L76 HF/T5G -' L TS - ^ 1 ! 1 ] 1 HF1756.L76""'""'"""""-"'"^ Mimi'iililZ'f "'^'^ '"" '"feign trade. 3 1924 013 877 877 Cornell University Library The original of tliis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013877877 The Economic Crisii ins IS ana Foreign Traae "By I. H. LIONBERGER Cbairman of Tbe American Credit-Indemnity Co. St. Louis, Mo. Tke American Credit-Indemnity Cc St. Louia, Mo. 1921 Copie* to Im Kad of the Company "Let thy soul beware of a counsellor, and know thou before what is his interest. Take not counsel with a woman about her rival; neither with a coward about war; nor with a merchant about exchange; nor with a buyer about selling." — ^Ecclesiasticus. PREFACE I have attempted to show in the following essay how important is the science we call polit- ical economy; to explain why it is so difficult to understand; and to point out considerations which have heretofore prevented busy Ameri- cans from mastering its complicated and refined principles. I have set forth as distinctly and briefly as I could the doctrine of the greatest of the econo- mists, Adam Smith, and have related the ways and means whereby England after the Napole- onic wars, in an emergency like that which now confronts us, by mastering such doctrine and availing herself of its instruction, succeeded in rehabilitating her industries and restoring her prosperity. I have discussed the argviments we now com- monly employ to persuade men to reject Adam Smith's doctrine, and compared them with like arguments used a century ago; and have related the history of the experiment then tried by England, and of the events which followed. I have also attempted to set forth the evils which have resulted from foolish laws recently and long ago enacted; to prove that they may be cured by a more liberal policy; and to describe the benefits likely to result to ourselves and all the world from the free exchange of benefits by all peoples. I. H. L. THE ECONOMIC CRISIS AND FOREIGN TRADE I. Foolish things seem credible, even to the wise, when they have become familiar, and tradition recommends them, and men lack an urgent motive to examine them. The Egyptians had wit enough to be rid of the practice of embalming cats, if they had thought it worth while to do so. The Greeks imderstood that the entrails of birds could not affect the issue of battle, but ceremony of some sort on solemn occasions was necessary. It is even probable that somebody derived an advantage from such rites. Certainly those priests were ever most flourishing who suffered credulity to have its way and provided for its gratification the ceremonies it craved. The crowd, the people, incline to faith rather than judgment, not only with respect to the tilings they can not tmderstand but with respect to the practical affairs of life. As the figs and olives of Attica were superior, there was an urgent demand for them abroad. Athens, wishing them to be cheaper at home, prohibited their export and by destroying their markets prevented their cultwe. During the Middle Ages the opinion prevailed that prosperity was impossible without monopoly, and so the guild towns were encouraged to usurp all industry. Men did not understand that a privilege cannot be profitable to A unless [5] THE ECONOMIC CRISIS AND FOREIGN TRADE it is burdensome to somebody else. For centuries exports were deemed more profitable than imports, and we still find this notion embalmed in the phrase "favorable balance of trade". Many simi- lar obsessions obtain today: as for example that paper money is money, credit may be created, paupers are formidable competitors, waste and extravagance tend to prosperity, and heavy taxes to an equitable distribution of wealth! If we search carefully, we shall find back of, and sup- porting these superstitions, a body of men who, like the priests and augurs of old, manage some- how to keep them alive for their own profit. Observing these things, we cannot avoid the conviction that wit concerns itself no more with business than with faith. In religion, indeed, men have become in the course of time more reasonable, certainly less fanatical; but with respect to prac- tical affairs no progress seems to have been made. Custom and avarice more than faith induce super- stition. Men stiU cling to ancient follies. Why are they so credulous? I venture an explanation which seems at least plausible. Whenever selfish men, 'clerical or lay, find a profit in superstition, they will not hesitate to practice imposture. It is easy to deceive the majority with respect to those things which are hard to understand, and it is very hard to under- stand an economic truth. Political economy is not [6] THE ECONOMIC CRISIS AND FOREIGN TRADE an exact science in the sense that geometry or astronomy is exact. That things which are equal to the same thing are equal to each other, is always evidently true vmder all circumstances. The gravity which controls the movements of the stars controls also an apple and every particle of matter, and always operates in precisely the same manner. An economic truth, on the other hand, is rarely true in any instance; it cannot always be recon- ciled even with the facts from which it is derived. Founded upon experience and philosophy, it con- cerns itself with multitudes of influential facts and the consequences and tendencies which result from them, rather than with any momentary situation. Business is never altogether normal. The forces which control it are various and conflicting. The- oretically money and goods should be cheap at the same time, for money is but the means wherewith goods may be borrowed; but now and then prices fall rapidly and rates of interest advance. We shall be apt to reject the principle, tmless we reflect that a violent decline in prices threatens the solvency of all borrowers and so increases the risk of lending. Theoretically inflation by means of printed money is dangerous, yet for a considerable time it may seem to promote prosperity. Cur- tailed production may put up prices and sustain them for a brief period, and therefore people will [7] THE ECONOMIC CRISIS AND FOREIGN TRADE think scarcity the cause of prosperity. Political economy concerns itself with remote rather than immediate effects. Its principles are strangely, wonderfully, most usefully, but remotely true; and none who wish to thrive can afford to disregard them. To understand its doctrine is almost as important to communities as that they should provide good laws; for laws alone cannot insure prosperity and tranquillity. In order to thrive we must under- stand those spontaneous, superior and benign influences upon which prosperity depends. They are superior to law, for law caimot stop, however it may retard their operation. The law rewards no man; political economy promises much to him who will obey its mandates. To perceive how wealth is produced and how it is distributed; the correllation between the supply of and the demand for goods, when to buy and when to sell; to be able to observe tendencies and anticipate conse- quences; is to thrive where many fail, and to achieve a comfortable serenity where others, bro- ken upon the wheel of adversity, give themselves over to lamentation. Yet political science is a neglected science, and those who attempt to ex- plain its doctrine find themselves confronted by a cunning or contemptuous and unmanageable opposition. [8] THE ECONOMIC CRISIS AND FOREIGN TRADE Of the nations of the world none but England seems to have had that sort of intelligence which is required for the mastery of its principles, and even in England a powerful minority are still miscreant scomers of its teaching. Adam Smith, the foimder of political economy, was an English- man, but for fifty years his fellow countrymen remained indifferent to his great book. Not imtil the miseries resulting from the Napoleonic wars had compelled scrutiny of all the laws, policies, conventions and institutions by which it was governed, did England awake to the significance of Smith's theories, and then and then only, with that bull-dog determination which characterizes the race, did it set itself to understand his doctrine and reform its laws. Fortunately for England the reforms then tried were instantly successful. Spurred by famine, it opened its ports to the food of the world, and encouraged by the amazing