FREE-TRADE AND PROTECTION.*
THE United Kingdom has now enjoyed the benefits of Free-trade for more than thirty years. During that period the wealth of the country has increased with such unparalleled rapidity, that Englishmen have often been tempted to wonder at the reluctance shown by foreign nations in following our example, and effecting a similar reform in their fiscal arrangements. We have at last, how- ever, reached a period of commercial depression which has not only suggested to foreign statesmen the expediency of making still more rigid their already restrictive tariffs, but which appears in many quarters here in England to have raised grave doubts as to the wisdom of our own financial policy. There could not, therefore, be a more opportune moment for a fresh investigation by the light of maturer experience of the old controversy between Free-trade and Protection, which was supposed to have been finally settled in this country at least a generation ago. Mr. Fawcett brings to the task, as we need scarcely say, not merely the trained skill of an accomplished expert, but an acquaintance with practical politics, in which few economists have rivalled him, and a judicial candour in which he has been surpassed by none. A striking illus- tration of this last quality is afforded in the introductory remarks to the present volume, where the author points out how largely accidental circumstances, which are not likely to be repeated elsewhere, helped to secure the triumph of Free-trade in England, and how, since the victory was achieved, it has been credited with many good results to which it has contributed but little, if at all. Protection in England was at once a producer's and a consumer's grievance, enlisting in the ranks of Free-trade forces so strong even in isolation, so irresistible when allied, as the manufacturing interest and the half-starving multitude. Nor should we forget that besides Free-trade, many causes have been at work to produce our recent commercial prosperity. The abolition of Protection hero was accompanied or closely fol- lowed by the development of our railway system, the extended use of machinery in almost all branches of productive industry, and a large emigration to the gold-fields of Victoria and California. Many of the import duties, moreover, which Sir Robert Peel and his successors got rid of, were in no sense protective, and there- fore whatever advantages have accrued from their removal must be put down not to Free-trade, but to the simplification of our fiscal system. The first apostles of Free-trade were naturally and excusably prone to exaggerate its efficacy, and Mr. Fawcett does well to point out to its advocates in these latter days, who adopt the same tone without the same justification, that they only bring discredit upon the cause which they seek to advance.
Protective duties are of two kinds—bounties on exports, and restraints on imports. Both were originally adopted in the days of the mercantile system with the view of securing what was then considered a favourable balance of trade,—that is to say, such a surplus in the exports of a country over its imports as would necessarily lead to an influx of the precious metals. It was ob- vious that this could not happen at the same time to all the countries engaged in international trade. In other words, if any two nations traded with each other, the trade could not—if this
• Frec-Tcade and Prolectien. By Henry Fawcett, M.P. London: Macmillan and Co. 187S. were the test of profit—be profitable to both ; what the one gained the other lost,—gain or loss being interpreted to mean addition to or subtraction from the store of precious metal held by each at the commencement of the trade. Hence international trade came to be regarded as a kind of war with well-recognised weapons of offence and defence,—import duties with which to keep the enemy out, export duties with which to carry the war into his country. The mercantile system is dead ; its epitaph was written by Adam Smith a hundred years ago ; but its disem- bodied spirit still revisits the commercial world from time to time, and even haunts the cabinets of statesmen. Much of the nonsense that has of late been talked and written in chambers of commerce and financial journals about "reciprocity" and "retaliatory duties," is a survival of the theory just described. But notwithstanding the constant employment by protectionists of phrases which seem to imply that international trade is still looked upon in some quarters as a form of warfare, there can be no doubt that the ostensible, and in most cases the real motive, for the imposition of protective duties now-a-days, is the desire to make a country self-supporting, and to -encourage various branches of native industry. It is, we think, important to remember that this is an end which cannot be exhaustively or finally judged from the economisCs point of view. We may, though not perhaps very easily, conceive of practical conditions under which a wise statesman might deliberately choose that his country should be comparatively poor, but wholly self-sufficing, rather than that she should be rich and prosperous, but partially dependent on other lands for her sup- plies of food. It is certain that not only the politicians, but the greatest political thinkers of antiquity, living under the most various conditions, and starting from the most dissimilar pre- mises, unanimously adopted this view. It would be out of place to attempt any discussion of the general question here and now ; we simply enter a caveat in passing. All that the economist asks of the protective system is,—How does it affect the production and distribution of wealth? Does it make the nation which adopts it richer or not ? Does it benefit the producer, or the consumer, or both, or neither? Tried by these tests, Protection breaks down utterly. To take first the case of bounties on exports, Mr. Fawcett clearly shows that, leaving out of the question the foreign consumer of the exported product, the only class who profit by them are the owners of the soil on which the raw material of the protected trade is grown. The home consumer loses doubly,—first as tax-payer, and again in the enhanced price of the commodity whose export is encouraged. The pro- ducer, in whose interest the bounty is nominally granted, is pre- vented by competition from making any larger profit on what he exports than on what he sells at home. The French bounty, for instance, on the export of sugar enables us in England to buy sugar more cheaply than the French, from whose country it comes. No doubt it injures the English sugar-refiner, but it benefits the English consumer. On the other hand, it in- jures the French consumer without benefiting the French sugar- refiner. It does no good to any one in France but the small fraction of the people who are cultivators of beetroot. Exactly the same observations apply to the supposed advantages conferred by import duties upon particular trades. A protective import- duty is never imposed except to prevent the foreign producer from underselling the home producer in the home market. Unless, therefore, the duty raises the price of the protected commodity above what it would be if free importation were allowed, it is wholly unnecessary for the purpose in view, and stands self-condemned. It is obvious that the home consumer cannot but suffer in his character of consumer from a tax the very test of whose efficacy is that it makes him pay more than he otherwise would for the article in question. Where, moreover, the subject of the import-duty is a thing like iron, which is itself an instrument of production, he suffers further in his character of producer, if he be a producer, from the increased dearness of the processes of production. Nor does the advanced price of the protected commodity confer any lasting advantage upon the very class of producers whom it was intended to benefit. For the moment, no doubt, capital invested in the favoured trade yields a larger profit, and the labour en- gaged in it earns higher wages ; but the increase in both cases is temporary, and only endures until, by the agency of competition, an influx of capital and labour, which was previously idle or otherwise employed, reduces the gains of the protected industry to their normal level. Here, again, the only persons who ulti- mately profit, and that at the expense of the community, are the owners of the raw material,—or rather, of the soil in or upon which it is found. Such are the conclusions to which the econo- mist is led by a process of strict deduction, and Mr. Fawcett shows how entirely they are verified by the results of our own experience in the matter of the Corn-laws. The Corn-laws were intended to benefit the agricultural interest. When they were abandoned, after a trial of thirty years, it was found that they had largely raised the rent of land, and that the landlords, as a class, had profited by them. To secure this result, the tenant- farmers had been all but ruined, the agricultural labourer had been reduced to pauperism, and the poorer class throughout the country was in absolute want of the first necessary of life.
