Iliiiiiliiiiiiiii iiii i F iliill H 1 1 III ifi 1 Q^otmll Itttoerattg ffiihrarg 3t^ara, S^em ^artt BOUGHT WITH THE INCOME OF THE 4 SAGE ENDOWMENT-FUND THE GIFT OF HENRY W. SAGE 1891 Date Due ] ■'^1 i\ u HF1756 .T2T" ""'""*">' """"^ '''*W.';3&.Jfi?.,.tar/ff and reciprocity oiin 3 1924 032 519 443 Cornell University Library The original of tliis book is in tlie Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924032519443 FREE TRADE, THE TARIFF AND RECIPROCITY BOOKS BT THE SAME AUTHOR Pbinciples of Economics, Second edition, 1915 Invbntoes and Monetmakebs, 1915 The TABirr Histoet op the United States, Sixth edition, 19U Some Aspects of the Tariff Question, Second edition, 1917 The Silvee Situation in the Untted States, Third edition, 1898 Waoes and Capital, 1896 FREE TRADE, THE TARIFF AND RECIPROCITY BY F. W. TAUSSIG, Ph.D., Litt.D. Henry Lee Professor of Economics in Harvard University ; Sometime Chairman of the United States Tariff Commission THE MAGMILLAN COMPANY 1920 All rights reserved A^loiolfl^ Copyright, 1920 bt the macmillan company Set up and electrotyped. Published, January, 1920 PREFACE The papers gathered in this volume have been published at intervals over a considerable period, and have been addressed to different audiences. Nevertheless they have a unity of purpose and plan which ■will serve, I trust, to justify their appearance in the present form. They cover the arguments commonly heard in the tariff controversy and more especially those urged in the course of recent debates in the United States. Most of them are addressed to the general public, and assume on the reader's part no special training in eco- nomics. All have nov? been revised v?ith a view to con- nected and consistent presentation. One topic of importance and of general interest is touched but briefly — the doctrine of protection to young indus- tries. I have considered this topic in another book, " Some Aspects of the Tariff Question," with so much detail that it could here not be taken up otherwise than summarily without repeating in so many words what had already been said. The reader who may be interested is referred to the earlier book, in which are given the results of detailed investiga- tions bearing on several questions of principle, among them the validity of the argument for protection to young indus- tries. With this exception the present volume may be fairly said to cover, if not the whole of the tariff controversy, those phases of it which now are chiefly under discussion in the United States. CONTENTS PAOB I The Present Position of the Doctrine of Free Trade 1 The doctrine of free trade apparently triumphant in 1870. — Subsequent reaction. — Tenacious hold of ancient fallacies. ^Protection and wages. — Dumping. — Agricultural compe- tition and political problems. — Protection to young in- dustries. — The causes of economic progress. — England, Germany, the United States. — Intensification of national feeling. — Attitude of economists. — Conclusion. II Abraham Lincoln on the Tariff : a Myth . . 34 " Keeping the goods and the money " : a myth. — A sequel. — Epilog. Ill How THE Tariff Affects Wages 48 Widespread belief in the United States that the tariff raises wages. — Familiar facts inconsistent with the belief. — The volume and variety of our exports. — Great Britain not under- sold by British India. — Trade relations between Great Britain and Germany. — Does the Tariff, though not the cause of high wages, serve to keep them up ? — It does in those competitive industries in which effectiveness is not high. — Results to be expected from abolition of duties. — Improbability of any abrupt change. — Cases of labor monopoly. — Causes of the general and dominant productiveness of American industry. — " Efficiency " and " effectiveness " in manufacturing indus- tries. — Significance of low wages in certain manufacturing industries. — Conclusion. IV Wages and Prices in Eelation to International Trade 70 Wages and other money incomes, not prices, the important thing. — High wages consistent with low prices where there is effectiveness of labor. — " Domestic commodities " not neces- sarily high in price in countries where money wages are high. vii viii Contents — Illustrations from the United States. — High money wages the result of effectiveness of labor in exporting industries. — In what sense high prices are advantageous to a country. — Low wages in a non-competing group have the same effect as would high effectiveness of labor in that group. — Conclusion. V How TO Promote Foreign Trade 95 Bitterness of trade rivalry. — Foreign trade enriches a country not by bringing in money, but through the exchange of ex- ports for imports. — The mechanism of international trade and the effects on it of the war. — The fundamental factor for promoting exports is the effectiveness of labor and capital. — Four devices for promoting export trade, ( 1 ) export bounties, (2^ special transportation rates for export busi- ness, (3) special prices by producers on export sales, (4) con- cessions in rates of duty secured from foreign countries. — Attitude of the United States in international trade and inter- national politics. — The open door. VI Eeciprocity 120 Effects of different forms of reciprocity. — Limited remissions or reductions of duty. — Hawaiian sugar. — European reci- procity arrangements after 1860. — Another method, as in the McKinley tariff act of 1890: imposition of special duties. — Effects in the United States and in foreign countries. — CJonclusion. .'VII Cost of Production and the Tariff .... 134 The plan of basing tariff rates on differences in cost of pro- duction. — Worthless as a solution of the tariff question. — ^"Consistently applied, it means not moderate duties, but universal and unlimited protection. — Difference between the free-trader's point of view and the protectionist's. — Effective- ness of labor in relation to proposed equalization of cost. — Cost inquiries nevertheless desirable. — Dependency of manu- facturing industries on protection exaggerated. — Dependence of universal prosperity on the tariff even more exaggerated. Vllt' An Inquiry on the Costs of Wool and Woolens 149 Report of the Tariff Board of 1910 on wool and woolens. — How costs of wool were calculated. — Conclusions on the expediency of a duty on raw wool. — Costs of woolen goods. — Light on the compensating system. — The question of principle. Contents ix PAOS IX How Tariffs Should not be Made .... 163 " Jokers " in the tariff act of 1909. — Structural steel. — Cotton gloves. — Nippers and pliers. — Razors. — Need of im- •. partial investigation. , X The Proposal for a Tariff Commission . . . 180 No tariff commission can settle policies. — No scientific solu- tion. — A tariff commission nevertheless can do good. — Evils / of traditional methods. — What kind of commission is desir- i able. — Advantages and disadvantages of a permanent oom- ' \ mission. — Non-partisan investigation needed in any case. \ XI' Tariff Problems After the War 194 ' Three classes of articles: military, essential, non-essential. — ( 1 ) Military articles ; the choice between tariff duties and other methods. — Special situation of the coal tar and dye- stuffs industries. — (2) Essential articles; potash as an ex- ample. — (3) Non-essential articles; the tariff controversy ' . pure and simple. — Various shades of opinion. — What a tariff commission can accomplish. FREE TRADE, THE TARIFF AND RECIPROCITY THE PRESENT POSITION OF THE DOCTEINE OF FREE TRADE ^ FoBTY years ago, the doctrine of free trade seemed to be triumphiaiit, alike in the judgments of thinkers and in the policy of the leading countries. The school of Adam Smith and Ricardo had swept the board in Great Britain, and its conclusions, as set forth in John Stuart Mill's " Principles," were thought to represent the definitive outcome of economic inquiry. Among these conclusions, the one least open to doubt seemed to be that, between nations as between individ- uals, free exchange brought about the best adjustment of the forces of production; and international free trade was re- garded as the one most potent means of increasing the effi- ciency of labor. In legislation, the triumph seemed to be no less assured. England, after a series of moves in the direction of lower duties, had at last taken the sudden plunge to free trade in the dramatic repeal of the com laws in 1846. Not long after, France, by the commercial treaty of 1860 with England, had replaced the old regime of rigid protection and prohibition by a system of duties so moderate that the free trader might feel that his ideal, if not quite attained, yet could not be long delayed in complete realization. The treaty between France and England was soon followed by others of I Presidential Address before the American Economic Association, December, 1904. 1 2 Free Trade, the Tariff and Reciprocity similar import between the various countries of Europe, spreading over all the Continent a network of reciprocal arrangements that greatly lowered the tariff barriers in the civilized world. In the United States a long period, from 1846 to 1861, had witnessed a marked relaxation of the pro- tective system ; and if the Civil War had brought a return to high duties, this might be ascribed to the financial exigencies of that crisis, and might reasonably be expected before long to give way once more to a moderate policy. How different since then has been the course of events from what was confidently expected by the economists of 1860 ! Slowly but steadily the current has been reversed, and coun- try after country has joined the protectionist ranks. The United States, so far from relaxing the high duties imposed during the civil war, has strengthened them and enlarged their range, and gradually built up a protective system the like of which was not dreamed of in earlier days. France, restive under the treaty regime of low duties, finally put an end to it in 1881, and then proceeded to build up once more a system of high protection. Germany took her decisive step in the same direction in 1879, and thereafter proceeded steadily to enlarge and elaborate her tariff barriers. Aus- tria and Italy followed suit, and Eussia has gone to the ex- treme in adopting protection. Even the old strongholds of free trade have become difficult to hold. Holland's latest tariff, while still disavowing deliberate protection, yet levies duties which, if ostensibly for financial yield, are inconsistent with a strict adherence to free trade. The leading English colonies, Canada and Australia, have ostentatiously aban- doned that principle. England herself is in the throes of a discussion in which her policy of freedom, supposed to have been settled once for all, is attacked with vigor and effect; and who shall say what is to be the outcome of that discus- sion? Not less striking is the change in temper among economic The Present Position of the Doctrine of Free Trade 3 thinkers. The whole structure of economic theory is under- going revision. Many of the doctrines of Adam Smith and Ricardo have no more than an historic interest. It still re- mains to be seen, as this larger discussion goes on, just what the outcome will be in the reconstruction of economic teach- ing as a whole ; but it is clear that, so far as the doctrine of free trade is concerned, enthusiasm has been supplanted by cautious weighing or open doubt. Half a century ago those German and French writers who advocated free trade were certain that the future was theirs : protection was the waning doctrine, and its advocates were hopelessly reactionary. At present, certainly in Germany and more or less in other coun- tries, a large school has just the opposite feeling. Free trade would seem to be the waning doctrine. Laissez- faire and freedom have had their day, and the future belongs to the conscious direction of industry at the hands of the state. International free trade has no more sanctity or authority than any other part of the obsolete system of natural liberty, and the advantages or disadvantages of tariff restrictions are to be coolly weighed for each country by itself, in the light of specific experience. In view of this unmistakable change in the general atti- tude, even the most convinced free-trader must feel called on to reconsider the question, and weigh once more the argu- ments for protection. Some such task I propose for myself : not indeed the formidable one of going over the entire subject afresh, but that of passing in review some of the argimients most commonly heard, and more especially those of which most is heard in our own country, First of all, something may be said on those aspects of the controversy of which most is heard in popular discussion in this country. Here, as it happens, the situation is compara- tively simple; for there is perhaps a nearer approach to a consensus of opinion on current popular arguments regard- ing protection than on any other subject in the wide field of 4: Free Trade, the Tariff and Beciprocity economics. As to most of the familiar arguments for protec- tion, either all the economists are hopelessly in the wrong, or else the protectionist reasoning is hopelessly bad. The mercantile view of international trade, exploded though it has been time and again, has a singularly tenacious hold. Even among the most intelligent writers in financial journals the familiar attitude is that of rejoicing in a gain of exports, regretting a gain of imports: rejoicing in an inflow- of specie, bewailing its outflow ; so familiar that probably the immense majority of persons who have never ^aen syste- matically trained in economics take this point of view'as a matter of course. Now, in a country whose monetary sys- tem is top-heavy, the relation of imports to exports may not automatically adjust itseK without causing trouble. But the difficulty in such case, if there be one, is in the circulating medium, and it presents questions of monetary reform, not any problem as to the gain or loss from international trade. No doubt there are some other problems of real complexity in the relation of exports and imports. A country whose ex- ports grow rapidly and are readily absorbed by foreign countries, may thereby secure its imports on more advan- tageous terms. This has probably been the situation of the United States, especially during the last thirty years. On the other hand, a country which depends on international trade for obtaining commodities essential for its economic well-being and not procurable at home, must look to its ex- ports as the means whereby these essentials shall be secured ; and such a country must have a watchful eye on the con- tinuance and growth of its exports. This has doubtless been the situation of England during the last thirty years. But these are aspects of the theory of international trade quite beyond the ken of those who expound the virtues of protec- tion to the general public. Here the exports are not regarded as the means of buying the imports : the exports are good in The Present Position of the Doctrine of Free Trade 5 themselves, the imports bad in themselves. We may apply to this sort of talk a well-known passage of Adam Smith's : " Some of the best English writers upon commerce set out with observing that the wealth of a country consists, not in its gold and silver only, but in its lands, houses, and consumable goods of all sorts. In the course of their reasoning, however, the lands, houses, and consumable goods seem to slip out of their memory; and the strain of their argument frequently supposes that all wealth consists in gold and silver, and that to multiply theBle metals is the great object of national industry and commerce." So the every-day writers on foreign trade woidd admit at the outset that its only object is the same as that of all labor and trade : to increase the sum of enjoyable commodities, and to do so by getting the imports we consume, not by selling the exports we get rid of. But as their reasoning proceeds, the consumable commodities somehow slip out of their mem- ory, and all their talk is of gaining by sales and of losing "by purchase, of the great glories of swelling exports, and the ill omen for domestic industry of growing imports. Other ancient fallacies have a no less tenacious hold. We hear it proclaimed ad nauseam that protected industries give the farmer a home market; as if there were created a new and additional market, and not a mere substitute for the foreign market. It is part of the same ancient fallacy that the farmer's " surplus " is talked of as if it must be so much waste unless legislation provides a market for it. We all know how Adam Smith, in the days when the theory of in- ternational trade was in the making, accepted the notion of a surplus ; we all know, too, how easy it was for later writers to refute Adam Smith out of his own mouth. Again, we are constantly told that a tax on imports acts as a burden on foreigners, not on the domestic consumer; though here, as in other parts of the controversy, the proposition is more often an implied premise than an explicit conclusion. TTot 6 Free Trade, the Tariff and Reciprocity least, how incessant is the blatant assumption that all pros- perity is due to the protective system, and that disaster must ensue from any mitigation of its vigor. With some of these arguments, a nice analysis no doubt would bring into view conditions under which a measure of plausibility, nay of real validity, attaches to them. Thus there are conditions under which taxes on commodities are borne in part, occasionally even in whole, by the producer and not by the consumer. These are exceptional conditions; and they are as likely to appear under internal taxes as under customs duties. But such exceptions and qualifications, found for every social and economic principle by the discriminating thinker, are not among the subjects of every-day debate. There we find the simplest fundamental principles ignored, and the bald- est errors repeated. It is inevitable, in the popular discus- sion of economic problems, that arguments of the crudest sort should come to the fore. But I confess to a sense of humilia- tion when our leading statesmen turn to reasoning easy of refutation by every youth who has had decent instruction in elementary economics. I do not vrish to linger on these commonplaces ; yet, at the risk of being tedious, will turn for a moment to that phase of the controversy which for near half a century has been most conspicuous in our country — the effect of protection on wages. For years and years it has been dinned into the ears of the American people that high wages are the result of protection, or at least dependent on protection; that the maintenance of a high standard of living depends on the bar- rier against competing laborers of lower price, and that the workingman has a special and peculiar interest in the system of high duties. And yet I apprehend that here, too, the judgment of the economists would be with virtual unanimity the other way. The general range of wages in the United States was not created by protection and is not dependent on protection. The common talk about the sacredness of pro- The Present Position of the Doctrine of Free Trade 7 tection as a means of uplifting the workingman is mere clap- trap. No doubt there would be some difference in the way in which the economists stated the grounds of this conclusion. The theory of wages is one of their debatable fields, and some points are still to be settled. But for the purposes of the present discussion, these differences would not be material. It would be agreed by all hands that the fundamental cause of high wages is large productiveness of labor, and that so long as such productiveness exists a large reward to workmen will follow. The higher range of wages in the United States is due to the country's rich natural resources, and to the energy and intelligence with which these have been utilized. It may be that in certain directions the utilization of its re- sources has in some degree been hastened or made more ef- fective by protection — of this more hereafter. It may be that in other directions this utilization has been retarded and lamed by protection. But in either case it is beyond doubt that, whether we had had in the past complete free trade or the most unqualified protection, production would have been more generous in the United States than in European coun- tries, and wages higher ; and it is no less certain that, which- ever system we shall have in the future, w§ shall retain these same advantageous conditions. But while the generally higher range of wages in the United' States has nothing to do with protection, and probably not much to do with international free trade either, it does not follow that some among our laborers may not be dependent on the tariff barriers for their present wages in their present occupations. So far as the industries in which they are employed are really dependent on protection, the high wages paid in these particular cases are also dependent on protec- tion. Looking at the dominant and normal conditions of industry in this country, we find high money wages and at the same time low prices of goods. Labor is efficient and goods 8 Free Trade, the Tariff and Reciprocity are produced abundantly; therefore, though the goods axe sold at low prices, the gross money yield is large, the money returns are high, and high money wages are paid. But in those industries in which labor is less efficient, and goods are not produced in abundance, the gross money yield can not be high unless competing products are kept out or handi- capped. In this sense, and to this extent, the maintenance of high wages in some industries depends on the maintenance of protection. To say this is to say that here, as in all cases of vested interests, whether of labor or of capital, serious problems present themselves to the legislator. The protectionists nat- urally exaggerate the extent to which industries are in fact dependent on this system, and indeed go to the absurd ex- treme of maintaining that all successful industry and all high wa^es depend on their panacea. The free-traders belittle it, and often fail to see that in so doing they minimize also those consequences of protection which they think bad. The diver- sion of labor and capital to less productive channels — the ill effect which is the essence of the free-trade contention — is precisely in proportion to the range of industries in which the maintenance of high wages depends on protection. No doubt also the free-traders do not squarely face the difficulties of a transition to their system : the slowness- with which capi- tal and labor would have to be withdrawn from protected industries, and the prolonged period of unsettlement which would have to be undergone before final readjustment. Before leaving this part of the controversy, I will note one other aspect of it ■ — one that touches our pressing .social problems. The industries in which labor is efficient, output is large, and wages are high, are by no means solely the agri- cultural industries. A great range of manufactures are of this sort ; and these are our most characteristic manufactures. They are the manufactures employing workmen who are alert, intelligent, and what is popularly called high-priced. The Present Position of the Doctrine of Free Trade 9 They are the manufactures in which a larger output per unit of labor and capital comes from ingenious machinery, effectitve organization, efficient labor, nicely adjusted product. Side by side with these are others of a different type, in which the laborer is called on chiefly for the monotonous repetition of the simplest manual tasks, and in which even an ignorant man, or woman, or even child, can be easily taught the task. Here the temptation is inevitably to seek for cheap labor. The earth has been scoured to find docile, ignorant, pliable labor, which shall do for us our Helot's tasks. Inpouring immigrants by the million find work of this kind. They get wages which are lifted by the surround- ing economic forces somewhat above the level of similar wages in Europe, but by no means up to the full American range. They are in a class by themselves, cut off in large degree from, the general influences of the country. Their children, indeed, commonly feel these influences. They go to the public schools, learn the American standards and ways, and struggle with more or less success to rise to a higher stratum. But this depletion of the lower ranks is more than made good by the increasing arrivals of new shoals of immigrants. Thus we have, perhaps not permanently, but as a continuing part of our present social system, a vast mass of human beings doing for low wages work that is dull, monot- onous, and according to our standards ill-paid. liTow I am by no means disposed to assert that the pro- tected industries are identical with the industries employing labor of this sort, l^ot a few of the protected industries call for labor of the alert and intelligent kind. Many industries which have nothing to do with protection call for the dull, weary, unskilled work. Such is the mining of anthracite coal, whose peculiar conditions have of late been so con- spicuously brought into notice; such is the cotton manufac- ture in the South, where during the last twenty years a vein of this low-lying human material has been unexpectedly dis- 1-0 Free Trade, the Tariff amd Reciprocity covered and exploited. But a good ahare of the protected manufactures are in this class. Large parts of the textile manufactures in the Atlantic States belong here, and are in marked contrast, — 'to give one example — to such an in- dustry as the shoe manufacture. I cannot but believe that by increasing the opportunities for the utilization of labor of this sort the protective system has added to our social and political difficulties. The safe absorption and remaking of these unskilled and uneducated masses is largely a question of degree. A certain amount we can make over; too many of them would swamp our institutions. ISTo thinking man can vi«w without concern the rapid increase in their num- bers, or believe that it is for our social or moral advantage to add by legislative policy to the range of industries which create a demand for them. I pass now to more difficult matters: to some phases of the controversy concerning which economists are much less in accord, and on which something is to be said on both sides. And here I will begin with two lines of reasoning that are not commonly considered together, but which seem to me to involve essentially the same question of principle. One of them is the argument against dumping; the other is the argument for the protection of agricultural products against the competition of new countries. " Dumping " I take to mean the disposal of goods in foreign countries at less than normal price. It can take place, as a long-continued state of things, only where there is some diversion of industry from the usual conditions of competition. It may be the result of an export bounty, which enables goods to be sold in foreign countries at a lower price than at home. It may be the result of a monopoly or ef- fective combination, which is trying to keep prices within a country above the competitive point. Such a combination may find that its whole output can not be disposed of at The Present Position of the Doctrine of Free Trade 11 these, prices, and may sell the surplus in a free market at anything it will fetch — always provided it yields the mini- mum of " prime cost " or " direct cost." Now, if this sort of thing goes on indefinitely, I confess that I am unable to see why it can he thought a source of loss to the dunaped country; unless, indeed, we throw over all our accepted reasoning on international trade and take the crude protectionist view in toto. If one country chooses to present goods to another for less than cost; or lets its in- dustrial organization get into such condition that a monop- oly can levy tribute at home, and' is then enabled, or com- pelled by its own interests, to present foreign consumers with goods for less than cost — why should the second country object? Is not the consequence precisely the same, so far as that other country is concerned, as if the cost of the goods had been lowered by improvement in production or trans- portation, or by any method whatever ? Unless there is some- thing intrinsically harmful in cheap supply from foreign parts, why is this kind of cheap supply to be condemned? The answer seems to me to depend on the qualification stated above — if this sort of thing goes on indefinitely. Suppose it goes on for a considerable time, and yet is sure to cease sooner or later. There would then be a displace- ment of industry in the dumped country, with its inevitable difficulties for labor and capital ; and later, when the abnor- mal conditions ceased, a return of labor and capital to their former occupations, again with all the difficulties of transi- tion. It is the temporary character of dumping that gives valid ground for trying to check it. A striking case of this sort has always seemed to me to be that of the European export bounties on sugar, which for so long a period caused continental sugar to be dumped in Great Britain. These bounties were not established of set purpose. They grew unexpectedly, in the leading coun- tries, out of a clumsy system of internal taxation. They im- 12- Free Trade, the Tariff and Reciprocity posed heavy burdens- on the exchequer, as well as on the domestic consumer, in the bounty-giving countries ; and they were upheld by a senseless- spirit of international rivalry. Repeated attempts to get rid of them by international con- ferences showed that the cheap supply to the British con- sumer, and the embarrassment of the West Indian planter and the British refiner, rested not on the solid basis of per- manently improved production, but on the uncertain support of troublesome legislation. It might well be argued that these conditions would come to end sooner or later. The longer the end was postponed, the worse was the dislocation of industry and the more difficult the eventual return to a settled state of things. No doubt these were not the only considerations- that in fact led Great Britain, the one great dumping-ground, to serve notice that she would impose im- port duties equal to the bounties unless the bounties were stopped. Perhaps this decisive step would have been taken even if it had appeared that the bounties were to continue as a permanent factor in the sugar trade. But it is in their probably temporary character that the sober economist finds justification for the policy that led to their abolition. At all events, there is tenable ground for arguing that Great Britain, in causing them to be stamped out, acted not only in the interest of the much-abused consumers of sugar on the -Continent, but in the permanent interests of her own industrial organization. The other familiar case of dumping is that of monopoly. Here too it may be maintained with much show of reason that the diversion from the normal conditions of industry is but temporary. Can any country be persuaded in the long run that it is for its advantage to support or aid, by protective duties, or by any other method, a monopoly which mulcts the domestic consumer and thereby is enabled to make presents to the foreigner ? Yet the strength of vested interests, the curious conservatism of partisan feeling, per- The Present Position of the Doctrine of Free Trade 13 sistent sophistry about giving employment to labor and turn- ing tite wheels of industry, may keep the practice going for a long period. Any measures that would bring it to an early end should be welcome alike for the country that dumps and for that into which there is dumping.^ I turn now to another phase of this same question. The competition of the United States and of other newly opened countries has depressed the prices of various articles of food in Europe; has restricted, or threatened to restrict, the volume of agricultural production; and has caused an in- creasing drift of population to manufacturing industries. But these conditions, it is maintained, are but temporary. The new countries will not remain new. Their population grows rapidly, and their fresh lands are fast being absorbed. It is to be expected that sooner or later their numbers will be increased, and their own food supply increasingly drawn on, until they have no food for export. The countries to which this food supply had been sent, and whose industries had been adjusted on that basis, will find readjustment to the old basis inevitable. First a large part of their popula- tion is transferred from agricultural to manufacturing in- dustries, and then must be transferred back to agriculture again. Each process of transition is necessarily slow and possibly painful, and the sufFering and losses outweigh the 2 No doubt in weighing tlie advisability of such measures, it would be necessary, and at the same time extremely difficult, to ascertain whether the dumped article really was exported at an abnormally low price. It is familiar knowledge that the Steel Corporation, for exam- ple, is selling some articles for export at less than the domestic price. But it is quite possible that the export price, while less than the do- mestic price, is not really below the level of normal cost. So much the worse, doubtless, for the consiimer at home; but this is not a matter that concerns the foreigner, who buys the steel at no more and no less than a reasonable figure. It seems to be at least doubtful whether the foreign sales are in fact likely to be made for any con- siderable time at a price below the long-run cost of production. If not, the question which presents itself is the ordinary one of protec- tion, not the peculiar one of a temporary dislocation of industry. 