has attained,
and apply all our experience and advantages to
making British cars which shall have a field of
their own. If, in footwear, we endured the
agony of but few sizes and only one width
for many a year, the welcome we gave to the
American boot woke up our manufacturers, and
our adoption of American processes, methods,
and machinery, is easily stemming the tide of
the invasion and regaining the ground we had
lost in exports. And those who ride cycles must
be grateful that, some years ago, the American
wheel was seen in every shop, and drove our
makers to the methods which have ended in its
disappearance.
In all this, just as in internal trade, there
must be many who suffer. Some industries must
decline if they are industries for which other
countries are better fitted than our own, just as
power-loom weaving in Glasgow has gone down
before Lancashire competition ; and, the freer
trade we get with other countries, the more
quickly will this come about.
Even where industries are entirely suitable for
our country, our employers must recognise, more
seriously and conscientiously than they have done,
what their responsibility is. Their function in
the industrial organism is to organise the capital
and regiment the labour of the nation, and " bear
the brunt " of change ; their " profits " are the
payment for this work. It is indeed a very
XXVIII. THE EMPLOYEK'S LESSON 271
honourable position to fill. In a Socialistic
State, it would be entrusted only to men pos-
sessing high qualifications, both natural and
acquired. It is a far finer thing to organise
a thousand workers to earn good wages than
to command a brigade. For its due perform-
ance it requires no less than professional zeal,
and sometimes employers must be content with
little else than the knowledge that they have
kept the labour world employed. There was
a time when every one who could scrape together
capital enough counted himself fit to take this
function on himself But, with the phenomenal
advance of science and its applications, the super-
annr.ation of fixed capital tends to be very rapid,
the necessity of quick and expensive adaptation
to new conditions and methods is more marked,
and the place of the employer becomes more and
more iifficult to fill. If, in these circumstances,
men still rashly assume the position, it cannot
be said that they are fit objects for compassion
if they fail ; certainly they have little claim on
state subsidy through a protective system. It is
to be feared that employers have not yet got it
burned into them that, if they cannot organise
the nation, they have no business to undertake
the work. They themselves cry loudly enough
against any Trade Union interference with their
liberty of paying off workers who are not worth
a wage ; they ought to realise that no wrong is
done them, if the competition of employer with
employer remorselessly eliminates those who are
not worth a profit.
272 OUR FREE TRADE STRENGTH chap.
Happily, the industries which we may expect
to decline under international competition are
fewer than one would think. So long as we are
allowed to bring in food, materials, and machinery
free, we are in almost as good an economic
situation as any other country. It is not as if
we were an inland kingdom, and had to carry
our imports over hundreds of miles of railway.
All around us is the path of the deep waters —
the cheapest means of conveyance. Ours is a little
island, but its economic position is enormously
strong, so long as we retain the freedom of
drawing on all the world for everything we
require. But if one would see how a country,
more favoured by nature than ourselves in many,
perhaps in most, respects, can throw away her
chances by not preserving this freedom, it is
enough to look at shipping in America.^
Finally, I would very earnestly ask my
countrymen to consider the political position
which Free Trade has given us, and us alone,
among nations.
' In 1835 De Tocqueville said, in his Democracy in America :
" Ever since the Declaration of Independence the shipping of the
Union has increased almost as rapidly as the number of its in-
habitants. The Americans themselves now transport to their own
shores nine-tenths of the European produce which they consume.
And they also bring three-quarters of the exports of the New
World to the European consumer. The ships of the United
States fill the docks of Havre and of Liverpool, whilst the num-
ber of English and French vessels at New York is comparatively
small." The words may well give thought to an American when
he notices that the oversea tonnage of his country now is less
than it was in 1840, and is not a tenth part of ours.
