fF/7 J J M^ li III! iii:;. lit ii# Cornell University Library HF 1755.S62 A tariff primer .The effects of protectio 3 1924 013 921 246 !i.- ° '^ i" ■ii Questions of the Day.—LXV. \ in m |i A TARIFF PRIMER I y THE EFFECTS OF PROTECTION UPON THE ' I,' :::^.; farivier and laborer li PORTER SHERMAN, M.A. 4>i G. P. PUTNAM'S SONS , '• NEW .y:oR.K , LONDON • ,"■»§• aj WEST TWENTY-THIRD ST. 2/ KING WILLIAM ST., STRAND ^'J^j; 1891 '; ' I Political and Economic Publications. WELLS (David A., LL.D., D.C.L.). Practical Economics. A Series of Essays Respecting Certain of the Recent Economic Ex- periences of the United States. Octavo, pp. vi. -f- 259 . $1 50 "Few writfers are mbre thoroughly studied by economists, or more worthy of study, ind it long ago ceased to be necessary to speak of any thing from his hands as ' valuable ' and ' worthy of attention. ' " — Literary World, Boston. " They present in permanent form a mass of information about the actual wdrking Bf the protective system which nobody but Mr. Wells possesses. "—^N. V, Times. Our Merchant Marine. How it rose, increase^,_becataie great, declined, and decayed ; with an enquiry into fhe conditions essential to its resuscitation and prosperity. Octavo, cloifeT^i 00 "Ought tQ-be studied carefully by all intelligent citizens." — Congre^ tionalisL '■ "Tull to the brim of facts." — Standard, Syracuse. " Canncjt^e brought too prominently before the public." — Argus, Alban^. Why We~ Trade and How We Trade ; or. An Enquiry into the Extent to which the Existing Gommercial and Fiscal Policy of the United States Restricts the Material Prosperity and Development of the Country. Octavo, paper . . . f o 25 "It is a good sign of the times when such pamphlets, by able writers, aire published in cheap form, so as to be accessible to all. " — Baltimore Gazette. TAUSSIG (Prof. F. W.). The Tariff History of the United States — 1789-1888. Comprising the material contained in " Protection to Young Industries " and " History of the Present Tariff," together with revisions and additions needed to complete the narrative. i2mo, cloth $1 25 " At a time when the tariff has come to occupy the forefront among politi- cal questions, we can heartily commend this book to all political enquirers, "t- Post, Washington. "Can be recommended to those wishing to arrive at a comprehensive understanding of the tariff system, as the best work of the A&y."— Boston Times. G. P. PUTNAM'S SONS, New York and London. Questions of the Day^LXV. A TARIFF PRIMER THE EFFECTS OF PROTECTION UPON THE FARMER AND LABORER PORTER SHERMAN, M.A. G. P. PUTNAM'S SONS NEW YORK LONDON 37 WEST TWENTY-THIRD ST. 27 KING WILLIAM ST., STRAND W^t ^nicktrboikct ^uss 1891 Copyright, i8gi BY PORTER SHERMAN, M.A «be «n(cferboeftet iptesa, mew ffiorft Electrotyped, Printed, and Bound by G. P. Putnam's Sons PREFACE. In its effects upon the wealth of the nation, the system called protection can have but one of three possible effects : either it must increase the wealth, or diminish it, or neither. In the third case it would be a matter of indifference. Accordingly, parties divide upon the first two suppositions ■. some holding that protection is a wealth producer ; others, that it is an impoverisher. If any one will, in geometry, go through the steps of a dem- onstration, he must admit the truth of the conclusion, whether he will or not. Such is the nature of mathematics ; such the constitution of the human mind. If any one will take the trouble to master the first principles of protection and allow his intellect, unbiassed by prejudice, passion, and self-interest, to draw its own conclusions, there will be forced upon him the conviction that protec tion-is-an imj)gveriaher andnot awealth^^oducer. The object of this book is to state "briefly and plainly, in common, every-day language, the principles that lie at the bottom of protection, and to point out more in detail its effects upon farmers and those who work for wages. It will be its task specially to refute the pretended arguments of those who hold that the better condition of the workingman in this country, compared with Europe, is to be attributed to protec- tion. It will be shown, not only negatively, that wages do not come out of protection, but positively, where they do come from. Reference has been made to the science of mathematics, to the convictions its demonstrations force upon the mind. But to effect this it is necessary that its elementary principles be first mastered, that the subject be studied consecutively. This is equally true of the science of political economy. Its first iv PREFACE. principles must be understood, to a certain extent at least, be- fore any special topic, as the effects of a protective tariff, for example, can be intelligently discussed. In this the order of study is, first : political economy in general ; second : inter- national trade ; third : protective tariffs. But in most discussions in Congress, on the stump, and in the press, the first two steps are entirely omitted. This has led to endless confusion of thought and to an endless war of words. The object of this book is to supply the first two steps in the discussion in such simple, untechnical language that persons of ordinary information and without special scientific training may clearly grasp the argument. No attempt has been made at originality. The principles and effects of protection have been abundantly set forth by English, French, and German writers. The aim has been to outline in brief the principles lying at the bottom of this sub- ject. Men in the ordinary vocations of life have neither time nor opportunity, if they have inclination, to pursue such studies in detail. Just now when legislation affecting the economic interests of the people is coming more and more to the front, when every ballot cast may, directly or indirectly, take money out of the pocket of one man and put it into the pocket of another, when railroad legislation— state and national, — Chinese exclu- sion laws, contract labor laws, labor legislation, taxation and tariff laws, and laws affecting the rate of interest, etc., are claiming more and more the public attention, the education of the American citizen in political science has seemed to the writer the most pressing need. In the light of the results of the recent elections, we may safely predict that the McKinley bill is not to be the last word upon the subject of tariff reform. Porter Sherman. New York, Nov. ii, 1890. CONTENTS. CHAPTER I. PAGE WHAT is PROTECTION ? WHAT IS FREE TRADE ? FIRST PRINCIPLES r CHAPTER II. SOME FALLACIES ANSWERED 8 CHAPTER III. MONEY AND INTERNATIONAL BALANCE OF TRADE . . I3 CHAPTER IV. PROTECTION AND CENTRALIZATION .... 23, CHAPTER V. TO THE PROTECTIONIST FARMER .... 29^ CHAPTER VI. THE farmer's HOME MARKET 32: CHAPTER VII. farmers' trusts . . • • • • 33 CHAPTER VIII. TO THE PROTECTIONIST WORKINGMAN ... 36 CHAPTER IX. WAGES — FIRST PRINCIPLES .... 39 CHAPTER X. WAGES IN EUROPE 46 CHAPTER XI. CAUSES OF THE DIFFERENT RATES OF WAGES IN THE DIF- FERENT COUNTRIES OF EUROPE .... 50 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/cu31924013921246 A TARIFF PRIMER. CHAPTER I. WHAT IS PROTECTION ? WHAT IS FREE TRADE ? FIRST PRINCIPLES. Nothing is so useful in the discussion of a subject as to know what we are talking about. By reference to first princi- ples let us clear away some of the rubbish which, in the popu- lar thought and expression, too often covers up what is meant by the terms protection and free trade. No one can create any new material. All wealth is produced by the application, directly or indirectly, of labor and capital to land.* Wealth consists of those things which we require to satisfy our needs, such as food, clothing, and shelter. It requires capital to furnish the necessary tools, labor to wield them. The raw materials of all wealth are stored up in the earth. Labor and capital, when left to themselves, will on the aver- age seek the most profitable fields of employment. The re- turns from this industry will be divided among labor, capital, and land in the forms of wages, interest, and rent, according to the principle of supply and demand. 2 A TARIFF PRIMER. The most profitable fields of employment, other things being equal, such as markets, prices, means of transportation, etc., are those in which nature has furnished in greatest abundance easily accessible raw materials. Raw materials consist of lands, mines, forests, etc. The object and effect of protection is to divert industry, labor, and capital into channels, into fields of employment, into which they would not naturally flow if left to themselves. Where labor and capital are in limited supply, as in the United States, protection dams up the more profitable channels of industry, and opens less profitable ones. Its effect is to divert industry from its natural channels, where it produces more wealth out of more abundant and more easily accessible raw materials, into artificial channels, where the same labor and capital produce less wealth — that is, where it requires more industry to produce the same wealth. These principles are unanimously assented to by all scien- tific men, protectionists as well as free-traders. These princi- ples belong to the fundamental definition of protection. Professor Thompson, the leading teacher of protefttionism in the United States, a disciple of Carey, says : " The effect of protection is to divert industry into channels in which it would not naturally flow." (See Lectures at Yale and Harvard.) It is as if a man having two farms, the one of fertile soil, the other of poor soil, should neglect the cultivation of the fertile farm and employ his labor and capital in the cultivation of the poor one, the community making up to him in the increased price of his products for his folly and loss. The WHAT IS PROTECTION? WHAT IS FREE TRADE? 