14 Free Trade, the Tariff and Beciprocity temporary benefit during the comparatively brief period of cheaper food supply. Is it not wiser to protect agriculture for a while, and keep industry in its even and permanent course ? Here again the answer turns on the temporary nature of the situation. If it were clear that the cheaper food sup- plies would cease to be available after ten years, or twenty years, there would seem to be good grounds for resisting this American invasion. The longer the period over which the new conditions are likely to last, and the more uncertain their end or the stages by which their end will be reached, the weaker is the case for resistance. Ifow all the indica- tions are that the relations between new countries and old countries, as they have developed during the last half-cen- tury, will endure for a long period — a period not to be measured by years or decades, perhaps not by generations. Many have been the books and pamphlets published during the last twenty years, foretelling that the end was near and that the opening of new sources of supply had ceased. Yet the building of new railways and the general advance in transportation, as well as the discovery of regions not be- fore thought available, have accentuated the present situa- tion of the modern world, and have postponed to an indefi- nite future the predicted reaction. To attempt now to make provision for such an indefinite future is at the least very doubtful policy. What will be the relation, a century hence, between the old countries and the countries now new; what will then be the sources of food supply for the civilized world ; what will be the process by which the old countries fall back again on their own resources — if indeed they do fall back — these are questions which the statesmen of the present day had best leave to the distant successors who may eventually have to deal with them. A curious argument, connected with this set of considera- tions, has been advanced by one of the most distinguished The Present Position of the Doctrine of Free Trade 15 economists of our time. A revival of the more extreme phase of the Malthusian reasoning, it looks to the influence of more abundant food supplies on the growth of population and the standard of living. Briefly, the reasoning is that cheaper food will simply cause an increase of numbers, and a lowering of the standard of living. When food thereafter becomes dearer, either in occasional seasons of dearth or — what is supposed to be probable — as a permanent matter in the not distant future, there will be nothing to fall back on. The larger population which the temporary period of pltoty had called out will suffer the more when the condi- tions of limited supply return. This is just what Malthus maintained a century ago. But it is also just what a cen- tury of economic and social history has disproved. I am by no means of the opinion that the century's history has dis- proved the general Malthusian theorem — the tendency to pressure and the need of restraint. But the particular corollary as to the inexpediency of cheaper food seems to be quite untenable. The causes of restraint or lack of restraint in multiplication are much more complex than it assumes, ilfotable among them are the advance of education and in- telligence, and the desire and opportunity to rise in the social scale, which Malthus himself believed to be the vis medicatrix of the community. Where intelligence and ambition are present, material well-being has a favorable effect of a cumula- tive kind: a fairly high standard of living, once set going, tends not only to maintain itself, but to riseT SSnething of a lift must be given before an independent upward move- ment can maintain itself. The general rise in the standard of living which the leading countries have secured in the last half-century, and which has been due largely to cheaper supplies of food and materials from the new countries, has served to give the needed lift. I turn now to that course of reasoning which has long 16 Free Trade, the Tariff and Reciprocity been among the economists most effective in favor of pro- tection: the argument for protection to young industries. It goes by other names and uses other phrases. It is some- times called educating or nurturing protection. In popular controversy it takes the form of the contention that protec- tion, while it may raise temporarily the prices of the goods protected, in the long run lowers them. Throughout, it rests on the assumption that a country does not secure with- out conscious effort or considerable sacrifice those industries which in the long run are most advantageous for it. Let us consider first the probable range in the application of the principle. It is commonly stated to be applicable to manufactured goods only, not to raw materials — including under the term " raw materials " most agricultural products. Such was the view of List, the German economist, who has given the most elaborate and perhaps the most effective state- ment of the argument. Indeed it is only from this point of view that there is any strong distinction between duties on manufactures and those on raw materials. No doubt, some- thing may be said, by way of special objection to taxes on raw materials, that they acctimulate as profits are heaped up on them in the successive stages through which the com- modity passes before reaching the consumers' hands. But this makes only a difference of degree, and perhaps not a great difference of degree, between raw materials and most manufactures ; whereas, so far as the young industries argu- ment goes, there is a difference in kind. Nature has settled what sorts of raw materials a country is fitted to produce. No encouragement from protective duties, for example, can so stimulate the growth of forests in the United States as to bring us in the end cheaper timber. No such stimulus can cause the climate of the country to become better adapted for wool growing, or give it the peculiar advantages which the interior of Australia has for this form of pastoral Indus- The Present Position of the Doctrine of Free Trade 17 try; or intake Louisiana as well fitted for growing cane sugar as Cuba. Nevertheless, it must be admitted that even so far aa this special argument for protection is concerned, there may be sometimes as good reason for duties on raw materials as on manufactures. Mining operations usually involve an initial stage of experiment and uncertainty, and almost al- ways call for a heavy investment of fixed capital. The his- tory of the iron industry in the United States and Ger- many, suggests at least the possibility that a stage of arti- ficial and expensive stimulus may be followed by an eventual attainment of developed and cheapened production. Agri- culture seems to present such possibilities in less degree ; pas- toral industry still less ; and forestry least of all. Unlike most other parts of the controversy between free trade and protection, the young industries argument con- nects itself with few other questions of economic theory, and is to be considered chiefly in the light of specific experience. The benefits of imports and exports, the relations of domestic and foreign industry, wages, foreign cheap labor, surplus products, over-production, dumpings — these topics at once spread over into the general field of economics. Not only do they thus enlarge, but they can be disposed of chiefly by that mode of general reasoning from comparatively simple premises which still remain the most valuable tool at the disposal of the economist. But whether protection to young industries will or will not have good effects, is simply a ques- tion of probability for the given case. Precisely the op- posite result from protection has not infrequently been dis- covered or supposed to be discovered. It has been said that protection, so far from leading to improvements and eventual cheapening, leads to the retention of antiquated and ineffi- cient methods of production and so to continued enhance- ment of prices. There is good ground for believing that the 18 Free Trade, the Tariff and Reciprocity long continued protective regime in France during the first half of the nineteenth century had ill results of this kind. One of our ardent free-traders, the late David A, Wells, repeatedly maintained that the same consequences had ap- peared in the United States. His conclusion may have been justified by what happened during the period of abnormal industrial conditions that followed the Civil War ; yet I doubt whether the experience of the United States as a whole sup- ports it. The truth is that either result may ensue. Among an active and enterprising people the diversion of industry into new channels may lead to progress, improvement, and eventual gain; whereas in a timid and stagnant people the stimulus of competition from abroad may be necessary to rouse them to their best efforts. The problem of protection to young industries thus offers an especial field for the in- ductive and historical method in its stricter sense — the pa- tient investigation of particular cases, and the possible final construction of an edifice of truth, by the slow gathering of fragments of knowledge. For the purpose of aiding legislation in our own day, however, investigation of this sort must be confined to mod- ern experience ■ — the experience, say, of the nineteenth cen- tury. Investigations on earlier periods, on the industrial regime of the Middle Ages, the system of Colbert, the early protective policy of Great Britain, the paternalism of the rulers of Brandenburg and Prussia, will teach us little for the problems of the present. The value and interest of such investigations are not to be denied. We have dis- carded certain notions of the earlier economists as to the necessary harmfulness or futility of the conscious direction of industry, and know that we have still much to learn about the causes of progress in the past. But modern conditions differ radically from those preceding the nineteenth century, and have changed fundamentally in the last fifty years. Technical education has been so improved and diffused as to The Present Position of the Doctrine of Free Trade 19 make immensely easier the adoption anywhere of a new process. All the means of communicating knowledge, from the printing press to the telegraph, serve to spread rapidly information about changes in the arts. Restrictions on the sale or export of machinery have disappeared. Capital is abundant, and is constantly and eagerly seeking fresh em- ployment. The conditions are very different from those that had to be faced by the undertaker of the seventeenth and eighteenth centuries, even of the first half of the nineteenth. Whatever economic history can tell us about his troubles and obstacles, it can teach little as to the extent to which his suc- cessor in modern times needs the prop of legislative aid in new ventures. Looking now at modern experience in protection to young industries, what result do we find? The answer, alas, is not certain. Sometimes we seem to find a degree of success, sometimes of failure. The besetting difficulty of all purely inductive inquiry in the doings of man is ever present. We can not isolate causes. We can not apply protection to a country, and make sure that everything else remains un- changed. A protective duty may be followed by an increase of domestic production, by a new and independent industry, by an eventual benefit to the community in the way of cheaper commodities ; but the question always will remain whether other causes have been at work, and whether the same result would not have ensued without the tariff in favor of the young industry. Contrast the history of Germany and of France. For the whole period up to 1860, France had a restrictive regime of the greatest severity. Yet I have seen no evidence ad- duced that during that period of rapid industrial advance in the world at large, any gain was secured by France in the way of successfully establishing an industry that was able to hold its own without aid. In Germany, on the other hand, the trend of opinion among competent observers seems to be 20 Free Trade, the Tariff and Reciprocity that at least during the second third of the century the tariff policy of the Zollverein, though much more moderate than that of France during the same period, nurtured German manufacture to advantage. The establishment of free trade within Germany by this beneficent customs union opened great possibilities of internal growth, which were more easily turned into realities by a period of shelter from foreign, especially English, competition. During the last third of the nineteenth century, Germany's industrial growth was one of the remarkable phenomena of our time; but this growth began under the moderate protectionist regime of the Zollverein, and, whether or not promoted also by the ac- centuated protection that began in 18T9, has certainly been much affected by other factors also, to some of which I -shall presently refer. In the United States we find similarly conflicting evi- dence. Some researches of my own have led me to believe that on the whole, the first growth of manufactures in this country, in the early years of the nineteenth century, was advantageously promoted by restrictions on competing im- ports. As we come nearer to the present time, the case in favor of protection becomes more and more doubtful. In the policy of extreme and all-embracing protection which has been gradually built up since the Civil War, it would have been surprising indeed if we had not scored a few hits. Where you send innumerable shots promiscuously in a given direction, some few of them are likely to hit the mark. But specific and unbiased inquiry on those points is sadly needed, and offers a promising opportunity for scholarly investiga- tion. It is obvious that there has been not only an enormous growth of manufacturing industry, but a great improvement in methods of production and a growing independence of foreign competition. How far this gain has been carried to the point which proves that the community is now better off than it would be if it had depended on foreign supply ; and The Present Position of the Doctrine of Free Trade 21 how far sucii a gain, further, may have been due to causes quite independent of encouragement in the way of protec- tion . — ^these are questions which certainly can not be disposed of without much painstaking and unbiased inquiry, and for which even such inquiry very likely would yield no clear- cut answer.^ Our conclusions as to the general validity of the argu- ment for protection to young industries thus have an uncer- tain ring. Yet it must be added that while such protection can not be proved useless, there is at least one striking phe- nomenon which proves it to be not indispensable. That phenomenon is found in our own country. Here we have seen, under a regime of the most absolute free trade, the gradual and steady growth of manufactures in communities that a few decades ago were exclusively agricultural. In our Southern states the cotton manufacture has grown and prospered in face of the competition of the established in- dustry of New England. It found in the South advantages of situation, and a labor supply which proved amenable to profitable exploitation. But these advantages could not be utilized without an initial period of experiment and uncer- tainty, and during this the older industry had all the ad- vantages against which protection is supposed to be neces- sary. Even more instructive is the transformation of the great Central region, — the states north of the Ohio and east of the Mississippi. Here we have seen, under a regime of complete free trade within the country, the steady growth of manufactures. When the field was favorable for a new industry, whether from rich natural resources, from advan- tage in location, or from ingenuity and enterprise among the leaders of industry and the rank and file, there the in- 3 In my book on "Some Aspects of the Tariff Question" (1916), I have given at some length the results of investigations from this point of view on the history of the iron industry, the sugar industry, and the textile manufactures. 22 Free Trade, the Tariff and Reciprocity dustry has expanded and flourished, unchecked by the com- peting establishments of the older states. Some of the in- dustries that so sprang up in the Central region have been of the kind that felt the stimulus of protection against in- ternational competition. Some have been quite independent of this stimulus, the question being not whether they would spring up within the country, but where within the country — whether along the sea-board or in the interior. In either case, the full competition of the older regions of our own country has been felt by the newer regions. The diversification of the newer regions has nevertheless proceeded smoothly and steadily. That diversification continues and will continue, notwithstanding the most absolute free trade throughout our own borders. No artificial fostering as against the manu- factures of the East has been possible ; though, if possible, it would doubtless have been asked. Yet the growth of manu- factures in the Central region has been perhaps the most striking change in the industrial structure of the country during the last generation. These familiar facts must make us hesitate before ascrib- ing to legislative interposition too much effect on the develop- ment of new industries or on the general course of economic progress. I have already referred to the difficulty of disen- tangling the complex forces that bear on economic progress, and will not pretend to offer anything in the way of proof for what I have further to offer as regards the relative weight of different factors. Briefly stated, my belief is that the general structure and spirit of the social body are much more important than specific encouragement to this or that industry. Any detailed statement of the grounds of this opinion would carry us into fields much more specula- tive than those which have been considered in the preceding pages; and it must suffice to illustrate rather than support The Present Position of the Doctrine of Free Trade 23 it from a brief consideration of some aspects of social and economic history. First there is the case of England. Clearly several causes contributed to the remarkable economic advance of that coun- try during the eighteenth and nineteenth centuries. Her insular position preserved her from the wars which devastated the Continent. Her indented coast cheapened internal trans- portation from an early date. Her great mineral resources supplied the foundations of the modem workshop. The pro- tective system of older days is supposed to have nurtured her industries until they became independent — with how great effect, is the debatable question. But most important of all has been the atmosphere of freedom, and the clear avenue to conspicuous success which has been open to all who were capable and strong. Political freedom came first, land soon was supplemented by industrial freedom. Hence the all-pervading spirit of ambition, resource, enterprise. To this spirit a stimulus of incalculable strength has been given by the curious development of the British social hierarchy. Nowhere has the aristocracy held its place so strongly in the esteem of the rest of the community, and nowhere has ad- mission to that 'aristocracy been more free. The rich mer- chant, manufacturer, banker, mounts readily on the social ladder. Given plenty of riches, a little time, and he or his descendants become associates of peers, soon become peers themselves. In the eighteenth century Adam Smith, re- marking on the differences between England and Erance, mentioned France as a country where trade was in disgrace, and England as one where it was hi^ly respected. The ma- terialism of the British aristocracy and the snobbishness of British society have long been topics for the satirist. But materialism and snobbishness have enlisted the strongest of social motives, the undying love of distinction, in the direc- tion of economic initiative and industrial advance. 24 Free Trade, the Tariff and Reciprocity Factors of the same kind have been powerful in our own country. Every career and every degree of success have been open to all; open not only under the law, but under the mobile conditions of a thoroughly democratic community. The most obvious avenue to distinction has been the at- tainment of wealth. Large enterprisog, whether in trade, manufactures, or transportation, have long enlisted the most capable intellects of the country. Every opportunity for the conduct of business on a large scale has been eagerly scanned with keen eyes by the captains of industry. Add to this the early development of a high degree of mechanical skill and in- genuity, and natural resources which are varied and abundant to an unusual degree, and you have conditions under which legislative stimulus is at best of secondary importance. The evidence seems to me conclusive that the United States under ■any tariff system would have become a country with varied industries and with highly developed manufactures. The protective duties have only affected the degree and the direc- tion of that development. Still another factor deserves to be noted. Not only the spirit of freedom and enterprise within the community has its effect, but that spirit with reference to other communities also. The political position of a country and its martial suc- cess seemed to have a reflex effect on the industrial success of its citizens in time of peace. Here the recent development of Germany is opposite. Her industrial advance during the generation that followed the Eranco-German war is one of the striking phenomena of our time, and leads naturally to speculation on its causes. No doubt, as in all such cases, these causes are varied. The thorough organization of popular education and of scientific education is one cause. The stimulating effect of free trade within the country, as established by the Zollverein since 1834, is another : though this gain had been enjoyed by Erance throughout the nineteenth century, and by England for The Present Position of the Doctrine of Pree Trade 25 centuries before. Mucli is due "to the wliole change in the po- litical and social atmosphere which came with the crumbling of petty absolutism, and which was consummated with the foundation of the German Empire. But to all this must be added the new spirit which came over the country after the war of 1870-71. Germany emerged from the conflict with a new sense of strength and confidence. The feeling com- municated itself to the field of peaceful industry. Vigor, enterprise, and boldness showed themselves. Large enter- prises in new fields were launched and successfully conducted, and great captains of industry came to the fore. A spirit of conquest in all directions seems to have spread through the people, bred or at least nurtured by the military conquest. Is it fanciful to suppose that consequences of the same sort have appeared in other countries also after victorious wars? England emerged from the Napoleonic wars with a great feeling of pride and power. She alone had never yielded to the great conqueror. The period which followed was that of her most sure and rapid economic advance. She then established the hegemony in the industry of the civilized world which she maintained through the nineteenth cen- tury. The northern part of the United States felt a similar impulse after the Civil War. That struggle had been on a greater scale than was dreamed of at the outset, and its out- come proved the existence of unexpected power and resource. Is it an accident that the ensuing years showed a spirit of daring in industry, and sudden and successful activity in commercial enterprises ? ISTo one is more opposed than I am to all that goes with war and militarism. It is with reluctance that I bring myself to admit that the same spirit which leads to success in war may also lead to success in the arts of peace. Yet so it seems to be. Men being what they are, nothing rouses them so thoroughly as fighting. The temper which then pervades a community communicates itself by imitation and emula- 26 Free Trade, the Tariff and Beciprocity tion, and shows itself in all the manifestations of its activity. A great war lifts the minds of men to large undertakings, and takes its place with other factors in stimulating the full exercise of the powers of every individual. I am in danger of straying far from the subject in hand. Yet the digressions to which the argument for protection to young industries has led may serve to enforce one con- clusion to which the open minded consideration of the whole free-trade controversy must lead the inquirer: namely, that the effects of tariff legislation are commonly much over-esti- mated. DifBcult as it may be to separate the causes of in- dustrial growth and to measure their relative weight, it is clear that the factors are many and various. The effects as- cribable to a protective system, either for particular indus- tries or for general economic growth, are among the subordi- nate phenomena, and far from having that transcendent im- portance so often proclaimed by its ardent advocates. Let me turn now to an opinion, or point of view, to which reference was made at the outset: the opinion that after all on this subject there is no fundamental principle. A set of writers, especially among contemporary German econo- mists, take what purports to be a severely judicial attitude. In their view there is no established theory, and no reason for ascribing greater validity to the doctrine of free trade than to that of protection. It is all a matter of advantage or disadvantage in the given case. Some countries may prove on inquiry to need free trade, some protection. A policy of opportunism is the only sensible one, and the con- troversies about theories of international exchange turn on barren abstractions which do not touch the concrete facts of industry. I confess to little patience with this attitude. It assumes to be large-minded and judicial, and a certain tinge of con- tempt for the old-fashioned theorists often goes with it. Yet The Present Position of the Doctrine of Free Trade 21 in truth it usually rests on inability or unwillingness to follow the threads of severe reasoning. No doubt it is true that the concrete circumstances of a country must be exam- ined and considered before we apply to it a given policy. But it is none the less essential to make up our minds as to the principles on which the policy should rest. ISTo doubt it is especially true that in weighing the chance of the advan- tageous application of protection to young industries, the actual conditions of each case and the prospects of success should be carefully studied. But it is none the less necessary to reflect what are the foundations and limitations of such protection and what are the real tests of success. On all such questions of principle we find often, too, a sad lack of clear-cut reasoning among our German colleagues. This defect does not show itself solely in the protective controversy. It appears in almost every part of the economic field, as soon as the more difficult problems are touched. On the theory of value, of distribution, of prices and the value of money, as well as on that of international trade, there is in many current manuals and text-books a pseudo-judicial attitude, which ad- mits some merit in this position as well as in its opposite, and opines that such and such a view must indeed be consid- ered but must not be pressed too far; with further double- facing expressions that end in leaving the reader quite in the dark as to the author's conclusions on the heart of the matter. It is easy to account for this stage of thought, especially among writers of the second rank. In many directions eco- nomic theory is being re-fashioned and on many topics there is not yet a consensus of opinion. At least there does not appear to be such a consensus ; though the differences among economic thinkers on the large questions of principle are much less fundamental than they are sometimes made to ap- pear. Yet it is not to be denied that on some deep-reaching topics, especially in the theory of distribution, economic theory is now in a stage of transition. As it happens, how- 28 Free Trade, the Tariff and Beciprocity ever, there has heen least attempt at change, and there is least occasion for change, in the theory of international trade. In that part of the subject, the edifice whose foundation was laid by Adam Smith and his contemporaries, and which was further built up by Eicardo, Senior, and the younger Mill, remains substantially as it was put together by these ancient worthies. Something has indeed been added by recent writ- ers ; yet nothing that calls for a remodeling of the old struc- ture. On the nature of international trade, on its peculiari- ties, its working machinery in the foreign exchanges and the flow of specie, its connection with the drift of labor and capital to different industries, its bearing on the demand for labor, and not least the effects of restrictions in the way of taxes — on all these topics the old doctrines have never been seriously shaken. Qualifications of one sort and another — deviations from the regime of freedom such as Adam Smith himself conspicuously enumerated — contingencies under which commercial blows may be so planted as to convert an opponent into an ally — these have long been admitted. Cer- tain refined and ingenious trains of reasoning have been brought forward, too, of late years, regarding the effects of protective duties on the distribution of wealth and on the ultimate elements of social well-being. They connect them- selves with some of the more recent speculations in economic theory at large. Like these, they have had no effect, as yet at least, outside the small fringe of scholars and teachers, and no very marked effect even within that fringe. A discussion of them would carry this address far beyond the permissible limits. At best, they suggest only still further qualifications and still other possible exceptions, and they leave intact the core of the classic theory of international trade. That theory, in its essentials, holds its own without a serious rival. This being the case among the thinkers, the question nat- urally arises as to how it happens that the opposite theory, or at least the policy based on a very different theory, holds its The Present Position of the Doctrine of Free Trade 29 own in the field of legislation. Some consideration, how- ever brief, must be given to this question in any inquiry as to the present position of the doctrine of free trade. There is no one explanation of the strong hold which pro- tection now has and bids fair for some time to maintain. The effectiveness of its appeal to the every-day man has al- ready been noted. The arguments about employment, labor, domestic industry, home markets and foreign markets, re- jected though they have been in aU respectable economic writ- ing, emerge again and again. They will not down, and they create a set of prepossessions favorable to protectionist legis- lation. But in European countries (for the moment, I have not the United States in mind) its actual adoption has been immensely promoted by two other factors. One is the com- petition of new countries in agricultural products. The other is the growth and intensification of national feeling. The effect of the competition of new countries is obvious enough. With the cheapening of transportation, not only England, but France, Germany, and the other countries of Western Europe have been invaded by supplies of cheaper food and raw materials. The agricultural classes have felt the pressure of foreign competition. Formerly indifferent or even hostile to high tariffs, they have now been led to join in the demand for protection against cheaper foreign supplies. In England the agricultural interest has always been restive under free trade. In France and Germany, with the new democratic conditions, its influence now consti- tutes a strong political force against the application of that doctrine. Not less important, however, is the sentiment of national- ity and its unfortunate counterpart, the sentiment against for- eigners. Of the ennobling and beneficent effect of national feeling there is no need to speak. Its less favorable aspects unfortunately are most conspicuous in relation to our present subject. Cobden and the other English free-traders of half- 30 Free Trade, the Tariff and Beciprocity a-oentury ago looked forward to a coming era of peace among nations, strengthened by the links of friendly exchange and mutual benefit. How sadly have these hopes been disap- pointed ! Militarism has become no less strong than it was, even stronger; and every European nation has held itself habitually in readiness for war. Even the sober economist, unmoved by sentiment, and looking solely to the direct and traceable consequences of this state of things, must admit that here is a situation that does not fit into the free-trade ideal. Great Britain, for example, depends for feeding her people on foreign sup- plies ; and it is an inevitable consequence, however regrettable a one, that she must have a powerful navy as security against starvation in case of war. ISTo doubt the balance of material gain is in her case clearly in favor of free trade : it is cheaper to have a navy, even a huge and expensive one, than it would be to support her population at home. But, as international relations now stand, there exists this expense to be offset against the gain. In Germany at the present time the same set of persons who have advocated the development of Ger- many as an exporting country and a " world-power," have demanded a great navy. Oddly enough, these same persons are protectionists also. But if a navy is needful to safeguard exports, it is no less needful for the imports which must also come. It is but another phase of the same drawback against the gain from international trade, that it is liable to interrup- tion. A war between the great