Chapter CXXXV: Section I

PROXIMATE ECONOMIC EFFECTS OF THE INDUSTRIAL PROTECTIVE SYSTEM.

That the principal measures which the mercantile system recommended, artificially to increase a nation's wealth, could not produce the immediate effects expected of them, has been shown, especially from the natural history of money. Their proximate economic consequences necessarily consisted in this, that they diverted the existing productive forces of the nation from their places of application (_Verwendungsplätzen_) hitherto, to others which the government thought more advantageous.

A. If home producers are in a condition to offer their commodities as good and as cheap as foreigners, all protection of the former by import duties, or even by prohibitions, is superfluous. The home producer has, as a rule, not only the advantage of the smaller cost of freight to the place of consumption,[A3-1-1] but that of being earlier informed, because of his proximity to consumers, of a change in their tastes.[A3-1-2] If, indeed, foreigners could supply us better and cheaper, and if they are kept from supplying our market only by artificial means, the state compels our consumers to a sacrifice of enjoyment;[A3-1-3] and such a sacrifice as is not fully compensated for by the profit made by the favored producers in any manner. The latter are generally soon compelled by home competition to arrange their prices in accordance with the rate of profit usual in the country. If they had no "protection" they would simply employ their productive forces in other branches of production; and in those in which they were equal or even superior to foreign competitors. By means of the products thus obtained, the people might then get in exchange all those commodities from foreign countries, the production of which it is, according to the laws of the division of labor, better to leave to foreign countries.[A3-1-4] Since one nation can lastingly pay another nation only with its own products, any limitation of imports must, under otherwise equal circumstances, be attended by a corresponding limitation of exports.[A3-1-5] Directly, therefore, these hindrances to importation produce no increase, but only a change in the direction (_Umlenkung_) of the national forces of capital and labor; an increase, only in case that foreign producers are thereby caused to transfer their productive forces within our limits;[A3-1-6] which may certainly be considered the greatest triumph of the protective system. Hence it is absurd when an equal extension of "protection" to all the branches of a nation's economy is demanded, as it is so frequently, in the name of justice. There is here no real protection whatever, analogous, for instance, to the protection afforded by the judge, but a favor which can be accorded to no one without injuring some one else.[A3-1-7]

[Footnote A3-1-1: It is of course different in the working
(_Verarbeitung_) of foreign raw material. Much also depends
on the situation of the industrial provinces. For instance,
manufactured articles can reach the interior of Spain and
the Western states of the American Union only after they
have passed the industrial coast-regions of both countries.
In Russia, on the other hand, the center is the principal
industrial region; and hence the coast may be actually
nearer to foreign than to home manufacturers. Similarly, in
France, at least for iron and coal. Compare _Adam Smith_, W.
of N., II, p. 279 Bas.]

[Footnote A3-1-2: People would, however, have to calculate
on the foolish luxury which despises the home product
because "it came from no great distance." World-supremacy of
Paris fashions! A manufacturer of excellent German
_Schaumwein_ (foaming wine) complained to me, in 1861, that,
after suffering heavy losses, he was compelled by his
customers to adopt French labels. Here, a wise prince may
have a favorable influence by his example. Louis XIV.
himself insisted, when his mother died, that the court
should use only French articles of mourning. _Gee_, Trade
and Navigation, p. 46. Augustus I., of Saxony, always wore
home cloth. (_Weisse_, Museum für Sächsische Geschichte, II,
2, 109.) Similar requirements by the prince of Orange (1749)
of all officials: Richesse de Hollande, II, 317. Dutch
executioners were dressed in calico. (Discourse of Trade,
Coyn, etc., 1697.) American popular stipulations not to wear
foreign articles of luxury. (_Ebeling_, Geschichte und
Erdbeschreibung, II, 481.) Rhode Island tailors placed the
working wages for home stuffs much lower than for foreign.
(II, 149.)]

[Footnote A3-1-3: _Prince Smith_ calls protective duties
scarcity-duties (_Theuerungszölle_). Because of this
increased dearness of the "protected" commodities, consumers
can no longer pay for as many other home commodities. If the
industry was previously in existence, the protective duty
imposed is wont to enhance the price, not only of the
foreign commodity, but also of the home commodity.]

[Footnote A3-1-4: If, for instance, the English had never
had a protective tariff on silk, nor the French a protective
tariff on iron, the former would probably get all the silk
commodities they want from France and pay for them in iron
ware. In this way, both nations would be well off in what
concerns the relation between the cost of production and the
satisfaction of wants. _Say_ calls protective duties a fight
against nature, in which we take pains to refuse a part of
the gifts which nature offers us. He leaves himself open to
the charge of exaggeration, however, when he compares a
nation that wants to produce everything itself to a
shoemaker who wanted to be tailor, carpenter, to build
houses and cultivate a farm also. Although no nation is
all-sided, yet every nation is a great deal more-sided than
an individual.]

[Footnote A3-1-5: Whoever keeps a people from purchasing in
the cheapest market, thereby prevents their selling in the
dearest. (_McCulloch._) It was no mere desire of revenge
that induced Holland, in the 17th century, to threaten the
Poles, in case the enhancement of their duties continued in
Danzig and Pillau, they would supply their corn-want from
Russia, (_Boxhorn_, Varii Tractat. polit., p. 240.) Thus the
tariff-measures adopted by France against the German cattle
trade and the Swedish iron trade promoted the growth of the
Crefeld silk manufacture, and lessened the exportation of
French wine to Sweden. When, in 1809, England heavily taxed
Norwegian wood, in favor of Canada, the Norwegians began,
instead of purchasing English manufactured articles, to
supply themselves from Hamburg, Altona and France. (_Blom_,
Norwegen, I, 257.)]

[Footnote A3-1-6: _Fr. List_ assumed altogether too
unconditionally such an effect from import duties to be the
rule. The more developed the self-confidence of a nation is,
the more vigorous the life of its industries, the more
many-sided the commerce of its people; the less disposed are
its industrial classes to give up their home and carry their
market with them. But, for instance, Swiss labor and, still
more, Swiss capital have been induced by the tariff-systems
of the great neighboring countries to settle in Mühlhausen,
Baden and Voralberg, or at least to establish branch houses
in these places. Similarly, Neumark cloth makers were
induced to emigrate to Russia, and Nürnberg industrial
workmen to Austria (_Roth_, Geschichte des Nürnbergen
Handels, II, 170) etc. Compare _Burkhardt_, c. Basel, I, 74;
_Böhmert_, Arbeiterverhältnisse der Schweiz, I, 16 seq.; II,
17.]

[Footnote A3-1-7: Compare _Alby_ in the Revue des deux
Mondes, Oct., 1869, and, _per contra_, Cairnes, Principles,
p. 458. The misfortunes of war or internal disquiet have
frequently driven away the best labor-forces of an old
industrial state, and thus powerfully promoted a young
protective system in the neighborhood. Reception of
Byzantine silk-weavers in Venice, during the crusade to
Constantinople, of Flemish wool-weavers in England, under
Edward III. (_Rymer_, Foedera, III, 1, 23) and Elizabeth; of
Huguenot industrial workmen under the great elector, etc.
The growth of the Zurich silk industry by the settlement
there of expelled Protestants from Locarno.

England, indeed, had, up to 1849, protective duties both for
industry and agriculture. But the protective duties were of
no real importance, except in the case of the latter,
because the greater part of England's industrial products
were superior to foreign competition without the help of
protective duties. Something similar is true of most duties
on raw material in the United States.]