3, product of industry is less under protection than under free trade ; it is an impoverishing process for the community at large. It makes work without pay. Protection and poverty go hand in hand. If the sun were blotted out the dealers in candles and coal-oil might drive a flourishing business, they would be amply protected ; but the community as a whole would be the poorer. If by an earthquake or volcanic eruption the waters of a whole region of country were dried up or rendered unfit for use, the few who might happen to have springs of . good water might put such a price upon it as to become wealthy, but it would be at the expense of all who use water. Such is the effect of protection when we use terms with precision of meaning. What is the effect of free trade ? Case first : Let A and B. represent two farmers. A lives in the valley where the natural advantages for raising wheat are good, where the raw materi- als of wheat are abundant, but where sheep-raising does not pay so well. His farm is on the mountain side, where the natural* advantages for raising sheep are better than in the valley, but where wheat will not grow so well. A will find his interest in raising wheat and in exchanging his surplus for wool. B, with wool, will buy his wheat from A, and both parties will be benefited by the transaction. Paying no attention to protection, free trade, or tariff dis- cussions, these honest farmers pursue the even tenor of their ways. " The loss in trade," or " the drain of specie," has never entered their minds ; they have taken their political economy 4 A TARIFF PRIMER. the natural way, as a common-sense, every-day affair. Of " trade in general " they may never have heard. They do not believe it exists except in the minds of theorists. All trade is an individual trade between two or more persons, and it makes no difference, in principle, whether they live in the same or in different countries ; in either case both parties are enriched. These farmers in our illustration have not studied in the school of Carey or " pig-iron " Kelley ; they have no inveterate prejudice, no inherited superstitions upon this subject ; their minds have developed the natural way. Every man left to himself is a free-trader theoretically. All men, as a matter of fact, are so practically when they come to making a trade themselves. These farmers, accordingly, reject the idea that trade and commerce impoverish a people ; that what one party gains in trade the other must lose. " When a shipload of goods or a train of cars loaded with foreign goods comes into the country, it is an exhauster" in the words of Horace Greeley. Men under the influence of common sense and com- mon observation, and not under the influence of speculative theories, nor swayed by private interests, can never hold such absurdities. These two farmers do not even believe that it is necessary or useful " to keep the money in the country," if it can be exchanged for other forms of wealth more needful ; they hold that when it goes out of a country it is so exchanged. They know that trade has benefited them both. Case second : But the case may occur, and often does occur in practice, in which A has advantages superior to B in raising both wheat and wool, and yet a trade between them WHAT IS PROTECTION? WHAT IS FREE TRADE > 5 may be mutually profitable. It is necessary to emphasize strongly this second case, since it is so generally misunder- stood. B's farm may be so poor that it does not offer so good advantages for sheep-raising as A's farm. What is B to do under these circumstances ? The best he can, like every other man. Let us suppose that A's farm is superior to B's for raising both wheat and wool, but that it has greater natural advantages in the raising of wheat than in the raising of wool. This means, by the* force of the terms employed, that B has less natural disadvantage in the raising of wool than in the raising of wheat ; in which case a mutually profitable trade may spring up between them as before. Let the lengths of the lines below, numbered i, 2, 3, and 4, represent, respectively, A's natural advantages in raising wheat, A's natural advantages in raising wool, B's natural advantages in raising wool, B's natural advantages in raising wheat. It will be readily seen from this diagram why they exchange commodities rather than produce them. Such is the effect of free trade, and such the law of inter- national exchanges. Let us now introduce a third party, C,_ A's neighbor. He wishes to engage in sheep farming, but, by the supposition, the valley does not possess so good advantages for the pro- duction of wool as for the production of wheat. If he engages 6 A TARIFF PRIMER. in sheep farming with the investment of the same amount of labor, capital, and business ability, C will run behind A, who raises wheat and wages no war against nature. A is a free-trader, practically and theoretically. C is a pro- tectionist and has control of the government, which at his sug- gestion puts a tax on every pound of B's wool used by A, or excludes it from A's market altogether. In either case A must pay a higher price for his wool. But is not A protected as well as C ? When C secured the law putting a tax on all wool brought into the valley, he was careful to have a clause put in the bill protecting wheat as well. What could be fairer ? But protection can take effect only on that class of articles used by the people, of which a part is produced in the country and a part imported from abroad, or sought to be imported, and wheat does not belong to this class of articles. By the supposition, the valley has exceptional natural advantages in the production of wheat ; wheat will, therefore, be one of its exports, if it has any. If wheat is not imported but, on the contrary, is exported, this cunningly devised clause in the bill will have -no effect, and the price of A's wheat, whether used at home or abroad, will be fixed in the open unprotected market of the world, where it comes in competition with wheat produced " by the cheap pauper labor of Europe" and the cheaper pauper labor of India. Now let there be a failure of crops in Europe, or a general or long-continued war there, which creates an increased de- mand for bread-stuffs, and A's wheat will rise in price. Every farmer knows this. And knowing this, he knows, if he will WHAT IS PROTECTION ? WHAT IS FREE TRADE? 7 stop to think, that the market in which he sells is interlaced in the unprotected market of the world. The farmer buys in the protected high-priced home market. He sells in the unprotected low-priced foreign market. It is hardly necessary to state that in the above illustrations A represents the American farmer ; B, the foreign manufac- turer ; C, the home manufacturer. CHAPTER II. SOME FALLACIES ANSWERED. We have seen that the effect of protection is to lessen the production of wealth in the aggregate, since it diverts industry from its natural, more profitable channels, where raw materials- are more abundant or more easily accessible, or both, into less profitable artificial channels where raw materials are less, abundant or less accessible. The same amount of industrial exertion must, therefore, result in a smaller production of wealth. Hence to produce the same amount of wealth requires- more labor and capital. Hence it makes work without remu- neration. It is an impoverishing process. And here we are face to face with the fallacy that protection fosters industry. Yes, it does make work. But the ideal life of the civilized man, for which we are all striving, is not physical toil and scarcity, but leisure and abundance, that we may be able to turn our time and attention to higher pursuits ; and civiliza- tion, with its manifold appliances for multiplying the means of living, comfort, and elegance, is lifting us up towards this ideal. The emancipation of the human race from drudgery is, on the whole, rapidly going forward. Protection plants itself squarely across the track of this progressive movement. We do not need industry nor industries. We need goods to satisfy our needs. SOME FALLACIES ANSWERED. 9. And the cheaper we can get them the better. If through exchange, then through exchange rather than through produc- tion directly. Exchange is another method of production. If all wealth is produced by the direct or indirect applica- tion of labor and capital to land, it follows that no part of wealth can be produced by taxation, however cunningly it may be devised. Whether or not taxation is a productive force is not among the unsolved problems of political economy and finance. Here another fallacy is laid bare. The protected manufac- turer finds himself growing rich, and whether or not he knows- it to be at the expense of other people it makes no difference to him ; in practice, he favors " the all-round " theory of pro- tection used with such telling(?) effect by Senator Sherman in his attempted answer to President Cleveland's celebrated tariff-reform message. Protection in a Circle. — The protectionist orators in Con- gress and out distinctly take this ground : that everybody is made the richer by protection. This may be called protection in a circle, or the all-round theory of protection. They pro- pose to protect the farmer, the workingman, the mechanic, as well as the manufacturer. We have already shown that this is impossible. But taking another way, this pretence can be reduced to an absurdity, as follows : Let A, B, C, D, E, F, etc., represent all the different trades and callings in the community — the farmer, the mechanic, the merchant, the professional man, the laborer, the manufacturer, etc. Protection imposes upon all these a tax which amounts to the increase in price of all protected articles bought and JO A TARIFF PRIMER. consumed by them, such as clothing, lumber, iron, glass, sugar, and rice. Let us suppose that in this way A pays for all the protected articles he buys an increase of price amounting to $25 in the aggregate ; that this sum is distributed by way of protection equally among each of the other twenty-five callings represented by the other twenty-five letters of the alphabet, each receiving one dollar's worth of protection from him. Let B be taxed for the same purpose the same amount as A, and let it be distributed in the same way for the same purpose, A receiving one dollar, C one dollar, D one dollar, and each of the different callings in the community one •dollar, until in this way we have gone through the twenty-six letters of the alphabet, which stand for all the different occu- pations in the community ; each one will have paid out for pur- poses of protection $25, and each one will have received back by way of protection to his own industry, $25, and will stand, financially, precisely where he stood before the protectionist ■mill began to grind out its grist of wealth to the community at large. Not quite so. The government will have to be paid by these gentlemen for running the protecting machine. This will cause a rebate of say two per cent., and each will get back by this arrangement ninety-eight cents for every dollar he has paid