countries, such as is always possible and often seems imminent, would greatly hamper foreign trade, conceivably destroy it. The greater the previ- ous extension of trade, the more complete the overturn of commerce; and he who looks on war as sooner or later in- evitable, and perhaps as not unwelcome, is not loath to have the industries of his country as self-contained and as self- dependent as possible. The Present Position of the Doctrine of Free Trade 31 The national and militant feeling, however, has effects on public opinion far beyond such deliberate weighings of gain or loss under war and peace. It rouses a whole train of sentiments which run against trade with other countries. It fosters international rivalry in every sphere. Deliberate and accurate weighing of the benefits of foreign trade, such as it is the business of the economist to undertake, probably determines the opinions of a very small circle indeed. The state of mind of the immense majority is settled by their gen- eral feelings and prepossessions. These are in favor of the native country and against foreigners; in favor of home markets and home products, and against foreign competition. Add to this the strong appeal which protectionist reasoning makes to the instinctive prejudices and the inherent selfish- ness of the every-day man, and you have an explanation of its continued hold. In the United States the situation is different from that in European countries. Here we have in recent times no in- dustrial invasion from foreigners; we are ourselves the in- vaders. The feeling of nationalism is doubtless strong, and has promoted protection effectively; but the peculiar fervor which militarism adds to it we have not experienced, unless it be under the conditions of the last few years. The main- tenance of our protective system — I will not say of any such system, but of the extreme and intolerant protection which we have developed — seems to be explicable chiefly on historical grounds. Certainly its beginning is not to be as- cribed to any deliberate choice. The system as it now stands goes back to the Civil War, and is the unexpected outcome of the heavy duties then suddenly imposed. It has main- tained itself chiefly by the effects of custom and iteration. The industries of the country have become habituated to it ; and what is no less important, public feeling has become habituated to it. As in England free trade has been the accepted doctrine from sheer force of use and habit, so in 32 Free Trade, the Tariff and Reciprocity the United States protection has been the accepted doctrine. And, needless to say, just as continued material progress strengthened the hold of the accepted system in England, so it has strengthened the hold of the opposite system in the United States. The appeal to let well enough alone is always effective. The economic critic may see in other directions abundant explanation of our well-being, and may say that a country with such resources, such institutions, and such a population would have prospered under any commercial policy. But the fact of prosperity tells powerfully in favor of the legislation that in fact has been followed. It is not probable that any substantial change of policy will be made until this correspondence has been broken. When evil days come, as sooner or later come they doubtless will, then placid ■acquiescence in the existing order of things will no longer bolster up the protective system, and the time will be more propitious for a deliberate overhauling of accepted notions and beliefs. In conclusion, then, it may be said that the fundamental principle of free trade has been little shaken by all the dis- cussion and all the untoward events of the past half-century. But its application is not so easy and simple as was thought by the economists of half-a-century ago. A principle can be stated in clear-cut terms, and an answer of yes or no can be given with regard to it. The mode of its application, how- ever, raises questions of fro and con, and often involves a balancing of conflicting principles. The question of prin- ciple none the less remains important, and important for practical purposes. He who is convinced that the use of alcoholic liquors is overwhelmingly harmful may be uncer- tain, in the world as it is, whether to favor absolute pro- hibition, or government management, or private trade under license and control. Yet if he has the question of principle clearly settled in his mind, he will combat steadfastly popular errors about healthful effects of alcohol and will welcome The Present Position of the Doctrine of Free Trade 33 every promising device towards checking its use. He who believes that war is evil and wasteful, and militarism pre^ ponderantly bad in its spirit and effect, may regretfully admit that armies and navies must be maintained and much labor misapplied in the making and using of instruments of destruction. Yet he will oppose every unnecessary in- crease of armament, avoid every occasion for stirring others to rivalry in warlike preparation, and welcome every op- portunity for the peaceful settlement of disputes between na- tions. So he who believes that international trade is but one form, and no peculiar form, of the division of labor, and that like all division of labor it is preponderantly beneficial in its effeots, may admit that its application in a given country raises problems not to be disposed of by mere appeal to this principle alone. Some of the qualifications have been con- sidered in what has preceded; and others will readily occur to you, such as the demands of public revenue, a needful re- gard for vested interests, the political and social effects of trade within the country and without. But in considering any question of concrete commercial policy, it is necessary first to know whether a restriction on foreign trade is pre- sumably a cause of gain or loss. Is a protective tariff some- thing to be regretted, for which an offset is to be sought in the way of advantage in other directions, or something which in itself brings an advantage? The essence of the doctrine of free trade is that •prima facie international trade brings a gain and that restrictions on it presumably bring a loss. Departures from this principle, though by no means impossible of justification, need to prove their case; and if made in view of the pressure of opposing principles, they are matter for regret. In this sense, the doctrine of free trade, however widely rejected in the world of politics, holds its own in the sphere of the intellect. II AERAHAM LINCOLN" ON THE TARIFF Those who have followed the campaign literature on the tariff during recent years will have become familiar with a phrase attributed to Abraham Lincoln. The following ver- sion is taken from Curtiss's Industrial Development of Na- tions (1912), a pretentious three-volume publication, in which are collected indiscriminately all sorts of protectionist ar- guments. Under a portrait of Lincoln this is printed : — " I do not know much about the tariff, but I know this much, when we buy manufactured goods abroad, we get the goods and the foreigner gets the money. When we buy the manufactured goods at home, we get both the goods and the money." ^ No reference is given by Ourtiss to Lincoln's writings; nor is such a reference given in any place where I have found the phrase quoted. A careful examination of the various editions of Lincoln's published works brings to light nothing that remotely resembles it. There is nothing in either of the two editions of his writings put together by Nicolay and Hay, nor is there anything in the so-called Federal Edition. Nieo- 1 From the Quarterly Journal of Economics, August, 1914. 2 Vol. iii, p. 6. Elsewhere in the book the version is in somewhat dif- ferent form : " Abraham Lincoln said : ' When an American paid $20 for steel rails to an English manufacturer, America had the steel and England had the $20. But when he paid $20 for the steel to an Ameri- can manufacturer, America had both the steel and the $20.' " Ihid., vol. ii, p. 471. — This obviously is an anachronism, since such a thing as a steel rail was unknown in Lincoln's time. 34 Abraham Lincoln on the Tariff 35 lay and Hay's Life yields nothing of the sort, nor any of the biographies. So with Lincoln's Speeches in Congress and his Messages to Congress. There is no lack, to be sure, of references to the tariff by Lincoln. He began his political career as a Whig, and remained a protectionist ; though during the decade preceding the war his political insight led him to put it aside as an issue on which to appeal to the people. Those who are interested in the history of the tariff contro- versy may find it worth while to turn to some notes of his written in 1846-47, containing a sketch of' an address on the tariff. Here the main thought is that labor given to transporting a commodity from foreign countries is wasted, if the commodity can "be produced within the country with as little labor as elsewhere.^ This may be an echo of some of Carey's well-known utterances; and it could be made the text for some explanation of the principle of comparative cost. A passage of a similar sort is in an address made at Pittsburgh in 1861, indicating that Lincoln had kept this particular turn of reasoning in mind. But there is not the slightest suggestion of the muoh-quoted phrase. Now, what is the history of the phrase ? The very first mention which we have found * is in 1894, in the American Economist, a weekly protectionist sheet pub- lished in New York. In that periodical for June 29, 1894, the following is given as having been copied from the In- dependent of Howard, Hlinois, of June 9, 1894 : — " Lincoln's first speech on the tariff question was short and to the point. He said he did not pretend to be learned in political econ- omy, but he thought that he knew enough to know that ' when an American paid twenty dollars for steel to an English manufac- turer, America had the steel and England had the twenty dollars. s Lincoln's Complete Works (2 vol. edition), vol. i, p. 90. Cf. p. 679 for the Pittsburgh address. * I say " we," because in the endeavor to trace the phrase to its origin I have had invaluable assistance from Dr. D. M. Matteson, well-known for his thoroughness in research on problems of American history. 36 Free Trade, the Tariff and Reciprocity But wheii he paid twenty dollars for the steel to an American manufacturer, America had both the steel and the twenty dollars. In a later issue (Oct. 26) of the American Economist of that same year, it is stated that another newspaper, the Peoria Journal, protested that the " goods and money " speech was made at Kewanee ; while still another newspaper, the Chicago Record, pointed ont that this version was not at all in accord with Herndon's report of Lincoln's first speech.^ That the phrase was not current before 1894, at least in its attribution to Lincoln, and probably was not known at all, is indicated by its absence from those collections of opinions of " the fathers " which form a familiar part of the protec- tionist stock in trade. It is not to be found in Stebbins' American Protectionist's Manual (1883) ; though Lincoln is there mentioned as being " in favor of a high protective tariff." Nor is it in a tract published in 1892 by the Ameri- can Iron & Steel Association, under the title The Testimony of the Fathers. The tract contains a choice collection of excerpts from the utterances of Hamilton, Jefferson, Calhoun, Webster, Clay, even Fillmore and Buchanan ; but not a word from Lincoln. Nor is it used with any frequency for some years after its first appearance in 1894. But after 1900 it turns up repeatedly in the file of the American Econom,ist: in 1901, in 1905, twice in 1906, again in 1908.« After the BDr. Matteson reports that Howard, 111., appeared on the maps until about 1902; since then a village at the same spot — a mere junction- point, apparently — is named " Lotus " on the map. It is in the north- west corner of Champaign County, forty miles from Lincoln's early home at New Salem. Dr. Matteson adds: "I am forced to the conclusion that the Howa/rd Independent is a myth, or at least a misprint. The post-master at Lotus writes me that no paper has ever been printed there; and there is no other town in Illinois, so far as I have been able to discover, with which the name Howard is associated. No Howard Independent was published elsewhere in the United States, according to the newspaper directories of 1891, 1894-95, and the last issue." 6 May 10, 1901; June 9, 1905; Feb. 16 and Dec. 21, 1906; Dec. 18, 1908; Dec. 23, 1910. The set of the American Economist in the Har- Abraham Lincoln on the Tariff 37 very first appearance, the commodity mentioned seems to be invariably rails — sometimes iron rails, sometimes steel rails. Usually, a newspaper is quoted as having used the phrase or reported its use. Thus, in 1905, the following is quoted from the Worcester Telegram: — " Senator Scott of West Virginia is scored in some places for quot- ing President Lincoln in support of the policy of standing pat on the Tariff issue, and some of the critics appear to doubt that Lin- coln ever used the words attributed to him. The words at least are good enough to have been used by the war President. Senator Scott says : ' President Lincoln once remarked that if we gave $30 a ton for iron rails made in this country we would have both the rails and the money, but if we bought thsm in England the rails only would be ours, while the Britishers would get the cash.' . . . Neither does it matter . . . whether the rails . . . are iron of the days of Lincoln or the steel of to-day." In 1908, again, the then Secretary of the Treasury, Leslie M. Shaw, is quoted in the Economist as having used the quota- tion in a Boston speech. The first appearance for express campaign use appears to be in 1904. The phrase is to be found in the Eepublican Campaign Book of that year. In earlier campaign books, for 1892, 1896, 1900, it does not appear; although in that of 1896 Lincoln is cited as an advocate of protection. Evi- dently the phrase was not widely known during these earlier years. In the Campaign Book of 1904, there is an extended quotation from Lincoln's tariff notes of 1846-47 (referred to a moment ago) and then at the close we find: — " On another occasion Mr. Lincoln is quoted '' as saying : ' I am not posted on the tariff, but I know that if I give my wife twenty dollars to buy a cloak and she buys one made in free-trade England, vard Library is not complete; there may be other references in the missing numbers. 1 1talics are mine. The guarded way in which the passage is used would seem to indicate suspicion. It does not appear in the Eepubli- can Campaign Handbooks of 1908 and of 1912. 38 Free Trade, the Tariff and Reciprocity we have the cloak, but England has the twenty dollars ; while if she buys a cloak made in the protected United States, we have the cloak and the twenty dollars.' " Here, it will be observed, " a cloak " appears. In a speecb by McCleary of Minnesota, in the House of Representatives, April 22, 1904,* " a dress " and " my vpife " appear, with the same sum of $20. It may be that the campaign book version of 1904 was taken from McOleary's speech. In 1910 the phrase appears conspicuously in a booklet en- titled Story of a Tariff, published by the American Protective Tariff League — the organization which publishes the Ameri- can Economist also. This booklet lauds the tariff of 1909 as " the best tariff bill (sic) the Republican party ever passed," and gives a quantity of extracts from speeches on that meas- ure. On the inside cover page there is printed in large type " Lincoln's Tariff Creed," in these words : — " Secretary Stanton once asked Abraham Lincoln what he thought of a Protective Tariff. Mr. Lincoln replied : ' I don't know much about the Tariff, but I do know that if my wife buys her cloak in America, we get the money and the cloak, and that American labor is paid for producing it ; if she buys her cloak abroad, we get only the cloak, the other country gets the money, and foreign labor re- ceives the benefit.' " It will be observed that this is somewhat enriched. Ameri- can labor and foreign labor are smuggled in; and not only is the wife introduced, but Secretary Stanton also.® 8 Congressional Record, 58 Cong., 2 Session, appendix, p. 246. » In response to an inquiry, Mr. W. F. Wakeman, Secretary of the American Protective Tariff League, wrote me on June 28, 1914: '' About five years ago I took up this subject of what Lincoln really did say on the Tariff Question and found that the extract as printed is correct. I consulted the family and every possible authority. I will try to rim over the original correspondence shortly and give you additional infor- mation if desired." But the information, though asked for, has not been supplied. Mr. Wakeman was Secretary of the League in 1894, and has been so ever since, except in 1900-1901, when he was Appraiser in New York. Abraham Lmcoln on the Tariff 39 Not the least interesting episode in the history of the phrase is its voyage across the water and subsequent return to the United States. In 1908, the American Economist re- ports that a London correspondent has written : — " An interesting development has been the appeal to Abraham Lin- coln ... as the final authority in an English fiscal controversy. ... A number of Unionist papers closed the controversy simul- taneously by quoting the following extract from a speech made by Lincoln shortly before his death : ' The problem seems to me a simple one. If we adopt Pree Trade it means that we import our goods, in which case the foreigner will have our money and the work, and we his goods. If, however, we adopt a system of Pro- tection, or a system of safeguarding our industries and our working classes, thereby manufacturing the goods ourselves, the result will be that we shall have the goods, the money, and the emplojrment.' " It will be observed that here Lincoln is supposed to have made the remark shortly before his death; whereas on its emergence it was supposed to have been made in his first speech. Very recently, the English " tariff reformers " have utilized it again. They distributed (apparently in the course of 1913) a post card bearing within an ornamental scroll the following printed text : — "I do not know much about the tariff, but I do know this much: when we buy goods abroad, we get the goods, and the foreigner gets the money : when we buy goods made at home, we get both the goods and the money." — Abraham Lincoln. This naturally led to attack by free traders, in the columns of the Manchester Onardian. The Qnardian in turn made its way to this country, and thereupon our loyal protectionists were led to retort that this shallow newspaper " in an un- guarded moment recently allowed its finespun theory of free trade to come into direct conflict with the protectionist com- mon sense of Abraham Lincoln." ^<* 10 See the Textile Record (Boston), July, 1913. I have been able to 40 Free Trade, the Tariff and Reciprocity Finally, the phrase has descended to base uses indeed. In recent issues of New York newspapers, a brand of shoes is advertised as " made from American materials, with home labor and by home capital," and then follows the precise passage quoted a moment ago from the Story of a Tariff of 1910, with the interpolations about American labor and for- eign labor, and the reference to Secretary Stanton. The advertisement, however, seems not to have been found ad- vantageous. The advertiser was overwhelmed by a host of inquiries, and made a public reply in which he withdrew behind the shelter of the Protective League and its publica- tions ; and he refrained from continuing the advertisement.^^ It seems certain that the phrase is apocryphal. There is no evidence that Lincoln ever used it. Further search may show just how it originated. Possibly the claptrap about tihe " goods and the money " was invented before it was foisted on Lincoln; possibly it was ascribed to him at an earlier date than the first here noted (1894). By dint of repeti- tion it has come to be associated with Lincoln almost as much as the cherry tree is associated with Washington. So crude is the reasoning (if such it can be called), so vulgarly fal- lacious is the antithesis, that we must hope that it will cease to be invested with the sanction of a venerated name.^* secure little information about the British episode. The Literary Secre- tary of the Tariff Reform League writes me : " We have no post-card containing the quotation from Lincoln, nor to the best of my knowledge have we ever issued such a post-card. . . . The quotation is of course well known to us, and it is quite possible we may have referred to it in our 'Monthly Notes,' though not in any recent years." Another cor- respondent in England suggests that a branch of the League may have circulated the card. 11 The advertisement appeared in New York in the Journal of Com- merce and the Times, May, 1914; perhaps in other newspapers also. The advertiser's answer to inquiries was in the Times of May 18. 12 Since this note was prepared, my attention has been called to a letter of Mr. Horace White's in the iiew York Evening Post of April 10, 1914. Mr. White points out that nothing like the oft-cited passage is to be found in Lincoln's writings, and pungently concludes : " My Abraham Lincoln on the Tariff 41 A SEQUEL ^^ The note which I published in the August issue of this Journal on the tariff phrase attributed to Lincoln (getting "both the goods and the money") has stirred discussion, as is natural with anything that concerns the great president. Some further light upon the origin of the phrase has come in consequence. For most of the information which I am now able to give, I am indebted to Mr. Oalvin W. Lewis of Brookline, Massachusetts, who first called attention to some of the clues in contributions to the Boston Transcript signed with a pseudonym, and who has since put at my disposal in the most obliging way the results of his inquiries. It will be remembered that the earliest appearance of the phrase, so far as Dr. Matteson and myself were able to trace it, was in the American Economist for June 29, 1894, where it was stated to have been copied from the Howard Independ- ent of June 9, 1894. The Howard Independent proved a puzzle. Dr. Matteson was able to find no trace of any such newspaper, and concluded that it was " a myth, or at least a misprint." The puzzle was not lessened by the failure of the American Economist to give any explanation. Our note was brought to the attention of the Economist, and some ref- erence has been made in its columns to Lincoln's utterances upon the tariff and to this particular myth; but no attempt was made to verify, or specify further, the source from which the phrase had come. A suspicion could not but arise that the phrase might have been manufactured by the Economist, and that the Howard Independent was a pretense. That suspicion proves to be quite without foundation. The Howard Independent is not a myth ; but, as Dr. Matte- son thought possible, it is — a misprint. It appears that reason for thinking that Lincoln never said this is that he was not a fool." 13 From the Quarterly Journal of Economies, February, 1915, 42 Free Trade, the Tariff and Beciprocity there is in Illinois a flourishing town by the name of Harvard, and that a weekly newspaper, the Harvard Independent, has been published there for many years. " Howard Independ- ent " was merely a misprint for " Harvard Independent.' Moreover, Mr. Lewis, through correspondence with the pres- ent editor of the Harvard Independent, has learned from him that a search in his files brought to light, in the issue of the date stated, June 9, 1894, the identical phrase. It is there, and the American Economist copied it in good faith and with due credit. It is not surprising that the editor of the American Economist, after the lapse of twenty years, should have quite forgotten just how he happened on the phrase, and should now find it as difficult to trace as the rest of us. Any suspicion of fabrication on his part was quite without foundation. But all this only serves to push the inquiry one step further back. Where did the Harvard Independent get the phrase ? In the works of Robert G. IngersoU there is an oration upon Lincoln, which bears the date 1894. In it there is a passage ^* which says that Lincoln was " nominated for the legislature and made a speech," and that this speech was in favor of a protective tariff. IngersoU refers to it shortly after as Lincoln's first speech. After some remarks about the influence of manufactures in " developing the brain " and " giving wings to the imagination," IngersoU goes on thus : " It is better for Americans to purchase from Americans, even if the things purchased cost more. " If we purchase a ton of steel rails from England for twenty dollars, then we have the rails and England the money. But if we buy a ton of steel rails from an American for twenty-flve dollars, then America has the rails and the money both." 1* See vol. Ill, pp. 127-128 of the " Dresden Edition " of the Works of Robert G. IngersoU (New York, 1900). The oration, or lecture, is also reprinted as an introduction to the seventh volume of " Lincoln's Col- lected Writings," edited by Nicolay and Hay (New York, 1905). Abraham Lmcoln on the Tariff 43 It will be observed that this differs in one significant par- ticular from the phrase attributed to Lincoln. The purchase from the American is supposed to be at a higher price than that from the Englishman — twenty-five dollars instead of twenty dollars ; the allegation is that it is more advantageous to buy at home, even at the higher price. There are still other grounds for questioning whether this passage, as it appears in print, was the source of our myth. It is not put by Ingersoll in quotation marks, nor is there any intimation or implication that it is taken from Lincoln, Ingersoll mentions steel rails ; if he had wished to imply that the language was Lincoln's, he would hardly have selected an article not known in Lincoln's day. A careless reader might possibly infer this to be a paraphrase or quotation from Lin- coln; but only a careless one. More important is the cir- cumstance that internal evidence points to its having been published at a later date than that of the passage in the Harvard Independent (June, 1894). Immediately follow- ing the two paragraphs just quoted Ingersoll goes on: " Judging from the present universal depression and the recent elections, Lincoln, in his first speech, stood on solid rock and was absolutely right." " Eecent elections " must refer to the elections of the autumn of 1894. The elections of 1892 were not favorable for the Republicans, but those of 1894 were. It is the latter only to which Ingersoll could have alluded. The date of the oration in its printed form is clearly later than that of the appearance of the phrase in the Harvard Independent. Nevertheless, I am disposed to believe that IngersoU's ora- tion is the fov^ et origo of the myth ; not as it is printed in his works, but as delivered before. Ingersoll was much in demand as a lecturer and political speaker. !For years he orated on the lyceum platform and spoke at political rallies. The oration on Lincoln doubtless was delivered many and many a time before it was put into cold print. The tariff 44: Free Trade, the Tariff wnd Eedprocity phrase doubtless figured in it, and was likely to stick in the memory of hearers ; and in this way the Harvard Independ- ent probably got hold of it. Hearing it as delivered, with the dramatic emphasis of which IngersoU was a master, the re- porter would not fail to remember it, and at the same time would naturally suppose it to be a quotation from Lincoln, not an epigram of the orator's. The circumstance that the dif- ference in price between English and American rails, which is an important part of IngersoU's version, does not appear in the Harvard Independent or in other places, is entirely consistent with its having had its origin in a vaguely mem- orized report of spoken words. In sum, the indications now seem to be that IngersoU's oration, notwithstanding its having appeared in print at a later date than the first published version of the phrase, is nevertheless the source. It is precisely such as IngersoU might have invented — epigrammatic and fetching. ISTo evi- dence has been adduced, or is likely to be, that it originated with Lincoln or was ever used by him. EPILOG The question has been put to me from one quarter and another : why dismiss the argument in such cavalier fashion ? Be it Lincoln's or another's, it has an appearance of reason- ableness, to some persons even of conclusiveness. That there is a strong appeal in this way of putting the case for pro- tection cannot be denied. Is it quite beneath contempt ? Is he who so puts the case necessarily a fool ? Not stupidity has to be dealt with ; simply blank ignorance. One must restate truths which ought to be familiar, as well established and in their essence simple. Briefly, the grounds for curt dismissal are as foUows. First, the main error is to suppose that we pay for imports by sending out money; that importation means loss of money; Abraham Lincoln on the Tcmjf 45 and that a lessening of imports means a gain or accumula- tion of money. And in the converse case, when we export or increase our exports, it is an error to aasume that we profit hy gaining money or accumulating money. The most ob- vious fact in international trade is that imports are not paid for by sending out money, and that we do not get more money by lessening our imports; neither is money procured by the sale of exports. It is the exported goods that pay for those imported. A decrease of imports means a decrease of exports, not a corresponding inflow of money, and an in- crease of exports means an increase of imports, not an in- flow of money. True, each individual transaction is in terms of money. But the transactions are offset, and the great bulk of the payments are effected without the remit- tance of cash. The details of the course of trade between nations, the use of bills of exchange and the rates of foreign exchange, the process by which merchandise transactions are offset — all this would make a long story, which must be left to the various books, elementary or elaborate, on the mechanism of international trade. The topic is not with- out its intricacies and difficulties, but is better understood , than almost any other in the field of economics. If there is one thing established in that field, it is that a country's goods ' sent out of its borders serve to pay for the goods imported ; they do not bring in corresponding amounts of money or en- able money to be piled up. It is true, and is also a commonplace, that a change in im- ports or exports often stimulates an initial and temporary movement of money (gold). Under the ordinary conditions of peaceful trade, there is a constant flow and reflow of gold between countries, serving to give a start to the movement of goods and also to equalize balances of payment. But the movement of money is always small in comparison with the total transactions. It is usually of minor importance, too, in its effect on general business conditions; and when, as 46 Free Trade, the Tariff and Reciprocity sometimes happens, of serious importance, it is so rather as an effect than as a cause, as a symptom rather than as an ill or benefit in itself. To maintain or imply that gold flows for each item of imports or exports, or that a cutting down of imports results in an unending enrichment of a country through an inflow of money, simply indicates gross ignorance. 'Eext, the inquirer must rid his thoughts of the very idea of a country's enrichment by the process of buying less from foreigners or selling more to them. This is the most insidious part of the error; most insidious because it applies notions familiar in private affairs to the quite different problems of public welfare and national prosperity. Buy less and sell more — is not this the way an individual gets rich ? But it is not the way in which a nation gets rich, least of all in. its trade with other nations. Produce more and consume less — so much one might lay down. Thereby a nation does indeed accumulate capital and in a sense grow rich; that is, it does accumulate the capital indispensable for continuing prosperity. But accumulate money by buying less from foreign coimtries and selling more to them? Even if a country could really achieve the result, and could have the money pouring in year after year, it would not become richer in the only sense in which riches conduce to the general welfare. General welfare means that we have more of the necessities and conveniences of life — more food, clothing, houses, amusements. Money is only a symbol, a medium of exchange, a means of buying the things wanted. All the piling up of money in the world would not make the world better off; and the perpetual piling up of money in a single country would not make that country more prosperous. Unfortunately, our daily use of money and our daily pre- occupations with private business affairs render it most nat- ural for the ordinary man to think of riches as money, and of sales as the source of profit ; and then to think of the com- Abraham, Lincoln on the Tariff 47 munity's affairs in the same terms as of his own affairs. The persistence of what the economist calls the mercantilist view is the most trying experience of his profession. It is in flat contradiction with truths established of old and ac- cepted by every competent judge. Yet the familiar fallacy crops out everywhere and on all sorts of occasions, and seems to be quite ineradicable. Its deeprooted hold explains the vogue of the phrase ascribed to Lincoln; explains why the economist breathes a sigh of relief on finding that the great name cannot be associated with it ; explains, too, why he dis- plays a touch of impatience when asked once more to supply a refutation. Ill HOW THE TAEIFF AFFECTS WAGES ^ The form in whicli the argument that the tariff raises wages is commonly presented is that of a simple compari- , son of money wages in the United States with money wages ' in foreign countries. To most people this is a plain and convincing way of putting it. If A pays only fifty cents a day to his workmen, and B pays a dollar a day, it seems clear that A can undersellrB, and that B cannot compete with A unless he reduces his wages to A's rates. The application of this reasoning to our protective duties is familiar enough : if duties are lowered, American employers must either pay lower wages or abandon the field. This belief is not merely widespread : it is something like an article of faith with millions of Americans, probably with a majority of our people. It is congenial to the aver- age man's way of thinking about economic matters, and is as firmly held by most of the business men and well-to-do as by the manual workmen. It has been incessantly dinned into the ears of both by protectionists for half a century. That it is a potent device for bolstering up protective tariffs is shown by the fact that it is utilized, not only in our own country, but in others also — in those with low wages as well as those with high. In Germany, France, and Italy, the appeal for the safeguarding of the laboring man's wages against foreign competition is as universal and probably as 1 Atlwntio Monthly, September, 1919. 