XXVIII. NATIONAL EXPANSION 273
France, Germany, ourselves, even of late the
United States, are accused of thrusting our civilisa-
tion on backward countries at the point of the
bayonet. It is not missionary zeal that makes
us take such interest in the welfare of our
fellow men. It may be mere ambition ; it may
be a deliberate policy of preparing an outlet for
growing population ; it may be the last resort of
governments whose peoples will adventure too
far and get into difficulties ; it may be for
recovery of debts ; it may be " for purposes of
trade." Anyhow none of the great nations has
many scruples about its own expansion. Opinions
will differ as to whether this is a good thing
or a bad. Personally, I do not count it a bad
thing for Egypt that the bondholders were
influential enough to rouse two great nations
to take over the administration : and I do
count it a bad thing that political jealousies
are as yet too strong to prevent France thrusting
her civilisation on Morocco.
But, whatever the motive and intention of
other countries may be, as regards ourselves it
is generally the commercial interest we have in
foreign markets that first makes us cognisant
of the universal interest in honest and settled
government. And here one thing is clear : that
the first thing we do, after running up the Union
Jack over a new corntry, is to throw its ports
open to every nation under heaven. We at
least do not count it a preserve to be shot over
only by the owner and his friends.
Were it not for this, the growth of our Empire
s
274 NATIONAL EXPANSION CH. xxviii.
would 'i probably have been more vehemently
resented by other nations than it has been ; and,
under a protective system, its further expansion
would certainly not be considered, as it is now,
a commercial gain to the whole world.
APPENDIX.^
THE ABUSE OF SHIPPING STATISTICS.
Shipping is one of our greatest industries. Its services,
as " invisible exports," play a large part in explaining the
Balance of Trade. It is, moreover, an industry on which
much, politically, depends. It is of importance, then, to
ascertain how our shipping stands, and whether it is gain-
ing or losing in comparison with that of other nations.
But the comparison is so beset with technical and statistical
difficulties that it may be advisable to set forth these in
some detail.
As preliminary, it seems desirable to show, in untechnical
language, the difiference between gross and net tonnage,
and their relation to cargo-carrying capacity.
Lloyd's Register gives the gross tonnage, and, according
to it, the Merchant Navy of Great Britain appears as over
i»6,ooo,ooo tons, or about half the gross tonnage of the
world. Statistical statements, however {e.g. the Statistical
Abstract and the recent Board of Trade Memoranda), give
the net tonnage, and this appears as 10,000,000 tons. What
constitutes the difference between the two ?
When a vessel is put into the water, her weight is, of
course, the number of tons of water she displaces. As she
loads and sinks deeper, she displaces so many more tons,
'See above, p. 176.
276 APPENDIX
and, if nothing but cargo were stowed within the shell, the
additional tons over her own weight would represent her
cargo-carrying capacity. The tons of water displaced out-
side would correspond with the tons of cargo she could hold
inside. (It must be noted, however, that the correspondence
is only approximate. The vessel's internal capacity is calcu-
lated into weight at the ratio of 40 cubic feet of average
cargo to the ton, while 40 cubic feet of water weighs
something like one and a tenth tons.) But there is a good
deal of space which cannot carry cargo. In all ships there
is the space under the floor of the hold, the bulkheads, etc.
Other spaces, again, are required for the navigation of the
vessel — seamen's quarters, chart-rooms, stores, etc. ; and,
in the case of a steamer, there is also the space occupied
by the propelling power. When these are calculated into
tons and deducted, we get the " net tonnage," and it is on
this net tonnage as, presumably, representing the productive
capacity, that harbour and other dues are paid. The gross
tonnage, of course, is the net, plus the deductions just
mentioned.
But, on looking into the actual carrying capacity, as
shown by facts, we find that, far from being represented by
the registered net tonnage, it is usually, in modern ships,
something like one and a half times the gross tonnage.
Taking a steamer whose gross registered tonnage at Lloyd's
is 4926 tons, and her net 3147, I find that her "deadweight"
(or actual lifting) capacity is 7580 tons.
The explanation is that statutory allowances are made
for propelling space, for certain closed-in spaces, for sea-
men's quarters, etc., and that the ingenuity of shipowners
and shipbuilders is taxed to get as much as possible counted
in for deduction. Engines and boilers, too, are packed as
closely as practicable, and are steadily being made more
powerful for the space they occupy. And I am told that
it is not an uncommon practice for open spaces on steamers
in certain trades to be temporarily boarded up for the
reception of cargo or as bunkers.