out. But they have been " protected," feel better, and are happy ! Thus we see that when protection in a circle is ■carried out practically it reduces itself to an absurdity, and is seen to be impossible. The theory that every one can be protected is a delusion and a sham, like many other lying devices of the demagogue. No ! All wealth is produced by labor and capital applied SOME FALLACIES ANSWERED. II directly or indirectly to land. It cannot be created by cun- ningly devised schemes of taxation. Government cannot create wealth. " Stripped of all theory and speculation, just consider what taxation is. We pay taxes, in the first place, to provide for the necessary organization of society, in order that we may act together and not at cross-purposes, like a mob ; but if that were all the government had to do, taxes would be very small. This we need for peace and justice and security. But suppose there were none who had the will to rob, or to swindle, or to cheat, or to do violence and rapine, and all the other vices which disfigure human nature. The expenses under these heads would be reduced to nothing. Taxes are only those evils translated into money and spread over the community. They are so much taken from the strength of the laborer, or the fertility of the soil, or the benefit of the climate. They are loss and waste to almost their entire extent." " This is the function of government, then, which the protec- tionists propose to use to create wealth ; to do what man can do only by applying labor and capital to land. Let us take a case to test it. Let us suppose that no woollen cloth is made in Kansas, but that the Kansas farmer, at the end of a certain time, has ten bushels of wheat, of which one bushel will buy a yard of imported cloth. After the exchange he has one yard of cloth and nine bushels of wheat. If any one could make a yard of cloth in Kansas as easily as he could raise a bushel of wheat, some one would do it as soon as there was unemployed labor and capital, and that would be the end of the matter. But if no one undertakes the business, it must 12 A TARIFF PRIMER. be because labor and capital are all employed, or because it takes more labor and capital to produce a yard of cloth than a bushel of wheat. Let us suppose it would take as much labor and capital as to produce a bushel and a half of wheat. Now, a protectionist proposes to the government to tax imported cloth one half bushel of wheat per yard. The farmer who, as before, has produced ten bushels of wheat, now buys at the new rate, and after the exchange, stands possessed of eight and one half bushels of wheat and one yard of cloth. Whither has the other one half bushel of wheat gone ? It has gone to make up a fund to hire some men to make life in Kansas harder for the farmer than God and nature made it." " From time to time we are told how much our industries have increased ; so far as their increase is in fact due to this arrangement, it is only a proof how much mischief has been done. This application of taxation does not alter the nature of taxation ; it only extends its effects arbitrarily and need- lessly, and inflicts upon the people a greater measure than they need otherwise bear of the burden which is due to rob- bery, injustice, war, famine, and the other social ills." CHAPTER III. MONEY AND INTERNATIONAL BALANCE OF TRADE. " The United States bought last year from Brazil goods of the value of $58,000,000, and all we were able to sell to Brazil was $7,000,000. Great Britain on the other hand, purchased only $4,000,000 worth from that country, and sold $47,000,000 worth. Brazil took from every country in the world with which it has any dealings, except one, more than it gave them. This solitary exception was the United States. The balance of trade against Brazil in her foreign commerce in 1888, was large, but it would have been immensely greater had not the United States gone to the rescue. In the trade with Brazil the United States has been able to sell only about one eighth of the amount which it buys, while Great Britain sells eleven times as much as it buys. Hence the necessity of the Pan- American Congress." The above is from a protectionist paper of recent date. The Yankee used to be considered shrewd at a bargain ; but from the above it seems last year he allowed himself, in the way of trade, to be beaten by the degenerate Portuguese and Spaniards of Brazil. He has evidently lost his cunning. John Bull can beat him in trade now. The Yankee was obliged to pay the Brazilians for his coffee in cash, while John 13 14 A TARIFF PRIMER. Bull had the good sense and shrewdness to pay for his coffee in manufactured goods. Brazil took from every country in the world with which she had any dealings, except one, more than she gave to them. This solitary exception was the United States. This means, she took from every other country in the world with which she had dealings, except one, more products of industry, other than gold and silver, than she gave them. This is a humiliating position for us to occupy. It is high time for a Pan-American congress or some other man to come to our rescue. For this deplorable state of affairs there must be a cause. Why did not England pay for her coffee in cash, and the United States pay for her coffee in manufactured goods ? Did Brazil arbitrarily demand cash from us while she was willing to take manufactured goods from England ? No. Our manufactured goods were dearer than the English goods, and Brazil had the good sense to buy in the cheapest market. But why are our manufactured goods dearer than the English goods ? Because of protection. They are dearer than Eng- lish goods to the exact extent in which protection is effective. Through protective taxes we have cut off our trade with foreign nations and swept away our commercial marine from the seas. Through a system of subsidy taxation it is now proposed to restore our commercial marine and build up trade with for- eign nations ; thus by a double system of taxation to accom- plish what would be better done by leaving commerce to take care of itself. INTERNATIONAL BALANCE OF TRADE. 1 5 But is the case, after all, so bad as the " balance of trade " gentlemen represent ? Last year we bought goods from Brazil to the value of $58,000,000, and sold her goods to the value of only $7,000,000, paying to her in cash $51,000,000. This caused a " drain of specie " to that amount. And the case is frequently put as if this were a dead loss. But for this $51,000,000 in cash, the people received from Brazil coffee and other products. And under the circumstances this $51,000,000 in cash was the cheapest thing with which the United States could buy. This $51,000,000 is the sum of many small individual payments made by consumers of coffee or other Brazilian products. This exchange is made, of course, through middlemen. The Kansas farmer wants a pound of coffee, let us say worth 25 cents, and he has at his disposal 25 cents in money and a peck of wheat. The pro- tective policy has so depressed the price of this wheat, by limiting the market in which the farmer sells wheat, that is, by making it impossible, to a certain extent, for other nations to buy our wheat, because we will not take their products in return, that this peck of wheat is worth but 20 cents, let us say, instead of 25 cents. The farmer, therefore pays for his pound of coffee 25 cents in cash. Is this 25 cents paid for coffee a dead loss to him ? He thinks the pound of coffee worth more to him than the 25 cents in cash, or obviously he would not buy it. And he ought to be allowed to settle this question himself. True he might do without the coffee and save his money. If he could do without any food, drink, clothing, shelter, etc., he might save all his money. The above $51,000,000 is made up of small sums paid by 1 6 A TARIFF PRIMER. individual consumers, as in the above example. Each one of these consumers has parted with what he prizes less highly for what he prizes more highly, and has been enriched by the transaction. In the aggregate, therefore, the nation has been enriched by this trade with Brazil. It has paid for 'its coffee with the articles it could best spare, namely, gold and silver. Gold and silver are products of the United States, as well as wheat. When they go out of the country in the way of trade, we are not " robbed," but enriched thereby. " We cannot be robbed of specie except by an invading army." In every case in which specie goes out of the country in the way of trade, something else comes into the country of more value than the specie itself. The unproductiveness of money was a favorite doctrine of the dark ages. This led to stringent laws against usury. Money is a fixed standard of value and the most important implement of commerce. The mariner's compass, the discovery of the New World, and the new route to the Indies, by way of the Cape of Good Hope, enlarged the world and led to a wonderful extension of foreign commerce. This led to the opposite doctrine that money is the only true wealth. If money is the only true wealth, a people that has no gold and silver mines (for example, Italy, France, England), can become rich only through foreign commerce by means of a favorable balance of trade, in which its export of commodi- ties exceeds its import, and the excess is paid in cash by the foreign country. According to this theory, one country can gain only what some other loses. INTERNATIONAL BALANCE OF TRADE. 