results, gradually emancipated its trade from all artificial restraints. Then England began to flourish as never before, and the conviction that trade should be free passed into the habitual thinking and firm prejudice of the nation. Eng- lishmen having made up their minds, nothing, not even apparently irreconcilable fact, was there after suffered to disturb its faith. Always less logical than sensible, in political economy as in [9] THE ECONOMIC CRISIS AND FOREIGN TRADE religion, the common sense of the nation protected it against refined doctrine on the one hand and infidelity upon the other. Yet even in England economic truth is not always safe. From time to time, and generation to generation, the old argu- ments for "fair" trade, or protection against "pauper" labor, have compelled reconsideration of the national prejudice; and so plausibly have these arguments been urged, so just have they seemed in this or that emergency, that nothing but the stubbornness of the national character has been able to resist reaction. The French, differing in mind and temperament, have never been able to understand Adam Smith. Acute, methodical, swift thinkers; too logical per- haps to be wise, they have instantly tested assumed principles by observed facts, and as all these facts did not seem to confirm his abstractions, they did not hesitate to reject them. Individuals among them perceived even before Adam Smith the princi- ples expounded in The Wealth of Nations, but these thinkers could not change the national policy. The French were perhaps not less teachable than the English, but no famine intervened to compel them to test the expedients suggested by the economists. Moreover they had been captivated by the refined doctrines of the Mercantile School and could not emancipate themselves from its [10] THE ECONOMIC CRISIS AND FOREIGN TRADE tyranny. These philosophers, observing that pros- perity attended the exportation of goods, omitted to search for the actual origin of such prosperity and derived from a coincidence a system which was in all respects absurd. They knew that when goods were sold for gold elsewhere, the gold of the nation increased; and they did not realize that money is desirable only because commodities may be purchased with it. They did not reflect that the exportation of goods, followed by no corre- sponding importation, could not result in an increase in the wealth of the nation. After centu- ries of instruction France is still floundering in a morass of economic fallacies. It lacks either the wisdom or vitality to throw off its inherited obses- sions. Today its population is declining. Eagerly desirous of increasing the number of its citizens, it resorts to the worst possible expedients to ac- complish its object. Families are small in France, not because the French are less virile than others, but because the peasant still regards gold and land as the only sorts of desirable wealth. Actu- ally poor, he rejoices in his land and his money, and gladly consents to privations, even to few children, in order that he may not be compelled to divide his estate. America is more like France intellectually and geographically. It has never xmderstood Adam [11] THE ECONOMIC CRISIS AND FOREIGN TRADE Smith; it was never forced to do so. Trade has always been free within its own borders and its foreign commerce was for a long time insignificant in comparison with its domestic trade. Today however it is confronted by the problems which perplexed England a century ago. Forced into intimacy with foreign coimtries by the exigencies of war, its foreign trade has attained enormous proportions, and it must now either stirrender the advantages of that trade or remove the barriers which impede it. Its industries have become ad- justed to the demands of other nations; it can no longer afford to live within itself and for itself, content with its own resources and its own mar- kets; its fields must help to feed and clothe, and its mines must furtiish the raw material for the industries of others; or else it must readjust its business to narrower limits and abandon the fruits of its ambitious enterprise. More people, many more, live out of America than in it, and it can no longer afford to ignore the doctrine of the man who taught England how to become prosperous in a like trying crisis of its national life. It will be hard to teach Americans. For more than a century they were pioneers, rather busy than thoughtful. Having much to do, being free, every man for himself, confronted by a wilderness which taxed his energies to the utmost, remote [12] THE ECONOMIC CRISIS AND FOREIGN TRADE from his fellows, tired after the day's work, lacking access to and interest in books of instruction, knowing none who could instruct him, it is not surprising that they should have ignored the meaning of the gradual encroachment of the co- operative system by which in the course of time they were enveloped. By nature bold, frank and sincere, they were also trustful and inclined to listen to anyone who pretended to intellectual superior- ity: and impostors were not lacking who foimd in their modesty or patriotism or distress a fertile soil for the propagation of doctrines profitable to themselves. These, wishing monopoly, or banking privileges, or the right to print money for their owh enrichment, denounced foreigners and foreign goods, and whispered the advantages of easy credit, or proclaimed the benefits likely to result from cheap money; and as few were competent to xmderstand these high and remote things and all desired prosperity, the most absurd fallacies were readily propagated and gladly embraced. Experi- ment after experiment failed, but as we did not understand quite what we intended, we did not understand why we failed. "How shall he become wise that holdeth the plow, and driveth the oxen, and is occupied in his labors, and whose discourse is of stock or bulls? [13] THE ECONOMIC CRISIS AND FOREIGN TRADE He will set his heart upon turning his furrows and his wakefulness is given to heifers and their fodder. Without these shall not a city be inhabited and men shall not walk up and down therein. They maintain the fabric of the world, but they shall not be sought for in council and in the assembly they shall not mount on high. And they shall not understand the covenant, nor declare instruction." We have not been able to understand that duties on imports have never prevented over- production nor sustained prices; banks of issue have never afforded cheap money; easy credits have never averted panics or crises: ever credu- lous, hopeful and inconsiderate, we have learned nothing from experience. Each generation had to endure the same calamities. There was a panic in 1819, 1827, 1837, 1846, 1857, 1869, 1873, 1884, 1893, 1903 and 1907, all of which were attributable to the same fallacies; but none had time to imder- stand and so the same blimders were committed over and over again. Today we are confronted by such a crisis as confronted England in 1815. Perhaps, stirred by discontent and impatient of the guidance of those who have so long and so fruitlessly "protected" us against disaster, we may find time and inclination to attend to him who helped England in a like emergency. [14] THE ECONOMIC CRISIS AND FOREIGN TRADE 11. The doctrine of Adam Smith is simple. Men have divided the tasks of industry in order that by the practice of this or that craft or trade, they may become more skillful and produce more goods; and they trade in order that they may share with each other the benefits resulting from such increased production. The advantages of trade are always mutual. By its means all specialists get with what they make more of the goods they need than they can produce for themselves. This principle is fundamental, and its significance must be clearly understood. If we assume that the cobbler and hatter are experts, each in his own craft: that the cooler can make a pair of shoes in half a day, but cannot make a hat in less than a whole day; and that the hatter can make a hat in half a day but cannot make a pair of shoes in less than a whole day — ^it is obvious that each can, by the exchange of these commodities, save or gain half a day's labor. In other words, each can buy with half a day's labor what it would cost him a whole day to produce; and both traders enjoy, at the same time