48 Eow the Tarif. Affects Wages 49 fetohing as in the United States. And the appeal is sincere. ITo donbt, manufacturers and others engaged in protected in- dustries push it for all it is worth, but not usually with con- scious demagogy. Certainly in our own country those who make the appeal and those moved by it believe in their hearts that our standard of living and the very basis of our pros- perity rest on the maintenance of a system of high duties. Only this will prevent the pauper-paid laborer of Europe and Asia from sending us cheap products which will compel the lowering of wages to a pauper standard. And yet the verdict of economists is unanimously the other way. Perhaps unanimous is too strong a term ; but virtual agreement there is. I know of no economist, certainly none in England or this country, who would sanction the pauper- labor argument. The extraordinary perversion of thought on all international matters which has resulted from the in- flamed rivalries of Continental count^-ies during the last half century has affected their economic thought on all mat- ters relating to trade; and persons of academic repute can be found who give sanction to the talk of the vulgar. A lack of clear thinking and of honest statement has been among the many lamentable consequences of the mad struggle for power. Even so, no economist of standing would main- tain that a protective tariff is the one decisive factor in mak- ing a country's rate of wages high. There are familiar facts in plenty which run counter to the argument. They are familiar, but, as is so often the case, people fail to see the significance of that which stares them in the face. A plain fact, universally known, is that we regularly export from the United States goods to the value of billions of dollars. How can this be if low-paid labor can always undersell high-paid labor? Wages in terms of money, and in terms of commodities also, are higher in the United States in all occupations, of whatever kind. Yet\ we know that not all employers of every kind are undersold j 50 Free Trade, the Tcuriff and Reciprocity by their foreign competitors. The simple existence of an ■export trade proves that they are not; nay, that so far as there is any underselling, it is the Americans who undersell the foreigners. We export an extraordinary quantity and variety of ar- ticles: agricultural products like cotton and wheat, crude and semi-manufactured products like mineral ores, timber, and copper, and all sorts of manufactured goods — cotton fabrics, iron and steel in all stages, machinery and tools. All the laborers who are employed in making these exported ar- ticles get higher wages than those employed in making similar things abroad. Yet the very fact of exportation proves that the articles are sold at least as cheaply as the competing foreign articles. Wages in agriculture are higher here than in England or Russia. Thirty years ago, the English agri- cultural laborer got ten to fifteen shillings a week, or some- where between ten and fifteen dollars a month, and out of this had to pay his own board and lodging. In the United States a farm-hand then got eighteen to twenty dollars a month, and got his board and lodging in addition. In re- cent times, wages in both countries have risen greatly; yet the difference in favor of the American has persisted. The Canadian farmer has been paying no less than the American. Notwithstanding this sustained higher rate of pay in the United States and Canada, agricultural products have con- tinued to be regularly exported. American and Canadian farms, while paying higher wages than the British, are sending their wheat to England, even under the handicap of high freight charges by land and water. They are meeting the British farmers in the British market; and meeting not only the British, but the Russians, whose wages are even lower. So in semi-manufactured and manufactured articles. Copper-miners in the United States, and the men engaged in the smelting and refining plants, get higher wages than How the Tariff Affects Wages 51 men doing the same work anywhere the world over; yet American copper is sold the world over. The laborers and mechanics in the agricultural machinery and sewing-machine industries get high pay; yet these are great articles of ex- port. One of the striking changes in our international trade during the first decade of this century has been the enormous increase in the exports of the semi-manufactured forms of iron and steel. The total exports of structural steel, rods, rails, and wire rose to hundreds and hundreds of millions in the years 1912 to 1914 — years preceding the war, which were not affected by abnormal war conditions. Still another set of facts may be adduced, not so familiar as those relating to our enormous export trade, yet familiar enough, and equally inconsistent with the belief that a coun- try where wages are high must be undersold under free trade by one where wages are low. Great Britain has main- tained complete free trade since the middle of the nineteenth century. The situation has endured without change for over half a century — ample time for testing the matter. No import duties have been imposed, except a few of strictly revenue character on articles such as tea and coffee. Com- modities of every other kind have been admitted to Great Britain from foreign countries free, competing on equal terms with those of British production. India, Japan, China, Turkey, Italy, France, Germany — some of them with wages vastly lower than the British, all with wages con- siderably lower — could send their goods to England without let or hindrance. India, with hundreds of millions of the cheapest labor, and in closest commercial contact with Great Britain; Japan, fast outgrowing her old industrial system and keen to enter modem trade ; France and Germany, just across the Channel and eager for exports — everywhere wages were lower, and in the Orient lower to an extent that would well-nigh paralyze with fright an American protec- tionist contemplating free trade with such regions. And yet 52 Free, Trade, the Tariff and Reciprocity England grew and prospered. British India, apparently the most dangerous competitor because so directly linked with the imperial country, so far from threatening English indus- try, actually asked for protection against the competition of the English cotton manufacturers who paid wages mtich higher. So did the French and Germans; their protective measures were directed against the country of higher wages. And English wages, high at the beginning of the period, not only remained high, but advanced markedly between the middle and the close of the nineteenth century. The explanation of all such facts is simple. Turn to the most familiar fact of all — the continuing exports from the country of high wages to those of low wages. The workman whose labor is embodied in the exports is paid more ; but he also produces more. The labor is more effective, and the em- ployer can therefore afford to pay more for it» Sometimes, as in the case of wheat and iron and copper, the same exertion produces a greater quantity of identically the same article. Sometimes, as with our exported cottons, it produces a greater quantity and also a better quality. Sometimes again, as in the case of our sewing-machines and agricultural implements, the greater effectiveness consists in producing an article which is better made and better adapted to its purposes. The greater (or better) product yields a larger gross return to the employer, even though not a larger sum per unit, than the return from similar labor elsewhere; and the employer is able to pay higher money wages. ISTot only is he able to do so, but he must : for thousands of employers compete with each other for laborers ; and the result must be that wages will be high in some proportion to the productiveness of the laborers. Beyond doubt this is the fundamental explanation of the differences that prevail in the various parts of the world. The plain reason why wages are very low in India and China, higher but still meager in countries like Italy and How the Tariff Affects Wages 53 Austria, comparatively high in England and Germany, and highest of all in the United States, is to be found in the vary- ing productiveness of labor in these countries. The relation between Great Britain and Germany under British free trade illustrates in another way the same simple principle. The illustration is not so obvious, yet rests again on broad facts of general knowledge; it involves no labored investigation. In Germany in the middle of the nineteenth century, when Great Britain entered on her free-trade career, wages were considerably lower than in that country. Yet, it was not Great Britain's industries that feared Germany's competition, but just the contrary: it was Germany that adopted protection (not extreme in those days) designed chiefly to keep out British manufactured goods. As time went on, the trend of wages came to be upward in Germany as well as in Great Britain ; and the rate of advance in Ger- many, though not the actual level, was even higher. True, wages in Germany did not attain the British range, either in money or in commodities, at any time up to the Great War. But starting as they did from a level much lower, they showed a more marked advance. iN'ow, it might have been supposed that, as wages rose in Germany, this country would have become a less dangerous competitor in the "markets of the world," which play so large a part in the ordinary discussion of international competition. Not so: German exports grew and German competition came to be feared during the very period in which German wages were steadily rising. And the ex- planation is again simple. One and the same fact under- lies the advance in wages and the growth of exports — in- creasing effectiveness of German labor, especially in the exporting industries. The causes of that increasing effective- ness were various : partly that Germany, starting from a low level, acquired with rapidity the methods and machinery of modem industry ; partly the exercise of care, persistence, 54 Free Trade, the Tariff and Reciprocity and skill in some branches of applied science; and partly a burst of leadership which was associated with political and military ambition. It matters not for the present purpose what the causes were. The main thing is that advancing wages proved no obstacle to exports and no stimulus to im- ports. II The general proposition that a high rate of wages is the result of a high productiveness of industry is simple and un- deniable. In a sense it is superficial; it may be said to be a truism, though it is one of those truisms which are constantly forgotten. Beyond doubt there remain questions much more difficult. Just how and through what channel or mechanism does high general productivity lead to the high wages? And what determines the share of the total product, be that great or small, which shall go to the laborer, the employer, the owner of capital, the owner of land ? But these questions, the most important and perhaps the most complex in the field of economics, lie quite outside the tariff controversy. Wide-ranging as that controversy is, this limi- tation of its scope seems to be generally recognized. In popular discussions of the tariff, the relations of labor and capital and the distribution of wealth and income are not usually touched, and we need not here concern ourselves with them. It suffices for the purpose in hand to get a broad explanation of the differences in wages in different countries, such as we find in the varying productiveness of labor. The explanation is so simple, and the notion that a high tariff causes general high wages is so flatly contradicted ■ by plain facts, as well as by simple reasoning, that any elaborated discussion of it would call for an apology if the tariff-and-wages argument were constantly repeated. In truth, few intelligent and unbiased persons would seriously argue that protective duties are the chief cause of How the Tariff Affects Wages 55 high wages in the United States. But many would doubt- less say that the duties heep up the wages in certain indus- tries, and therefore at least help to maintain them, not in those only, but in all others. On the other hand, the oppo- nents of protective duties generally argue that duties keep wages high in no industry whatever, and that, when they affect wages at all, they always tend to lower them. An examination of these conflicting views will enable us better to understand what is the real situation. Begin with the .line of argument which maintains that high wages are never the result of duties, but always and invariably of greater effectiveness of labor. — a not infrequent answer by the free traders to the protectionist contention. To this it must be replied that high wages in the TJnited States, at present, are not in all cases the result of greater productiveness. If not caused by the tariff system alone, they are at the least dependent on it. They are the re- sult of the tariff system in this sense : as they are and where they are, they could not be paid but for that system. ManyN workmen — not so many as is often supposed, but still I many — could not be paid in their present occupations what / they now earn but for the barrier against foreign competi- tion. It does not follow that, if duties were removed, they could not get wages as high or higher in some other occu- pation; but, where they are, their present wages could not be paid but for the duties. "When a system of protection has been established, it is not true, as we are often told by writers opposed to pro- tection, that high wages are an invariable sign of produc- tiveness, of great effectiveness of labor. In the United States we do have a great and dominant range of industries in which labor is effective, cost is low, commodities are pro- duced with less exertion than in other countries, and in which wages therefore are high. But side by side with these, the protective tariff has established industries in which labor is 56 Free Trade, the Tariff and Beciprocity no more productive than in other countries. Chinaware of the finer grades supplies an example. If there were no duty on such ware, very little would he made in the United States, perhaps none. The employer who should try to make it could not afford to pay wages at the high rates set by other more effective industries. It would be imported, and would be paid for by the exportation of commodities for which our conditions are more favorable. But so far as the individual employer and workman are concerned, the duties on chinaware serve to offset the lack of favorable conditions. The duties enable the ware to be sold for more here than it will bring abroad; it can sell in this country for the for- eign price pltis the duty. The employer is put in the same position as if his labor were more effective than the foreign labor. The tariff enables him to get more money for hia product than the foreign employer gets for the product of the same labor abroad; therefore he can pay higher wages than are paid abroad. And he must pay them. The stand- ard is set by farmer and steel-maker and implement manu- facturer, who get a. larger gross return per unit of labor than their foreign competitors, and will under any conditions pay higher wages. The manufacturer who is dependent on pro- tection must pay as much ; and he is enabled to pay as much, even though his men produce no more in quantity or quality than those of his foreign competitors, because the duties make it possible for him to sell identically the same product at a higher price than prevails abroad. But the staunch protectionist will ask: Given the situa- tion as it now stands and must be dealt with now, is there any other possible way in which the wages of these men can be kept high? And not only of these men, but of all workmen in all fields of industry? Suppose the duties re- moved, the chinaware industry wiped out, a quantity of other industries to meet the same fate, workmen to rush into those more productive or effective industries which free traders How the Tariff Affects Wages 57 extol — what then ? Will not the competition of the added numbers bring down wages all around, and will it not appear that wages everywhere will he lowered under free trade? Can they he Teept at their present high rates without the aid of protection ? To these questions the free trader has his answer ready. Yet there are problems and possibilities which compel the unbiased inquirer to pause, and to reflect carefully before giving an unqualified opinion or offering unqualified advice. It can he reasoned, as the free trader will reason, that, if the protective tariff be abolished, the men freed from the protected industries will ultimately find their way into the others not dependent on protection, and will there be em- ployed at the same high wages that now obtain — nay, at wages probably, higher. These industries will expand ; and the market for their expanding output will be found abroad. An extension of international division of labor will take place. Things formerly made at home will be imported, while other things, which the foreigners formerly made for themselves, will be supplied to them from our exports. The result will be in the end that we and the foreigners alike gain. Each set of people will produce the things which it can pro- duce to best advantage, and each will be better off by utiliz- ing the best services of the other. All this is but a restate- Iment of the proposition that international trade depends on I differences in the productiveness of industry, and largely on differences that are comparative rather than absolute. The material prosperity of the United States is increased if we confine our labor and capital to the commodities in which we have an advantage and in which our employers can afford to pay high wages. The most effective way to get those things in which our productiveness is no greater than that of foreign countries is to import them, and to export in exchange those things in which our productiveness is greater. The reasoning is beyond attack, granting its assumptions. 68 Free Trade j the Tariff and Reciprocity But it assumes, in a country whicli has long maintained a protective system and in which there are many industries dependent on that system, a great shift and an expensive transformation. No douht the shift in the United States, even with the sudden adoption of complete free trade, would not be as vast as the protectionists commonly state or imply. Their version of the consequences is that every single manu- facturing plant would have to be given up — not to mention the even more dire prophecy that all industries of every kind whatever would crumble in universal ruin. Just how many industries would succumb, no one can say; but I am con- vinced that they would form a minority among the manu- facturing industries themselves. Our manufacturing indus- tries axe not in general such bottle-fed weaklings as their ardent supporters allege. None the less, the change would be absolutely large. There would be shut-downs, attempts to meet the situation by lowering wages, strikes, slow trans- fer of laborers to other regions and other industries, business failures, empty mills and villages, a trying readjustment of prices and probably of the general scale of money wages, hard times and uncertain employment. A considerable pe- riod of transition would have to be gone through before the new and better alignment of industry was finally reached. Those whose present commitments and investments have been made in business ventures dependent on protection could not be expected to do otherwise than oppose the change with might and main ; oppose it too with the firm conviction that right and justice, as well as the need of maintaining general prosperity, were on their side. Further: that expansion of exports which the free trader expects, and which he rightly regards as the complement of expanding imports, will not take place by an easy or rapid process. The ills which the protectionist predicts will ap- pear at once and conspicuously; whereas the predicted gains on the other side will appear so slowly as to be recognized How the Tariff Affects Wages 59 only after a considerable interval. True, imports are paid for by exports, and cannot long continue unless so paid for. But there is no automatic connection. Each transaction in import trade and in export trade stands by itself, as Ricardo long ago remarked. Exports will grow only when they be- come profitable in consequence of the relation between prices of particular articles in this country and in foreign countries, and this relation will not be immediately changred. The economist may discern in the troublous period of transition the trend toward a developed and presumably more beneficial state of international exchange. But the average man will see only hard times and business troubles. The case is but one of many — the introduction of new processes and im- provements is of the same sort — in which the immediate effect of a general economic change is unsettlement and de- pression. The ultimate good result, when it comes, is ac- cepted as a matter of course, with no attention to the causes which brought it about. It is in this way that we accept unfettered free trade throughout the length and breadth of the United States, rarely stopping to think what far-reaching consequences it has for our material prosperity. So great are the difficulties of an abrupt shift from one industrial policy to another — the real ones, not the imagi- nary ones of universal collapse and perpetual ruin — that no country, it can be safely predicted, will ever adopt such a ruthless procedure. If a change takes place, it will be by slow and gradual steps; and the first steps will be for a short start in a new direction, not at the moment of much consequence. Meanwhile, the bulk of the established indus- tries will be safeguarded. And within the range of the industries thus protected it will remain true that wages can be kept high only so long as the protection is maintained. And since most persons jump from a single thing which they see to sweeping generalizations, their conclusion will be that the tariff keeps all wages high. 60 Free Trad,e, the Tarijf and Reciprocity There is still another case wliicli leads to the saiae sort of unwarranted generalization. The drift of the preceding reasoning is that, where the productiveness of a country's industries at large causes its rate of wages to be high, that high rate will he transmitted to the protected industries which could not otherwise afford them; while yet in the long run no workmen anywhere are really benefited hy protection. But there are conditions under which protection may bring substantial and permanent advantage to some workmen, not only in the sense of keeping their wages up to the general level, but in that of lifting them higher. These are con- ditions of labor monopoly. A tight union of highly skilled workmen can get wages above the average, if it can not only keep the union closed within the country, but obtain legisla- tion for keeping out foreign workmen and the products made by foreign workmen. Apparently this was achieved, for example, for a considerable time by the glass-blowers; and in olden days, for a shorter period, by the iron-puddlers. In both cases the exceptional advantage was wiped out, as such advantages usually are, by new processes which dis- pensed with the urgent need for the special skill. But the advantage lasted during the period of limited labor-supply and favoring industrial demand; and the tradition lasted long after the golden era itself. The trade-union spirit of selfish exclusion fits perfectly into the general scheme of protectionism; just as does the employers' spirit of combination and monopoly. It is rare that either kind of combination succeeds in maintaining high gains permanently — either high wages or high profits ; at all events, experience proves that a tariff barrier will not avail, unless other and stronger forces are behind. And it is to be borne in mind that the chances of effective monopoly are better for the capitalists than for the workmen; because the general trend of modem industry to large-scale operations works that way, whereas the general trend toward equalized Row the Tariff Affects Wages 61 opportunities among laborers works to prevent even the high- est trade union from holding a privileged position indefi- nitely. Nevertheless, rare and insecure as are the conditions under which anything like monopoly wages can be secured by any set of workmen, the possibility and the occasional reali- zation strengthen the tradition that a high tariff leads to high wages. Most persons, and virtually all spokesmen of the organ- ized workmen, see only one outstanding thing at a time, and generalize therefrom at once. To them it seems axio- matic that any conditions which increase the wages, even of the smallest group, keep up the wages of all. The well- to-do and educated are entitled to no aibsolution on this score ; they are perpetually and naively urging fallacies or half- truths to justify this or that arrangement profitable to a knot of their own people. But when all is said, every qualification made, every excep- tion granted, the fundamental proposition remains intact. The general rate of wages in a country is not made high by protection, and is not kept high by protection. I will quote what I have said elsewhere : In current discussions on the tariff and wages, it has often been alleged that in one industry or another the efficiency or skill of the workmen is no greater in the United States than in England or Germany; that the tools and machines are no better, the raw materials no cheaper. How then, it is asked, can the Americans get higher wages unless protected against the competition of the Europeans? But it may be asked in turn, suppose all the Ameri- cans were not a whit more skillful and productive than the Euro- peans — perhaps quite as skillful, but not more so ; suppose the plane of effectiveness to be precisely the same throughout the realm of industry in the countries compared; how could wages be higher in the United States? The source of all the income of a com- munity obviously is in the output of its industry. If its industry is no more effective, if its labor produces no more, than in another community, bow can its material prosperity be greater and how can wages be higher ? A high general rate of real wages could not 62 Free Trade, the Tariff and Reciprocity possibly be maintained unless there were in its industries at large a high general productiveness.^ Ill The general and dominant productivenesa of American in- dustiy — how comes it about and in what directions is it likely to be found ? A full answer would carry far beyond the limits of the protective controversy proper — limits which unfortunately are often passed in popular debate on this sub- ject, which strays into any and every phase of economic in- quiry. On the causes of varying effectiveness in industry much might be said ; but the essentials can be stated briefly. Those who reflect at all on the fundamental causes of gen- eral productiveness would probably emphasize two : more fer- tile land and more efficient labor. Both tell ; yet others tell also, and are frequently ignored. True it is that American agriculture long was the main- stay of our prosperity ; on the whole it is so still. True also that we are blessed with great stretches of fertile land in a temperate zone. But the natural resources alone do not ex- plain our favored position among the nations. That position is due no less to the intelligence with which the American farmer has learned to adapt methods of cultivation in such ways as to get the best yield from the plenty of good land. And he has been powerfully aided by the inventors and busi- ness men who have supplied him with agricultural machinery unique in its excellence, and by the railroad promoters and builders who have provided a transportation system which, as regards long-distance hauls, is also unique in its excellence. The American farmer is able to raise and to bring to market 2 Some Aspects of the Tariff Question. In the chapter from which this passage is quoted, I have considered more in detail the causes of differences in industrial effectiveness between different countries; and in the volume at large have taken up the causes in specific American in- dustries (sugar, iron and steel, textiles). How the Tariff Affects Wages 63 more wheat per unit of labor applied than his European com- petitor, not only because he has abundance of good land, but also because he works more intelligently, uses more and better machinery, takes better advantage of the plenty of land, and gets his wheat to market more cheaply. And — to turn to an analogous case — the copper-miner of the United States produces more copper per unit of labor applied than the miner of Europe or South America, not merely because the deposits of copper ore are richer, but also and mainly because the mining methods are better, the machinery more perfected, the transportation of ore and ma- terials cheaper, the dressing and smelting and refining proc- esses more advanced, all the advantages of large-scale opera- tions better utilized. Invention, ingenuity, enterprise, man- agement, are of a higher stamp than in competing countries. The human factor counts immensely in agriculture and min- ing, as well as in manufacturing industries. And it counts in the whole complex of operations : in the work of the farmer who plows and the miner who digs, as well as in that of the engineer, the inventor, the business man. The reader may have observed that in preceding para- graphs I have spoken, not of the " efficiency " of labor, but of its " effectiveness." Efficiency, as the word is commonly used, implies greater output by the individual workman, alone and by virtue of his special excellence — greater physi- cal vigor, better intelligence, better use of tools. Now in this regard the American of native stock does excel; the first native-bom of foreign stock usually does ; even the immigrant may, under the influence of example and environment. Most important, however, is what may be called, for want of a better term, the general effectiveness of industry — the ac- cumulated result of all the factors that unite in making a people's work yield a given physic^ output. And among those factors a commanding place must be assigned to direc- tion and management — to the business leaders. The busi- 64) Free Trade, the Twrif and Reciprocity ness men of America wlio " make " clocks and watches, boots and shoes, furniture and building hardware, steel in its semi- finished and more advanced shapes, tools and machines of all sorts — to specify some striking cases — turn out from their establishments, with the same capital and labor, more than the foreigners do; and this not solely, or even primarily, be- cause their workmen are stronger or steadier or more skillful, but because of superior management. When we try to define, not the physical causes of effect- iveness, but those that rest on the character and genius of a people, precision is impossible. The characteristics that most pervade a people are of ten, the most dif&cult to explain. Those of the Americans go with the spirit of democracy, the universal tradition of a free career for every talent, concep- tions of large possibilities that correspond to the large scale of the country, the ubiquitous and restless energy in money- making — elements both good and bad. Business schemes, business ambition, business leadership, have played a larger part in our social and political development than in that of any other country. Only in Great Britain is to be seen any- thing comparable. And this has led to a general effective- ness of industry, not only wherever natural resources have been abundant, but often where there has been no such favor- ing foundation. The national genius has led to a high level of productive capacity over a wide range of mechanical in- dustries. By far the greater part of what are classed as manufacturing industries have an inherent strength. They are able to pay the American rate of wages, not because they are bolstered up by the tariff, but because their output per unit of labor is large. They are among the strong and self- sufficing industries, not among the less effective which are upheld by those that dominate. It is in the large-scale, standardized