1/ This gain is promoted not only by putting obstacles in the •way of the exportation of gold and silver, but by raising the value of all exports and lowering the value of imports. Since manufactured goods, on the average, are worth more than raw materials, the government can aid this by taxes on imports, prohibitions of imports, by bounties on the export of manufactured goods, and by bounties on the import of raw materials. This is the more necessary as against people who are superior to us in civilization, wealth, and cheapness of labor and capital. Such commodities as cannot be produced in the country, through defects of soil, climate, etc., must be produced in the colonies, in order to " emancipate ourselves from foreign countries." This is in brief an outline of the so-called " Mercantile System " in vogue in Europe from the time of the Reforma- tion down to the French Revolution. The " Colonial System " was a part of it. The French Revolution, with many other good things, introduced sounder views on the subject of trade and finance. American protectionism is the legitimate offspring of the mercantile system. The mercantile system of the Middle Ages is the original " American System." A deeper insight into the economic forces exploded this system, since, sifted to the bottom, it is an attempt to get something out of nothing. Since there is no fund out of which to pay duties on the import and bounties on the export of manufactured goods, as well as duties on the export and bounties on the import of raw materials, except the general fund created by the industry of the people, what is gained on 1 8 A TARIFF PRIMER. one side is lost on another. Taxes and prohibitions on the export of raw materials lower their value by checking or keeping away from our market foreign purchasers of the same. Bounties on the import of raw materials favor the manufactu- rer at the expense of the tax-payer and home producer of raw materials. Bounties on the export of manufactured goods favor the manufacturer and foreign consumer at the expense of the tax-payer and home consumer. Duties on the import of manufactured goods, that is, protection as we understand it, favor the home manufacturer and foreign consumer at the expense of the home consumer. Prohibition against the im- portation of foreign goods has the same effect in a higher degree. Hardly had the mercantile system become established in Europe when a reaction against it began. The truth, that the continual export of commodities is impossible without a corre- sponding import, and that in international trade both parties better their condition, became clear to the Italians, the most enlightened nation of Europe at that time — early in the fifteenth century, — and to the Dutch in the sixteenth and seventeenth centuries. This reaction rests upon the following propositions : money is a commodity, and, like all other commodities, useful only for certain purposes. It is just as little in the interest of the wealth of a people to heap up unlimited quantities of gold and silver through a favorable balance of trade as it is in the interest of its power to heap up unlimited quantities of gun- powder. He who has other commodities of value can procure for them what money and gunpowder he needs. We part INTERNA TIONAL BALANCE OF TRADE. I9, with no capital when we exchange money for other articles but only change one form of value for another. The idea that the gain in foreign trade consists in the payment of bare- cash is just as false as in private transactions among individ- uals at home. To most men it would be burdensome to con- vert their entire property at once into cash, and the nation consists of individuals. A continually favorable balance of trade is not possible. The relative increase of the amount of precious metals in the country increases the prices of other commodities and lowers the relative value of money and causes, an export of the precious metals until a restoration with the general level of other commercial countries is effected, like the general level of the waters of the ocean on the face of the globe. The precious metals becoming more abundant and cheap, as compared with their value in other countries, are the articles exported to markets where they are less abundant and worth more. It is impossible to " keep the money in the country." Laws against the export of gold and silver cannot be enforced. Down to the middle of the eighteenth century stringent laws against the exportation of the precious metals existed in all the states of Europe. Spain, which for a long time laid exclusive claim to the New World, served only as a sieve through which the gold and silver from America were sifted and scattered over the commercial world. Some necessary qualifications of some of the foregoing propositions : Of all commodities money is the most current and useful for most purposes, and has great durability. Among a highly civilized people with a highly developed industrial sys- 20 A TARIFF PRIMER. tern, in which the division of labor is carried to a high pitch, money becomes one of the most productive, useful, important, and indispensable parts of the national wealth. Among such a people it will happen more often that the owner of other commodities will lack the requisite money than that the owner of money will lack the other necessary commodities. Those numberless half mystical expressions of the " magic power " of money which have passed from the mouths of the people into literature cannot pass for mere error. We cannot assert the impossibility of an excess of the importation or exporta- tion of the precious metals, which may continue for a long time. Thus gold and silver imported and not going into the circulation as money exercise no effect upon general prices of commodities and can remain in the country permanently. Such gold and silver as are worked up into articles of luxury, buried hoards, the idly stored up treasures of the government, may serve as examples. If the internal commerce of the •country is on the increase, requiring more and more money to carry it on, there will, other things being equal, be an over- balance of the import of the precious metals, which will con- tinue while the internal commerce continues to expand. If internal commerce is on the decline there will be a movement the other way. Whoever supposes that a continuing prepon- derance of export or import is impossible must have overlooked the possibility of a widely extended national indebtedness. The aggregate balance of trade against the United States from 1790 to 1854 amounted to $816,000,000. During that time the United States exported $816,000,000 worth of gold and silver more than was imported, and no prudent man will say that we INTERNATIONAL BALANCE OF TRADE. 21 ■were all that time becoming poorer. (See Hock's " Financial History of the United States,'" page 175.) Our strikingly favorable balance in the few years before 1 88 1 was to a large extent cancelled by our payment of United States bonds held abroad. We must distinguish the balance of payments in general from the balance of trade in the narrower sense. Under the former, if we wish to be exact, we must include on the credit side of the account ; i, our exports of commodities ; 2, our gain in selling these in foreign markets ; 3, the freight paid us by the foreigner for carrying his goods in our ships — (Amer- ica's contribution to England, since our own ships have been protected out of existence, and the narrow, foolish policy of our government will not permit us to buy foreign ships, admit them to registry, and allow them to carry the American flag) ; 4, the sale of our ships in foreign markets. On the debit side, the same items which the foreign country receives from us. To find the general balance of payments we must add to this account on the credit side : i, the gain brought home with our •citizens, derived from engaging in enterprises in foreign coun- tries ; 2, interest and payment of money loaned in the foreign country ; 3, the sale of our bonds and other securities in the foreign country ; 4, remittances from the foreign country to foreign travellers in this country, as well as money which such travellers bring with them ; 5, inheritances, pensions, and extraordinary payments from the foreign countries. On the debit side of the account we must place the same items, moving in the opposite direction. In this way, if one could overlook the whole world, he 22 A TARIFF PRIMER. would perceive a threefold current of the precious metals. The most regular one moves in large draughts from the countries which produce gold and silver, flows over all com- mercial regions, and distributes the newly acquired precious metals as they are needed for coinage, manufactures, etc. The second oscillates, so to speak, from land to land to make good, for the time being, the excess of payments not met by other commodities. The second is what is understood as the balance of trade in the narrower sense. Finally, we have irregular, sudden currents, with slowly following counter- currents, when particular departments of industry, through bad harvests, wars, a disturbed double standard of value, etc., require an import or export of the precious metals. The history and doctrine of the international balance of trade which for centuries have played an important part in the commercial policy of nations, in its relation to our tariff legis- lation, is worth the careful study of every intelligent American citizen. CHAPTER IV. PROTECTION AND CENTRALIZATION. If the home manufacturer is in a position to furnish his wares as cheaply and as good as the foreign manufacturer, protection is superfluous. The home manufacturer has the advantage of cheaper freights to the place of consumption, and has a better knowledge of the changing tastes of his customers. If the foreign manufacturer can afford his goods cheaper, and if he is legally excluded from our market, or obstructions are thrown in the way of his entrance, the law imposes upon the consumer a sacrifice in the increased price of what he buys, which sacrifice is in no way compensated through the gain of the favored manufacturer. The home manufacturer will, in the long run, as a rule, through home competition, have his profits reduced to the general level of profits of business in the country. If he had no protection the home manufacturer might turn his productive forces to other branches of industry in which he can defy foreign competition. Since one people can pay another only with the products of its own industry, every limitation of imports through protec- tion must work a corresponding limitation of exports and reduce the price of exportable home commodities by confining them to a limited overstocked home market. The United 23 24 A TARIFF PRIMER. Stated are mainly agricultural. The American farmer realizes, a lower price for his products on account of protection. As to the wisdom or unwisdom of protection, some German economists distinguish three periods in the historical develop- ment of a nation. First period. Whilst a people is emerging from the primi- tive, rude, barbarous state into civilization, free trade with more civilized foreign countries is its best policy. This will develop in a people the needs of a higher civilization, and supply the means for gratifying those needs. Second period. In the later stages of the progress of a people from a rude state toward a higher civilization, protec- tion may be justified as a means of education. For such a stage of development it has been favored by the greatest thinkers and the wisest men of affairs. In its time it has. served a regularly appearing need. But through unfitting generalizations on the part of the doctrinaire, through the greed of the privileged manufacturer, and through the indolence and venality of politicians, what was only condi- tional and transitory has been laid down as absolute and eternal. The sacrifices which the protective system lays upon a people consist in this : that with a given outlay of labor and capital less wealth is produced than under free trade. It is, however, possible through protection to call into existence new powers of production, to awaken dormant energies, which, in the long run, will be worth more to the people than the temporary sacrifices amount to. These sacrifices are justified on the same grounds as a school tax. The cheapest education PROTECTION AND CENTRALIZATION. 