and as a result of the same transaction, the same advantage. Neither makes anything out of or at the cost of the other. Both depend upon what they produce. The values exchanged are equal. The benefits realized are mutual. [15] THE ECONOMIC CRISIS AND FOREIGN TRADE The principle is obscure because we do not ex- change goods for goods immediately, but buy and sell. Nevertheless the principle still holds, for money is but a medium of exchange and a measure of the relative values of the goods involved. When we exchange goods we save labor, when we buy and sell we say that we make money, but what we make in the one case is precisely what we save in the other. For example, the trader who makes for $4 and sells for $5 and continues to do so until he shall have accumulated $20, has in fact saved $20 worth of his own labor. The same saving is realized by a hatter who makes ten hats, sells five and puts five hats worth $4 each, in a warehouse. Each has accumulated goods, called in the one case dollars and in the other case hats. Producers as a rule do not accumulate hats or shoes, and do accumulate money, for the following reasons. In the first place, it is more convenient to do so. Money is a precious metal having great value in small bulk, which may be deposited and kept in a safe place without charge; whereas goods are bulky and perishable and cannot be stored and preserved without trouble. In the second place, it is safer to invest in money than to keep goods. Goods are more readily made than dis- posed of. Production is mechanical, trade depends upon many considerations: the desires, wants and [16] THE ECONOMIC CRISIS AND FOREIGN TRADE means of others. To test, to keep in touch with the demands of the market, the maker of -special goods must sell, for unless he does so he cannot be sure that he is making what another will buy. To avoid this uncertainty, traders prefer as a rule to sell even before they produce goods. Money will buy anything at any time. Its market value fluctuates very little and very gradually; and it is because money possesses these qualities that men prefer to accumulate money rather than speculate by accumulating goods. Nevertheless, money saved is but the proceeds of goods made and converted into a more convenient, merchantable sort of commodity; and if we admit, that accumulated hats are the fruits of the industry and thrift of the hatter, then we must admit that the money for which hats have been exchanged is also the fruit of his industry and thrift and not of another's. Men are mistaken who think money got by trade is wrung from or got at the cost of the buyer. More than charity, trade enriches him that gives and him that receives: it is always ad- vantageous for all engaged in it — ^buyer and seller, seller and buyer. I have confined myself to the producer's case, because I wished to show that he does not make money out of the consumer, but by his own energy: but the principle obtains with respect to all sorts [17] THE ECONOMIC CRISIS AND FOREIGN TRADE of trading. The merchant is a distributor of goods. He buys where they are abundant and therefore cost less in labor, and sells where they are scarce and are therefore worth more. He does not thrive because he gives less or gets more for goods than they are worth, but because they are worth less where he buys and more where he sells. He helps both producer and consumer: the former by finding for him a better market than he can find at home, and the latter by offering goods for less than they would otherwise have been worth. He may not intend to help others, but nevertheless he must, in order to help himself. Under normal conditions the merchant cannot pay less nor get more for goods than they are worth. There are always many buyers and many sellers, and these must compete with each other, and where one offers more or asks less than another, he is always preferred who will pay most and ask least. For obvious reasons, such competition is advantageous to all producers and all consumers of goods: the profits derived from trade are not withdrawn from either — ^they are won by helping both. The value of such competition to the community caimot be over-estimated. It operates to accom- plish a fair distribution of goods, a selling and buying at approximate cost, an exchange upon 118] THE ECONOMIC CRISIS AND FOREIGN TRADE equal terms, beneficial alike to producer and con- sumer, and just to both in the sense that each gets and gives what he should, no more, no less. A free competitive system not only affords these advantages, it forces men to do what they can do best: for where this producer is stupid or lazy and cannot or will not offer his goods on favorable terms, he will be imable to compete with another of better capacity and character and must there- fore either change his calling or mend his ways. Where trade is free, it compels every producer of goods to do his best. A restraint upon trade, however, imposed, im- pairs these reciprocal benefits. For example, if A will seU a hat for $4 and B asks $5, to compel me to buy from B is to force me to pay more for a hat than it is worth: if I can get forty cents for a dozen eggs from A and can get but twenty cents from B, to compel me to sell to B is to rob me of twenty cents. An open market precludes both of these evils; a restraint upon trade forces them upon us. ucers dislike free trade because they have ri^ notionShat protection puts up the price of what ^^ha.^)iq sell, and cannot imderstand that the ?pri?d^ot wigoods depends upon what other goods I cag^gbe pv|E?|iased for in the market. If I go to 1 in|i5|iet tc^^U a horse and buy cows, it concerns k f />7/ [19] THE ECONOMIC CRISIS AND FOREIGN TRADE me that I should get two cows rather than one for my horse, but it does not matter how much money I get for my horse nor how much I pay for cows, always provided I get two cows for one horse. The horse may sell for $100 or $500, pro- vided cows sell for $50 or $250 each. In either case I get the same price in cows for the horse. A "protection" which puts up the price of both horse and cows accomplishes nothing. If, how- ever, protection puts up the price of horses but does not affect the price of cows, it is obvious that the loss of the cow dealer will precisely measure the protection afforded to the horse dealer. That such protection is unfair, ungenerous and injurious, no good man will deny. The profits or advantages of trade do not depend upon such injustice. A legitimate profit may always be got by both parties by fair trading. High and low prices of themselves are deceptive. We say goods are cheap when we exchange many for many, and that they are dear when we exchange few for few; but it is never advantageous that any should be dear, for deamess indicates scarcity and cheapness abundance. None but foolish men will wish their own goods to be dear and another's cheap. It is true that a few dear goods will buy many cheap goods, but the seller is no better off than if he offered many [20] THE ECONOMIC CRISIS AND FOREIGN TRADE for many. This paradox may seem absurd, but it is nevertheless soimd. Goods are scarce or dear either because it is hard to make them or the supply is for some reason curtailed. If it is hard to make them, then the maker gets no more for his labor than it is worth, even though he gets for them many goods which are easily made. On the other hand, if all goods are easy to make, the maker gets no less than his own are worth when he offers many for many. In either case he gets for his own work an equivalent amount of another's. The scarcity resulting from a bad harvest is an immitigated misfortune for all traders, even for the farmer. Assume that because the cotton crop fails and the price advances to $100 a bale, what effect should such price have on the prosperity of the planter? If he has half a crop, then the price realized will buy no more than if he had a full crop and cotton were worth $50 a bale. One bale at $100 equals in value two bales at $50. To offer one bale and get $100 is to get no more than to offer two bales and get $100. To give little and get much is to get no more than to give much and get the same price. Or, to state the same thing in another way, to give much and get much, is no less profitable than to give little and get the same price: the seller gets no less in the one case than in the