This, in rough outline, is the argument against Protection, which Mr. Fawcett fills in with abundant detail and a wealth of illustration which adds immensely to the vividness of the impres- sion made upon the reader. But he is not content with restating a series of old positions. He goes on to deal with the latest development of the protectionist spirit in England,—the cry for reciprocity. No one in this country now doubts that Free-trade is a good thing, but we are constantly being told that "one-sided Free-trade is an absurdity." It cannot, of course, be denied that the adoption or retention of a restricted tariff by most other nations is not only very disappointing to the hopes of English free-traders, but causes serious and ever-increasing injury to English commerce. But the question is,—Should we be any better off if we were to retaliate on the countries which do us so much harm, by imposing import duties on such of their products as they send to us ? It is obvious, of course, to every one that the English consumer would suffer from the proposed retaliatory duties. It matters not to him where his silk comes from, but it becomes a serious thing when the price of every yard of silk is raised. But let it be assumed that the rise in price of the commodities whose import is to be restricted is very incon- siderable,—not more than the consumer will willingly put up with for the advancement of English trade,—what then ? Will the home producer really be benefited ? Mr. Fawcett takes, by way of illustration, our trade with the United States, which at present send us every year three times more than they take from us, and are therefore, in the eyes of the reciprocity-mongers, the fittest subjects for vindictive measures. Now, nine-tenths of the Ameri- can imports into the United Kingdom are articles of food and raw produce ; in fact, more than a third of the whole is raw cotton. If, therefore, we wish to inflict a real injury upon the Ameri- cans, in return for that which they have inflicted on us, we must put an import - duty on some of these things. In other words, we must either tax food or raw cotton. As to the effects of such a tax on food, the Corn-laws taught us such a lesson, that we are not likely to be asked to repeat the experiment. To tax raw cotton means to increase the price of every pound of yarn and every yard of calico which our manu- facturers export to foreign countries. Already they tell us they are being driven from foreign markets by competitors who can spin and weave more cheaply than they can ; and do they propose, by way of reinstating themselves, and regaining their lost or failing customers, to add to the already 'excessive cost of produc- tion, by taxing the raw material ? This, surely, is retaliation run mad. But, it is said, it is not only the raw material that is im- ported ; American calico is actually sold in Manchester and London ; by our absurd system of one-sidedness, we are allowing ourselves to be undersold in our own markets. That American cotton-goods are being imported into England in any considerable quantity, we wholly disbelieve ; but even if it be so, what good will a retaliatory duty do ? It will injure the American exporters, doubtless, but will it raise the rate of profit in Lancashire ? We say nothing as to the unfortunate consumer, who ex hypothesi is to be deprived of the advantages of competition, in order that things may be made to look a little more lively on the Manchester Exchange. The utmost that a prohibitory import-duty upon American calico could do, would be to give a momentary stimulus to the stagnant energies of the English cotton manufacture ; and at a time like this, any accession to the profits of any branch of industry would be eagerly and at once annihilated by the feverish inrush of capital, at present famished for want of employment, and so to speak, frozen out. The truth is, that the panic-fear of foreign competition, whether well or ill-founded, is excited and kept up not by the casual consignments of cotton or iron goods which desperate American and Belgian manufacturers send from time to time to England, but by what is going on in foreign markets where we have hitherto been without a rival. This is where the shoe really pinches, and the jargon of reciprocity only distracts attention from the real remedy. Assume that we succeed by means of an import-duty in expelling American calico • mid We in Japan, and Japanese Child-Stories. from the English market. Shall we be any better able than we I Bachelier-es-Lettren, ac. London: Griffith and Duran.
now are to undersell our transatlantic competitor in China, or to win back the customers whom he has enticed away from us there and elsewhere, by the superior quality of his wares and the greater honesty of his workmanship? If it be true that our foreign trade is waning, the true remedy is to be sought not in a revival of obsolete fiscal fallacies, but in the abandonment of these discredit- able methods of production and exchange which our manufacturers and merchants learnt to practise in an evil hour for themselves and for the honour and profit of British commerce.
Space will not allow us to follow Mr. Fawcett in his admirable chapters on" Commercial Depression" and "Commercial Treaties." We commend them and the whole volume to the careful attention of all who are interested in the most pressing economic problems of the time.