25, is not always the best. The merely agricultural state cannot reach the same high stage of civilization as the state whose industry is divided between agriculture, manufactures, and commerce. The sacrifices connected with temporary protection are like the sacrifices of the farmer's seed-corn, which can be justified only under three conditions : that the seed-corn be capable of germination ; that the soil be fertile and properly prepared ;. that the season be favorable. Manufacturers in older industrial countries have an advan- tage over those in a new country in abundant capital, low rate- of interest, in skill of workmen, and most of all in the general esteem and interest felt in manufacturing industry. How often have the English smothered their foreign competitors by a temporary lowering of prices. In 18 15 Lord Brougham said in Parliament : " It is well worth while to incur a loss in the exportation of English manufactures in order to stifle in the cradle foreign manufactures." A report of the House of Commons in 1854 says : " The large capitals of this country are the great instruments of war- fare against the competing capital of foreign countries ; they are the most essential instruments now remaining by which, our manufacturing supremacy can be maintained." Even with like natural advantages, the contest between the home and foreign industry would, without protection, be like a contest between a youth full of hope and promise and an adroit athlete. The advantages of mere priority weigh heavi- est when a high development of the means of transportation, almost set aside the natural protection of remoteness. 26 A TARIFF PRIMER. Since the protective system diverts industry from the pro- ■duction of raw materials into manufactures, it exercises a powerful influence upon the condition of the different classes of society. In Russia, for example, the tax on jute, the raw material of gunny-sacks, is justified as a means for the promo- tion of the cultivation of flax to be used for the same purpose. Before this tax was laid, flax was raised in Russia only for the seed. Third period. For a fully civilized country free trade is the best policy. The United States is a highly civilized •country ; Russia is but half civilized. We are not, therefore, for example, to judge the American and Russian protective systems by the same standard. In Russia many of the people are mere serfs. The absolute monarchy is called upon to educate its people up into the class of free citizens. In the United States, on the contrary, there are no serfs, no absolute monarchy, no feudal aristocracy to be humbled. With us the privileges and burdens of society are in theory, at least, equally distributed. In the United States, through the high intelligence of the people, through the universal rubbing and touching, after a hundred years of protection, every available opportunity, for profitable business will be turned to account, without the beck and help of government. With us protection is only an attempt, and a successful one, of one part of the Union, which gives itself out as the whole to draw profit from the other, parts of the country. The protective tariff law of 1789, among other things, had in view the creation of a class of citizens, dependent upon the general government, to give strength to that government PROTECTION AND CENTRALIZATION. 27 through their support. The same idea has run like a thread through our tariff legislation for a century. Here protection has tended to centralization. In Europe its influence has been on the side of freedom. The vast influence of the landed aristocracy has been diminished through it, with bene- fit to the democracy, the progressive elements of society. In Europe the aristocracy, the monopolists, are the land-owners. In the Middle Ages, before manufactures existed to any large extent, this class controlled government in such a way that they themselves enjoyed all the privileges of society, while the landless bore all its burdens. But manufacturing under pro- tection gradually gave the people wealth, influence, and repre- sentation in the government. In the consolidation of the European monarchies out of the ruins of the Roman Empire, kings have allied themselves with the common people against the nobility. The king himself was frequently one of the no- bility, who, by force of character or by chance, became stronger than the rest. It is no accident that almost everywhere the same absolute monarchies who humbled the feudal aristocracy of the Middle Ages and introduced the newer and better times have taken a leading part in establishing a protective system. The exclu- sion from without, the concentration within, which such a system implies, the influence which the state here exercises upon the most important private interests, must greatly pro- mote the consciousness of the state, the centralization of the people, and the absolutism of the government. Even under constitutional government, a shrewd administration can make such a use of a protective tariff as to obtain the support 28 A TARIFF PRIMER. of powerful political parties, certainly only at the expense of other less powerfully represented groups of the people. Hence, he who favors civil liberty as against the excessive power of the state, must favor international free trade. Applying these principles to the political history of our own country, we shall find that the party of civil liberty, the pro- gressive Democratic party, has, in the main, favored a low tariff for revenue, experience having proved that a moderately low tariff will, if properly placed, produce a larger revenue than a high tariff. On the other hand, the Federalist, Whig, Republican party — the party favoring a strong central government, even at the expense of liberty — has favored at the same time a high pro- tective tariff. They say with Ridpath, the historian : " As between the state and the nation, I say down with the state and up with the nation." CHAPTER V. TO THE PROTECTIONIST FARMER. With reference to protection, commodities may be divided into three classes. I St. Those produced in the country in sufficient quantities to supply the home demand, and to furnish a surplus for export. 2d. Those produced entirely abroad and imported. 3d. Those of which a part is produced in the country and a part imported. For the United States farm products in general are examples of the first ; tea and coffee of the second ; iron and woollen and cotton cloth of the third. Whatever the law as to tariff on imports may be, there can be no protection to the first and second classes of products. It is only on the third class that protection can take effect. This is the hinge on which the whole controversy turns. Protectionist leaders have told you that they are protecting farm products in gen^ eral, and have read to you the tariff law to prove it. But you do not get one price for that part of your wheat which is sold and consumed in Kansas and another price for that part which is sold and consumed in Europe. The price of all your wheat is fixed in the unprotected market of the world, where it comes into competition with the wheat raised by the " cheap 29 30 A TARIFF PRIMER. pauper labor of Europe," and the cheaper pauper labor of India. Whence then is your advantage ? If you have any it consists in your superior soil, your superior farm machinery, and in your superior intelligence, while transportation is against you on account of your remoteness from market. What is true of wheat is true of all your other products of which the country furnishes a surplus for export. Let me be clearly understood. This distinction is not to be drawn on farm products. But if of any commodity the coun- try furnishes a surplus for export, that commodity cannot be protected. On the contrary, where the home supply of the article is not equal to the home demand and the deficiency is made up by importation, there only can protection be effective. There are some farm products of which we produce only a part of what we consume. These can be protected. Sugar and rice are examples. The people of the United States pay annually a tax of about $60,000,000 on sugar. (See United States statistical abstract for 1885.) About nine tenths of our sugar is imported and about one tenth produced at home. The imported and the home-made sugar of the same quality bring the same price in the same market, at the same time. Hence the tax of 82 per cent, is added to the price of the home-made sugar and goes into the pocket of the home sugar-planter, who is protected to that extent. This means that we annually take out of our pockets the sum of about $6,000,000 for him, making in the aggregate the sum of $66,000,000 paid annually by the people of the United States for their sugar more than they would need to TO THE PROTECTIONIST FARMER. 