Protection, a theory of the proper attitude of government towards the industrial development of a nation. The protectionist believes that his government should aid in the development of the citizen and of the natural resources of the country. He also believes that this aid can often be given by the judicious stimulation of particular industries. Protection is not therefore, as is frequently asserted, a theory of foreign trade. It is true that the expression 'protective law' is sometimes confined to tariff or duty on imports which tends to increase the home production of a commodity while decreasing the amount imported. But, in the correct and broader view of the subject, all laws which tend to develop particular industries are protective.
There are three ways in which a government can increase the amount of production in any industry. The first is by direct aid to those engaged in it. This may be accomplished through what is called in the United States an internal improvement—a term which may be applied to all works tending to increase the productive power of the country. It includes canals and railroads subsidised by government which open new fields to cultivation, dikes which keep back the water of a river, and reservoirs for the purpose of irrigation. Aid may also be extended to those engaged in an industry by a bounty or subsidy. It is true that the improvement by the government of the navigation of rivers or of harbours is often advocated by those who strenuously oppose bounties, and in fact all other forms of government aid to industry. And at first it would appear as if the payment of money in bounties simply stimulated the industry in which the payment was made, while any of the internal improvements above mentioned is an aid to all production. This is a fallacy. A canal between the Great Lakes in the United States, while it may be a considerable stimulus to the production of wheat and corn, because it brings
Copyright 1891 in U.S.
by J. B. Lippincott
Company. nearer to the principal markets sections suited to these cereals, has only the most remote effect on the production of cotton. On the other hand, the effect of a subsidy or bounty is never confined to the industry in which it is paid. It always has more or less influence on all auxiliary occupations. A bounty on raising hogs, as far as it stimulated their production, would increase the acreage devoted to corn. Thus we usually find that the consistent opponent of bounties, who, at the same time, advocates internal improvements, disapproves of the former on account of the moral effect of the direct payment of money by the government to the individual. Those who oppose such payments on strictly economic grounds are likewise usually found among the opponents of all internal improvements. Both internal improvements and bounties tend to increase production in some industries more than in others. In so far they are both protective.
The history of the public lands of the United States offers a striking example of protection through a direct reward held out by the government for prosecuting definite lines of industry. Public lands could be obtained by citizens on the easiest terms (see HOMESTEADS). A great stimulus was thus given to the production of those agricultural commodities for which the soil or situation of the public lands was suited. Most of the government land was capable of growing wheat, while comparatively little was adapted to cotton. In this way there was a distinct inducement held out to the citizen to grow wheat. This fact has had a profound effect on American agricultural industry.
The second method of protection, or the stimulation of an industry, is to impose burdens on other industries. This may be done by taxation or any restrictive regulation. The result of placing a burden on a particular industry is to lessen the amount of production in that industry, the energy thus suspended being turned into new channels; and the remaining industries of the country are stimulated in varying degrees. Thus taxes on alcoholic drinks, lessening the amount consumed, decrease their production, while increasing the production of many other articles. Such laws usually give a small quota of protection to many occupations, but at the same time there are cases in which the protective effect is confined to a single industry. When there are two commodities which can be applied to practically the same purposes, the taxation or absolute prohibition of one will not only greatly retard its consumption, but greatly increase the consumption of the other. This is particularly true where the difference between the two commodities, as in the case of beet and cane sugar, or of butter and oleomargarine, is more in the method of production than in the finished commodity. The laws fettering the sale and production of oleomargarine in the United States are as much a protection to the production of the cheaper and inferior grades of butter as the bounty on beet-sugar in Germany is to the production of the beet. Again, there are other commodities which, though they differ in kind, satisfy the same general purpose. In such cases the consumption of one can be retarded or prohibited in order to protect or stimulate the other. The taxation of wool, for instance, will lead to the greater consumption of cotton; this has been one of the marked results of the tariff on wool and woollens imported into the United States. In the same way, the taxation of one article of food will very frequently have the effect of increasing the consumption of another. This kind of protection has not found much expression in legislative intention, though, as in the case of the United States tariff on wool, it has frequently been one of the marked results of legislative action. In the middle ages export duties, or the absolute prohibition of the exportation of certain articles, was a popular method of stimulating the home production of particular commodities. Thus in England, during the reign of Edward III., the exportation of wool was prohibited, not to protect the wool-growers of the kingdom, but to bring about the establishment of woollen manufactories.
