Chapter CXLII: Section VIII

INDUSTRIAL-PROTECTIVE POLICY IN PARTICULAR.

If it be once established generally that an industry is to be artificially promoted, and if there be question only of a choice between the different measures to be adopted to thus promote it, moderate[A3-8-1] import duties are not only the most equable, least subject to abuse, but also attended by the greatest number of secondary advantages. Here the sacrifice is imposed on all the consumers of the "protected" commodity, that is, on the entire people, to the extent that they come in contact with the commodity in question. Export duties on raw materials, on the other hand, compel one single class of the people to make sacrifices in order to advance the favored industry.[A3-8-2] Export premiums for commodities on which labor has been expended are distinguished from import duties as the offensive from the defensive: the former promote the artificial trade, the trade which has gone beyond its natural basis, the latter curtail it.

Premiums, advances without interest, gifts of machinery etc., to persons engaged in industry would operate very usefully under an omniscient government.[A3-8-3] But they generally fall to the lot not of the most skillful manufacturers, but of the most acceptable supplicants, who now are doubly dangerous to the former as competitors.[A3-8-4] The same is true to a still greater extent of monopolies granted to undertakings which it is intended to promote.[A3-8-5] They require, at least, to be vigilantly superintended in case of sale from one person to another; otherwise the individual to whom they were first granted is very apt to withdraw with the capitalized value of the privilege accorded, and his successors, loaded with a heavy debt in the nature of a mortgage, to derive no advantage from it.[A3-8-6]

Further, import duties, besides the fiscal advantage which they afford, have the police advantage that they may, like quarantine provisions, prevent somewhat the inroads of many economic diseases: thus, for instance, gluts of the market, and still more, the severe chronic disease of ruinously low wages.[A3-8-7] But only very moderate hopes from protective duties should be entertained in all such respects as these.[A3-8-8]

Prohibition proper operates, as a rule, very disastrously.[A3-8-9] It spoils those engaged in industry by a feeling of too great security (mortals' chiefest enemy: Shakespeare). It may even lead to complete monopoly, when the industry requires very large means and the country is small. The inducement to smuggling is peculiarly great here. But even duties, so high that they far exceed the insurance premium of smuggling, can be of very little advantage either to industry or to the exchequer. They can only promote the smuggling trade. However, the repeal of an import prohibition or the abolition of a tariff approaching to a prohibition should be announced long enough in advance to enable the capital invested in the protected industry to be withdrawn without too heavy a loss.

[Footnote A3-8-1: In general, _Mäser_ was in favor of
_Colbert_, and opposed to _Mirabeau_. (P. Ph. II, 26.) He
ridicules the prohibitions of the exportation of raw
material by saying that not only flax-seed, flax-yarn, but
also the linen, must remain in the country. As Raphael Mengs
once ennobled four ells of linen to a value of 10,000
ducats, a hundred Mengs should be sent for, to the end that
all the linen should be exported painted. (v. 25.)]

[Footnote A3-8-2: _Rau_, Lehrbuch, II, § 214, would prefer
to tolerate state premiums (politically so dangerous),
rather than protective duties, because, in the case of the
former, the magnitude of the assumed sacrifice may be
exactly estimated in advance. Similarly, _Bastiat_,
Sophismes, ch. 5.]

[Footnote A3-8-3: Many striking examples in _List's_
Zollvereinsblatt, 1843, No. 47.]

[Footnote A3-8-4: Under _Colbert_, the granting of a
monopoly had frequently no effect but to ruin an already
existing rural industry in the interest of a city
manufactory. Thus, in the case of lace, in Bourges and
Alençon, and soap in the south, etc. The upshot of the
matter in some places was simply that the carriers on of
industry on a small scale were allowed to carry on their
industries in consideration of a payment made to the owners
of the privilege. (Journ. des Econ., 1857, II, 290.) The
King of Denmark bought back, in 1756, at a high price,
industrial privileges which his predecessors had granted
gratis. (_Justi_, Polizeiwissensch., § 444.) The Colbert
monopoly of the Hollander v. Robais (1665), who was the
first to manufacture fine cloths in France, was not
abolished until 1767. (Encycl. Mech. Arts et Manuf., II,
345.)]