3 1 pay under free trade. You are told that this is necessary for the protection of the Louisiana sugar planter. But this sum will buy all the land in Louisiana cultivated in sugar af its market price and leave a large surplus. The ground is now shifted, and you are told that this is a revenue tax. Let us look at it in this light and see if it squares with the just prin- ciples of taxation. The people of the United States are about 66,000,000 ; that means a sugar tax of one dollar against every man, woman, and child in the country. The poor man with a wife and five children will pay a sugar tax of $7. The rich man with the same family will pay no more. With us sugar is one of the necessaries of life. CHAPTER VI. ^ THE farmer's home MARKET. Bv the Morrill tariff of 1861, we passed from a substantially free-trade commercial policy to one of high protection. Pro- tectionist political leaders have told you, and you have believed them, that protection will create a limited high- priced home market for your farm products. But what are the facts ? In this matter it is not necessary for you to take the word of any politician on either side. They want your vote, and may possibly mislead you. But write to your Con- gressman, and ask him to send you the United States Census Reports for the years 1860, 1870, and 1880, and you can see and make a comparison of the figures for yourself. By this comparison you will find that, of the total exports of the United States, a larger and larger part have been agricultural products, and a smaller and smaller part have been manufac- tured articles. This means the home market for the products of your farm is, as a matter of fact, farther away than it was before the war tariff of 1861. The machine is grinding out results contrary to those promised. The experiment has been tried now for nearly thirty years, under the most favorable circumstances, and has failed. During all this time we have had the highest tariff known in the history of the country, amounting now on dutiable imports to 47 per cent, on the average. How long will you wait for results ? 32 CHAPTER VII. farmers' trusts. Why cannot farmers as well as other people form trusts ? They are in the majority in the country. We have an iron trust, a sugar trust, a lumber trust, a fence-wire trust, a coal- oil trust, railroad pools, etc., with regular scales of rates and prices, which all members of the pool are bound to maintain. If the farmers of the world could and would unite and limit production, they might control the price of agricultural products. Trusts have been most successful in industries with large capital under control of a few able men, in manufactures on a large scale. It is still better for them if the industry is protected, and its raw materials in limited supply, and may be monopolized. Take the lumber trust, the oil trust, or the sugar trust as an example. Less than a dozen men practically control the price of sugar and coal oil in the United States. The price of lumber under the tariff is fixed by the lumber kings of Michigan, Wisconsin, and Minnesota. The price of coal oil is fixed by the oil kings of Pennsylvania. Oil is not protected, it is an export. But its supply is mainly limited to the State of Pennsylvania, and, therefore, it can be the more easily " cornered." Protection favors trusts. How? By limiting the field of competition among sellers, making their numbers smaller, and 3 33 34 A TARIFF PRIMER. making it easier for them to come to an agreement to limit supply and thus fix prices. For example, let all lumber from abroad be excluded from a single county ; it will be compara- tively easy for the owners of forests and lumber in the county to agree among themselves upon the price of lumber in the county. This, of course, as in other cases, only within limits. If they place the figures too high, but little lumber will be used, and substitutes will be found. Now let the protected district from which foreign lumber is excluded be extended to include a whole State, then the United States, then the world. In the last case we have free trade in lumber. With each enlargement of the protected field it becomes more and more difficult for the lumber dealers, on account of their increasing numbers and remoteness, to communicate with each other, pool their interests, and form a trust ; and in the last case, that is, under free trade, when they are scattered over the whole world, it becomes most difficult of all. In our example we have excluded foreign lumber entirely. But the principle is the same, and the same results will follow, only in a lesser degree, when it is only partially excluded, that is, under protection in the usual form. As a matter of fact, our tariff of $2 a thousand feet practi- cally excludes from our market the lumber from the vast forests of British America, and our lumber kings do not have to consult the wishes of the owners of these forests before forming a trust. The conditions of a successful farmers' trust are wanting ; the capital under the control of each farmer is small ; they are numerous and isolated, and cannot combine. The protected FARMERS' TRUSTS. 35 interests, on the contrary, are, for the most, under the control, of corporations with practically unlimited capital managed by a few men. Under the circumstances, we may safely infer that farmers' trusts will not be likely to play any considerable r61e in the near future. They cannot play at this game and win. This is only one of the many ways in which they will, never get back what they lose by protection. CHAPTER VIII. TO THE PROTECTIONIST WORKINGMAN. " MuRAT Halstead, in a speech at Cincinnati, proved to his fellow-citizens that his health was entirely restored, and that his mental pabulum had also been of the best. He said that the wages of harvest-hands in Germany at a point where he was stopping were nineteen cents a day, and that the labor was from five o'clock a.m. to seven o'clock p.m., and concluded that, as a Republican, he rejoices that his party is doing all it can to avert a like catastrophe." The above, from a protectionist sheet, probably contains as much error and bad political economy as was ever crowded into an editorial note two inches long. It assumes, first, that low wages in Germany are caused by free trade ; second, that high wages in the United States are the result of protection ; third, that Germany is a free-trade country ; fourth, that a party policy can, by laying taxes, increase wealth ; fifth, that party — that is, government — can do something for laborers without robbing somebody else for their benefit. This chapter will briefly state the facts as to the so-called " German free trade." Germany has a high protective tariff. •Germany imports farm products. The farmer who pays harvest-hands nineteen cents for working from five o'clock A.M. to seven o'clock p.m. is protected. This protection of the German farmer causes the laborer who gets nineteen cents 36 TO THE PROTECTIONIST WORKINGMAN. 37 a day to spend a larger part of the nineteen cents for bread, meat, and beer. It has the same effect upon the laborer as the corn-laws of England had — it starves him. He is not able, as a rule, to eat white wheat bread, but, after working from five in the morning till eight, he makes his breakfast from black rye bread, frequently without any thing else. This I have seen in many parts of Germany. On account of the high tariff here on hops and barley, the raw materials of beer, the -German laborer frequently cannot afford to drink beer, but resorts to potato whiskey, which is much cheaper and has more stimulus, to supply the place of meat. In an old, thickly settled country the landlord is lord of the land, and he is doubly so when his products are protected and he is thus enabled to secure, in the shape of rent, a still higher ^rice for the food and clothing consumed by the people. Wheat is largely imported into Germany from Hungary, Russia, and Poland. On every hundred pounds of wheat imported into Germany there is paid a tariff of sixty cents. On rye, per one hundred pounds $ .60 On oats, " " " " 50 On buckwheat, per one hundred pounds . . .25 On barley, per one hundred pounds 30 On corn, per one hundred pounds 25 On grapes (fresh), per one hundred pounds . . 1.80 On hops, per one hundred pounds .... 2.40 On horses (each) 5.00 On mules and asses (each) 2.50 On cows (each) ; 2.12 On oxen (each) 7.15 38 A TARIFF PRIMER. $I.4«> ■75 .25^ free •75 On young cattle, not more than 2^ years old (each) On calves, under six weeks old (each) On hogs (each) On sheep (each) On wool . . . • On woollen yarn, per one hundred pounds Woollen yarn, doubled and twisted, per one hundred pounds ......••• 5-75 I write with the protective tariff law of the German Empire before me in its latest revision of May, 1885. The above figures are taken from the law directly. I have made the necessary reduction of German money to United States money, and of the German weights to our own, for the convenience of the reader. These facts and figures will, of course, have no influence upon protectionist voters and newspapers in the United States. They will keep right on in speaking of Germany and other European countries as free-trade countries, and will attribute the present social distress in Europe to this cause, and the comparative ease and comfort of the laboring classes in the United States to protection, and men uninformed and unac- customed to think upon such subjects will believe them. Wages do not come out of protection. The laboring man would get higher wages, more purchasing power, and be better off under free trade. But if wages do not come out of protection, where do they come from ? It will be the task of the subsequent chapters of this book to answer this question affirmatively and definitely, and to state the causes of the different rates of wages in different countries. CHAPTER IX. WAGES — FIRST PRINCIPLES. " When two bosses run after one workman wages rise ; when two work- men run after one boss wages fall." Where wages come from ought to be no mystery to the workingman. " The produce of labor constitutes the natural recompense or wages of labor. In the original state of things which precedes the appropriation of land and the accumula- tion of capital, the whole produce of labor belongs to the laborer. He has no landlord or capitalist to share with him. " Had this state continued wages would have increased with all those improvements in its productive powers to which the division of labor gives rise. All things would have gradually become cheaper. They would have been produced by a smaller quantity of labor. But this original state of things, in which the laborer enjoyed the whole produce of his own labor, could not last beyond the first introduction of the appropria- tion of land and the accumulation of capital. It was at an end long before any considerable improvements were made in the productive powers of labor through the use of better tools, of labor-saving machinery, through the division of labor and an improved state of the arts and sciences. ^' As soon as land becomes private property, the landlord re- 39 40 A TARIFF PRIMES. ceives a share of the produce as rent. His