The third way in which it is possible to stimulate an industry is to burden the foreign producer of the commodity which it is desired to produce at home. The home producer is given a certain monopoly either by prohibiting the importation of the foreign commodity, or by exacting a tax for the permission to import. Nearly all countries in this manner protect some of their industries. So usual has it become to place an import duty on a commodity when a nation desires to foster its production within the bounds of the nation that the word 'tariff' is often used as if it were the only form of protection. For this reason we have entered rather more minutely than otherwise would have been necessary into the other methods of accomplishing the same object. They all increase the amount produced in some industries more than in others; they equally break the principles of laissez faire.
It is essential to keep in mind the theoretic similarity between a tariff law and a law providing for internal improvements. The economic principles which underlie a protective tariff are also the foundation of many other activities of the modern state, which all thinkers recognise as within the province of government, and the judicious exercise of which is universally conceded as absolutely essential to the welfare of the nation. The modern free-trader attempts to sever his theory of the necessary benefits to be derived from the freedom of international trade from that conception of the functions of the state which is usually called the doctrine of laissez faire. Yet to theoretically maintain his position on international trade it is necessary for him to establish a universal negative. He must show that any stimulation of an industry by government is always and necessarily bad. If government cannot aid particular industries by a tariff there is no reason why it should be permitted to do so in any other way. The argument for universal free trade is therefore not only fatal to protective tariffs, but to many internal improvements, as well as to many laws dealing with the public lands of a nation. Again, by realising the theoretic similarity of a tariff law and a law providing for an internal improvement, we shall avoid the mistake made by many that the indiscriminate stimulation of any industry that is not in a flourishing condition is the object of the protectionist. An internal improvement which cost more than the benefit it conferred would be an improvement only in name. It is only when such works increase the productive power of the nation that they are truly beneficial. In the same way, though a tariff or other protective law may stimulate many industries, it is only advisable if it increases the productive power of the people. The proof of protection as a theory lies in the demonstration of the possibility under given circumstances of increasing the productive power of a nation as a whole by the stimulation of a particular industry. The demonstration of the practicability of protection lies in the proof of the possibility of knowing, with reasonable certainty, when the circumstances are such as to render protection to an industry advisable.
In any investigation into the grounds on which protection is based we should distinguish between economic and political considerations. At different periods in the history of a nation there will be a great change in the relative importance of these factors. Even among purely economic considerations the alteration of conditions causes a change in the emphasis which will be placed on different arguments. Nothing shows this more clearly than an historical review of the various considerations which have induced the people of the United States to adopt and maintain their high tariff policy. During the first fifty years of their history the American people seem to have been greatly influenced by the thought that it is more patriotic to buy home-made articles than to import from abroad. They felt that in case of war the nation should be independent. The commercial relations of the period were by no means as close as they are to-day. This fact justly gave to this argument a prominence which would be unwarranted at the present time. In the early history of the United States a great deal of stress was also very properly laid on the argument for protection to infant industries. The argument is based on the fact that to establish an industry is always a slow and expensive process. Even if it is shown that when the industry is once established its products would be raised or made at home cheaper than they can be imported, it may still be impossible to start the industry without aid from the government, or without such aid its establishment may long be delayed. If it is an agricultural industry, for instance, capital may have to be expended in preparing land for cultivation, or the people may have to learn through many failures how to raise the particular crop or care for the breed of stock. There never has been an agricultural product introduced into any country without four-fifths of the people who first undertook to produce it abandoning its cultivation as unprofitable, only to take it up again when those more persistent or with more capital have demonstrated its practicability. No clearer proof can be found of the difficulty of introducing an industry, which as it is now established is immensely profitable, than in the history of hog-raising in the western part of the United States. For years one who could raise hogs was looked upon as having a peculiar gift, simply because the majority who attempted to do so failed to make hog-raising pay. The protectionist considers that where a nation is reasonably certain that, when the industry is once fairly established, the people can obtain the product of that industry more cheaply than they now import it from abroad, but at the same time the expense of starting or developing the industry is considerable, then it is advisable for the government to aid in its establishment. The particular character of the aid given must depend upon circumstances. It may be that what is necessary to develop an industry is to open a certain section of country. Under these circumstances protection will be often wisely extended through internal improvements such as canals and railroads. On the other hand, if the people do not understand the method of production, a tariff on its importation from abroad would probably be the best method of protection. It would temporarily raise the price, and thus, holding out the hope of high profits, induce the people to make the necessary experiments in production.