other. [21] THE ECONOMIC CRISIS AND FOREIGN TRADE The jubilation of the South over the failure of the 1921 cotton crop was hysterical. They did- not reflect that twice as large a crop would have realized the same amount of money at half the price. Scarce cotton is an unmitigated evil. In time the South will learn that it must share in a common calamity. A little while ago the profiteers were insolent in their exactions and reckoned their profits avidly. The buyers' strike brought them to reason and today they are fugitives from insol- vency. The law of supply and demand is an inscrutible thing. Goods may be ever so scarce and the need for them ever so great, yet the price may tumble as it did in 1920. He who expects profit from scarcity is engaged in a perilous specu^ lation. Abundance and cheapness are better than scarcity and high prices. "Whenever the labor of a community is divided or specialized, the prosperity of every worker de- pends upon his access to the best market for his own goods; and any restraint, however imposed, which forces him to get less for his own or pay more for another's goods than they are worth in an open market, deprives him of part of the value which he has created. All producers are at the same time consumers. To help them in one character without hurting them in the other is [22] THE ECONOMIC CRISIS AND FOREIGN TRADE impossible. To put up all prices helps nobody; to put up the price of A's goods hurts all the rest of the alphabet. Nations are like individuals: one excels in this industry, another in that. In order that all may thrive, each should be encouraged to do that which it can do best, for the prosperity of all depends upon the productive capacity of each. If any be poor by reason of its inefficiency, it can contribute little to the general welfare. It will have less to sell and will buy less. Rich neighbors are best customers: they produce more and buy more. There is no such thing as a favorable or unfavorable balance of trade, for the values ex- changed are always equal in the estimation of traders. An excess of exports which is not followed by a corresponding excess of imports, may mean that a nation is getting poorer. No nation can become rich if its income is less than its outgo. The object of international trade is not to get money for goods, but goods for goods. Money is an instrument. We use plows to cultivate the land, but plows are not the object of agriculture. We sell for money not because we can eat or wear or make any other use of it, but because we can buy with it. South Africa sends its gold abroad because it has no value at home. International trade uses money, but its object is goods and not [23] THE ECONOMIC CRISIS AND FOREIGN TRADE money. Unless we consent to buy abroad, we cannot sell abroad. To demand money and refuse goods is to kill trade, for no nation save one pos- sessed of mines has gold enough to satisfy all its wants. The advantages of trade must be realized in goods. We send flour to Cuba in order that we may get tobacco and sugar. If exports are sometimes greater than imports, and vice versa, it is because one nation is a borrower and another a lender. England has heretofore been a creditor nation and therefore for a hundred years its imports have been greater than its ex- ports. America on the other hand has been a debtor nation, and for this reason its exports have usually been greater than its imports. The former received and the latter paid interest on cajiital loaned on the one part and borrowed on the other. A duty upon imports is a tax upon the goods received for goods exported which deprives the seller of part of his own goods. It always impairs the advantages of trade and discourages enter- prise. Such a tax is not "protective" ; the foreigner does not pay it; it cannot encourage local industry; it takes away part of the values produced by that industry. It may raise the price of certain com- modities, but it lessens the exchange value or pur- chasing power of all others. To protect one pro- ducer is to put a yoke upon the neck of another. [24] THE ECONOMIC CRISIS AND FOREIGN TRADE III. Such in brief is the doctrine of Adam Smith. It is interesting and significant. If it be true, we cannot afford to ignore it. Perhaps we may find in it a remedy for our distresses. Consider the situation of England one hundred years ago. It had waged incessant war for many years; its national debt had increased enormously; its credit had become impaired; its currency had depreciated; the burdens of taxation pressed heavily on all classes; many lacked work; wages were between six and ten shillings a week; nearly one-sixth of the people depended upon the meager dole afforded by the poor laws; imiversal misery had resulted in grave disorders; foreign trade lan- guished; the customers or England had become poor; all of its industries were paralyzed; parlia- ment was controlled by the coimtry gentry, and the importation of wheat was prohibited save at a price which meant hunger to a fifth of its people; the cost of living had become tmbearable; its factories were tmprofitable; and its lower classes had become restless and insurgent. These were the circumstances which induced England to con- sider and reform its laws. The reforms it then inaugurated are today most significant. It did not make new laws; it repealed old ones. It abolished privileges, enlarged the [25] THE ECONOMIC CRISIS AND FOREIGN TRADE franchise, repealed its horrid criminal punishments and reformed its legal procedure. It got rid of its paper currency and restored the gold stand- ard. It swept aside its "protective" duties and emancipated trade, and so prepared the way for the astonishing period of growth and prosperity which we nominate the Victorian Era. The situation of America today is not nearly so desperate. Nevertheless we have increased our national debt twenty-five' fold and our taxes five- fold; industry is depressed and millions of men are out of work; credit had become petrified; failures are numerous; necessary capital is lacking; rates of interest are excessively high; trade is dull, wages are falling and already we hear the faint muttering of that discontent which must some day disturb the peace of the commimity. What imder such circumstances are the remedies we propose? Are we, as did England, scrutinizing our laws and institutions to ascertain what evils they contain? Are we repealing bad laws? On the contrary, we are passing worse ones and adding to inherited burdens many of our own making. The bonds of the government are greatly depreciated, yet we tax the income derived from them and force men to invest needed capital in the wasting tax-exempt bonds of wildly extravagant states, counties, townships and school districts. Other [26] THE ECONOMIC CRISIS AND FOREIGN TRADE taxes are excessively burdensome, yet the local authorities spend more lavishly than ever before. Trade is languishing and we have created for its relief preposterous credit corporations to take over and embalm doubtful accounts. The farmers have ceased to be prosperous, and we lend them money at less than current rates, to induce them to embark in perilous speculation. Foreign countries are desperately poor, yet we retard their recovery by excluding their goods. Our foreign trade is rapidly declining, and we are attempting to revive it by raising still higher the barriers which impede it. Wishing foreign commerce, we decline to per- mit it. Tried by the doctrines of Adam Smith, all of these measures are vicious in the extreme. To encourage industry we should ease its burdens; to provide enough capital for its development we should stop waste, reduce taxes and cease to drive capital into improfitable and unproductive invest- ment. To encourage the farmer we should let him sell in the best market the world affords and permit him to bring the price home; to encourage exports we should permit imports; to ease trade we should emancipate it. The time has come when we must either aban- don the traditions by which we are controlled, or else surrender to others more intelligent the vast [27] THE ECONOMIC CRISIS AND FOREIGN TRADE benefits to be derived from foreign trade. We can of course live without it, but if we mean to be afflu- ent and have our share of the goods of the world; if we wish to keep our fanners and miners and foundry-men