rent makes the first deduction from the produce of labor. " It seldom happens that the laborer has wherewithal to main- tain himself till he reaps. The means for this maintenance must be advanced to him by the capitalist, unless, indeed, he has means of his own. On this advance the capitalist reaps interest. This makes a second deduction from the produce of labor employed upon land. The produce of almost all other labor is liable to a like deduction of interest paid to the capi- talist who furnishes tools, machinery, buildings, and raw ma- terial. In all arts and manufactures the greater part of work- men stand in need of the capitalist to furnish them the materials of their work, to build factories, supply machinery, and to advance their wages till the product is finished and sold. The capitalist shares in the produce of their labor, or in the value which it adds to the materials upon which it is be- stowed, and in this share consists his interest or profit. " It sometimes happens, indeed, that a single independent workman has capital sufficient, both to purchase the materials of his work and to maintain himself till it is completed and the product sold. In this case two funds are mingled in his income, wages of labor, and interest on capital. If he is owner of the building, the factory, he may add another item to his income — rent." These three funds — wages, interest, and rent — are blended together in the product of industry. When this product, this hodgepodge, is sold, how shall the price be divided between the parties in interest ? How ought it to be divided ? Leav- ing these questions unanswered, let us ask an easier one. WAGES— FIRST PRINCIPLES. 4 1 How, as a matter of fact, is it divided ? Solely by the law of demand for, and supply of, labor, capital, and land. There is. no absolute rule in practice. Every thing here is relative. All that we can say is that, the price of the product remaining the same, the supply of capital and of land, and consequently the rate of interest and rent, remaining the same, a decrease in the number of laborers will have a tendency to raise wages, while an increase in their number will have the opposite- tendency. Now let the price of the product rise in the market, the sup- ply of labor, capital, and land remaining the same as before, and the increase of price will be divided among the parties interested, and wages will rise. Other suppositions might be made with other results. Why are wages in the United States higher than in Europe ? We have seen in the above analysis that the product of in- dustry is a hodgepodge, consisting of three indistinguishable, inseparable parts — wages, interest, and rent. In the United States, as a rule, the workingman supplements what may be called "wages proper," with interest and rent, and the whole lump passes under the general name of wages. In Europe he does not do this to the same extent. In the United States the land is practically given to the settler ; comparatively little rent is paid to the landlord. The farmer puts this in his pocket. The capital required is small — a "dug-out," team,! and seed. The returns are almost all wages of labor in the ' popular sense. All this is the other way in Europe. Besides, Europe has a surplus of laborers with comparatively little for them to do, while we have but few comparatively and much 42 ' A TARIFF PRIMER. work to be done, which creates a demand for work and raises wages. In Europe the farms are all opened, the cities, roads, bridges, railroads, etc., built. This work in America we are now doing. This causes a demand for labor and increases wages. The raw materials of all wealth and wages are stored up in I the earth. We have just begun to develop the resources of a virgin continent. We are now taking the cream. Europe came to skimmed milk long ago. The " fatness has been fried out " of some parts of that country for twenty-five hun- dred years. This does not mean that the soil of Europe is necessarily unproductive. But its productiveness is kept up at the expense of fertilizers which are to be accredited to the account of capital. The raw materials of wealth and wages are not so abundant and cheap in Europe as in America, and when worked up into products must be divided among a larger number. To make this point clear by an illustration : Before the discovery of gold in California wages were but a dollar a day. After the discovery they were as high as ten dollars a day. Before the discovery wages were low, because from comparatively scant raw materials labor produced little wealth, out of which low wages were paid. After the dis- covery wages were high because from abundant, easily acces- sible, cheap raw materials little labor produced much wealth, out of which high wages were paid. The miner required little capital and paid no rent, and was able to pocket the whole proceeds of the business. Now it makes no difference, in principle, whether a man digs gold or potatoes. This exam- ple will illustrate the difference between the United States WAGES — FIRST PRINCIPLES. 43 and Europe in the supply of raw materials and in the relative rate of wages. Before the discovery of gold, and at the pres- ent time it requires capital to engage in business in California. The surface gold has been collected, and deep quartz mining requires expensive machinery. The mines are all owned by somebody, and a royalty^ — that is, rent — must be paid for their use, if they are good. Consequently, wages in California are no longer so high as in the flush of the gold discovery. It may be said that the case of California is exceptional. This exception can be only in degree. There is the same kind of difference between the conditions of industry in the United States and in Europe, as there is between the conditions of industry in California for a few years after the discovery of gold, and at the present time, and before that discovery. California in the flush times of the gold harvest represents the United States. California before the gold discovery and at the present time represents Europe in this illustration. The chief competitor of the American manufacturer, ac- cordingly, has been the American farmer and not the Euro- pean manufacturer. The policy of the government has fostered farming, it has given the farmer his stock in trade, his farm, or sold it to him at a nominal price. This has placed farming as a paying business for the poor man before all other occupations. The intelligent workingman seeks to avail himself of these advantages. This makes it necessary for the manufacturer to pay him wages about equivalent to what he can make on the farm, or lose his services. As a matter of fact, farm wages proper in the United States are higher than in manufactures, whilst in Europe the reverse is the case. 44 ^ TARIFF PRIMER. In addition to this the laborer in the United States is more intelligent and efficient than anywhere else in the world. He requires less superintendence than the European workman. Our freer institutions seem to awaken and stimulate all his energies. The European workman is tied to routine, is easily- confused, and seems able to do but one thing well. In many cases he is but half fed. This must impair his efficiency. Under the social conditions that surround him, he cannot hope to rise to be any thing more than a laborer. The saving of capital so that his wages may be supplemented by interest and rent is out of the question. The United States Consular Reports give a gloomy but true picture of the condition of the European laborer. He is, if intelligent, discontented and often sullen. Despairing of self-help, he looks to the state for help. Hence, socialism everywhere. A very small part of the workingmen in the United States are engaged in the protected industries. By the United States census of 1880 there were about twenty million laborers en- gaged in the unprotected industries, and less than one million in the protected industries. The causes of the general high rate of wages in this country when compared with Europe, namely, the high productiveness of labor, caused by abundant cheap raw materials in the form of lands, mines, etc., greater efficiency of labor, and mUch work to be done and but few to do it, in other words, less sharp competition among laborers, have been assigned. Now does the rate of wages paid to this less than one million laborers in the protected industries fix the general rate of the coun- try which is paid to the twenty millions, or does the general high WAGES — FIRST PRINCIPLES. 45 rate of wages of the country paid to this twenty-million laborers in the unprotected industries fix the rate that must be paid to the less than one million in the protected industries ? The answers to these questions will be final and decisive. If the general high rate of wages paid in the United States to twenty million workingmen in the unprotected industries fixes the rate which the protected manufacturer must pay to less than one million in order to secure their services, then the claim of the protectionist that protection fixes the rate of wages in the country is not well founded. If, on the other hand, it is true that the rate of wages paii in the protected industries to less than a million workingmen determines the general high rate of the country paid to twenty millions in the unprotected industries, then the claim of the protectionist that protection fixes the rate of wages of the country is well founded. For, inside of the protected indus- try, protection will enable the employer to pay higher wages. As a matter of fact, wages in the protected industries in the United States are somewhat lower than in the unprotected industries. (See Reports of Labor Commissioner Carroll D, Wright.) CHAPTER X. WAGES IN EUROPE, A CAREFUL comparison of the various rates of wages in different countries of Europe and in the United States gives the following results : First. Wages in free-trade England are higher than in any other European country. Second. All other countries in Europe, except England, have protection. And in all of them wages are lower than in free-trade England. Third. Italy, which has the highest protection of all, has the lowest wages. Fourth. Wages are higher in the United States than in any European country. As representative of the rate of wages in free-trade England, I have selected the wages paid in the general trades in New- castle-upon-Tyne per week of fifty-four hours. Newcastle is a busy manufacturing town, and wages in such places are generally above the average : Bricklayers Hod-carriers Masons . Tenders Plasterers Carpenters 5-5° 8.IO S-54 8.75 8.10 46 WAGES IN EUROPE. 