manufacturing indus- tries that this strong position is most often found. Any one who looks through tariff demands and debates will be struck How the Tariff, Affects Wages 65 by the fact that competing foreign products are likely to be specialties or handicraft articles. Where a thing is turned out in great quantities, all of a single pattern, the American producer is almost sure to hold; his own. Sewing-machines, for example, are made in the United States by the thousand and hundred thousand, and are exported in great quantities to all parts of the world. Yet certain special types, of which a very few are in demand for unusual bits of stitching, are imported. Since only those few can be sold in any case, the American manufacturer does not find it worth while to set up the apparatus of molds, patterns, machines, systematized con- tinuous output, which he organizes for the standard types. The European maker is willing to take orders for a few pieces, and makeis the specialized machines by using a much larger proportion of handicraft-labor. Again, table-knives are standardized, innumerable dozens being made of each pattern ; pocket-knives, on the other hand, are of infinitely diverse patterns, no one marketable in great quantities. Hence table-knives are made in the United States imhindered by foreign competition; whereas pocket- knives have been steadily imported in face of high duties. Among textiles, the more ornate and expensive fabrics are commonly imported. Not many yards of any one such fabric can be sold ; the American producer does not find its produc- tion worth while. But where there is mass production of an enormous yardage, he takes hold with success. His success is most conspicuous in the great range of ordinary cotton fabrics, easily marketed by millions of yards, and made as cheaply in this country as anywhere in the world. It would give a false picture to sketch in these broad terms the general traits of American industry without calling at- tention also to the exceptions. Often the success of a given establishment, or even of an industry, is due to that elusive element, the personality of an individual. An Englishman may devise a system of highly standardized production for 66 Free Trade, the Tariff and Beciprocity a given article. An American may have a tent, perhaps an artistic gift, for a specialty. Sometimes the division of the market between domestic and foreign producers is quite in- explicable on any general grounds; it seems to be a matter of tradition or accident or mere inertia. Idiosyncrasies of this kind are as common as the departures from the standard type which the biologist finds in the living world. Probably not a single generalization in economics can be laid down to which there are not significant exceptions. And yet the general propositions remain the significant ones. For the present purpose these are: that our country's high rate of wages rests on a high general effectiveness of industry; that effectiveness is not merely a matter of natural resources or physical causation, but is largely the product of national spirit, temper, adaptiveness ; and that it appears over a wide range of manufacturing industries, in which the key-notes are labor-saving devices, the utmost use of elaborated ma- chinery, large-scale operations, mass production. IV Finally, a word must be said in criticism of an argument Avith which the free trader sometimes meets his opponent. He compares the wages paid in protected industries with those paid in industries not protected. In the former class conspicuous cases are adduced of wages below the general range and below the rates in non-protected industries ; there- fore, the free trader reasons, protection cannot be said to have any effect in keeping wages up. Nay, it is sometimes argued that protection is thus proved actually to bring them down. Some years ago, when there was a great strike in Lawrence, Massachusetts, figures were cited to show that the operatives in the woolen mills got wages unusually low. Here, said the opponents of protection, is an industry which notoriously has the advantage of high duties and yet pays How the Tariif Affects Wages 67 its employees wretched wages. How can it be maintained that protection benefits the workingman? On this issue judgment must be given for the protection- ist. The free trader perhaps is fairly justified in using this sort of fetching rejoinder as a tit-for-tat to the harping on tariff and wages which constitutes the campaign ammunition of the other side: he may be entitled to fight the devil with fire. But the impartial judge must rule that the facts are misinterpreted, the inferences not warranted. In any coun- try, whatever the tariff system, and whether the general level of wages be high or low, some workmen will earn more than the average and some less. Differences in education and training, in skill, intelligence, and character, will always cause divergences from the general scale. The range is great from the common laborer to the highly skilled mechanic. Tariff legislation has as little to do with fostering or checking these divergences as currency legislation or railroad legisla- tion. Far more significant in its bearing on these matters is the course of legislative policy on immigration, and even more important is the education of the masses. It may indeed be alleged that the protected industries em- ploy the lower grades of labor in unusually large proportions. Some of them do so — as for example the silk and woolen manufacturers. But other industries not dependent on pro- tection do so also, such as iron- and steel-making, formerly a child of protection, but now quite grown out of tutelage, and the meat-packing trade, never under tutelage at all. Ameri- can business leaders have shown singular adaptiveness in utilizing any and all resources at their disposal, both the natural and the human. They have directed the skilled me- chanics to the construction and operation and repair of the most complex machinery ; they have directed the drudges sup- plied by immigration to monotonous but effective mass-pro- duction. But there is no clear evidence that the employment of the one class or the other, or the relative rates of pay, have 68 Free Trade, the Tariff and Reciprocity been modified by the country's protective policy. Througb it all, tbe wages of the lowest stratum have been higher in the United States than in foreign countries; and so have those of the upper strata. The difference in favor of the American workmen has not indeed been on the same scale throughout. The skilled mechanic has enjoyed, at least during the last generation, a larger differential than the pick-and-shovel man. But this special advantage has appeared quite as much in the industries not dependent on protection as in those that are dependent. It is due to general social causes quite dif- ferent from those that bear on the tariff problems. It \s possible, nay probable, that in the next generation marked changes will take place in this part of the social structure. The supply of human 'cattle will be much abridged by the application of the illiteracy test to immi- grants, conceivably by the future application of tests even more narrowly selective. Further, the tendency of democ- racy and of universal education is toward lessening the stratification of labor; and that tendency will be no longer counteracted, as it has been in recent decades, by a steady congestion in the lowest stratum through immigration. A most desirable and welcome smoothing of the differences will gradually result, opposed by the employers, opposed also and bitterly resented by the semi-aristocratic crafts, yet not to be resisted. It may not take the form of a lowering of the craft wages; possibly these will simply remain stationary, while those of the unskilled gradually rise ; but some smooth- ing away of the differences may be expected. The development of American manufacturiiig industries may be much influenced by this social change. The indus- tries which had been planned and organized on the basis of being able to draw cheap common labor from a vast reservoir will find conditions less propitious than before. Both pro- tected and non-protected industries vidU have to adjust them- selves to altered conditions. But it would be hard to say Eow the Tariff, Affects Wages 69 that the adjustment will be greater or more difficult in one set than in the other. Important though the new situation will be for our social and political problems, it is not likely to bring consequences significant for the protective controversy. To return to the main question : it is reduced again to its simplest elements. Wages at large, and the prosperity of the laboring class as a whole and so of the country as a whole, are not kept high by protection. True, in those branches of industry which are really dependent on the tariff, the work- men there engaged could not there remain, at the current high wages, if the tariff barrier were to be removed. True, also, a transfer of labor and capital to other industries not dependent on the tariff could take place only with great diffi- culty and great hardship; and here are problems which the free trader cannot lightly dismiss. But none the less it is im- true that high wages in general have been caused by protec- tion, or are now made possible only by protection, ^ey^rgat not on that feeble prop, but on the solid foundation of general effectiveness of industry — on_ti^reaources of the country and the genius of the people. IV WAGES AND PEICES IN RELATION TO INTER- NATIONAL TRADE 1 The main thesis of the present paper is that in considering the working of international trade, attention should be paid more to the range of money incomes, and less to the range of prices than is usually the case when economists take up this set of topics ; and that in gauging the advantages which a country secures from international trade, we should look primarily to the range and the variations of money incomes. ■ It is usually set forth that the country where prices are! highest gains most from international trade, and the coun- try where prices are lowest gains least. The range of prices , obviously enough is not in itself of consequence. High prices simply mean the use of more counters in exchange. But in buying imported commodities those whose domestic transac- tions are carried on with many counters have an advantage. Foreign goods are not so high in price, and are procured more easily. Conversely, countries with low prices are ill off as regards imported goods, which are bought on hard terms by people whose scale of money prices is low. This statement of the case would be open to no exception if the words " money incomes " were used throughout when stating the situation of the people of a given country. It is high money incomes that are of consequence in international trade, not high prices. In fact, a country may have, not high 1 Quarterly Journal of Economics, August, 1906. This paper is ad- dressed, more than any other in the present volume, to those conversant with the refinements of the theory of international trade. The general reader may prefer to pass it by. 70 Wages and Prices Tl prices, but low prices, and still be in an advantageous posi- tion as regards international trade. High money incomes do not necessarily or commonly mean bigh prices. It is by a consideration of tbe relation between money incomes and prices, of tbe possibilities of divergence or parallelism be- tween tbem, that some contribution may perhaps be made toward better understanding the phenomena. Let us consider, for this purpose, a country in which wages and other money incomes are high. The United States, for example, has a high range of money incomes. It is com- monly thought to have also high prices. Let us compare its situation with that of the European countries with which it trades, and ascertain wherein it gains, and how far its gains are connected with the prices of goods and the money rates of wages and other incomes. For the sake of simplicity, in speaking of the United States or similar countries, I shall use indifferently the terms " money wages " and " money in- comes," leaving it to be understood that not wages only, but other money incomes as well — rents, profits, interest, the earnings of independent farmers or artisans — tend to be cor- respondingly high. Begin by recalling some of the familiar principles of inter- national trade. Under a state of freedom, goods that are imported and exported will sell at approximately the same prices the world over. There will of course be differences from cost of transportation. Imported goods will sell at prices higher than their prices in the exporting countries by the amount of cost of carriage. Sometimes a commodity that newly enters into foreign trade — one that a shrewd merchant discovers to be cheap in one country and salable in another — will sell in the importing country at a large advance; and doubtless the action of competition in leveling profits and reducing such differences of prices to the " nor- mal" point is not so quick and thorough as the economists are disposed to believe. But on the whole we may reason on 72 Free Trade, the Tariff and Reciprocity the assumption that under conditions of freedom those com- modities which enter into international trade have a com- mon price the world over. The extraordinary cheapening of transportation during the last half -century, the easy transmis- sion of news, the perfected organization of markets and ex- changes, contribute to make this assumption a safe one for all the great staples. Customs duties, of course, are an im- portant cause of differences in price ; of these something more will be said presently. But the fundamental principles can be best elucidated by tracing their operation under free trade. Every country will export those things which are cheap in its 'borders — whose prices are so low that they can be shipped to foreign countries and still sold at the advance needed to cover cost of carriage. And those things will usually be cheap which are produced with a comparatively small amount of labor, — those in which the effectivgneas. of-labox is great, A country with high money wages, like the United States, can yet put goods on the market (whether the domestic market or the foreign) at low prices, if its labor is productive. Such is the familiar situation with our great agricultural staples. The money incomes of those who grow wheat in the United States, whether the earnings of the independent farmers or the wages of the laborers whom they hire, are larger than the incomes and wages of wheat-growers in other countries. But the wheat can none the less be sold at a low price in the United States, and can be exported from the United States, because our labor is effective in producing it. Why the labor is effective is no part of the present inquiry. One cause clearly is the abundance of fertile land ; a cause no less important is the wide-spread intelligent use of good agricul- tural machines. These very agricultural machines — to men- tion another commodity — are largely exported from the United States, though the wages of the workmen who fashion them are high; because the methods of making them have been greatly perfected. To specify still another case, the Wages and Prices 73 earnings of the negroes who grow cotton in our Southern States, low as they may be when measured by ordinary Amer- ican standards, are higher than those of the fellaheen in Egypt or the ryot in India. Yet American cotton can be sold as cheaply as that of Egypt or India. The soil and cli- mate make the Southern negro's labor effective, arid doubt- less in some degree a better organization and direction of his labor contribute also to make it so. All this is but a restatement of the principle that a coun- try will export those things in which it has a comparative ad- vantage. The exposition of that principle, as it is usually found in the books on economics, would be simpler and more telling if it were made clear (the common form of statement fails to make it so) that the things in which a country has a " comparative advantage " are those which are likely to be low in price. International trade, like all trade, though fundamentally a matter of barter, is proximately a matter of price. A country sells abroad those things which it can produce at low prices at home. Ordinarily, those things are produced at low prices at home in which the country's labor is effective. Proceed now to the next stage : what will be the range of prices for those commodities which do not enter into the sphere of international trade — those which are not exported or imported, but are bought and sold solely within the coun- try ? The quantity of such commodities' is very great, and in all countries probably much exceeds that of commodities having a world range of prices. Many things are too bulky to be transported over any considerable distance — as stone, bricks, timber. Many are perishable, as milk, butter, eggs, fruits, vegetables. ISTo doubt modem improvements in the transportation of bulky goods and in the preservation of those that are perishable tend to enlarge the sphere of foreign trade. But such things are still sold mainly in their own region and at the prices of their own region. House-room and shelter, 74 Free Trade, the Tariff and Reciprocity a most important article of consumption and purchase, can- not be transported at all, and so may vary widely in price in different countries. Some of the articles used in building bouses — boards and laths, doors and windows, locks and hinges — may indeed be sent to distant regions. But even these are much affected by the customs and fashions of the several countries, and are usually made and sold on the spot or near it. A multitude of articles which might conceivably be brought from foreign countries are in fact made chiefly at home, because of the persistent sway of habit and tradition. Such are clothing and boots, tools and machines, wagons and harness. The reader's imagination will easily enlarge the list. The prices of all these things are determined under domestic conditions. They do not enter into international trade, and have no world level of prices. Most persons would say that the prices of such commodities — it will be convenient to speak of them as " domestic com- modities " — will be high in countries where money incomes /are high and low in those where money incomes are low. ' But this by no means follows. The range of domestic prices in a country, as compared with the range of prices of the same things in other countries, depends on the effectiveness of labor in producing the domestic commodities. Looking at the United States as our example, we find some things higher in price than in European countries, some things lower. We know, of course, that the exported articles — wheat, corn, flour, meats, cotton, iron, copper — are as cheap, even somewhat cheaper. But how about domestic commodities? Some are dearer, some are cheaper. Com- parison is often difficult, because the qualities of things vary ; but every-day observation suffices to establish significant dif- ferences. Wheat and flour are cheaper, yet bread from the bake-shop is dearer. Most fruits are as cheap or cheaper in the United States, especially when they have been transported some distance. In the immediate region of fruit-growing, Wages and Prices 75 fruits are often oheaper in Europe, Eggs are dearer in the United States. Milk and butter are usually dearer also. Bituminous coal is, in most parts of the United States, as cheap or cheaper. Anthracite coal is dear; but comparison with a corresponding article in European countries is not easy. The simpler kinds of cotton clothing are cheaper. Boots and shoes are as cheap, probably cheaper. Woolen clothing is dearer. Here the effect of the duties on wool must be reckoned with; but ready-made woolen clothing is not so high in price as that made to order. Household furni- ture is cheaper; hardware and kitchen utensils are probably also cheaper when due allowance is made for quality. All things that involve personal service — cab fares, hotel charges, servants' wages — are markedly higher in price. An interesting case, and one that serves to bring out both the' difficulties of comparison and the working of the under- lying forces, is that of house-room. The amount that is actu- ally paid out for house rent is, scale for scale in the social stratification, higher in the United States. But in most cases more is got for the money. The space is ampler, the lighting better, the appurtenances more convenient. Per- sons of the well-to-do class who spend a season in Europe will commonly pay less for house rent than they would ex- pect to pay in the United States, but they are commonly content with less agreeable and convenient accommodations. A significant difference is observable between houses made chiefly of wood and those built of brick and stone. Masonry work is dearer in the United States ; wood work is as cheap or cheaper. Houses of brick or stone cost more to build than in Europe ; if built of wood, they cost less. The explanation is that machinery can be applied to manipulating wood more easily than to brick or stone. Given the same efficiency of labor, the same output per day per man, and it is evident that if you pay higher wages you must charge higher prices. Such in the main is the case with brick and masonry work *I6 Free Trade, the Tariff and Reciprocity in the United States as compared witli Europe. Brickmak- ing and bricklaying, stone-cutting and masonry, are done chiefly by manual and artisan labor, even though in briok- making and in stone-cutting there is probably in the United States somewhat greater use of power and machinery than in Europe. Wages being higher, and the output of labor no greater, prices must be higher. Wood working, on the other hand, from the rough-sawn timber to the last molding on the door or windows, is done in the United States with a great use of machinery; and, what is most significant, with a greater use of machinery and labor-saving devices than in any other country. Labor is thus made more effective, and, though more highly paid, its product is not necessarily sold at a higher price. Given a sufficient advantage, and the pro- duct will even be cheaper. If the work on your wooden house is all done on the spot by carpenters, it will be dearer in the United States ; but, if the carpenters simply put together in short order the machine-made pieces from the saw-mill and factory, it will be cheaper in the United States. The last- named is the way in which the great majority of houses are built in the United States for persons of small means or moderate means ; and such houses are as cheap as in Europe or cheaper, and the house rent for them, quality and con- venience considered, is as low or lower. This explanation of the range of house rents applies, strictly speaking, only to the selling price, or capital value, of the building and improvements. The rental is compounded of a return on this investment and of premium for the ad- vantage of the site, namely, economic rent proper. The first of these items, interest on capital, is affected by causes very different from those that govern prices and wages. The rate of interest may be high where money wages are low, and low where wages are high. In fact, however, the variations in the rate of interest among civilized countries are not so great that we have here an important qualification of our conclu- Wages amd Prices 77 sions as to the causes acting on the price of house-room. Dif- ferences in the cost of building will affect this part of the rental much more than differences in the rate of interest. As to economic rent, the case is simpler: this return may be expected to vary pari passu with money incomes. To apply the familiar theorem, rent is the result of price, and not among the causes of price. Where the general range of wages and of incomes is high, the amount that will be paid for an advantageous or indispensable site will be correspond- ingly high. Hence, looking at all the elements of the case, we are prepared to learn that the rents of tenements in New York City are high. The investment in them is heavy. Their brick work is done by highly paid artisans, with little use of labor-saving machinery. A crowded population, with a high range of money incomes, causes economic rent to rise to portentous heights. In smaller cities and in the suburbs of most larger cities, on the other hand, modest wooden houses for artisans are cheap. Economic rent enters little, and the cost of building is comparatively low. Similar reasoning can be applied to the rental of business structures. The modem steel-frame office building in the United States probably costs less per unit of available space than similar buildings in Europe. The brick or stone busi- ness structure of the older type probably costs more. The total rental is a compound of interest and economic rent, the latter exercising a preponderant influence on those sites where there is demand for the enormous amount of floor space pro- vided in the huge office building. Ordinary pick-and-shovel work costs more in the United States: sewer-digging, street-making, the grading of a rail- way. Wages are higher, and, man for man, no more is ac- complished or little more. It is, indeed, often said that the efficiency of common labor is greater in the countries of higher wages: the laborer, getting more food, can do more work. There is doubtless truth in the assertion, when com- Y8 Free Trade, the Tariff and Beciprocity parison is made between the wages and the output of laborers in starvation countries, like British India, and the wages and output of countries where life is less cheap. But I have always been doubtful as to the sweeping applicability of this sort of reasoning. The rice-fed Chinaman or Japanese seems to do as much in a day as the beefy Englishman ; the frugal Italian as much as the extravagant Irishman. On the whole we may expect the product of ordinary manual labor to cost more (in money) in a country like the United States. No doubt much work that seems to be solely of this kind is af- fected by the degree and extent to which machinery and labor-saving devices are used. The familiar apparatus of sewer-construction in the United States is vastly superior to anything of the sort in common use on the continent of Europe. The same is true of the railway contractor's outfit. So far as the American engineer and contractor can secure by such means greater results, the high money wages do not entail high expenses and high prices. Railway freight rates are on the whole lower in the United States. That they should be lower or as low, notwithstand- ing the higher wages of all railway employees, is clear proof that the efficiency of railway operation in the United States is greater than in Europe. The lower rates for freight and the greater extension of facilities for long distance traffic go far, again, to explain the comparatively low prices of many commodities — fruits, coal, even brea,d-stuifs and meats. One great cause of the general effectiveness of labor in the United States and of the wide diffusion of material pros- perity has been the extraordinary development of the geo- graphical division of labor ; and for this the widely ramifying railway net, and the extent and cheapness of railway service, have been indispensable. Street railway fares, to instance another curious case, are as low or lower in the United States. Even at the lower fares, they commonly yield large profits. The efficiency of labor must be very much greater. Wages and Prices Y9 Retail prices — ttat is, the spread between wholesale and retail prices ■ — present a mixed case. If the operations of the retail dealers in the United States are conducted in the same way as in Europe, the advance of retail prices over wholesale must be greater. Otherwise the earnings of the retail dealer will not be on the same liberal scale as the wages and earnings of the rest of the community. But if the retail dealer's work is done, not in the same way as in Europe, but in a more effective way, he can reap sufficiently high gains with no larger margin of profit. Both situations seem to exist. The large department store in the United States is probably conducted with greater efficiency and with no greater advance of retail over wholesale prices than in Eu- ropean countries ; though the recent rapid growth of this sort of shop-keeping in Europe makes the difference less than it would have been ten or twenty years ago. On the other hand, a great deal of retailing — probably the greater part of the sum total of this sort of work — is still done on a small or modest scale. The grocer, butcher, apothecary, must usu- ally be near his customer. This means that the operations are scattered and are conducted on no large scale. In such case the advance of retail prices over wholesale — the retail- er's " profit " — is greater in the United States. Hence it may happen that an article whose wholesale price is lower in the United States and which is exported from the United States to Europe, may yet be dearer here to the retail pur- chaser. Expense of transporting the great staples across the ocean has been reduced to a very narrow margin, and the slight difference caused by this in wholesale prices may be more than balanced by the greater advance of retailer's prices in the country of higher money incomes. Butcher's meat may cost the consumer more in the United States, even though dressed beef be sent by the shipload across the Atlantic. Persons of the well-to-do classes find the expenses of living 80 Free Trade, the Tariff and BeciprocUy higher in the United States than in Europe; and to their mind there is no question that prices here are higher, and higher in proportion to the higher range of money incomes. The explanation is partly that much of their expenditure is for personal services; partly that another large fraction of it is for those articles, imported and other, which are really high in price; partly that a higher scale of comfort and luxury has been established by prevalent prosperity. The items that are most conspicuously dear in the United States and cheap in Europe are the various kinds of service — do- mestics, cabs, hotels. Where the range of wages is high, these things are expensive. Wages for domestic service are particularly high in the United States, because the spirit of democracy makes the occupation distasteful. Again, the ex- penditure of prosperous Americans at home is directed in large degree to the less hackneyed and less common articles — to the hand-made things rather than the machine-made things. The hand-made things are dear in a country where money wages are high. Clothing made to order is dear, though ready-made clothing is by no means dear in the same degree. Factory-made furniture is cheap ; custom-made fur- niture is extremely dear. Cab fares are high ; street railway fares are low. Imported articles of course would be no higher in price than abroad, or very little higher, were they admitted duty free. Being subjected to heavy duties, they also are expensive. It is probable that the most effective part of our protective system is now directed against the articles made in larger proportion by hand with the tool, and in less proportion by power with machinery. These are the things most likely to be imported into the United States, and most enhanced in price by the protective duties. These are often, though by no means always, the commodities bought by the well-to-do ; and thus there is ground for saying that the social effects of the protective system here are less objectionable than in countries that levy duties on the staples of life. 