[Footnote A3-8-5: Thus, for instance, in 1863, the
apothecary shops of the governmental district of Breslau had
a value of 2,791,227 thalers, of which the land and
inventories of stock were only 29 per cent. The concessions
represented 71 per cent. The sick, in the entire state of
Prussia, were obliged to contribute 1,780,000 thalers a year
to compensate these monopolists. Compare _Brefeld_, Die
Apotheken, Schutz oder Freiheit? (1863).]

[Footnote A3-8-6: _Hermann_, in his review of Dönniges'
System des freien Handels und der Schützzölle (Münch. G. A.
Sept. und Octbr., 1847) calls attention to the point that a
decrease of the cost of production, by merely lowering
wages, is no gain to the national resources, but only an
altered distribution of them, for the most part a very
unfavorable one. But when a nation is advancing on this
road, it may strengthen its exportation by such means, as it
might granting export premiums at the expense of the
workmen. This would lead, on the supposition of entire
freedom of trade, to a corresponding depression of the lower
classes in other countries; and against such contagion a
protective tariff may operate in a manner similar to the
quarantine. This is much exaggerated by _Colton_, Public
Economy of the United States (1849), p. 65, 178. America
needs a protective tariff more than any other nation,
because of its dear workmen and capital. In Europe, the
upper classes rob labor of its product, while in America,
labor itself enjoys its products. Free trade would lower
America to the level of Europe.]

[Footnote A3-8-7: Severe crisis in the woolen industries of
America in 1874 ff., spite of an enormously high protective
tariff. The financial utility of a protective tariff can be
scarcely great, because the intention of the tariff to
permit as little as possible to be imported, and of the tax
to levy as much as possible, are irreconcilable.]

[Footnote A3-8-8: Frederick II., in 1766, forbade the
importation of 490 different commodities which, up to that
time, had only paid high duties. (_Mirabeau_, Monarchie,
Pr., II, 168.) In 1835, France still had 58 import and 25
export prohibitions.

They might, by way of exception, become necessary, in case a
foreign state should desire to make our protective duties
illusory by export premiums. But the exportation of Prussian
cotton stuffs, for instance, has increased, with a moderate
tariff, much more than the Austrian, with full prohibition.
The English silk manufactures were, so long as the
prohibition continued, inferior to the French, even in
respect to the machinery system. (_McCulloch_, Statist., I,
681.)]

[Footnote A3-8-9: In the case of circulating capital this is
generally done rapidly. The machines would have worn out,
and care is taken not to renew them. Buildings also can, for
the most part, serve other purposes. The most difficult
thing of all is for the masses of men, gathered together at
the principal seats of industry, artificially created, to
distribute themselves. Between the two rules: "No leap, but
gradual transition," and "cut the dog's tail off at once,
not piecemeal," the right mean is struck in the abolition of
a prohibitive protection, when, what it is intended to do,
is announced long in advance without maintaining vain hopes,
and a long space of time is left to enable people to make
their arrangements accordingly. This plan was followed in a
model manner in reference to the English silk prohibition,
under Huskisson. It was announced as early as 1824 that
protective duties of 30 per cent. would on the 5th of July,
1826, take the place of the prohibition. The duty on raw
silk was immediately reduced from 4 sh. to 3d. per pound,
and after a time, even to 1d., which so increased the demand
that the number of spindles rapidly increased from 780,000
to 1,180,000. During the 10 years from 1824, the importation
of raw and twisted silk amounted to about 1,941,000 pounds,
and in the 10 years after, to 4,164,000 pounds. The English
exports of silk wares had before 1824 a value of £350,000 to
£380,000; in 1830, of over £521,000; in 1854, of almost
£1,700,000; in 1863, of £3,147,000. Compare _Porter_,
Progress, I, 255 ff. On the other hand, Austria was
over-hasty when it went over from the prohibition of foreign
silk stuffs to duties of 180 florins per cwt. (Oest.
Weltausstellungsbericht von 1867, IV, 140.)]