Chapter CXXXIX: Section V: Protection as a Policy

A. So long as a nation is, indeed, politically independent, but economically in a very low stage, it is best served by entire freedom of trade with the outside world; because such freedom causes the influences of the incentives, wants, and the means of satisfaction of a higher civilization to be soonest felt in the country.

B. The further advance which consists in the development of home industries by the country itself, may, indeed, be rendered exceedingly difficult by the unrestricted competition of foreign industries, which are already developed. The carriers on of industry in an old industrial country have a superiority over those in the new, in the amount of capital, the lowness of the rate of interest, the skill of undertakers (_Unternehmer_) and workmen, generally, also in the consideration in which the whole country hold industry, and the interest they take in it;[A3-5-1] while in the country which has hitherto been merely agricultural, it happens only too frequently that industry is undervalued, and that young industrial talent is, as a consequence, forced to emigrate. How frequently it has happened that England by keeping down her prices for a time has strangled her foreign rivals.[A3-5-2] Even on the supposition of equal natural capacity, the struggle between the two industries would come to a close similar to that between a boy of buoyant spirits and an athletically developed man. What then is to be said of the cases in which the more highly developed nation is at the same time possessed of the more favorable natural advantages, such, for instance, as England possesses over Russia in her incomparable situation in relation to the trade of the world, and which gives her for all distant countries, without any active commerce, a monopoly-like advantage; farther, her magnificent harbors, streams, her well-situated wealth in iron and coal, etc. The advantages of mere priority weigh most heavily, when the great development of all means of transportation almost does away with the natural protection afforded by remoteness; and when, at the same time, a certain universality of fashion, which, as a rule, is governed by the most highly developed nations, causes national and local differences of taste, which could be satisfied only by national or local production, to become obsolete.[A3-5-3] Under such circumstances, it would be possible, that a whole nation might be made continually to act the part of an agricultural district (_plattes Land_), to one earlier developed, leaving to the latter, almost exclusively, the life of the city and of industry.[A3-5-4] A wisely conducted protective system might act as a preventive against this evil, the temporary sacrifices which such a system necessitates being justifiable where some of the factors of industrial production unquestionably exist but remain unused, because others, on account of the mere posteriority of the nation, cannot be built up. The abusive term "hot-house plant" should not be used where there is question only of transitory protection, and where there is the full intention to surrender the grown tree to all the wind, rain and sunshine of free competition, and where it is foreseen that it shall be so surrendered.[A3-5-5] [A3-5-6] The want of a certain economic many-sidedness which must be given to a nation manifests itself in a particularly urgent manner in times of protracted war. Here the error of so many free-traders, that different states should comport themselves towards one another as the different provinces of the same state do, is most clearly refuted.[A3-5-7]

C. No less important is the political side of the question. Since the protective system forces capital and labor away from the production of raw material and into industry, it exerts a great influence on the relations of the classes or estates of a country to one another. The immense preponderance possessed in medieval times by the nobility, agriculture, the country in general as contradistinguished from the city, by the aristocratic and conservative elements, is curtailed in favor of the bourgeoisie, of industry, of the cities generally, and of the democratic and progressive elements. If when the history of a nation is at its highest point, there is supposed a certain equilibrium of the different elements, all of which are equally necessary to the prime of a nation's life, this height is now attained sooner than it would otherwise be. It is no mere accident that in almost every instance, those monarchs who humbled the medieval nobility and introduced the modern era, also established a protective system.[A3-5-8]

D. However, such an education of industry can be attempted with proper success only on a large scale, that is, on a national basis. The least hazardous (_unbedenklich_) measure of the system, import-duties supposes a relatively short boundary line, such as only a great country, even where its formation is the most favorable imaginable, can possess.[A3-5-9] The greater the tariff territory (_Zollgebiet_), the less one-sided is its natural capacity wont to be, the sooner may an active competition in its interior be built up, while the foreign market always suffers from uncertainty. Hence all tariff-unions (_Zollverein_) between related states are to be recommended not only as financially but also as economically advantageous. Between states not related and of equal power, so far-reaching a reciprocity, embracing nearly the whole of economic policy, can scarcely be established; and it would be still harder for it to continue long. If the states not related are of very unequal power, the probable consequence would be the early absorption of the weaker by the stronger.[A3-5-10] [A3-5-11]

[Footnote A3-5-1: What an advantage it has been to English
industry and commerce that the state here so long considered
it a matter of honor to have its subjects well represented
in foreign countries, to extend their market, etc.]

[Footnote A3-5-2: _Hume_, in the parliamentary session of
1828, uses the expression "strangulate," to convey this
idea. As early as 1815, Brougham said: "It was well worth
while to incur a loss on the exportation of English
manufactures in order to stifle in the cradle the foreign
manufactures." The report of the House of Commons on the
condition of the mining district (1854) speaks of the great
losses, frequently in from three to four years, of £300,000
to £400,000, which the employers of labor voluntarily
underwent, in order to control foreign markets. "The large
capitals of this country are the great instruments of
warfare against the competing capital of foreign countries,
and are the most essential instruments now remaining by
which our manufacturing supremacy can be maintained."]