The foregoing brings out the first difficulty in making
APPENDIX 277
accurate comparisons between dififerent merchant navies.
The true test is one that compares actual carrying capacity.
But if ships are simply compared either by their gross or
net tonnage, the more modern fleet will, ton for ton, have
a greater actual carrying capacity than an older fleet. Now,
it is well known that we are constantly selling our old ships,
and replacing them with new, thus getting greater carrying
capacity relative to the net tonnage, and paying lighter
dues. In fact, our fleet has been to a large extent rebuilt
within the last 20 years, while foreign fleets embrace old
and less productive vessels bought from us. To compare
British tonnage e.g. with Norwegian, is obviously mis-
leading.
A second difficulty is that, in comparing rival fleets
simply by tonnage, sailing vessels rank equally with
steamers. But, according to the usual calculation, steamers
— presumably as doing the same work in a third of the
time — are three times more effective in carrying power
than sailers.
While, then. Great Britain owns only half the tonnage
of the world, she owns far more than half the carrying
capacity. Not only do sailers form an insignificant portion
of our total fleet, but we have for years been "going out
of s".ilers," while foreign fleets — particularly the French —
are largely composed of them. And, again, foreign fleets
consist, to a considerable extent, of wooden and composite
vessels, of which we have comparatively few.
Taking these two difficulties together, it seems obvious
that, to compare the British fleet with foreign fleets simply
by tonnage, is to put efficients and non-efficients as equal
weights in the balance. It is like lumping skilled and
unskilled workers together per man as "labour," the true
comparison being labour power.
A third difficulty is that Lloyd's Register takes account
only of steamers over 100 tons gross, and of sailers over
50 tons net. But Russia registers anything over 25 tons
net; Germany, \-]\ tons; Norway and Denmark, 4 tons;
France and Italy, 2 tons. Again, therefore, on an equal
278 APPENDIX
comparison the British fleet would be much larger than
it appears to be.
A fourth difficulty is that, in the case of passenger liners,
tonnage is no indication of cargo-carrying capacity. That
Germany has some 20 "leviathans" of over 10,000 tons,
as against our 40 or 50 — a much smaller proportion of our
total — tells pro ianto against Germany.
A fifth difficulty is that, while the true international com-
parison should relate solely to ocean-going vessels, other
registers than Lloyd's, as we have seen, count in quite
small vessels whose influence on the ocean carrying trade
is negligible. And the American register includes the large
but purely local traffic of ships plying on the great lakes.
These difficulties are enough to show how carefully
shipping statistics must be handled, and enable us to
estimate the accuracy of Mr. Chamberlain's Liverpool
speech. In it he made much of the fact that British
shipping between 1890 and 1901 increased only by 1,400,000
tons, while foreign tonnage had increased by 2,200,000.
Now, this is simply a comparison by tonnage, and, if
there is any truth in what has been said, it raises all
the questions just suggested.
Independently of this, surely the only thing that con-
cerns us in such comparisons is the increase in shipping
that does or may compete with us. Now, as a fact,
over 1,500,000 tons out of the 2,200,000 are accounted
for by American " enrolled and licensed," including lake
and river steamers, coasting vessels (whose trade is
reserved for American owners), and cod and mackerel
fishing boats. The absurdity of such a comparison
requires no comment. Again, when we examine the
individual increases and decreases, what strikes one at
once is that, while most fleets show an increase, Norway
shows a decline from 1,705,699 tons to 1,467,089, and
American over-sea tonnage a decline from 946,695 to
889,129 tons. The only figures which may give us pause
is the German increase from 1,433,413 tons to 2,093,033.
As to this, we should require to know what kind of tons
APPENDIX 279
these are ; but, even if they represent equal efficiency
with our tons, a percentage comparison between a fleet
of 10,000,000 tons and one of 2,000,000 tons is quite
fallacious. We, for instance, could not double our tonnage
without driving every other feet from the sea. France
could double hers without becoming an appreciably
stronger competitor.