'Wages and Prices 81 In stun, it can be said that the United States, though a country of high wages, is not a country of high prices for the great mass of the community. It is so in large degree for the rich and well-to-do. True, the artisans and working- men and farmers have a high scale of living, for they have plenty to spend; but the domestic articles they buy are on the whole not dear. They are not dear, because the effective- ness of labor in making them is not less than that of labor in making the exported articles. Imported articles which are duty free, like tea and coffee, are as cheap (barring cost of carriage) as in foreign countries; and here also the Ameri- can gets the full benefit of his higher money wages. So far as the protected articles are concerned, his advantage is simply thrown away. What has been said of the United States, the typical coun- try of high money wages, applies mutatis mutandis to coun- tries of low wages. In a country of low money wages do- mestic prices may or may not be low. Such a country is usually, though not necessarily, one with an all-around ineffi- ciency of labor. Those articles as to which its labor is least inefficient, and which are transportable or for other reasons salable abroad, will be exported. Though they may be turned out by ineffective labor, they can yet be sold at the interna- tional price because the money expenses of production are low. Domestic commodities — namely, such as are not ex- ported or imported — will be comparatively low or high in price, according as labor in producing them is effective or ineffective. The wages of servants and other like expenses of the well-to-do are sure to be low. Our next inquiry is, what causes high money wages ? The answer in brief is that those countries have high money wages whose labor is effective in producing exported com- modities, and whose exported commodities command a good price in the world's markets. The general range of money 82 Free Trade, the Tariff and Reciprocity incomes depends fundamentally on the conditions of inter- national trade, and on those conditions only. The range of domestic prices then follows : it is high so far as the output of labor in domestic commodities is small, low so far as the output of labor in domestic commodities is great. The situation is simplest in the case — difficult to find in the real world, but instructive for illustration of the prin- ciple — of a country having a monopoly of a given article of export or set of exported articles. By monopoly, of course, is here meant not that the producers within the country fail to compete among themselves, but that the producers of no other country compete with them. The price of such ex- ported articles will depend, in the manner with which the reader may be supposed familiar, on the equation of interna- tional demand. The more the consumers in other countries care for them, the higher will their prices be pushed. The less the labor with which these articles are produced at home, the higher will be the money wages resulting from these high prices. The higher money wages in the exporting industries will set the standard for money wages in the country at large ; but the general high wages may or may not be accom- panied, as already explained, by high domestic prices. Where a country exports in competition with other coun- tries — the well-nigh universal case — the same forces are at work. The prices at which the exports are sold depend on the world demand for the commodity. In that world de- mand, or, to speak more carefully, interplay of demand, the extent to which the consumers in the several countries care for the articles imported into them determines which coun- tries shall sell their exports on advantageous terms. Those countries whose exports are in most urgent demand will have the greatest possibility of high money incomes. Whether that possibility will be realized — whether they will have high incomes, in fact — depends on the labor cost of their exports. The wheat which is exported by the United States Wages and Prices 83 and by Kussia sells at the same price; but that price means large money returns in the country of machinery, efficient labor, and cheap internal transportation, and low money re- turns in the country which lacks these advantages. In the language of Mill,^ " What a country's imports cost to her is a function of two variables : the quantity of her own commodi- ties which she gives for them, and the cost of those commodi- ties. Of these, the last alone depends on the efficiency of her labor: the first depends on the law of international values; that is, on the intensity and extensibility of the foreign de- mand for her commodities, compared with her demand for foreign commodities." Where a country produces and exports specie — gold, let us say — the case may seem to be different ; yet a little con- sideration will show that the forces at work are the same as in countries producing other articles of export. A gold min- ing country may or may not have a high level of domestic prices. Gold is indeed a commodity which always is readily taken by foreign countries. The demand for it is sometimes said to he limitless; more carefully stated, it is constant. All the gold produced will be taken, and will be distributed over the world among virtually all the trading countries, at rates of payment which will be very slightly modified by any annual or decennial increase in the quantity sent out from the mining countries. If now the gold is produced, and produced freely, with little labor — if it is cheap in that essential sense — the mining country will have high money incomes. Such was the case in California and Australia during the first days of the gold discoveries. Prices of all things were high in those days ; for in commodities at large labor was by no means productive. In a country where gold, though mined, is not produced under advantageous condi- tions_ — where the mines are poor or mining methods at a low stage — money wages will not be high ; and the gold will 2 Mill, Principles of Political Economy, Book HI, chap, xviii., § 9. 84 Free Trade, the Tariff and Beciprocity not be mined at all unless it yields as large money incomes as other possible articles of export. In the case of a gold mining country we may note a quali- fication which indeed should be borne in mind for all coun- tries and for aU commodities: it is to be assumed that the exporting industry does not partake of the character of a monopoly within the country. In the placer mining days of California amd Australia any laborer with a pan and a stock of provisions could join in the hunt for gold, and high money wages were a matter of course. When more elaborate mining set in, high wages still continued, so long as the mining capi- talists competed among each other for laborers. But if some of the mines were highly productive and others much less so, the productivity of labor at the margin of mining would fix the range of money wages. There might be advantageous production and heavy exportation of specie, without a high range of wages, if the exports came predominantly from the better mines. And if the mines were all owned and operated by one person or organization, the greatest richness and pro- ductiveness need not result in high wages. All the treasures of Potosi, however little labor they cost the wretched native, never could bring him high returns, even in money. And similarly, if all the exporting industries of the United States were under such control as are the production and refining of petroleum, then the general range of money wages, however great the productiveness of labor and however strong the foreign demand for the articles, would not necessarily be high, and certainly would be less high than under conditions of unrratrained competition.^ s The foundation for all such discuBsion as this was laid by Rieardo, whose genius nowhere shone so brilliantly as in his illumination of the theory of foreign trade. But Rieardo, so far as I know, referred only to general prices as being subject to variation between different countries. Senior seems first to have laid it down explicitly that the range of money incomes depends on the conditions of foreign trade (Lectures on the Cost of Ohtammg Money, 1830, pp. 13-16). Mill spoke sometimes of high prices, sometimes of high incomes, as the result of favorable Wages and Prices 85 There is an important sense in whicli it is true that a country whose position in international trade is advantageous has not only high money incomes, hut high prices as well. In the preceding pages, domestic prices have been said to be high or low, if the prices of given commodities are higher or lower than the prices of the same commodities in other countries. Thus the price of a wagon may be spoken of as high or low in the United States if it is higher or lower than the price of the same sort of wagon in Europe. Similarly, railway and street railway fares and house rents may be reckoned low if they cost less money than similar things in Europe. But we may compare wagons and fares and rents, not with European rates, but with the prices of the same things at a different time and under different conditions in the United States. So considered, it is obvious that they are likely to vary with wages and money incomes. They will probably rise as money wages rise, and fall as money wages fall. If we suppose, for example, that the conditions of interna- tional demand change to the advantage of a given country, that its exports sell on better terms, and that money incomes in the exporting industries rise, we may expect that the same rise in money incomes will spread to other industries. This conditions of foreign trade, and did not pause in his exposition to con- sider the relation of money incomes and domestic prices. Cairnes fol- lowed Senior, though using different language, when he said that a country was interested in having " cheap gold " ; by which he clearly meant, though he did not say it in so many words, high money incomes — , i. e., much gold for little labor. Cairnes also noted that " cheap gold " did not necessarily mean high prices of domestic commodities. See his Leading Prmdples, Part III, chap v., § 1. In Bastable's Theory of International Trade, 4th edition, p. 71, there is a brief paragraph indicating that this able thinker had reflected on the com- plex relations of money incomes and prices. Professor Edgeworth's articles on International Trade in the Economic Journal, vol. iv., take up quite different aspects of the theory. I have found nothing in the writings of French or German economists to show that such topics had engaged their attention at all. 86 Free Trade, the Tarijf and Reciprocity will necessitate in those other industries a rise in prices. In the exporting industries the higher wages will be the result of higher prices; but in other industries higher prices will be as much a result as a cause of higher wages. The process of adjustment and enhancement will probably be slow and uneven, and will take time. In an immobile country, where custom and tradition have a strong hold on prices and wages, it may take a generation. Even in a mobile modem country, it will take years. But domestic prices will be higher in the end than they would otherwise have been. This, no doubt, is the sense which the older economists really had in mind when they set forth that a country having favorable terms of inter- national trade would possess high prices. But their mode of stating the case might be easily understood to mean that domestic prices in such a country were higher than prices of the same things in other countries, which is a different propo- sition, and, as we have seen, a doubtful one. Further, it is not certain that under the conditions thus assumed domestic prices will rise at all. Pari passu with the rise of money wages due to the country's better position in international trade, there may be improvements in the arts or the opening of new resources, which will reduce doimestic prices or prevent them from rising. Given this force in operation on domestic prices at the same time with a turn in international trade causing money incomes to rise, and the parallel movement of wages and prices will be broken. Such was the general trend — rising wages and falling prices — through the last thirty years of the nineteenth century; it may prove to be again the trend before the close of the present century. The experience of ithe United States during the last quar- ter of the nineteenth century serves to illustrate the principles just stated, precisely as the general range of our domestic prices has served to illustrate the relation between interna- tional trade and domestic prices. A striking phenomenon in Wages alancing of losses and gains. It would be necessary to consider the v oung-industrie s argument, which used to be the mainstay of the protectionist, and now is pooh-poohed by their op- ponents, but seems to me still to point to some possibilities of ultimate gain. Again, there are political and social argu- ments as to the avoidance of extremes and of undue fluctua- tions in industry. Eew economists nowadays would say that there is one good tariff policy, and one only, applicable to all countries and all conditions. But few economists would say a good word for such an exaggerated protectionist policy, one so intolerant of foreign competition and foreign supply, as the United States followed in the McBanley tariff of 1890, in the Dingley tariff of 1897, and in the Payne-Aldrich tariff of 1909. When duties of fifty, eighty, and one hundred per cent come to be looked upon as normal protectionist rates; when ingenious devices 148 Free Trade, the Tariff and Reciprocity and " jokers " are resorted to in order to bring about sucb high rates without its being made plain that this is the thing really aimed at and accomplished; when by the log-rolling process the policy comes to be applied indiscriminately to any and every article, without scrutiny of the possibility of ulti- mate cheapening or the promise of social or political gain — then it is time to call a halt, and to begin a process of thorough overhauling. This is the point of view not only of the teachers and trained students of economics, but, I feel sure, of the immense majority of cool-headed and sensible people in this country. Adam Smith — an ardent though by no means unqualified free-trader — thought in 1776 that the adoption of a free- trade policy by Great Britain was quite beyond the bounds of possibility. Had Adam Smith lived to see what changes took place in the course of the century following, he would probably have said in 1876 that free trade would never be abandoned by any country which had once adopted it. Who would venture on a prediction now ? It is among the possi- bilities that Great Britain herself vnll turn again to some sort of restrictive trade policy. I would not undertake to fore- tell whether free trade will be abandoned in Great Britain, or protection in the United States. But the outlook is certainly for a moderation of extreme protectionist policies. The various nations which have stirred each other to measures of commercial warfare — and the United States has been most aggressively guilty in this regard — seem to be wearying of a game which each can play with effect against the other. The indications are for some sort of compromise all around; an illogical proceeding, perhaps, but a very human one. In this moderated course of action the United States is likely to join; and all sorts of persons, whatever their opin- ions (or lack of opinions) as to the goal ultimately to be reached, will think and vote i n favor of prunin g; a protegtin-n- 1 at system which has^fegfiDme^ so rigidly an d intolera,n tly__re- strictive as ours. VIII AN mOUIRY ON THE COSTS OF WOOL AND OF WOOLENS ^ The Tariff Board Eeport on Wool and Woolens fills four volumes, 1200 pages in all. It contains a mass of valuable information. Even those who have followed the previous literature on the suhject, official and unofficial, cannot fail to find here new and helpful material. Whatever be the serv- iceability of the report toward settling legislation, its useful- ness to the honest-minded inquirer cannot be doubted. The matter of the report divides itself into two parts, one on wool, the other on the manufactures of wool. The former of these is distinctly more satisfactory than the latter. The passages on wool are well arranged, well put together, well indexed, well summarized. Those on woolens have much more the appearance of being thrown together with some haste, and it is not easy to make out what the results finally come to. The less satisfactory character of the report as regards woolens is probably due to haste in preparation. It was long obvious that the Administration desired to present to Congress a specimen of the kind of work which the Tariff Board was doing. There was pressure to have at least one important report ready early in the session of Congress, and the Board doubtless was called upon to show its hand before it was ready. In the report on wool, as in all of the inquiries of the 'i^ American Economic Review, June, 1912. The reader should bear in mind that the Tariff Board whose work is here discussed is that which was established by President Taft in 1910 and was abolished in 1912. It is not the Tariff Commission created by Congress in 1916. 149 150 Free Trade, the Tariff and Beciprocity Tariff Board, costs of production in the United States and in foreign countries figxire largely. The theory on which the Board was set to work has been that " scientific " tariff revi- sion should rest upon ascertained differences between cost in the United States and in foreign countries. An investigation of this sort, however, in the case of commodities of the ex- tractive group, is beset by difficulties, obvious enough to the economist. Costs vary according to the nature of the sources of supply. Some localities have advantages over others, some produce more cheaply than others. Which cost shall be taken as decisive or representative, the highest or lowest ? In the case of wool this difficulty is increased by further compli- cations. Wool is a joint product with mutton, and wool and mutton together are often joint products of general farming. How disentangle a separate cost of wool ? The mode in which the Tariff Board has grappled with the problem is instructive ; and it seems to me to have been well chosen. " Cost " of wool is reckoned by first ascertaining the total flock cost — that is, the expenses directly incurred by the farmer for his sheep in the way of food, care, shelter. The Tariff Board has wisely disregarded the land in reckon- ing this cost. In the statements presented at hearings before congressional committees, interest on the value of the land is usually reckoned, not only with regard to wool but with regard to wheat and other staples, as part of the cost of pro- duction of agricultural produce. Whether or not influenced by considerations of economic theory, the Tariff Board has thrown out this item, without stopping to consider niceties about the significance of rent on land. The direct cost alone is considered. !From this direct cost there are deducted all receipts from other sources than wool; that is, mainly the mutton receipts. The difference is then taken to represent the separate cost of the wool.^ 2 The reader interested in economic theory may compare the procedure with that suggested by Professor Marshall in his " Principles of Eco- nomics," bk. V, ch. 6, section 4, note 2 (p. 388, sixth ed.). An Inquiry on the Costs of Wool and of Woolens 151 Tlie cost of wool thus ascertained shows extraordinary di- vergences in different parts of the United States. Three great regions are distinguished and for these the following general results are stated : Number Cost of sheep of wool 1. The region of general farming, extending from the Missouri River eastward over almost the whole of the country 10,000,000 nil 2. The territory or range region 35,000,000 11 cents 3. Ohio region 5,000,000 19 " These figures of "cost," as the Board emphasizes, are of a very rough sort, indicating the general situation in the several regions. They are averages. Within each region there are great differences. Even if these he neglected, the general figures indicate how extraordinarily diverse are the condi- tions in different parts of the country. In the first region, that of " general farming," the con- clusion that the cost of wool is nil means simply that the direct expenses of farmers on account of their sheep are met usually by the receipts from mutton. Sheep are kept in small numbers on each farm ; their keep costs very little ; they are almost always crossbreds — that is, of the breeds yielding good lamb and mutton. Even what the farmer gets from the mutton is usually so much net gain. Certainly what he gets for the wool cannot be said to cost him anything. In other words, in this region, sheep-raising and wool-growing would be maintained irrespective of any duty upon wool. Abolition of the duty would mean, at the most, that even more attention than at present would be given to the mutton-yield- ing breeds of sheep. In the territory region, where much the largest part of the wool-growing takes place, the situation is different. Within that region there are again greatly varying conditions. The Tariff Board divides it into three sub-regions : a Southwestern 152 Free Trade, the Tariff and Reciprocity district, including Texas, Arizona, New Mexico, and the like ; a California district ; and a JSTorthwestem district, including Idaho, Washington, Oregon, and the rest of the Northwestern states. These three districts, however, can be reduced to two ; the southern part of California is similar to the first of them, the northern to the third. In the first the conditions seem to have much similarity to those in Australia. The climate is mild ; no winter shelter is needed. The meager precipita- tion, which imposes an almost insuperable obstacle to cattle raising, presents none so serious to sheep-growing. The sheep are mostly of merino breed, hardy and easily herded. They are kept chiefly for wool. Cost of production is lower here than in any part of the United States, and very likely as low as in competing foreign countries. In the Northwest, on the other hand, the climatic factors influence both the ex- pense of wool-growing and the character of the flocks. More winter shelter is needed and more harvested crops. There is a tendency to cross-breds, and mutton is looked to for a con- siderable part of the revenue, either directly or by the sale of sheep for fattening in the corn-growing region. Harvested crops are resorted to in considerable degree. Not less important is the circumstance that wherever set- tled agriculture is possible, either froon sufficient local pre- cipitation or through irrigation, farming treads on the heels of wool-growing. This phenomenon, constant in the eco- nomic history of the United States, is now unmistakably to be seen in the West and Northwest. In Texas the number of sheep has declined as the eastern part of the state has been settled by farmers. The same has been the case in those parts of California which have been put under the plow or converted into orchards. It is certain that Washington and Oregon will not long remain important ranching states. Throughout Idaho, Montana, and Wyoming, wherever irriga- tion or dry farming is possible, the flocks of sheep vrill pass away. Only in those regions which because of their limited An Inquiry on the Costs of Wool and of Woolens 153 water supply are necessarily pastoral will ranching maintain itself. And even in these, cattle are likely to be more profit- able than sheep. This general tendency is showing itself in a steadily increasing " cost of production " for sheep and wool ; and it brings it about that within this region itself there are differences in the f acili'ties and profitableness of sheep-raising as great as those in widely separated parts of the United States. Finally, in the third and smallest region of all, we find the highest cost and the most peculiar conditions of produc- tion. In eastern Ohio and in near-lying parts of Pennsyl- vania and West Virginia, and in some parts of Michigan, there is a sort of enclave in which sheep-raising seems to be carried on with an approach to obstinacy. Industrially of little consequence, it has been politically of surprising in- fluence; for it long contributed more than any other section of the country toward the maintenance of wool duties and so of the general protective system. Here large flocks of merino sheep are kept by Ohio farmers on land that is hilly, easily eroded, and not adaptable to the agricultural methods com- mon in the Mississippi Valley. It is true that in some parts of this region the farmers have turned their attention to mutton breeds of sheep and therein have found profit in the same way as other farmers of the central region. But it is not difficult to read between the lines in the Board's noncom- mittal pages that there is some stolid persistence in old prac- tices, perhaps also some insuperable difficulty in the way of using the land otherwise.^ At all events, here we find the 3 1 quote some passages referring to the " Upper Ohio Valley region " : " Some farms produce lambs that are sold fat after feeding them a greater or less time in the fall and winter. A flock managed in this way returns usually a good amount from its lamb sales, so much that the charge against wool is often entirely met. On such a farm the wool is not considered the chief source of income. Much as in England it is a side product — more important, proportionally, than in England ; yet from the fat lambs comes the greater return. It is rare that sheep 164: Free Trade , the Tariff and Beciprocity highest cost of wool, and on that basis the greatest need for protection. Such are the facts stated. "What light now do the results of the whole investigation throw on the expediency of main- taining the duty on wool, or on the rate of duty which should be levied, if one is to be maintained? I confess that the situation seems to be in no sensible degree cleared up for the legislator. So far as the general expediency of the duty on wool is concerned, he must still reach his conclusion upon general principles. If he thinks that there is something precious in the domestic wool supply, and something porten- tous in a considerable increase of imports, he must still be in favor of retaining a considerable duty. If he has any such beliefs as are embodied in the young industries argument — if he thinks a duty should be maintained only if it will lead eventually to supply of the entire domestic consumption by domestic producers, at prices not higher than those in foreign countries — then he must give up once for all any hope of attaining the desired end as regards wool. It is proved to the hilt that the possibility of extending the domestic supply, outside of the region of general farming, is negligible. Sheep farms managed skillfully on this system do not show some profit. The question may be asked, Why, then, do not all of the sheep breeders of the Ohio Valley and Michigan follow this system! The answer is that on hill farms especially it is not easy to grow the corn necessary to factten lambs. Then, the owners of many flocks have not yet learned to adapt their systems of agriculture to this practice; they have long been ac- customed to looking to wool for their chief profit from sheep-breeding " (p. 548). " From the foregoing it seems important for the sheep farmers of the hill regions of Ohio, Pennsylvania, and West Virginia to seek wherever possible to produce fat lambs as an effective means of abating their wool costs. There are, however, certain difficulties, some of them seri- ous, in the way. In much of the region in question the plow is of little use. The hillsides are too steep for cultivation. The land readily erodes, and there is never a siu'plus of corn nor even always a suffi- ciency of hay. Before growers here can adopt new methods they must buy corn, and this often at high prices, and as they are not accustomed to speculation, this would not appeal to them" (p. 550). An Inquiry on the Costs of Wool and of Woolens 155 raising in large herds is certain to become less rather than greater. The retention or increase of the duty may con- ceivably aid in maintaining the supply at its present figure, but it can bring about no considerable increase. All this, however, was known before. The report simply confirms the conclusion already reached by well-informed inquiries.* For myself, everything in the report strengthens the con- viction which I have long held and declared, that there is no good ground for maintaining a duty upon wool. But that conclusion rests upon general reasoning with regard to the working of international trade and of protective duties, which may indeed find illustration in the working of our wool duties, but which is neither reached nor confirmed by all such labored investigation. The strength of the wool duty lies not in economic reasoning, but in the inevitable wish of every industry in every part of the country to get its share of what seem to be the benefits of protection. It is absurd for the wheat-growers to protest against the abolition of a wheat duty which is of no consequence to them. But all the current talk about protection makes them think that they are losing their " share " of the benefits. Even more strongly the wool- growers feel that they are entitled to their " share " of the benefits of protection. Under such circumstances the in- vestigation of the Tariff Board supplies ammunition for either party, but will not enable either to rout the other. Again, supposing that there is to be a duty on wool, what rate shall be imposed? Shall it be a rate sufficient to pro- tect the obstinate grower of merino wool, or the grower of the Southwest, or the waning pastoral industry of the North- west? I know no ground upon which one or the other of these costs of production should be accepted as decisive. Here, as elsewhere, if you give a duty high enough to equal- ize cost of production for the producer having greatest ex- 4 It has been proved, for example, beyond question in the pages of Prof eosor Wright's " Wool Growing and the Tariff." 156 Free Trade, the Tariff and Reciprocity pense, you give more than enough for the one who has less expense. If you give a duty sufficient only for the producer whose expense is least, you reach a free wool basis, and at all events sacrifice some of the producers less advantageously situated. There remains one subject, however, on which the Board's report states less uncertain conclusions — the mode in which a duty upon wool, if levied at all, should be assessed. The Board recommends unqualifiedly that any duty should be reckoned hereafter upon the scoured content of the wool. As every one who has dealt with the subject knows, raw wool varies immensely as regards the impurities which it contains. Some wool loses three-fourths or four-fifths of its weight in scouring and preparation for manufacture. Other wool loses but one-fifth or one-fourth of its weight. The present specific duty (that of the tariff of 1909) of eleven cents a pound upon raw wool necessarily bears more heavily on that which shrinks most in scouring and loses most in manufacture; and it has proved virtually prohibitive of the importation of some grades of wool, especially those which come from the Argen- tine region. This anomaly has long been recognized; the only question has been on the best mode of readjustment. One remedy is to impose the duty upon an ad valorem basis ; the other is to impose it according to the quantity of scoured wool contained in the fleece. Space lacks for entering on a detailed consideration of the merits of these propositions. The scoured basis seems to be not impossible of reasonably ac- curate application, but is open to the objection that, like any specific duty, it bears with greater relative weight on coarse wools than on fine wools. The ad valorem method avoids this difficulty, but is open to objections of its own. Under- valuation is always tempted and is always hard to control; and a duty by value tends to exaggerate the fluctuations in domestic market prices. Yet it is to be said that both these difficulties become less in proportion as the ad valorem rate An Inquiry on the Costs of Wool and of Woolens 157 is lower; they would be serious with a rate as high as 50 per cent (roughly the equivalent of the present duty), but neg- ligible with one of 10 per cent. The Tariff Board's recom- mendation of the second method — a duty on scoured basis — bears every evidence of having been reached after careful and unbiased consideration. Either method would be better than the present. But there is only one plan which gets rid of the objections — the good and simple plan of admitting wool free once for all. With regard to woolens the situation is in one important respect essentially different. Here there would seem to be no inherent difficulty in making com.parisons of cost produc- tion. Manufacturing industries are not necessarily carried on under conditions of varying cost. Is it not possible to ascertain with reasonable accuracy the difference between cost of production of woolens within the country and without the country ? To this suggestion it has often been answered that we find in manufactures differences of cost no less great than in the extractive industries. Cost is not uniform within a country, any more than it is uniform between countries. Some estab- lishments in the United States produce more cheaply than others ; we encounter here, as with regard to wool, the diffi- culty of ascertaining which among varying costs of produc- tion is to be decisive in regulating tariff rates. The diffi- culty seems to me not insuperable ; yet the method by which it might be most successfully met has not been followed, at least with any consistency, in the Tariff Board's report. To remove it, resort must be made to something like Professor Marshall's device of the " representative firm," Though there be differences in facilities between different establish- ments in the United States, it is not unreasonable to disre- gard those managed with unusual ability and also those neg- ligible because backward or still in the early and experimen- 158 Free Trade, the Tariff and BeciprocUy tal stage. The device calls, no doubt, for some artificializa- tion of the data : the construction of an imaginary establish- ment, not perhaps corresponding precisely to any specific business, yet fairly to be regarded as indicative of the normal conditions of the trade. The Tariff Board, however, has not chosen to adopt any method of this kind. Its pages are full of detailed statements of cost, chiefly for establishments in the United States, but for some establishments in Euro- pean countries also. Yet these inquiries seem never to be brought to a form in which direct and complete comparison is possible, or in which clear-cut results are stated. Possibly this may be due to the fact, already referred to, that the pub- lication of the Board's report was called for before its work had been carried to the final stages. Possibly it may be due to a hesitancy on the Board's part in presenting anything but specific, concrete facts. No doubt there would have been severe criticism of hypothetical or generalized figures, ^o doubt, also, such figures could indicate only the general trend of the differences between countries. But approximate solu- tions on matters of this kind are the only ones obtainable. I cannot but believe that legislation on the lines expected from the Tariff Board's report would have been facilitated by statements which, though representative and therefore ap- proximate, were in simple and summary form. At all events the legislator who is endeavoring to apply the cosrt of production theory to the revision of the duties on woolens will find it necessary to do much digging of his own into the voluminous pages of the Tariff Board's report. He will find abundant proof that the duties as they stand now are not fixed on the basis of differences in cost of production with any approach to accuracy. But just what duties would conform to these differences, he will not find it easy to make out. On one important topic, however, a perfectly clear result is reached. It is established beyond question that the compen- An Inquiry on the Costs of Wool and of Woolens 159 sating system is completely out of gear.