employed we must permit them to sell abroad and cease to rob them of the fruits of their industry. A duty on imports does rob them; it takes from them part of the price got for exported goods, and kills the market for their surplus products. Aliens are imlike ourselves and have other apti- tudes, crafts and resources. They need what we can spare of many commodities, and we need what they can spare of others. If we and they are per- mitted to exchange these goods, we shall enrich each other; if we are not, we must lack markets for our surplus goods and deny ourselves many things we need. To try to sell without buying is to attempt the impossible. To insist upon getting money and nothing else is silly; for they liack money and our coffers are full to overflowing. Abroad lie the richest fields for our enterprise; there lies a prosperity amazing greater than any we have ever enjoyed. The war has advertised our power and resources and goods, and taught us the needs of others. We can increase our exports if we will but open our ports and consent to list in the goods purchased with our goods. Today many [28] THE ECONOMIC CRISIS AND FOREIGN TRADE mills and factories are running on half time, because there is no domestic market for their products, yet the world needs them as never before. Unless we buy, we cannot sell. What obscures our vision, that we cannot see where prosperity lies? Is it the vague nebulous notion that we cannot compete with the "pauper" laborers abroad? Let us test this notion. We wish to encourage exports and discourage imports. But which of these must compete with those "paupers" whom we fear? What is an export? Is it not goods marketed abroad, or sold there, and are they not sold in competition with the pernicious products of foreign labor? Does not selling to "pauper" labor involve competition with it? It will not do to push aside this suggestion and say that only when they sell to us do they com- pete with us; for if this be true, then we compete with them when we sell them, and the argument recoils. The truth is that they make certain things better and cheaper than we, and we make other things better and cheaper than they; and with respect to these things neither can compete with the other. The "pauper" labor argument is not only un- sound in theory, it is irreconcilable with multitudes of facts. Labor is "pauper" only when it is ineffi- [29] THE ECONOMIC CRISIS AND FOREIGN TRADE cient, and because it cannot compete. Long ago India furnished all the calico of the world; now calico is made in Lancashire and India's monopoly has vanished. "Why? India's wages are still one- fifth of those paid in England. Lord Brassey built the railroads of India with Comishmen, al- though their wages were ten times as high as those paid to natives. This contractor was not a wil&il waster of money. He got more work out of one Comishman than out of ten natives. The Comish- men were more intelligent and efficient. The natives could not compete with them. Laborers are "paupers" only when they cannot compete. It has been so always and is so everywhere. We sell goods to China and Japan. If we buy from them, it is because they ask less and are content with less and give more than another. How can it be injurious to buy cheaply? The protectionist will of course answer "we ex- clude foreign cheap goods in order that we may encourage local industries engaged in the produc- tion of such goods." This sounds plausible, but what does it mean? Does it not mean that we compel one sort of producer to pay tribute to another? Is it just that the farmers and miners, or other exporters should be deprived of one-half of the exchange values of their commodities, by a duty on the goods got for them, in order that some [301 THE ECONOMIC CRISIS AND FOREIGN TRADE corporation may require them to pay for machines or tools, or sugar, or clothing, more than they are worth? Is this double imposition profitable to the immense number of men engaged in agriculture or mining? These industrious people find it hard enough to support their families, and I very much doubt if even an eloquent politician could persuade them to surrender a considerable part of their goods for the enrichment of the more fortunate "protected" industries. It is true that the farmers are also "protected," but the protection afforded them is a Barmicide feast at which none may eat to repletion. America produces more wheat than it can consume. Wheat is therefore cheaper here than elsewhere. As nobody has a motive to import it, protection against its importation seems to be as superfluous as a lock upon an empty barn. Certainly such protection does not enable fanners to get higher prices for wheat. Their best market is found abroad, but if they sell there they cannot bring goods bought home, lest the importation of such goods should increase the domestic supply and so reduce the profits of those who are actually protected. The difference between the phantom "protec- tion" offered to the farmer and the actual protec- tion enjoyed by the manufacturer becomes evident [31] THE ECONOMIC CRISIS AND FOREIGN TRADE if we remember that a manufacturer sells his product abroad for even less than it is worth at home, — dumping goods abroad in order that they may be scarce at home — ^then brings the price home in money and buys cheap wheat. The farmer, on the other hand, who sells his wheat abroad and brings the price home in money must buy dear, or "protected" goods here at prices greatly in excess of their foreign valu&. That "protection" affords work for laborers, is another specious fallacy. We have been "pro- tected" for a hundred years, and yet today millions lack work and they have lacked work at intervals throughout the whole of this period. They must always lack work when trade languishes. Protec- tion restrains trade. Emancipate, encourage, start it, and all men will find work. Consider the pro- ductive capacity of this great country. Every man has the energy of ten, for each is fortified by a machine. What we fear most is over-production. Let loose, the energy of the nation can produce more, far more than it needs. Goods made cannot now be disposed of. We have killed trade by refusing traders the right to sell abroad and bring the price home. Europe and Asia and Africa and South America have need of our goods, and we have need of theirs. The law prohibits their ex- change. Repeal the law and what must be the [32] THE ECONOMIC CRISIS AND FOREIGN TRADE consequence? Germany needs cotton and copper, England wheat and cotton; we need tools and machines and coffee and spices, sugar and potash. If we freely exchange these commodities, will not trade with many countries revive and with it industry, and with industry, labor? Is it worth while to afflict millions of the laborers of the coimtry in order that a few "protected" corpora- tions may be fostered into tmdeserved opulence; to keep millions poor and idle in order that hun- dreds may thrive? Millions are poor today, they lack work. Protection has not "protected" them. Is it not time that we should try emancipation? England tried it in a like emergency. It had like difficulties to deal with. Englishmen were farmers; foreign wheat cost less than it could be produced for in England; to import wheat was to throw out of work all engaged in agriculture. Such was the argument. Is it not plausible, as plausible as ours today? Yet it was fallacious — stupidly so, as events proved. England tore down its barriers, wheat came in and agricultural wages increased threefold. It is perhaps unnecessary to repeat the explana- tion of this startling anomaly, yet it may be helpful to those who are unacquainted with the economic history of England. When wheat, or com as the English call it, was put upon the free [33] THE ECONOMIC CRISIS AND FOREIGN TRADE list,, large quantities were immediately imported and prices fell. But to pay for the imported wheat, cotton goods were sent abroad in increasing quanti- ties, and to provide these goods the mills of Lan- cashire increased their production, and by so doing afforded emplojnnent at better wages to those who could not find work on the farms. At the same time the landed proprietors, observing the inevit- able trend of affairs, set themselves to the im- provement of their methods in the hope that they might avoid disaster, and were