Further, the comparison is very much invalidated by
the imperfection of the statistical returns referred to.
Japan, e.g. in the Board of Trade Memoranda, shows no
return for 1890, and the 917,879 tons of 1901 are conse-
quently counted as all increase, while other nations give
no returns for 1901.
But, if I am not mistaken, there is another fallacy still
in the comparison. Mr. Chamberlain is suggesting a
decline in British shipping, and he proves it by showing
that the tonnage of the "whole British Empire" has
increased only by 1,400,000 tons, as compared with a
total increase in foreign tonnage of 2,200,000. But what
we find from the returns is that British tonnage has
increased by 1,629,882, and that it is a decline of 197,582
tons in the shipping of the Colonies and British possessions
that brings the increase down to the lower figure. It
need scarcely be said that the only question at issue is
the shipping of Great Britain.
As to evidence given by statistics of clearances and of
building of ships abroad, only a word need be said here.
The difficulty of any comparison by clearances may be
suggested by the fact that liners which cross the Atlantic
or Pacific will enter and clear once only in one to four
weeks, while vessels trading in and with the Baltic may
enter and clear every few days. And, when we are told
that more "tonnage" is being built abroad than is being
built here, all the difficulties of comparison dealt with above
are again suggested. So long as we can build cargo
ships at about ^5 10s. per ton, it does not seem probable
that the competition is very serious, from the shipbuilder's
point of view at least.
28o APPENDIX
Looking at the number of neglected elements which are
concealed in Mr. Chamberlain's apparently simple compari-
son by tonnage, I think one may use his own words, with
another reference : " Serious people ought to give serious
consideration to what at anyrate are signs " — of the abuse
of statistics.
S 5 i^7
INDEX.
Africa, South, 59, 229, 236.
Agriculture, 62-63, 77-78, 144,
171,243,261-262. See Prefer-
ential Tariffs.
America, 5, 7, 23, 24, 157, 164,
180, 195, 19S ; Exports of,
16, 41, 139, 205; and Pro-
tection, 50, 54, 59, 60, 63-66,
116-117, 152, 217, 272.
Argentina, 16, 251.
Asquith, H. H., 195.
Australia, 29, 229, 232, 235,256.
See Preferential Tariffs.
Austro- Hungary, 16.
Balance of Trade, 15-27, 40-42,
275.
Balfour, A. J., 85, 121, 123, 163,
188.
Banking, 11, 12-13, 21-22, 175-
176.
Barrow-in-Furness, 59.
Bateman, Sir A. E., 197.
Belgium, 15, 165, 205, 220.
Bell, Hugh, 155, 1 58.
Bills of Exchange, li, 13, 25,
33. 42.
Bills of Lading, 11.
Board of Trade, 20, 23, 42, 124,
146, 150, 152, 153, 154, 166,
171, 172, 182, 196, 204, 205,
208, 227, 275.
'Boarding Expenses,' 24-25.
Bowley, A. L., 182, 201, 208.
Brabrook, E. W., 174, 175.
Brailsford, J., 156.
Bullion, Imports of, 9. See
Gold.
Business Methods, 263.
Cairnes, J. E., 70.
Canada, 31, 32, 60, 77, 168,
169, 232, 23s, 252-254. See
Preferential Tarifis.
Capital. See Investments.
Carnegie, Andrew, 97, 164.
Chamberlain, J., 121, 151, 156,
166, 167, 181, 188, 195, 196,
209, 211, 221, 225, 232. 236,
237, 244, 257, 265, 278-280.
Cheapness, 4, 51, 122, 144-145.
Chili, 16.
Clare, George, 35.
Clark, J. B., 71-72.
Coal, Export of, 5, 8, 202-205.
Cobden, Richard, 161, 265.
Colbert, 61, 86, 124, 184.
Colza, 88.
Competition, 2-6, 263, 271;
'Unfair,' 148, 150, 167.
Co-operative Societies, 175.
Corn Laws, 61, 65, 115.
Cotton, 3, 8, 32, 177, 214.
Demand, Elasticity of, 158-159.
Denmark, 15, 194, 262.