[Footnote A3-5-3: Before the development of the machinery
system, also, the preponderance of the greatest industrial
power could not be nearly as oppressive as later; especially
as in highly developed commercial countries, the wages of
labor are always high. (_List_, Zollvereinsblatt, 1843, No.
44, 1845, No. 5, ff.)]

[Footnote A3-5-4: "Shall the forester wait until the wind in
the course of centuries carries the seed from one place to
another, and the barren heath is converted into a dense
wood?" (_List_, Gesammelte Schriften, III, 123 seq.) When
the Romans had conquered an industrial country, its
industries began generally to flourish better, because of
the greater market opened to them; whereas, those which had
no industries before, continued, for the most part, to
remain producers of the raw material after the conquest,
also. Related to this is the phenomenon, that the provinces
not favored by nature, were much less backward in the middle
ages than they are to-day. Compare the description of the
misery of Mitchelstown, after the Earl of Kingston had
ceased to consume £40,000 there: _Inglis_, Journey through
Ireland, 1835, I, 142. The royal commission appointed to
investigate the misery of Spessart in 1852, show that the
home-made clothing had gone out of use there, and that the
wooden shoes, so well adapted to wooded countries, had been
changed for leather ones. This becoming acquainted with
foreign wants in a region not adapted to industries, without
a large market, greatly increased the distress. As soon as
such a region becomes an independent state, a productive
system would suggest itself.]

[Footnote A3-5-5: _List_ very well remarks that otherwise
most of our fruit trees, vines, domestic animals would be
"hot-house plants." And even men are brought up in the
hot-house of the nursery, the school, etc.
(Zollvereinsblatt, 1843, No. 36.)]

[Footnote A3-5-6: That a posterior people would never be in
a condition to establish industries of their own, where full
freedom of trade prevails, I do not by any means assert.
Compare the list of industries which attained to so
flourishing a condition without the aid of a protective
tariff, that they were able to supply foreign markets, in
_Rau_, Lehrbuch, II, § 206, a. But when Switzerland is so
frequently cited as an illustration in this connection (_J.
Bowring_, On the Commerce and Manufactures of Switzerland,
1836), people forget the many favorable circumstances of
another kind which coöperated here to elevate industry; a
neutrality of three hundred years, during the French
Huguenot War, the Thirty Years' War, the Wars of Louis XIV.,
and as a consequence of this, no military budgets, few taxes
and state debts, etc. In addition to this, at an earlier
period, the many mercenary troops, and afterwards the
foreign travelers.]

[Footnote A3-5-7: As free trade in Holland's best period was
more an international law than a politico-economical system,
so, afterwards, the Dutch protective system grew out of war
prohibitions; and, in times of peace, the newly established
industry was not abandoned. At last, in the time of its
decline, all industries, with a strange logic, sought
protection, even the most ancient one, the one whose growth
was the most natural, the fisheries. (_Laspeyres_, Gesch.
der volksw. Ansch., 134 ff., 146, 159.) The United States,
during the war of 1812, with England, doubled their
protective duties. (_A. Young_, Report on the Customs-tariff
Legislation of the U. S., 1874.)]

[Footnote A3-5-8: Hence, we should not judge the Russian and
the American systems of industrial protection, for instance,
by the same rule. In Russia, it may be necessary to
strengthen artificially the still weak bourgeoisie, and to
awaken numberless slumbering forces and opportunities by
encouragement of their use by state measures. Here, also,
the absolute ruler is called upon, and accustomed to educate
his people. In the United States, on the other hand, there
is no nobility; the whole nation belongs to the class of
burghers, and even the cultivators of the land are raisers
of corn, cattle traders, land speculators etc. Considering
the universal activity and laborious energy of the people,
it is to be expected that every really profitable
opportunity will be turned to account in such a country,
without any suggestion or assistance from the state. Here,
therefore, _A. Walker's_ saying is true: America should
produce no iron, not because it does not know how, because
it has not sufficient capital, because the nature of the
country is not adapted to it, or because it has no natural
protection, but "because we can do better." (Sc. of W., 94
seq.) Since a democracy cannot, properly speaking, educate
the people, the protective duties of the United States are,
for the most part, only attempts by one part of the people,
who claim to be the whole, to prey upon the other parts.]

[Footnote A3-5-9: If we suppose three countries, each in the
form of a square: A = 1 sq. m., B = 100 sq. m., C = 10,000
sq. m.; there is in A for every mile of boundary 1/4 sq. m.
of inland country; in B, 2-1/2 in C, 25.]

[Footnote A3-5-10: Towards the close of the middle ages, the
vigorous commercial policy of Venice, for instance, towards
Greece, or the Mohammedan power, was thwarted by other
Italian cities, Genoa, Pisa, and later, by Florence
especially.]

[Footnote A3-5-11: Why most of the reasons above advanced do
not apply to a corresponding "protection" of agriculture by
duties on corn, see _Roscher_, Nationalökonomik des
Ackerbaues, § 159 ff.]