successful. Among the experiments tried were the ditching and drain- ing of the wet clay soils, the use of manures re- cently discovered by the chemist von Liebig, and the enlargement of the fields for grazing. The effect of these irmovations was almost instantly felt, and in the course of time the yield of com land increased fivefold and wages were increased threefold. So disaster was avoided and the farmers of England became more prosperous than ever before. At the same time, the situation of all laborers was enormously improved. Wages not only advanced, but the cost of living fell. IV. Adam Smith was right. Trade is the best avenue to prosperity. Restraints upon it are injurious. It is profitable to buy where one can buy cheapest 134] THE ECONOMIC CRISIS AND FOREIGN TRADE even with labor. To induce a man to produce two hundred bushels of com by a season's labor when by a less exertion in a cotton mill he can procure five hundred bushels, is not to enrich him but to keep him poor. It cannot encourage agriculture to reduce to poverty all dependent upon it. The object of industry is not work but wealth. Abund- ance is better than scarcity. It is high time that we should reconsider the laws by which we are governed. Protection is an inherited blunder. It afflicted our ancestors, and theirs. It had its origin in the dark ages. The superstition upon which it rests belongs to a dark age. It was never possible for a moment of time in any country to enrich a commimity by law, for rulers have never been competent to tell their subjects how they might thrive. Monopolies and privileges of all sorts have always been injurious to the recipients and to the general welfare. The guild towns could not compete with the free towns. To compel the burial of dead in woolen shrouds did not tend to enrich the graziers. Historically, protection is a blunder. It cannot be theoretically vindicated. To "protect" A by compelling B to pay him tribute cannot enrich both. To levy a toll upon trade cannot increase the profits of trade. To encourage any class in a community to make dear goods where such goods [35] THE ECONOMIC CRISIS AND FOREIGN TRADE can be made cheaply elsewhere, is to pervert its energy and impair its usefulness. It is wrong to compel a New Englander to buy Louisiana sugar when he can buy more for the same price in Cuba. Bi-lateral protection is little short of madness. Taxing A for the benefit of B, and B for the benefit of A, cannot help either. The prosperity of labor depends upon the purchasing power of wages.- To buy much with a day's work is better than to buy little. I know that the protected American manu- facturer is apprehensive that if foreign goods be allowed to come into this country duty free, he will be imable to pay present wages and at the same time compete with such goods; but is there any groimd for such a fear? The fact that wages are higher in America than in England cannot be accidental nor arbitrary nor the result of law. It must be the result of some influence competent to bring it about. If we consider for a moment, we must admit that as wages are paid out of what labor produces, more wages can not be paid than are earned. The Ameri- can laborer must therefore produce more in order that he may earn more than an Englishman. But if Americans can and do produce more, their wages are the result of such better efficiency and England cannot undersell us. We now ship [36] THE ECONOMIC CRISIS AND FOREIGN TRADE great quantities of cotton goods to China, and there successfully compete with Englishmen. Labor cost is actually higher in many industries in Eng- land than in America. A Sheffield correspondent informs the London Economist that "the price of a ton of coke in America is but two-fifths of the price of coke in Great Britain. The labor cost of American coal is considerably less than one-third of the labor cost of British coal. Both German and American iron is being produced at a less in- clusive cost for fuel and labor, than a ton of British iron for fuel alone." I might multiply illustrations. Wages have never depended upon tariffs. They are higher in free-trade England than in protected Germany; they are lower in protected Italy than in protected America. If wages were reckoned in output rather than in money, we should understand why. If for example the laborer receive one-half of his output in kind, he will receive 100 where he produces 200, and 50 where he produces 100; and such is the explanation of the disparity of wages in various countries. Will any man venture to deny that Americans are as intelligent, skilful, ingenious and industrious as any people; that they have as good tools and machines, and command more raw material than any other; or that their output per man in every [37] THE ECONOMIC CRISIS AND FOREIGN TRADE department of industry is as great as or greater than that of any other? If these things be true, why do we need a law to protect us? Protection hampers business. If we emancipate the Ameri- can laborer and let him have free scope and oppor- tunity, it is incredible that he will fail to compete with those inferior to himself in the qualities requisite for industry. The calamity which now confronts us is over-production. If the markets of the world were open to us, would not trade with 600,000,000 of people afford scope for all our energies? If we let others' goods come in, ours will go out. We need markets for our surplus products. If we let men sell what they make where they can, they will find work. Our trouble is arrested distribu- tion. Factories and fields and foundries are fruit- less because their products cannot be exchanged for other goods. "Protection" has not protected us. The emer- gency tariff has not been followed by a revival. The gold which we have wrung from the reluctant treasuries of Europe has not sustained business. Many men are idle, we have a surplus of many sorts of goods, yet the cost of living is still exor- bitantly high. We need the goods of foreigners; they are eager to sell to us and we to them; they will sell cheaply because their need is great; they [38] THE ECONOMIC CRISIS AND FOREIGN TRADE wish to buy from us what we can spare, and will pay more than we can get at home. Their gold is exhausted. We will not let them buy with goods. They cannot buy otherwise. Contrast with these dismal realities the probable consequences of trade emancipation. Goods of all sorts, needed goods, will begin to flood our markets, and these goods will be exchanged for our goods; and our goods will flow out; and mar- kets having been foimd, we shall go to work to produce more, and so men will find employment, and living will be easy and oiu- debtors will become solvent, and prosperity will return. Such a revival followed the emancipation of England's trade in a ,like emergency. Why do we refuse to permit it? In order that the steel company may nm on half time; that men may lack work, that our railroads may decay and farmers and planters put off their creditors? Must we, notwithstanding the evident recent failure of a system which has disappointed us over and over again, still cling with fanatical fidelity to a superstition inherited from the dark ages? The miseries of a thousand years were in great measure attributable to that superstition. Athens taught men that wealth and enlightenment come by trade. The Roman Empire endured for centu- ries not only because its law and justice were [39] THE ECONOMIC CRISIS AND FOREIGN TRADE superior and its peace more secure, but because it emancipated the trade of the petty nations it conquered; and by its excellent highways facili- tated the exchange of goods. The dark ages which followed were due to the restoration of the barriers to trade which Rome had destroyed. Every petty baron levied toll on the merchants. States were mutually hostile and rapacious and jealous; and while they were so, peasants were miserably poor and villeins wore the collar of servitude. The annals of the Middle Ages show the desperate struggles of the peoples against the misguided tyrannies which kept them poor. Only after con- flicts, lasting centuries, had destroyed the petty tyrants, or curbed their rapacity, were those greater kingdoms formed which offered freedom of trade to numerous communities. Then and then only did men regain the prosperity of an- tiquity. Mutual trade not only