Depression of Trade, 186-188.
De Tocqueville, A., 272.
282
INDEX
Diamonds, Import of, 9.
Distance, a natural protection, 5.
Drawbacks, 92, 138.
Dumping, 119, 144-159; Re-
taliation on, 160-169.
Duties. See Imports and Ex-
ports.
Edgeworth, F. Y. , 191.
Education, 261.
Egypt, 16, 218.
Employment, 51-52, 200-215.
Equation of Indebtedness, 30.
Equivalence of Imports and Ex-
ports, 28-35, 42-44-
Excise, 46, 100- loi.
Exports, of United Kingdom,
8-9 ; Excess of, 16 ; Invisible,
19-22 ; affected by Loans, 22-
24, 29 ; as test of Prosperity,
179-185; Stagnation of, 1S6-
199 ; and Employment. See
Employment.
Farrer, Lord, 81.
Fawcett, H., 68, no, 146.
Flux, A. W., 220.
Food, Taxation of, 77-78, 85,
117, 137, 237-244.
Foreign Exchanges. See Bills.
Foreign Trade, 5, 7, 9-14, 31-
35-
France, 5, 15, 27, 61, 62-63, 74,
80, 124, 126, 174, 184, 205,
223, 7.ii\.
Free Trade, Universal, 6, 47-
48; Meaning of, 45-46, 261 ;
Britain's Policy, 49, 120- 121,
269 ; the end of Retaliation,
123.
Freight. See Shipping.
Friendly Societies, 175.
Germany, 5, 6, 15, 124, 125,
131, 139, 141, 152-153, 158,
166, 172, 182, 195, 196, 198,
205, 220, 223, 261.
Gide, Charles, 27, 43, 183.
Giffen, Sir Robert, 19, 20, 23,
27, 36-37> 170, 173, 181. 190,
206.
Gifts, as Imports, 26.
Gladstone, W. E., 217.
Glasgow, 102.
Gold, in payments, 11-12, 14,
16, 42, 192-193-
Grey, Earl, 250.
Grey, Sir Edward, 211.
Guyot, Yves, 74.
Hamilton, Alexander, 56.
Holland, 15, 124, 153, 205.
Hours of Labour, 177, 201-202,
264.
Immorality, Political, 90-91 ;
Commercial, 91-92.
Imports, of United Kingdom, 8 ;
Excess of, 15, 17-27, 41;
Equivalence of Exports and,
28-35, 42-44 ; Duties on, 16,
46-47, 98.
Income Tax, 39, 40, 98, 108,
113, 132, 156, 172-173-
Income, National, 213.
Index Numbers, 191.
India, 23, 145, 218.
Infant Industry Argument, 56-
60, 65, loi, 112.
Insurance, 18, 21.
Investments, Foreign and Colo-
nial, 22, 27, 29, 37-39, 251 ;
Municipal, 102, 180-181.
Iron. See Steel.
Italy, 15, 24, 25, 126, 194, 205.
Japan, 15, 62, 194, 195, 279.
Jevons, W. S., 187, 191.
Kartell. See Trusts.
Laurier, Sir Wilfred, 220, 221,
250.
Lawson, 7.
Life, the end of Production, 2-5.
Linen, 8.
List, Friedrich, 56.
Loans. See Investments.
Machinery, Exports of, 8.
Manufactures, Taxation of, 86-88,
137-138.
INDEX
283
Marshall, Alfred, 212, 265-266.
Matheson, Ewing, 35.
Mill, J. S., 58,209.
M'Kinley, President, 69.
M 'Master, Professor, 64.
Morley, John, 267.
Most Favoured Nation Clause,
127-128, I34-I5S-
Municipal Enterprise, 41.
Napoleon, 49, 61, 64, 190.
Navigation Act, 216.
New Zealand, 217, 229, 236,
256.
Norway, 5, 15, 194.
Oldham, C. H., 159.
Parker, Sir Gilbert, 246.
Pauperism, 170- 171.
Pauper Labour Argument, 70.
Payment in Trade, 11-14.
Peel, Sir Robert, 120, 125, 216,
243-
Percentages, Fallacy of, 194-195.