^ In this result I take some personal satisfaction. I have maintained for years that it has been incorrect and in need of complete over- hauling. Persons like myseK, when making statements of this sort, have been dubbed theorists, ignorant of the actual working of the system. The system itself has been lauded as perfect by those who may be presumed to be most fully con- versant with it. The Board's report, however, makes it clear that the compensating duties much more than compensate. Those who have maintained that, in the guise of compensa- tion for the wool duty, the rates on woolens have been higher than they purported to be, find full support. Those who have endorsed the compensating system as it stands and have pro- tested against even the slightest change in it, surely have followed a mistaken policy. It is inevitable that suspicion should attach to the utterances of persons who have persist- ently contended that things were true which are now proved not to be true. No doubt the fear of the wool-growers and manufacturers that even the slightest change in Schedule K might precipitate the complete collapse of the system, ex- plains their insistence that it was without flaw. None the less, in view of the present unanswerable demonstration that the system needs thorough overhauling, their attitude must be judged to have been impolitic. On some other subjects also the Tariff Board reaches con- clusions that are clear-cu't. It establishes the fact that at least in some branches of woolen manufacturing, efficiency 5 That Is, the Bystem followed in almost all the tariff acts enacted since 1861, providing for two distinct duties on woolen goods: first, a " compensating " duty, specific in form, designed merely to offset the effects of the duty on wool in causing the manufacturer to pay higher prices for this raw material; and second, an ad valorem duty, which alone was supposed to yield protection. In the tariff acts of 1894 and 1913 there was of course no compensating (specific) duty, since these acts admitted wool free. I have discussed in detail the history and working of the compensating system in my book on Some Aspects of the Tariff Queation, chapter rr. 160 Free Trade, the Tariff and Reciprocity is low and cost of production is liigli in the American mills. Possibly the deficiencies of the American establishments are exaggerated. As one reads these parts of the document, a suspicion arises of an endeavor to make the case strong in favor of the maintenance of high duties. An obvious and sometimes amusing consequence of the protectionist doctrine about cost of production is that a domestic producer is thought to be entitled to higher protection according as his operations are conducted to greatest disadvantage. If his machinery is not of the best, or his operatives are clumsy, or his mill badly located, his cost of production of course becomes high ; and on that ground he is entitled to ask for higher duties. There are repeated passages in the report dealing with the disadvan- tages of the American woolen manufacturer because of his more expensive machinery or his less efficient labor supply. I do not recall a passage in which attention was called to any advantages. Possibly there are none — not a solitary point of superiority; possibly the American manufacturer operates at higher expense in every direction. Yet, to re- peat, one is led to suspect that his difficulties are exaggerated, or that he has himself exaggerated them in his dealings with the Tariff Board, in order to supply arguments for the main- tenance of existing duties. Certain it is that the description is one which puts weapons in the hands of those who scofF at the cost-of-production prin- ciple. It is repeatedly stated, for example, that the working force in the American mills is ineffective. Operatives in foreign countries are said to be more intelligent, better trained, more steady at their work. The newly arrived immi- grants who throng the American mills are declared to be poor factory hands. The question may fairly be asked. Why, then, induce them to enter this occupation? Is it to the country's advantage that an Italian or a Greek should be brought over here to work for us, at eight or ten dollars a week, when a German or a Frenchman is willing to do the An Inquiry on the Costs of Wool and of Woolens 161 same work for us in his native country at five or six dollars ? Or to put the same sort of question in another form, Would all wages in the United States be higher, and would this really be a prosperous country, if our manufacturing estab- lishments and our agriculture throughout were carried on by ignorant and inefficient workmen, equipped with tools and machines no better than those of foreign countries ? So far as machinery is concerned, the extent to which the* American worsted manufacturers are dependent upon im- ported machinery is surprising. Continued resort to foreign machinery always raises a suspicion of inferiority in techni- cal methods. Machinery is almost sure to be installed better and operated better in the country where it is made. A country which depends upon imported appliances thereby confesses to not being in the van of industrial progress. Such is the ease with the European countries when they import American shoemaking machinery. Such is the case with continental Europe when it imports English machinery for spinning fine cottons. Such seems to be the case in the worsted mills in the United States with regard to the worsted processes. The report states that in our worsted mills, 80 per cent of the machinery used for the processes from scour- ing to the finished yam (not goods), is imported. The fig- ures are even more striking with some particular kinds of machinery. The so-called French combs (the continental system) are imported without a single exception; so are the worsted spinning machines and some of the drawing frames. Of the Bradford frames 90 per cent are imported. There is a striking difference between these figures and those for other kinds of machinery. Of the looms, over three-fourths are of domestic make, not of foreign make. It is an interesting feature of industrial development in the United States that weaving machinery has always been made chiefly by Ameri- can machine builders, and apparently has been worked by the textile manufacturers themselves to better advantage. In 162 Free Trade, the Tariff and Reciprocity all the textile industries — cottons and silks even more strik- ingly than woolens — looms are chiefly of American make; and they are at least as good as foreign looms, often better. Practically all the carding machines used in the wool manu- facture are also domestic ; so are the spinning machines used for carded wool. To repeat, it is in the characteristic branches of the worsted industry as distinguished from the woolen industry, that the dependence upon foreign machinery- is most striking; and most is also said of the inferiority of the operatives in the worsted mills. Precisely the same quesition of principle presents itself here as with regard to the cost of production of wool. Are disadvantages of the American manufacturer a reason for supporting him with high duties, or are they a reason for regretting thait he has been supported by duties at all ? The answer cannot be given by the most labored investigation. It raises a fundamental question about which the legislator has to make up his mind by reasoning which the data of the Tariff Board may illustrate, but on which they can prove nothing. That question is the fundamental one between protection and free trade. But what immediately concerns the country is the much simpler controversy between more protection and less; between the present tariff (that of 1909) with all its extremes and a pruned and moderated system. Even pro- tectionists admit that duties should not be more than suffices to offset differences in cost; even free-traders admit that re- gard must be had to the vested interests of those who have been encouraged to embark in industries that labor under dis- advantages. Hence it is not inconsistent to admit the value of the Tariff Board's work, even though rejecting the prin- ciple of " scientific " revision which led to the Board's estal>- lishment. Possibly this report might have promoted revision with better effect if more time had been allowed for prepara- tion; perhaps also if more courage had been shown in sum- marizing and emphasizing the results. But none the less it does promote a much needed readjustment. IX HOW TAEIFFS SHOULD NOT BE MADE ^ In the course of inquiries on the legislative history of the Tariff Act of 1909, I encountered some episodes character- istic of the tariff-making methods which have long been fol- lowed in the United States. These episodes will be described in the present paper. The changes in duty which resulted were not of great consequence. Most of them affected arti- cles that are petty in comparison with the important and much debated articles. But the cases were typical and in- structive. Concrete exanaples show better than any general statement what has been our practice in the past, and what are the reasons for substituting a procedure more open, more deliberate, more closely scanned. During the session of 1908-09 the committees of the House and Senate followed different policies in preparing the tariff bills for the respective legislative bodies. The House com- mittee on Ways and Means held many hearings and printed every document submitted to it. The Senate committee of Finance held no hearings and published nothing. No doubt the hearings before the House committee were often unprofit- able, and usually were extremely wearisome to the committee members. They gave occasion, too, for much political fenC' ing. None the less, a great mass of material useful for un- derstanding the tariff situation was submitted, and was printed in the eight bulky volumes of Hearings; a set of documents which, it may be added, was indexed and arranged with unusual care. At all events the House committee pro- ceeded openly. Just what happened in the Senate committee 1 American Economio Review, March, 1911. 163 164 Free Trade, the Tariff and Reciprocity nobody kaows. But it is an open secret that individual mem- bers were approaclied by influential persons interested in tbe tariff ; that a mass of typewritten matter was submitted ; and that there was expectation of considerable amendment at the hands of Senate leaders. The main difference between the procedure of the two committees — publicity in the one case, -non-publicity in the other — should be borne in mind when reading what follows. The first episode to which I shall call attention is the change in the duty on structural steel. In the preceding tariff acts (1890, 1894, and 1897) the general trend had been toward a reduction of the duties on iron and steel. The process of reduction was continued in 1909 for most iron and steel products — for iron ore, pig iron, crude steel, steel rails. In the bill as reported by the House committee and as passed by the House, the duty on structural steel had been lowered like the rest. In 1897 it had been 5/lOc. per pound ; the House bill proposed 3/lOc. per pound. In the bill as reported by the Senate committee the proposed duty was 4/lOc. per pound. But there was also a change of phrase- ology. That change is indicated by the qualifying clause italicized below, which was inserted by the Senate com- mittee. "Beams, girders, joists, angles, channels, car-truck channels, T T colunms and posts or parts of sections of columns and posts, deck and bulb beams, and building forms, together with all other struc- tural shapes of iron or steel, not assemhled, or manufactured, or advanced heyond hammering, rolling, or castwCgr:"—— — ■' ' In the act as passed the duty was finally split, being fixed at 3/lOc. per pound on structural steel valued up to 9/lOc., and 4/lOc. per pound valued at over 9/lOc. The important change, however, was not in the figures, but in the insertion of the italicized clause. How Tariffs Should Not Be Made 165 The effect of the italicized clause does not appear upon the surface. 'No special provision was made anywhere in the act for structural steel that is " assembled or manufactured or advanced." When the change first came to my attention, I hunted through the measure to find what was to be the duty on fabricated structural steel. (Fabricated is the trade name for structural steel that is assembled or manufactured or ad- vanced.) Apparently it would have to come under the drag- net clause, "manufactures of iron and steel not otherwise provided for." An inquiry addressed to Treasury officials immediately after the passage of the act brought a somewhat hesitating response, to the effect that it was supposed the fabricated steel would in fact be dutiable under that clause, at 45 per cent ad valorem. This was the outcome — un- questionably had in view when the qualifying clause was in- 'serted. The duty has not been lowered, but raised. The general policy followed in the act with regard to iron and steel manufactures had in this case been reversed. During the hearings before the House committee no one advocated an increase in the duty on structural steel. The steel manufacturers in their general arguments before the committee expressed themselves, though not with great in- sistence, against reductions of duty ; but they proposed no ad- vance. Only one statement, to be noted presently, was made with specific reference to structural steel, and that was in favor of a reduction. There is not the slightest indication of what happened in the Senate committee, or what reasons were advanced in favor of the substantial increase in duty which was there provided for.^ Having satisfied myself by inquiry sent to the Treasury officials that the duty had in fact gone up, I endeavored to ascertain what the change meant. But letters addressed to 2 The Senate committee's amendment was accepted in the Senate itself without explanation or debate. Congressional Record, April 22, 1909, p. 1468. 166 Free Trade, the Tariff and Beciprocity various persons in the trade brought vague and sometimes contradictory answers.^ One of them, engaged in the manu- facture of fabricated structural steel, stated that the impor- tation of fabricated shapes was unlikely under any circum- stances, except possibly from Canada. The European mak- ers, he said, were not used to our engineering designs, and would not be likely to undertake orders for the United States. But another, also engaged in the manufacture, said that in times past there had been a considerable importation of fabri- cated steel, and that fabricated shapes alone were likely to be imported. The customs statistics showed that in some pre- vious years there had been considerable importations ; and, if the second statement was accurate, the shapes imported were in the fabricated class. Still another informant, a building contractor, informed me that fabricated shapes could be made anywhere to design and could be carried to any desired spot, whether New York, Texas, South Africa, o^ India; they could be put together without difficulty by the engineers on the spot. And still another started that, although there was not in ordinary times much likelihood of importation of either fabricated or unfabricated shapes on our eastern seaboard, yet there was such a possibility at occasional times of unusu- ally heavy demand; and that even under normal conditions cheap ocean rates made possible an importation from Europe to such places as Galveston and Puget Sound. And finally one of my acquaintances, much experienced in this sort of business, stated his impression that the rearranged duty was in some way connected with a " deal " between the United States Steel Corporation and the German StaJilwerksverhand, by which a division of the market had been arranged. It is 3 1 am not at liberty to give the names of my correspondents. The same is the case with regard to most of those with whom I communi- cated regarding the other changes of duty mentioned elsewhere in the present article. But I am able to vouch for the good faith of the per- sons who have given information, and am confident that their state- ments of facts are accurate. How Tariffs Should Not Be Made 167 conceivable that the higher duty might clinch such a compact, by preventing the foreigners once for all from trespassing on the Steel Corporation's domestic preserve. It is conceivable also that here is an explanation of the failure of importers to protest against the advance. The change, being proposed in the Senate bill, which was printed and widely distributed, could not fail to have come to the notice of persons interested ; yet no opposition seems to have been made. I was referred by a trade journal to a New York dealer who was said to be a representative of the German steel exporters and so to be in a position to throw light on the situation. But an inquiry addressed to this person brought a courteous answer in very vague terms, telling only of things easily ascertained by any one conversant with the Custom House statistics, and giving no significant information whatever. This was the end of my inquiries. Nothing definite was brought to light concerning the origin and the effect of this increase of duty. I suspect that, though in ordinary times there is no likelihood of an importation of fabricated steel, there is a chance of importation during rush times and at outlying districts ; that the competition is not welcome to the domestic makers and particularly the Steel Corporation ; and that the change in duty was quietly arranged in order to pre- vent this sporadic competition. A compact between the Steel Corporation and its foreign potential competitor is entirely within the bounds of possibility. It may be that a little light is shed on the situation by the single statement made on this subject before the House committee and referred to a mo- ment ago. A domestic purchaser of structural steel thus pre- sented the ease to the House committee : * "It is a well-known fact to all in the manufacturing of finished lines of the iron and steel business that outside of the United States Steel Corporation, and perhaps three or four others, there are no makers of the class of materials we use, excepting the item * Hearings hefore the Committee on Ways amd Means, II., 1526, 168 Free Trade ^ the Tariff ami Reciprocity of plates. With but few exceptions all of the makers of this class of raw material do fabricating, i. e., putting it together in the shape of bridges, girders, columns, and what is designated gen- erally as fabricated work, although perhaps their aggregate tonnage in the fabricating line itself would not amount to more than one- third of the total fabricating output of the country. At preseirt, however, with the high prices they are enabled to maintain on the material before it is fabricated, these makers are given undue ad- vantage over those fabricators who are not makers of the material, but to whom they sell, and can make much lower prices on fabri- cated work, and are doing so to-day and virtually controlling the price on this class of work, the reason being that the tariff, now so excessive, enables them to make a good profit on the material as first rolled into the shapes mentioned above, so that they can afford, if necessary, virtually to throw in the fabricating for little or nothing." The next case was of an article much less important, but again a characteristic case. A change was made in the duty on cotton gloves. Under the Dingley Act (of 1897) these had come in at a duty of 45 per cent — the dragnet clause on manufactures of cotton n. o. p.^ The House bill had left the duty unchanged. The bill as reported by the Senate committee to the Senate still left the duty unchanged. But in the course of action by the Senate Committee of the Whole, a new clause was inserted; the cheaper cotton gloves were to be dutiable not at the simple ad valorem rate, but at a compound rate, partly specific and partly ad valorem. In the act as passed, the Senate provision was substantially main- tained. Gloves having a value of $6.00 or less a dozen pairs, were made to pay a duty of fifty cents per dozen plus 40 per cent ad valorem. If valued at over $6.00 a dozen, the duty remained ad valorem vsdthout any supplement of specific duty, but the rate went up to 50 per cent. It is obvious that a change made through action by the Senate itself attracts less attention than one made by its Committee on Finance. The bill as prepared by the Com- 5 " Not otherwise provided for." How Tariffs Shoidd Not Be Made 169 mittee is printed, and is sent to every senator and indeed to every one interested. Changes there proposed readily at- tract the attention of the persons concerned. But changes made by the Senate itself are carried out in the wearisome Routine of the amendments, with little attention and usually with no debate. Once embodied in the bill as passed by the Senate, they can be changed only in Conference Committee — always a difficult task. On the surface there is nothing to show what will be the effect of a change of this sort. It may or may not be of substantial importance, the effect depending on the character and value of the goods used. On cheap gloves, the insertion of the additional specific duty would bring a great advance. Thus on gloves valued at one dollar a dozen the old rate was 45 per cent, that is, forty-five cents; the new rate was fifty cents plus 40 per cent, or ninety cents in all. The duty was doubled, and became 90 per cent on the value. On dearer gloves, the specific duty would be proportionally less weighty. In fact, it was the cheaper grade of gloves which proved to be affected. Inquiry among persons conversant with the trade showed that the cheaper gloves worth at wholesale one dollar a dozen or thereabouts, were imported largely from Germany, and used for the most part by policemen, marines, and militia, for dress occasions ; bought principally by public officials. The duty was inserted in the Senate through the activity of a person well known in the trade. He had got the ear of a New England senator, a member of the Finance Committee, who had secured for his protege the increase of duty. An importer wrote me as follows: "For years we have bought men's and boys' cheap cotton gloves wholesale from $1.12i^ to $1.25, from Germany, but on account of the extra special duty of 50c. per dozen, it has been absolutely im- possible to continue buyiag these goods abroad. . , . We have been obliged to place our orders with Mr. . He is a member of the firm of , who are making a very cheap domestic glove and 170 Free Trade, the Tariff and Reciprocity reaping the direct benefits of tte tariff -whicli Mr. was in- strumental in placing on these goods. He was in our store last Saturday, soliciting more business and states that he has received some very large contracts from the TJ. S. Army. One of his orders for this spring was for over 200,000 pairs. So that not only the public but the TJ. S. government is contributing to his support through the new tariff." One of the details deserves notice. In the bill as passed by the Senate and as sent to the Conference Committee, the new rates had been made applicable to " cotton gloves " in general. But private protests to the Senator in charge did secure a modification. The language was amended, in con- ference, by the insertion of the words "men's and boys'." Hence gloves for women in the end came in at the old rate of 45 per cent. The Senator was able to allow this concession since it did not affect the plans of his protege. Now there may be good grounds of public policy for mak- ing sure that men's white cotton gloves are made at home and not imported. It may be thought humiliating for this great country that our soldiers should wear on dress occasions cheap cotton gloves made by cheap German labor; it may even be thought that their martial spirit would be enfeebled. For myself, I am able to face the possibility vsdthout a shock to my feelings of patriotism. But it seems tolerably clear that the moving force in bringing about the new duty was not the semi-military consideration, but pressure from the interested Mr. . If changes in duty such as this are to be m.ade, should they not be deliberately reported and publicly con- sidered ? ® The third case is that of nippers and pliers. These also had formerly been subject to a dragnet duty, as manufac- tures of iron and steel, at 45 per cent. The bill, as it came 8 The amendment for the increase of this duty was offered at an even- ing session, as coming from the Finance Committee, and was accepted after a very few words of debate. Congressional Record, June 7, 1909, pp. 2914-2915. How Tariffs Should Not Be Made 171 from tlie House Committee on Ways and Means and as passed by the House, made no change. As submitted to the Senate by the Senate Finance Committee, it still proposed no change. But in the course of action by the Senate itself a consider- able rearrangement was made. Again there was substituted a compound duty, partly specific and partly ad valorem. Nippers and pliers were to be subject to a duty of ten cents per pound plus 40 per cent. In the act as passed the Senate amendment was virtually incorporated : the duty became eight cents per pound plus 40 per cent. Once more I made inquiries of persons in the trade, and was informed that the duty was put in at the request of a Utica manufacturing concern. That concern had presented a statement to the House committee, which was duly printed in the Hearings; '' but its request for an increase of duty was not granted in the House bill. In the Senate a well-known official, not a senator, but high in the administrative hier- archy, stood sponsor for the change. The persons who pro- tested at the last minute against the increase of duty were informed that it really was of little consequence what they might say or present. So long as this statesman was insist- ent in urging the increased duty, it would remain. And re- main it did. I was shown copies of some typewritten state- ments presented by the Utica concern to the Senate Finance Committee. They were obviously of the sort that are pre- pared pro forma; a medley of crude figures about cost of production, exaggerated statements about the dreadful low wages in Germany, and the like, which would not stand a moment's searching analysis ; such stuff as is familiar in state- ments made before tariff committees. All this obviously was, to repeat, pro forma. The moving impulse towards the higher duty was the influence of the friendly statesman, and figures and arguments for the duty had as little real influence as figures and arguments against. 7 Hearmga, III, 2782. 172 Free Trade, the Tariff and Reciprocity NoWj as to the effect. Like all compound duties (partly specific and partly ad valorem), it bore most heavily on the cheaper classes of goods. On small nippers and pliers, light in weight, the specific duty of eight cents per pound was in- significant ; these continued to be imported. The larger sizes, used for wire fencing and the like, were subject to a much higher duty, and the importation of these declined. The domestic manufacturers took a larger proportion of the busi- ness. My chief informant stated, however, that the Utica concern, originally the party mainly interested, soon found competition from other manufacturers, and that the business was distributed among various domestic producers.* He wrote also: " The Utica concern is very progressive and aggressive and I be- lieve that even if no change had been made in the schedule they would nevertheless have continued to get more and more of the trade in pliers and nippers, thereby reducing the sale of imported goods. . . . The increase in the duty has of course helped them very materially, but my opinion is that in the long run they would have accomplished the same purpose, although possibly with less profit." Somewhat different was another case, that of razors. Here there was public presentation of petitions to the House com- mittee; and some advances of duty were proposed in the House bill. In the Senate a still further increase of duty was proposed, and the Senate rates in the main were enacted. The course of events is indicated in the following tabulated statement, which also indicates how complex was the system of rates. As in many other of the schedules that reached very high rates, there was a double complication. Goods were classed according to value, the duty shifting abruptly 8 In the statement submitted by the Utica Company to the House Committee, it is said (Bearings, 2782) : "We are the only plant in the coimtry making no other product except nippers and pliers." A list is given of other firms " who make pliers as a side line." How Tariffs Should Not Be Made 1T3 as a given point of value (say $1.50 a dozen for razors) was reached. Further, the duty was compound — so much per dozen and in addition an ad valorem rate. It will be ob- DUTIES ON RAZORS 1897-1909 Act of 1897 Value up to $1.50 doz. duty 50c. dozen plus 15%. Value $1.50 @ $3.00 duty $1.00 dozen plus 15%. Value over $3.00 duty $1.75 dozen plus 20%. Duties proposed in 1909 House bill Value up to $1.50 doz. duty 50c. dozen plus 30%. Value $1.50® $3.00 duty $1.00 dozen plus 30%. Value over $3.00 duty $1.75 dozen plus 30%. Senate bill Value under $1.00 doz. duty 45%. Value $1.00 doz. duty 6c. each plus 40%. $1.50 Value $1.50® $2.00 doz. duty 10c. each plus 40%. Value over $2.00 duty 12c. each plus 50%. Act of 1909 Value under doz. duty 35% $1.00 Value $1.00 doz. duty 5c. each plus 35%. $1.50 Value $1.50 @ $2.00 doz. duty 10c. each plus 35%. Value $2.00 ® $3.00 doz. duty 12c. each plus 35%. $3.00 Value over doz. duty 15c. each plus 35%. served that the Senate changed the House figures in such manner as to disguise somewhat the increase of duty. The specific rate on the cheapest razors had been in the House bill 50c. a dozen. The Senate made it 6c. each, or 72c. a dozen. On the medium grade razors the House specific rate had been $1.00 a dozen; the Senate made it 10c. each, or $1.20 a dozen. On the highest class of razors the House specific rate had been $1.T5 a dozen ; the act finally made it 15c. each, or $1.80 a dozen. In the act as passed the Senate rates were in the main retained, but with the ad valorem duty fixed in all cases at 35 per cent. The reader will see for him- self how the specific duties were reairanged in the various stages of the bill. The net outcome was a very substantial increase. In this case there was not a little discussion. As already 174 Free Trade, the Tariff and Reciprocity mentioned, the request for a higher duty was presented to the House committee and duly recorded.^ In the Senate there was an active debate. It was to be expected, and gives no occasion for special criticism, that those who advocated an increase should put the case on the unqualified protectionist grounds. But there were some curious misstatements and misconceptions. The reader who searches'in the columns of the Congressional Record for items regarding the economic development of the United States will find here accounts of astounding industrial reverses.^" It would appear that a decade ago there were sixty or seventy razor factories in the United States, and that this flourishing industry had been virtually wiped out by foreign competition; the number of factories had been reduced to five! But I learn from pri- vate sources that the cataclysm was not really so violent. Some of the domestic manufacturers, in conversation with a senator active in the debate on this subject had informed him that a decade ago there were " six or seven " razor factories in the United States, and that the number had fallen to five ! The distinguished senator had understood them to say " sixty- seven," and had so stated on the floor of the Senate. -^^ Hav- ing made the statement in public, he did not wish to modify it in so sweeping a way as would have been necessary to re- duce sixty-seven to six or seven. Accordingly the statement remained, was repeated by other senators, and is permanently recorded in the files of the Congressional Record. It may happen that in coming centuries some research student of economic history will turn to these pages as " original " sources of information and vidll find here unmistakable con- temporary testimony of the extraordinary mutations of in- dustry in the United States at the beginning of the twentieth century. » Eearings, 2161. 10 The debate is recorded in the Congressional Record, Senate Pro- ceedings, May 15, 17, 18, 1909. 