enriches peoples, it recon- ciles them. The treaty of commerce between Venice and the Turks kept peace between them for centuries. The Hanseatic League was a bond of union and goodwill between many towns and created a common feeling and mutual esteem which tended to tranquillity. At the basis of all international relations there is a himian nature with which we must reckon. Traders become [40] THE ECONOMIC CRISIS AND FOREIGN TRADE intimate. We like those who trade with us; we incline to hate those who will not. We seek out those who will sell to us cheaply. The study of the needs of others, commercial transactions with them, by enlarging our knowledge of them, teaches us to xmderstand them. The greatness and influ- ence of England are not more due to its mastery of the high seas than to its use of them. Its ports are open and its argosies enrich the world, doing good and getting good. The strength of Germany was due to the creation of an empire which de- stroyed the barriers to mutual enrichment which had so long restrained the trade of the petty states of which it was composed. Its prosperity was due not more to the patient and ingenious industry of its people than to the markets which its enterprise found for its products. Its downfall was due to its misguided rapacity. It coveted the resources of France and Belgium, and stupidly assumed that by war alone could it obtain them. It preferred to subjugate rather than trade with free peoples. "Protection", having its seat in rapacity, tends to friction, mistrust, wars and aggression. Free trade, which offers mutual bene- fits to free traders, induces mutual liking and mutual trust. Can any doubt that if all the resources and goods of the world were thrown open to all men [41] THE ECONOMIC CRISIS AND FOREIGN TRADE on equal terms, good will would follow? What need could Germany have had for the mines of Belgium and France, if the products of these mines might have been bought upon fair terms with the goods of Germany? A duty upon imports is a challenge to battle. We "protect" ourselves not against friends but enemies, and by such "pro- tection" declare others to be our enemies. We call foreigners "paupers" in contempt. They call us Yankees in derision. The "protective" policy is hateful and breeds hate. We wish peace and good will among men; a market for our surplus goods; employment for our laborers; cheap goods for our families. How better can we achieve these benefits than by treating others with consideration, buying abroad in order that we may sell abroad, and emancipating trade from the restraints which now render it unprofit- able? We have ceased to be an infant nation. Our industries have grown up. The world knows our power; let it perceive that we are also intelligent and mean to share with it the benefits of a recipro- cal commerce. So we and they shall achieve pros- perity, and the era of armaments, jealousy and distrust will pass away — ^yielding to a new era of enlightened mutual service and mutual liking. [42J THE ECONOMIC CRISIS AND FOREIGN TRADE We rejected the League of Nations not because we were indifferent to the objects to be accom- plished, but because we thought mere words could not restrain the rapacity of nations; that as our armies might be required for the enforcement of the mandates of the Council, we might become involved in petty quarrels of which we could not judge; and therefore decided, as a free people, to refuse to enter into obligations which we might not choose to perform. We wished peace, even if it had to be fought for, but we preferred to decide for ourselves whom and when to strike. More- over many of us were of opinion that it is possible to offer to the nations otherwise all that war can accomplish and something more. Modem com- monwealths wish prosperity. If we can offer it to them they will shun martial enterprises which promise nothing but death and want. They wish access to the goods of their neighbors. Grant them the right to trade freely and they will have it. From bad laws as from dragon's teeth, armed men spring up. Tariffs are vexing and odious. They have always been so. Every princeling and baron of the Middle Ages levied toll upon the highways, and as their exactions became intoler- able, strife was inevitable. The petty states set up by the Treaty of Versailles have already begun to vex each other with duties and imports. We, [43] THE ECONOMIC CRISIS AND FOREIGN TRADE who boast of our enlightenment, will not let a ship enter our ports unless it will surrender a considera- ble part of the value of its cargo. V. If America will join hands with the nations and offer to all the world not only the freedom of the seas, but the freedom of all ports of entry, can any doubt that in time, by treaties or otherwise, we shall attain to a federation more firm than any fortified by arms? A trading treaty between Venice and the Turk, between Catholics and Mohammedans, kept peace between them for centu- ries. Is such an expedient likely to be less effica- cious now? It is significant that the one free trading nation of the world is also paramovint. None fears its power, for none dreads its policy. What it conquers, it emancipates; what it rules, it enriches. Inferior in numbers and resources to its neighbors, yet it is greater than any. Its domin- ion is wide as the world, and none but the mean envy its supremacy. If we adopt the enlightened policy of England and lend to it our influence and example, other nations will follow. France will not reject the lure of our markets. Germany will eagerly come in, for it also needs markets. Others will join, and so [44] THE ECONOMIC CRISIS AND FOREIGN TRADE we shall at once promote the prosperity and secure the independence and peace and good will of the nations. The fears and jealousies which keep us apart are unmanly. None but a child will plead its infancy. America does not need "protection". Those who say it cannot compete with any in the arts and crafts of industry discredit its capacity and ignore its achievements. We wish peace and good will: let us promote it by fair dealing. We would prevent war: let us avert it by removing the causes of war. We wish employment for our workers and markets for our goods: permit men to do and to make what their welfare and not our blundering policy requires. We wish to encourage exports: let foreigners sell to us in order that they may buy from us. We wish cheap goods and easy living: let men get for what they produce all that it is worth and cease to rob them when they bring the price home. We fear over-produc- tion: let us preclude it by offering to the industries the markets of the world. Many men regard with apprehension the drift- ing propensities of this nation. Its citizens are shrewd, but each is shrewd in his own business, narrowly and suspiciously. The meaning of the complicated cooperative system under which they live is hid from them. Thriving by mutual help, [45] THE ECONOMIC CRISIS AND FOREIGN TRADE they are inclined to mutual hate. Class is arrayed against class. If any suffers, somebody else is to blame. Ignorant of the causes of our discontents, we suspect each other and turn to laws for relief. Each class wishes something for itself. Laws are no longer designed for the general welfare. Manu- facturers and laborers, builders and tenants, ship- pers and ship owners, bankers and borrowers, dreamers and fanatics, rely upon law for enrich- ment or gratification, and none cares how much he may hurt, provided he has his own way. Poli- ticians eager for notoriety embrace and advocate every folly, and by log-rolling gratify all whims of the moment, even those which carmot be reconciled. Nothing — no misforttine, no calamity, seems to instruct us or to restrain us. The constitutions have failed: the courts will not enforce them. The pulpit has failed: no one cares for the preacher. The press panders to every self-seeker and gives notoriety and influence to every folly. The schools have afforded no protective instruction. Yet we are not a foolish people — far from it. We mean what is right; we will even sacrifice all things for it. But* we are too busy to imderstand. What we need is a change in our point of view. We must understand our fellows and the ties that bind them to us. The laborer is not a blackguard: neither is the capitalist. The taxpayer is not an [46] THE