Political Influence, 73,74, 90-91.
Portugal, 15, 194.
Preferential Tariffs, 216-2 18, 227-
244; Canadian, 219-226; and
Agriculture, 245-248 ; and
Empire, 249-259.
Prices, Changes of, 171- 172,
191-194.
Profit, the motive of Trade, 10,
33-
Prosperity, Tests of, 170-178;
and Exports, 179-185.
Protection, Meaning of, 47 ; as
Prohibition, 69 ; as National
Policy, 50-51, 219; against
Cheapness, 53-55, 92 ; as Ap-
prenticeship, 57 ; Historical,
60-66, 67-68.
Rabbeno, U., 66.
Raw Materials, 78-85, 137,
177-201, 236.
Reciprocity, 120. See Preferen-
tial Tariffs.
Retaliation, 1 18-143; on Dump-
ing, 160-169.
Revenge, 11 8- 1 19.
Ricardo, J. L. , 124.
Roosevelt, President, 69.
Ruskin, John, 119.
Russia, 16, 125, 139, 205.
Sauerbeck's Index Number, 191.
Savings, National, 36, 173-175.
Services, 1-4, 17-27.
Shakespeare, W., 48.
Shearman, T. G., 106.
Shipping, 8, 9, 17-20, 28, 33,
40, 63, 176, 272, 275-280.
Ships, 5, 8, 26, 152-153-
Sidgwick, H., 58.
Smith, Adam, 16, 61, 84, 118,
124.
Spain, 5, 15, 16.
Steel, 5, 8, 116, 144, 149, 152-
158, 163, 180.
Steel Trust, 60, 150, 158-159,
166, 183.
Sugar Convention, 131, I45j_i5i..
Sumner, W. G., 69, 88, 114.
Sweden, 15.
Switzerland, 24, 81, 126.
Tariff, shuts in home goods,
42-43 ; Complex, 68, 89 ;
Principle of, 69-75 '■> Scien-
tific, 76-88; Injury of, II9-
121, 133, 142. See Preferential
Tariffs, Retaliation.
Taussig, F. W., 66.
Taxation, a Price, 93, 97, 99 ;
for Revenue, 46-47, 77 ; for
Protection, 47,69,75-93-117,
132, 237-244; Indirect, 98,
109, 113. See Income Tax.
Thomas, D. A., 203.
Tools, 86-S7.
Trade, Nature of, 1-6.
Trade Current, 28.
Trade, Foreign. See Foreign
Trade.
Trade Unions, 4, 70, 175, 271.
'Triangular Exchange,' 35.
Trusts, loi, 146-149, 158-159,
161, 166, 182, 263. See Steel
Trust.
Tupper, Sir Charles, 60, 221.
284
INDEX
United States. See America.
Uruguay, i6.
Venice, 19.
Vested Interests, 60, 62-66, 88,
140-142.
Wages, 171, 204, 264 ; in
America, 69-70 ; in Germany,
172.
Walsh, C. M., 191.
Wheat, 8, 32, 34, 144, 237-244.
Wool, Imports of, 8, 79, 82, 255.
Woollens, Exports of, 8, 168.
_^;rr;>-)0TrTP^,^^
n.'
GLASGOW : PRINTEU AT THE UNIVERSITY PRESS
BY ROBERT MACLEHOSE AND CO. LTD.
"I i T TT7IO
^mr r,.
GENERAL LIBRARY
UNIVERSITY OF CALIFORNIA— BERKELEY
RETURN TO DESK FROM WHICH BORROWED
This book is due on the last date stamped below, or on the
date to which renewed.
Renewed books are subject to immediate recall.
''^'^^4^A
f^
St
4P/?
^3 1954
^ ^ 1955
0V8 1954 LU
LD 21-100m-l,'54(1887sl6)476
^>^
w^
YC 05603
y
.-./At-
'^■'V.
•:-i<-:
.:/v^^r^
't-^'^irajf^
,9^.
y^t
:y^}:"-4
■■''%i:^$
_-;'^-->*f!
.-SlS