47 Bakers .... $7-44 Blacksmiths . 7.78 Butchers 4-93 Coopers 6.25 Laborers 3-4° House-painters 7.00 Tailors 7.29 Tinsmiths 7.20 Rope-makers . S-32 Saddle- and harness-makers 7.00 Gardeners 5-84 Horse-shoers 6.25 Wages in Protected Germany. As an example of German wages, I have selected the wages received by general trades in Leipsic. Leipsic is a busy com- mercial and manufacturing city, and the general rate of wages here is somewhat higher than the average in Germany. In these respects it is about on an equality with Newcastle, England : Brewers (with board and lodging) per month . $16.82 Brewers (without board and lodging) . . 26.15 Butchers (including board and lodging) per week . 3.06 Bricklayers (eleven hours per day) per hour . . .07J Blacksmiths (eleven hours per day) per week . 4.92 Carpenters (eleven hours per day) per hour . .07^ Coopers (eleven hours per day) per week . . 4.51 Cabinet-makers (eleven hours per day) per week . $5-24 Gardeners (twelve hours per day, summer season) per week 4- 16 48 A TARIFF PRIMER. Hod-carriers (eleven hours per day) per week Masons (eleven hours per day) per week Plumbers (per hour) Painters (eleven hours per day) per week Saddlers (eleven hours per day) per week Tinsmiths (eleven hours per day) per week Tailors (work hours uncertain) per week Telegraph operators (eleven hours per day) per week ....... Locomotive drivers (hours uncertain) per month Firemen (time uncertain) per month Cleaners (hours uncertain) per week Street-car drivers (fourteen hours per day) per month ....... Conductors (fourteen hours per day) per month $2.98 5-43 452 4.28 4-3S 6.25 4-30 49.98 24.99 4.28 14.28 16.66 The Rates of Wages in Very Much Protected Italy. Wages in the city of Rome, where they are higher than else- where in Italy, are as follows : Bricklayers (from ten to twelve hours) per day . 0.61J Hod-carriers (men, women, and boys) per day . .38J Masons (ten to tVvelve hours) per day . . .62 Tenders " Plasterers Tenders Carpenters ' Plumbers ' Bakers ' Blacksmiths 43i 54 38i 77i 72i 66J 674 WAGES IN EUROPE. 49 (twelve hours) per day Bookbinders Brickmakers " " Brewers " " Stone-cutters " " House-painters " " Butchers " " Cabinet makers " " Coopers " " () Gardeners " " Horse shoers " " Laborers " " Saddle- and harness-makers . Tailors (men) Tailors (women) Tinsmiths .... Weavers (outside of mills) Boot- and shoe-makers (men) Boot- and shoe-makers (women) Coppersmiths Carriage-makers Cutters and finishers (men) Sewers (women) Gunsmiths Trunk-maker^ Upholsterers (men) Upholsterers (women) The above figures, taken from the United States Consular Report for 1884, do not represent the highest or the lowest wages, but the average rate paid in the respective localities. 4 CHAPTER XI. CAUSES OF THE DIFFERENT RATES OF WAGES IN THE DIFFER- ENT COUNTRIES OF EUROPE. We have seen that wages are higher in the United States than in Europe because : First. We have more abundant cheap raw stuff out of which wealth and wages are made. Second. Because labor in the United States is more intelli- gent, better fed, and efficient than in Europe or anywhere else in the world, and therefore with less superintendence can produce larger amounts of wealth and wages out of this cheap raw material. Third. Because in a new country with rich undeveloped re- sources like the United States, there is, to a given population, more work to be done. Fourth. Because laborers are fewer and do not compete so sharply against each other and thus lower wages. Fifth. Because a smaller part of the produce goes to the landlord in the form of rent in a new and thinly settled coun- try than in an old and thickly settled one, and this leaves a larger part of the product to be divided between labor and capital in the form of wages and interest. We have further seen that by the United States census of 1880, not one laborer in twenty was at that time engaged in 50 CAUSES OF DIFFERENT RATES OF WAGES. 5 1 the protected industries ; that the general high rate of wages in the country paid in the unprotected industries is fixed by the causes above set forth, and that the employers of less than one twentieth of all the laborers of the country in the protected industries must pay something near the general rate paid to more than nineteen twentieths of the whole number of laborers in the country or fail to obtain their services. How can we account for the different rates of wages in, different countries of Europe ? First. Take the case of much protected Italy, in which, wages are low. This is the part of Europe formerly referred to, out of which the fatness has been fried for twenty-five hundred years. Already in the time of the Caesars, nearly two thousand years ago, grain was imported from Egypt and. Sicily. It was even then a worn-out country, compared with the United States to-day. Its dense population gives to the landlord high rents. There are many mouths to feed, and but little to feed them. Rents are so high that but a small part of the produce of labor is left to be divided among laborers as wages. Accordingly we find, as a rule, that the Italian who has made a little money in the United States, returns with it and buys a little farm in sunny Italy. He then becomes a landlord, and receives rent as a supplement to wages. Italy has a mild climate, which enervates the people, and the needs of food, clothing, and shelter are not so great as in a cold climate. Give Italy the climate of British America^, and leave every thing else as at present, and in a few genera- tions a large part of her population will have disappeared'. through the operation of natural causes^ In India we have- 52 A TARIFF PRIMER. the same conditions as in Italy intensified and resulting lower wages. Second. In the soil of Switzerland there never was any fatness to be fried out. It consists mostly of mountains, rocks, and snow. The stuff out of which wealth and wages are made never existed in Switzerland. The population is not dense. The climate is cold. The Swiss, although among the most intelligent, moral, and industrious people of Europe, are poor, and wages among them are low. Third. Why are wages in free-trade England higher than elsewhere in the protected countries of Europe ? Free-trade England supports a dense population, and pays high wages. England has unlimited supplies of raw materials in the form of coal and iron. Taking advantage of the most recent improvements in the industrial arts, in processes of manufacture, and by the employment of the best labor-saving machinery, she is able at little expense to convert this raw material into wealth. Her superior geographical position, al- most in the centre of the land area of the earth, accessible on all sides by water, and excellent harbors, give her unsurpassed natural advantages for commerce. These natural advantages she has developed to the utmost, and the sails of her merchant marine whiten every sea. Without impiety we may say Eng- land, in commerce and manufactures, has taken the Almighty into industrial partnership. She has worked with the natural forces, and not against them, and has reaped the rewards of obedience. The climate is mild and healthful, giving to her well-fed, intelligent laborers great bodily strength and en- ■durance. Her moist climate, abundant coal, and numerous CAUSES OF DIFFERENT RATES OF WAGES. 53 canals for its transportation, give her unrivalled advantages in the production of textiles. These advantages she has not been ■slow to turn to account. She has explored the world, not in the interests of science and geography, but in the interests of commerce. She has •established colonies under the Northern and under the Southern solstice, and in every zone. In this way she has planted the Anglo-Saxon race in the four quarters of the world, and insured the ultimate universality of the Anglo- Saxon tongue. On her realms the sun never sets. She commissioned Livingstone and Stanley to explore the -Dark Continent, to find new markets for the products of her mines and furnaces, her factories and looms. But the brightest era of her industrial prosperity and com- mercial supremacy, in which her industries have paid higher wages than ever before, has been since 1846, when she finally broke loose from the fetters of the Middle Ages, which igno- rance and greed had thrown round her, and under the leader- ship of Bright and Cobden and other enlightened statesmen, adopted free trade as a permanent policy. These are some of the causes which have enabled free-trade England to support a dense population, and pay the highest wages in Europe. In the general prosperity the workingman will always participate, unless he is shut out from his right by unjust laws. In the light of all these facts, we are told by protectionist demagogues that whatever industrial policy England may pursue, our prosperity will be assured by following the oppo- site policy. This is an appeal to the ignorance and prejudice 54 ^ TARIFF PRIMER. of the nation, handed down to us from the time of the Ameri- can Revolution. Because the nations were once at war with each other, the inference is drawn that their commercial policies, in order to secure the prosperity of the respective countries, must be antagonistic. Commerce enriches all nations to the extent that they engage in it. Other nations cannot take our products unless we take theirs in exchange. They have nothing else with which to pay. This exchange of products, protection, in a measure, checks, and in so far impoverishes the nation. We cannot know the extent of our loss, because we have no statistics of what might have been, to compare with what is. The results of economic investigation are, for the most part, for a long time entirely ignored, till at last, after thirty or forty years or more, they are recognized because they answer cer- tain class interests, which class for the time happens to be in the majority, or to have more friends at court. Adam Smith's " Investigation into the Causes of the Wealth of Nations '' wa& published in 1776, but freedom of industry in England — that is, one's right to follow any business he sees fit to follow — was. not granted by law till 1814 ; and freedom of trade — that is, one's legal right to buy and sell in any market he pleases — was not given till 1846. 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