ECONOMIC CRISIS AND FOREIGN TRADE enemy of society, nor the producer, nor the con- sumer. Every man in his own way is a helper of all the rest. Laws that hurt any, impair their usefulness. Gains derived from law are ill got and in the end afflicting. These things we must imderstand. We have ceased to be economically free, and shall never again win to the old independence and self-reliance of our ancestors. Henceforth we must remain specialists, each performing his part in a complicated industrial system of wheels within wheels, mutually articulated and mutually helpful. We will never again be independent of our neigh- bors. We must work for and help each other. Rebellion is out of the question. The system com- pels obedience by the rewards it offers and the punishments it inflicts. None is beyond its con- trol and none is beneath its protection. Its sovereignty is benign, its collective wisdom superior to that of any part. We owe to it a cheerful and wiUing obedience, for under its mild sway, responsive to its wise laws, we have achieved and may again achieve national and moral pros- perity greater than that which had ever fallen to the lot of men. The resistance we offer recoils upon ourselves. It is not an artificial, theoretical system, con- trived by a philosopher for perfect men, but a [47] THE ECONOMIC CRISIS AND FOREIGN TRADE practical, operative, fool proof, system evolved by the experience of generations of actual men. It may be disturbed by folly, but it cannot be dethroned. It lets men be selfish, but puts a yoke upon avarice, tempting it, as hay does an ass, to turn the mill. It even forces men to help, and by its lash keeps them subordinate. It sends panics and war and crises and want and imemployment to teach us the right way and compel us to follow it. If it lets fools have their way, it means to teach them, and it does, harshly. It encourages all workers, but it rewards those only who will con- tribute to the general good. It is a system worth imderstanding. It digni- fies all crafts and trades and callings, showing us the gracious kindness of each, robbing commerce of its superficial cupidity and usury of its sting. It should reconcile us to each other. It is as fit for nations as for individuals. We have passed through a great calamity, greater perhaps than any since the Dark Ages. Selfishness had its way for a while, meanness was let loose, fruit-trees were cut down, cities destroyed, communities enslaved and the arts and genius of the great peoples of the world were devoted to mutual destruction. Now has come the pimish- ment, and good and bad are overwhelmed by a like misfortune. [48] THE ECONOMIC CRISIS AND FOREIGN TRADE We must somehow regain what we have lost, but to do so we must understand why we have been punished. Force is a bad bond of union. Good will is stronger, and more abiding. Let us give up our armaments, repeal our vexing laws and submit to that cordial, generous, beneficent, sponta- neous system which is founded upon mutual help and mutual esteem. Our constitutions were good, let us abide by them. International law was good, let us reestablish it. Trade was profitable, let us get rid of its fetters. To do these things we must turn our backs upon the cranks and fanatics who infest us. Russia followed them. Are there no human needs which deserve gratifi- "cSism? Is thete no longer room for the honest ^worl^, nothing for him to do? Is it wise to hinder Mm by tules of a union which will not let him do his bea?ii Is it just that one man should be com- pelled i^ pay another higher wages than he can fam; t^it a borrower should be granted a credit whicltj/withheld from his fellows? That banks should'iiave a monopoly of the public money; that manufacturers should force consumers to pay more for goods than they are worth; that foreign goods should be excluded because many wish to buy them? These questions must be answered. We have been guided long enough by foolish men. Society [49] THE ECONOMIC CRISIS AND FOREIGN TRADE is wiser than they. Let us follow its laws— not hatefully but gladly and generously. There are too many opinions and too little wisdom among us. "It was a good fancy of the old Platonic: men had some things whereof the Gods, which are above them, did partake, as intellect and knowl- edge; and they had some things of which the beasts, which are below them, did partake, as senses and passions; and some things of which neither Gods nor beasts did partake, which gave them all their troubles and made all the confusion in the world, — ^namely, opinions." — John Selden. VI. The industrial system of today is «o simple that we cannot imderstand it. We insist that it shall be inscrutible, and make it so by what we carry into it. The productive capacity of America has not declined; its plants are idle and its men lack work. Why is production arrested, and why is trade dull? These are the problems, and this is the solution. The war did not enrich us, it made us poorer. Ginsumers of goods have lost — the incomes formerly derived from the capital wasted; the dividends formerly received from railroads and public utilities; [50] THE ECONOMIC CRISIS AND FOREIGN TRADE the profits recently derived from a boom in foreign and domestic trade; wages formerly earned. They have to pay — higher freight rates, higher rates of interest, higher rents, higher prices, more taxes. Our needs are not less, but we have less to spend. To restore prosperity to the producer and wage earner, incomes must either be increased or the cost of living somehow reduced. As the former is now impracticable, the latter is the only expedient available. The man who has an income of $2000 a year can buy $2000 worth of goods and no more, at present prices. If you let him buy with $1500 what now costs $2000, he may increase his ex- penditure and consumption by $500. If he does increase his consumption, the demand for goods will increase, production will be stimulated and industry will revive. If it were possible to enact and enforce a law to restrict the net profits of all producers and sellers of goods to 5%, the cost of living to the commu- nity should fall 40%; if it shall cost 40% less to live, consumers will have 40% more to spend; if [51] THE ECONOMIC CRISIS AND FOREIGN TRADE they shall spend 40% more, 40% more of goods will have to be produced; if 40% more of goods shall be produced and sold, the profits on such additional 40%, added to the 5%, will afford a fair profit to all producers and distributors and employment for the many who lack work. Labor- ers will not suffer: if they must work for what seems less wages, yet the wages actually received will purchase more. As such a law is out of the question, the proper expedient for a wise man is to do what such a law, if practicable, should compel all men to do. If A will not sell cheaply, B can, and if B does he will undersell A, increase his sales and win for himself part of the injurious profits now exacted by A. The selling department of a great commercial establishment said to its board of directors: "You complain that sales are falling off. I tell you there are few more customers now than in 1913 and they have far less to spend than they had in 1913. You want me to sell more goods at a higher price than then. They won't buy. Let me sell at a fair profit and I can dispose of your goods and earn your dividends." The way to prosperity is toward cheap goods, and we must follow it — ^reluctantly, slowly, griev- ously; or quickly, generously and helpfully. This country taken as a whole has today less to spend [52] THE ECONOMIC CRISIS AND FOREIGN TRADE and prices are fifty percent higher than they were in 1913. Europe has vastly less to spend. To expect us or her to buy under such circumstances as much as formerly, is to invite disappointment. We can let our own people and those of Europe buy with their diminished resources what producers and distributors can afford to sell at a fair profit, and if we do so we shall deserve prosperity and achieve it. Men have still many wants, but we stubbornly refuse to gratify them. Europe is eager to sell cheaply; she wants to buy cheaply. We will not let her. What prepossession of preju- dice compels us to flounder along until the stress of competitive avarice shall drive us over its thorny path to do what the general welfare requires? I. H. LIONBERGER. [531