11 Congressional Record, 2165, 2180, 2221. How Tariffs Should Not Be Made 175 In its strictly economic aspect, the razor situation is in many respects curious. Some sorts of razors we export — the world-known safeties. It is obvious that, in order to ex- port, we must be able to produce them more cheaply than can foreigners. Other sorts of razors, especially the finer grades of " old-style " razors, we import in the face of high duties. Evidently the old-style razors are produced more cheaply in foreign countries. Most of them had come from England in earlier days; but of late England has been displaced by Germany. It was the dreadful Germans and their deadly cheap wages that were chiefly referred to in the Senate de- bates. These cross-currents in the importations and exportations of razors are in line with similar cross-currents as to other sorts of hardware. In general, we export rather than import finished iron and steel goods. We export builders' hardware (hinges, locks, door knobs), machinery and machine tools, locomotives, agricultural implements, and the like. On the other hand, we import many pocket-knives (though in recent years more and more pocket-knives, especially of medium grades, have been manufactured in this country), and a mis- cellaneous assortment of anchors, chains, tools, machines. The explanation of these apparently anomalous juxtaposi- tions of imports and exports, is that things made by machin- ery are likely to be made in this country and even to be ex- ported, whereas those made by artisan hand labor are likely to be imported. When it comes to turning out by machinery, on a large scale, great quantities of goods of a standard pat- tern, we need not fear foreign rivals. For this sort of thing, we have, in the language of the economists, a comparative ad- vantage. ^Notwithstanding higher wages, we can turn out the product as cheaply as the European rival, even more cheaply. But when it comes to articles made by hand labor, the Euro- pean who gets his labor at a cheaper rate can undersell us. This sort of reasoning had seemed applicable in explanation 176 Free Trade, the Tariff and Iteciprocity of the continued importation of old-style razors. I still be- lieve that in general the explanation is a good one. It ac- counts in the main for these peculiarities in our international trade ; it explains why some articles are imported, and others, apparently like them, are not imported, and even are ex- ported. But on inquiry of persons engaged both in the im- portation and in the manufacture of razors, I find that the facts do not fit into the reasoning, so far as this particular article is concerned. It appears that in former times ra- zors came chiefly from England. There they were made by skilled artisans, and in the main by hand labor. The Shef- field grinder put the edge on each individual blade by hand, on varying sizes of small stones. But of late razors have come more and more from Germany, and my informant writes as follows: In this particular industry the Germans have decidedly taken a leaf out of our book. While we have been struggling along, trying to make razors under the old English methods (with a few — but very few — modern appliances), they have gone ahead and com- paratively revolutionized the methods; introduced new ways for forging the blades, and above all things, invented and put into satisfactory operation grinding machines which have enabled them not only to manufacture razors at a very low cost of production, but to produce a quality and uniformity of goods with which we simply cannot compete. It would seem that the Americans for once have been back- ward. Apparently what the domestic producers of razors really need is not higher duties but greater enterprise and skill. A demand for extreme duties is always suspicious. In this ease, as in so many others on our present tariff list, the combination of specific and ad valorem rates conceals, and at the same time achieves, duties of from 75 to 100 per cent. Where the domestic producers ask for so great a handicap on their foreign competitors, the presiimption is How Tariffs Should Not Be Made 171 against them. Either they are trying to do work for which our resources and our ways are not fitted, or else (as seems here to be the case) they are not abreast of progress in their own industry. Eetuming now to such cases as were first considered — structural steel, cotton gloves, nippers and pliers — we have two questions to consider. The first relates to the expe- diency of the advances in duty; the second to the methods by which the advances were brought about. On the first question, the answer must turn chiefly on one's opinions regarding the advantages or disadvantages of protective duties. The convinced protectionist will believe that the domestic production of these several articles is de- sirable in itself. Whatever duties are necessary in order to " acquire " a new industry are justified. And on the question of legislative methods also, one's atti- tude toward the fundamental question affects the answer. The protectionist will be likely to say: this is simply the way of the world, or at least the way of the United States. Our legislative methods are in every direction unsystematic and irresponsible. Tariff bills are inevitably dealt with as are river and harbor bills and general appropriation bills. The only way in which a desired result can be brought about has been through the influence of individual legislators and in the traditional ways. We cannot escape log rolling, pri- vate interviews with influential politicians, settlement of de- tails in quiet committee meetings. The opponent of protection, on the other hand, will smell corruption. Probably he is mistaken in this score. The legislators have a pecuniary stake in the rarest of cases. The only sort of " corruption " that plays any considerable part is that of contributions to party chests ; and the persons who make such contributions, as well as those who receive 178 Free Trade, the Tariff wnd Beciprocity them, may maintain in good faith that the funds are used in the promotion of a policy believed to be sound not only by J;hemselves but by the majority of the voters. None the less, and quite apart from any charges of cor- ruption, there seems now to be a conviction that our legis- lative methods should be changed so far as the tariff is con- cerned. Whatever may have been the methods inevitable in the past, a more open and deliberate procedure should be followed in the future. It may be a question how far the reaction against protectionism which seemed to show itself in the elections which were held after the passage of the tariff act of 1909, stands for a permanent change in the public's attitude. Very possibly it is only a blind revolt, holding the party in power responsible for high prices, de- pression in business, and all other things unwelcome. But there is a general belief that the country should know more about the details of tariff legislation, and should know about them in advance. If increases of duty are to be made, let them be made openly, and let the reasons be stated. If a domestic producer is to be helped by a handicap on foreign competitors, let it be made clear from the start just what is to be done for him and just what a given tariff provision means. Let there be no more jokers. Further, there is a strong conviction that inquiry should be made and publicity should be secured through some agency other than the House and Senate committees. These have an extraordinary multiplicity of details to consider. They are so wearied by prolonged and repea,ted hearings, crowded into a few weeks, that it is impossible for them to give serious attention to all the matters presented. It is not to be wondered at that the Senate committee refused to have public sessions. The House committee, which had much more time for preparation, was almost swamped by its hear- ings. The Senate committee, which of necessity had less tjme, naturally felt that it would be swamped once for all. How Tariffs Should Not Be Made 179 But this situation, perhaps making star chamber procedure inevitable, gives opportunity for covert changes, for concealed pressure from private interests, for irresponsible legislation. Hence the demand for some permanent body, equipped to make investigation, and to make a judicial report on the sig- nificance of proposed changes. Such cases as have been con- sidered in the preceding pages show how tariffs should not be made. X THE PROPOSAL FOE A TAEIFF COMMISSION ^ The proposal for the establisliment of a permanent tariff board or commission is regarded in many quarters as show- ing the way to a solution of the tariff question. There is much to be said for it. But there are serious difficulties and limitations, and above all troublesome questions about the character and make-up of the proposed board, and the course of action to be followed in improving our general political organization. The first thing that needs to be borne in mind is that no tariff commission can settle policies. No administrative body of any kind can decide for the country whether it is to adopt protection or free trade, to apply more of protection or less, to enact a system of purely fiscal duties or " a tariff for revenue with incidental protection." Such questions of principle must be settled by Congress — that is, by the voters. It is further to be borne in mind that the advocacy of a " scientific " settlement of the tariff does not carry us far. There are no scientific laws applicable to economic problems in the same way as the laws of physics are applicable to engi- 1 North American Review, February, 1916. — This article is reprinted with no change of substance, and must be read with regard to the time of publication. Later in the year 1916 (October), Congress passed the act establishing the United States Tariff Commission. In the deter- mination of its functions, the second of the plans described in the text was followed: the Commission was made an independent board, with powers of investigation only and with no administrative functions. My experience on the Commission has not led me to modify the opinions expressed in this article. Useful though the independent investigating Commission is for research and report, there is occasion for reorganiza- tion and consolidation of the various boards and sub-departments now concerned with customs matters. 180 The Proposal for a Tariff Commission 181 « neering problems. If we extend the term " science " to eco- nomics, we must remember that it can refer in this subject only to certain generalizations and to a body of useful in- formation, not to a system of clear-cut principles or laws. Some of the economic generalizations are well established; others are of a very tentative and provisional sort. I believe some things are established concerning the working of pro tective duties; but there is no such a consensus of opinion on the subject as to give us a body of principles applicable at once in legislation, or such as to enable us to decide at once on a method of procedure. For example, it is often maintained, not only in the United States, but in other countries as well, that the " scientific " solution of the tariff question is that of the equalization of competition or the equalization of costs of production. The underlying idea is that such duties shall ., be. imposed as will equalize the difference between cost of ^ production within a country and a lower cost of production in foreign countries. J^ow, I do not myself believe that this is a scientific or a commendable basis for the levying of pro- tective duties. Consistently carried out, it amounts to say- ing that all industries are equally worth having; that when differences in cost are great, duties should be correspondingly high; that every industry, no matter how ill adapted to a country's natural resources or its industrial qualities, should have the equalizing protection ; that we should never stop to consider what are the directions in which we can apply a country's labor and capital to best advantage. The equaliz- ing proposal is perhaps a convenient and workable way of dealing with a protective system which is established and to which important industries have adjusted themselves. Quite conceivably Congress might adopt such a principle, and re- quest a tariff commission to frame a bill based upon it. But it cannot, in my judgment, be said to rest upon any estab- lished economic principle, or to be scientific in any accurate sense of the term. 182 Free Trade, the Tariff and Beciprocity One other preliminary remark may be made. Much is said at the present juncture about the importance of a tariff commission in order to put the country in a state of indus- trial " preparedness." The war, it is said, must necessarily come to a close before very long, and then new conditions of international competition will have to be faced. Should we not have a careful and elaborate inquiry as to the best way of facing the coming situation ? On this matter also I doubt whether a tariff commission can help us much. Ko one, not the ablest set of men, even though provided with any amount of money for engaging " experts," can possibly learn what sort of industrial conditions will have to be faced when the war comes to an end. We could not go to European countries for the purpose of investigation, or send agents to European countries, for the obvious reason that the respective govern- ments would not allow us to peer into their affairs. Even if we could send agents and get all possible information con- cerning existing conditions, no prediction could be made con- cerning the course of development after peace. And if all these difficulties could be overcome, there would remain yet a further difficulty in the way of getting " prepared." The elaboration of a tariff bill at the hands of a commission is necessarily a slow process. The experience of the defunct Tariff Board of 1910-12 indicates what must necessar- ily happen. That Commission was composed of able men, and it had large resources. It conducted excellent investi- gations and made valuable contributions to the understand- ing of some phases of the tariff. But it needed a couple of years to carry on its investigations, and even then was com- pelled to send in reports before the investigations were com- pleted, because of political pressure to induce it to make some sort of early showing. If a tariff commission had the task of preparing a complete bill on all the complicated schedules, involving the vast range of our industries, it would The Proposal for a Tariff Cormmssion 183 be quite imable to report or recommend anything until a considerable period had elapsed. No; the commission pro- ject must be judged, not with reference to any immediate emergency, real or supposed, but with reference to its value as a permanent policy. Incidentally, I venture to express my opinion that the?e is exaggeration in the talk about necessity of preparedness for the coming conditions of peace. 'No doubt there will be a jar, a shock, when the war comes to a close. But it is not likely to be at all so great as that which came at the outbreak of the war. Then there was a crash from a clear sky. !N"ow, everybody knows that the change is certain to come, and everybody is more or less on the lookout for it. It is in the highest degree improbable that the end of the war will cause an industrial crisis in any country at all compar- able to that of the midsummer of 1914 ; and least of all in the United States. ISTo doubt, there will be a period of readjust- ment, of uncertainty, very possibly of depression; then a gradual settling down to the new conditions. And as this gradual settlement takes place, it ie by no means clear that any far-reaching change in international trade will be ex- perienced. Certainly, so far as imports of manufactured articles into the United States are concerned, there is no probability that they will be greatly swelled. European in- dustry is much more likely to be weakened than to be strengthened by the fearful strain of the war, and for some years in the future is less likely to be a formidable compet- itor than before. Undoubtedly, there will be varying con- ditions in different industries; but I see no indications of a portentous outpouring of exports. Whether the great strug- gle will eventually have far-reaching consequences upon the commercial relations between nations, it would be hazardous now to predict. But any long drawn out and slowly de- veloping consequences of this kind can have no bearing upon 184 Free Trade, the Tariff and Reciprocity the immediate tarifP problem confronting the United States. To repeat, the tariff commission project should be considered without regard to the war contingencies. Nevertheless, there is much to be said in favor of a per- manent tariff commission or organization of some sort. Even though it could not solve the tariff question on a " scientific " basis, or take the tariff out of politics, or evolve a scientific tariff, or put the country in a state of preparedness, it could render important services. The main thing on which a body of this kind could be helpful is in the more careful preparation of tariff legisla- tion. It could aid in the accurate, honest, and consistent carrying out of whatever policy Congress — that is, the party to which the voters had given control of legislation — might ^ wish to carry out. Every one knows that the traditional ways of framing tar- iff legislation have been in the highest degree haphazard. There has been rough and ready settlement by the Congres- sional committees, influenced in a general way by the Ad- ministration in office. The House Ways and IVIeans Com- mittee has framed its bill; the House of Representatives it- self has then amended its committee bill. The Senate Fi- nance Committee has made more or less hash of the House bill, and the Senate itself has made more or less hash of its own committee bill. Then the Conference Committee of the two Houses gets together. That Conference Committee, al- ways under pressure because of short time, holding its ses- sions in secret, dominated by a few individuals, influenced I more or less by advice or pressure from the White House, haa evolved the final tariff bill. And, if there was to be any tar- iff legislation whatever, this Conference Committee bill had to be passed once for all in the shape in which it came from the committee. All of the bodies concerned — the House Committee of Ways and Means, the Senate Finance Committee, the Con- The Proposal for a Tariff Commission 185 / ference Committee, the President and the Secretary of the Treasury and the officials of the Treasury Department — have had a flood of statements and representations and sta- , tistics poured in on them. They have been veritably ! swamped by the mass of interested testimony. The legis- lative committees have had clerks or experts, selected hur-"^ riedly and put to work hurriedly — often selected because I some one had a pull and wanted to get a job. Even the most j conscientious chairmen and members of the committee could / not possibly make themselves informed about the meaning/ of all the figures and classifications and specific duties andl ad valorem duties. Influential persons could " flx " legislaH tion and work " jokers " in, and eventually bring into ef-j feet provisions which could not be said to be intended lojl Congress or by any one except an occasional conniving mem-'j her of Congress. Our tariffs have been settled in ignorant] and irresponsible fashion. Of this we have become pain-j fully aware, and it is natural that we should look for some sort of a remedy. ■^ A permanent tariff commission, it may well be argued, could be, and would be, of much service. It could ascertain just what a given duty meant, just what sort of arrangement and classiflcation was expedient, whether a particular phrase- ology entailed consequences not at all obvious on the surface. If composed of really able and experienced men, its recom- mendations would have weight. ISTo one supposes that Con- gress would adopt them as a matter of course. They must always be in line with the general system of industrial policy, — toward protection or toward free trade, toward raising duties or reducing them — which the political conditions de- termined. They would necessarily be subject to change by Congress. But they would probably have a strong backing from public opinion; they would enable high-minded and conscientious members of Congress (and these constitute the majority) to ascertain the exact situatiou and to support care- 186 Free Trade j the Tariff and Reciprocity ful legislation. A commission might greatly improve tlie situation. There is another aspect of the proposal to which little attention has been given in current discussion, and which is of the first importance. What hind of a commission shall we try to set up ? Shall it be an entirely independent body, like the Interstate Commerce Commission or the Federal Trade Commission, quite separate from the ordinary admin- istrative agencies of the Government ? Shall it be concerned primarily with industrial investigations, and shall it give advice chiefly on questions of industrial policy? A commis- sion quite independent, and giving attention chiefly to mat- ters of policy, is most commonly advocated. And yet there are serious difficulties in the way of such a plan. In the first place, the very existence of a permanent tariff commission whose main purpose would be to recommend tariff legislation to Congress, would be a constant incentive to change. The only excuse for the continued maintenance of such a commission would be that the tariff needed con- tinual readjustment. The commission itself would feel bound to justify its usefulness by unremitting investigation, and it would necessarily have to make repeated recommenda- tions to Congress. But one of the things borne in on every thoughtful observer of tariff changes, whether an economist by profession or an experienced man of affairs, is that inces- sant changes in tariff legislation are bad. Better a low tar- iff once for all or a high tariff once for all, than constant shifting or incessant suggestion of shifts. The industries of a country can adapt themselves to almost any tariff sys- tem if only that system be settled and maintained. More- over, one among the few general principles or " scientific " statements which the economist can authoritatively lay down is that such benefits as accrue from a system of free trade are secured only if that system is maintained for a long time; and, on the other hand, that such gains as are obtain- The Proposal for a. Tariff Commission, 187 able from protective duties (by protection to young indus- tries, for example) are secured only if the protective duties are maintained for a long time. A permanent tariff commis- sion wbose function it was to make repeated reports and rec- ommendations would tend to constant modification, constant change, constant unsettlement. Hence if we are to have a commission whose duty it shall be to shape the tariff or solve questions of policy, I am in- clined to think well of some such plan as that of the Tariff Board of 1910-12. Let its duty be to miake inquiries, to secure a body of accurate information, to make recom- mendations for a given situation. Let it be avowedly for an immediate purpose: to serve Congress and the committees in framing a particular piece of legislation. Such was the case also with the Tariff Commission of 1882. The recom- mendations of that Commission, it is true, were by no means followed in their details when Congress passed the Tariff Act of 1883. JSTevertheless, the tariff of 1883 was a better piece of legislation because of the recommendations of the Commission than it would have been without them. It is not too much to expect that even greater weight would be given to the recommendations of a similar commission in the fu- ture, and that it would serve even more to make a tariff act careful, well-balanced, consistent. It is conceivable, however, that we should have a commis- sion whose duties should be not solely those of report and recommendation on general policy, but which should have to do largely with the settlement of current administrative questions'. This is precisely the situation with the Inter- state Commerce Commission and the Federal Trade Commis- sion. They have stated duties in connection with the ad- ministration of legislation. These, indeed, are their chief duties. The Interstate Commerce Commission is a sort of court. Its chief business is to decide specific matters at issue between the shippers and the railways. The new Federal 188 Free Trade, the Tariff and Bedprocity Trade Conunission is given jurisdiction of a similar kind. Both have, in addition, the power and duty to make investi- gation and report. But it is not incumbent upon them to be mainly or continuously on the lookout for changes in legislation. They are chiefly concerned with the administra- tion and improvement of the existing situation, and they recommend legislation so far as their experience enforces upon them the desirability of changes consistent with the general spirit and policy of the legislation already in force. Now there are administrative questions in connection with the tariff which are constantly calling for solution, and which at the same time bring to light the need of changes in legis- lation. There are vexing questions of classification under the tariff — whether a particular piece of machinery should be classed as a manufacture of wood or a manufacture of iron, whether the chief component material of a fabric is wool or silk. There are questions on the methods of appraisal of duties. Inquiries must be made in foreign countries relating to the values upon which ad valorem duties shall be assessed. Strictly legal questions of interpretation arise, which now go to the Court of Customs Appeals. Statistics must be com- piled and intelligently presented. Tor all these matters we now have dispersed and compli- cated arrangements. We have the Board of General Ap- praisers, which is a sort of court for deciding on the ap- praisement of merchandise. The Assistant Secretary of the Treasury in charge of customs instructs collectors on the classification of customs ; and the Customs Divisions of the Treasury Department have similar duties for the routine cases. There are special agents of the Treasury who go abroad and make investigations and reports. Consuls and consular agents abroad make similar investigations. The Bureau of Domestic and Foreign Commerce in the Depart- ment of Commerce has a staff of commercial agents who make reports concerning the development of American trade The Proposal for a Tariff Cormnission 189 in foreign countries. On the other hand, the newly es- tablished Federal Trade Commission is making inquiries of its own concerning the possible development of foreign trade. A number of agencies are working upon various phases of the same general problem. There is thus a large body of more or less scattered in- formation which would be useful to Congress. And notwith- standing this multiplicity of agencies, there remains informa- tion which a committee of Congress would wish to have and which can not now be had, or, at all events, is not readily accessible. A single body, having the duty of collating and coordinating the available information, and equipped to se- cure such further information as might be desired, could render important service. Eurther, it is at least possible that such a body should be given administrative functions or some powers of supervision and coordination, and should thus be of service not only to Congress but to the executive departments also. There are two possible ways of gathering and coordinat- ing the desired information. It might be done by a purely executive board or sub-department; say, a bureau consisting of permanent officials in the Treasury Department or in the Department of Commerce. Something of the sort exists in the Bureau of Foreign and Domestic Commerce recently established in the Department of Commerce. Under this arrangement the information would be given to Congress not by an independent tariff board, but by permanent officials regularly serving in the executive departments. The alterna- tive is that of an independent board having no direct ad- ministrative duties and no close affiliation with any existing department, but serving as a sort of clearing house and or- ganizer, and responsible to Congress alone. On general principles there is much in favor of the first plan. It would seem, indeed, that the very object for which the various officials in the different departments exist is not 190 Free Trade j the Tariff and Bedprocity simply the administration of existing laws but the considera- tion and suggestion of improvements in them. Unfortu- nately, the traditions of American political life present se- rious obstacles to the assignment of such functions to the department officials. The higher administrative appoint- ments in all departments are regarded as political. With every Administration the personnel changes. Not only the members of the Cabinet, but all the responsible and vyell-paid officials are shifted vsdth every political overturn. That this is a serious evil, and one that grows more serious with the increasing complexity of legislative problems, is recognized by every intelligent observer. The great bane of American politics is the absence of good permanent positions. The good positions are not permanent, and the permanent posi- tions are not good. It is only the minor posts, whose salaries are not large enough to constitute political plums, that are left to permanent officials. And yet these obscure permanent officials, because often they alone are experienced and well- informed, have great influence in shaping current adminis- trative practice and the details of legislation as well. It has been said with truth that the Government of the United States is run by $1,500 clerks. We have sore need in our public service of a body of able, well-paid, permanent offi- cials, whose positions shall not be affected by party changes, who shall not simply follow in mechanical fashion the prece- dents of their offices as they have found them, who shall be able to give intelligent advice as well as useful information. JSTevertheless, it will be urged, and with much force, that under the existing traditions of our political life the only way to secure a permanent, dignified, able, non-partisan body is through the establishment of an independent board. A board composed of administrative officials would necessarily be subordinate to the heads of the several Cabinet depart- ments, and would be supposed to be under their political in- fluence. To have the desired non-partisan and impartial The Proposal for a Tariff Commission 191 character, it is said that a tariff board must be composed of new appointees ■ — independent persons, and men of larger caliber than can now be expected as sub-officials in the de- partments. One's attitude on a problem of this sort is neces- sarily influenced by one's general expectations and hopes on political matters. Will there never be in our Federal serv- ice a permanent body of officials, experts in their subjects, not changing with every Administration? Will public service never offer a professional career to men of large ability? Will all the good places in the departments always remain within the spoils system ? I can understand that, in view of the rooted habits of the present and the past, it may be con- cluded that permanent expert service on the tariff can be got only by the establishment of a separate commission. I hope for myself that we shall learn to make our regular admin- istrative machinery better, that we shall improve the existing system step by step instead of getting round it step by step. But it is easy to understand the attitude of those who believe existing traditions and ways, even though admittedly bad, to be so strongly intrenched as to make it hopeless to attack them directly. The essential thing is that we should have a permanent and really non-partisan set of officials whose first duty should be to assist Congress in the intelligent and careful framing of tariff legislation. Its main function should not be to give advice to Congress upon qtiestions of policy, or to undertake investigations which rest upon the assumption that some particular policy is to be carried out. It has been proposed, for example, to establish a tariff commission whose most con- spicuous duty should be to ascertain the difference between cost of production in the United States and cost of produc- tion in foreign countries; the assumption being that this is the basis upon which tariff legislation ought to be constructed. It is tolerably certain that a tariff commission which pro- ceeded on a basis of this sort, and whose functions were The Proposal for a Tariff Commission 193 spect of Congress and of the public if carried on by a board which had already established its usefulness and its impartial spirit by routine work more nearly of an administrative sort. The more ambitious and high sounding its duties, the less likely is it to be really successful. Let it be given mainly the function of assisting Congress in the intelligent elabora- tion of whatever policy the country has decided to follow, and make no pretense of removing the determination of pol- icy from the quarter where in the end it necessarily belongs : Congress and the voters. XI TAKIFF PEOBLEMS AFTEK THE WAK ^ This paper, dealing with the tariff problems that will arise in consequence of war disturbances, will he restricted to such as have a direct and close connection with tariff legislation. There is no occasion for considering here those abnormal con- ditions which have only an indirect bearing upon tariff leg- islation — the extraordinary development of the munition- works, or the unusual conditions with regard to the supply of some raw materials, like hides and leather. Many in- dustries for whose products there has been a marked war de- mand will have to face problems of readjustment after the war. But tariff legislation can do little for the war babies. For tariff purposes it is the non-war industries that call for attention — those which have been stimulated by the restric- tion or disappearance of imports. Many articles formerly obtained from abroad have come to be made in the United States. What is to happen to the industries which now pro- vide them ? On what principles shall we proceed in readjust- ing tariff rates on commodities which were imported before the war, and not improbably will be again imported after the war, if tariff duties /emain as they were before ? A kindred queanon, and indeed in many respects the same question, is whether the United States shall in the future aim to be an economically independent country, self-contained and self-suffici|ig. Shall we look forward to a resumption of international trade on substantially the same lines as were 1 Reprinted by permission of the publishers, E. P. Button