Another purely economic argument for a protective tariff, which was also especially urged during the first decades of American history, is the advantage of a market for the surplus products of the soil within the boundaries of the nation rather than in a foreign country. The foreign nation is usually supplied with the same agricultural product from other nations, and very likely raises the commodity itself. The price of the exported commodity and the demand for it therefore depend on the climatic conditions of the previous year in distant countries, and is subject to great fluctuations. The violence of the fluctuations is increased by the fact that the foreign nation usually confines its demand to one or two products. The prosperity of a purely agricultural state becomes dependent, therefore, not only on the climatic conditions of distant countries, but on the condition of one or, at most, two crops. The difficulty, of course, is to determine when the extent of the fluctuation in prices renders a trade unprofitable which is otherwise advantageous. A general rule cannot be given. Each case must be examined by itself.
Closely allied to the last argument is one originally advanced by Mr Carey. He urged that a nation should maintain the proper balance of its industries. This does not mean that a people should produce things for which the soil or climate of their country is totally unfit, but rather that a nation should grow and manufacture within its boundaries all things which are suitable to the country, irrespective of the fact that they may be imported more cheaply than they can be produced at home. The proper balance of industry depends upon physical and social conditions. The cheapness of production is not the only test of the advantages to be derived from the extension of an industry. Mr Carey depended upon historical evidence to support these propositions.
All these arguments arose at a time when the country was comparatively new. They are especially applicable to immature conditions. To a young country the harmonious development of its natural resources and internal trade are much more important considerations than the ability to supply foreign markets. The foreign demand may be limited, or the changes in economic conditions witnessed in a new country rapidly growing may render it in a short time unable to compete with other nations in the production of those commodities in which it first excelled. The United States having passed beyond immature conditions, it is but natural that the arguments on which protection was advocated during the earlier stages of the nation's history should be replaced by considerations applicable to older nations.
The problems which surround the development and settling of land and the starting of manufactories mark the first period of a people's life in a new country. But as soon as large sections are thoroughly settled the problems which surround the distribution of wealth become prominent. The United States has proved no exception to this rule. In the period since the civil war the idea of protection to American labour has had great weight with the mass of voters. In many instances the labourers engaged in the protected industries are receiving higher wages than those engaged in similar occupations in Europe.
It is argued that wages would be reduced if the protective system was abandoned. At the same time it may be contended that, if the adoption of free trade by the United States would throw a large number of labourers in the protected industries out of employment, these would seek other industries, and by their competition force down all wages. This is essentially an argument from the standpoint of distribution. Arguments from production, however, are by no means wanting. In fact they are daily becoming more prominent, though owing to changed economic conditions they differ widely from those which were advanced when the country was in the first stages of its development. In the earlier decades of their history the American people protected those industries which, when once established, would soon compete with any other nation. Temporary protection was all that was contemplated. Its object was to turn the industries of the country easily and quickly into those channels in which they were ultimately destined to flow.
But experience has shown the Americans that if it is desirable to continue many of their present industries protection must be continued long after the name of an 'infant industry' has ceased to be applicable. The American protectionist, therefore, must refute the fundamental position of the modern free-trader—viz. that the cheapness of each particular commodity is always for the benefit of the whole people. For it follows from this proposition that protection can never be justified which does not, within reasonable time, reduce the cost of the commodity protected, rendering the protection itself no longer necessary. The latest arguments of the protectionist have consequently been directed towards the disproof of this proposition. It is contended that there are definite classes of circumstances in which the stimulation of particular industries, even at the expense of an increase in price of the protected commodity, will result in increasing the productive power of the nation—that is, the increased ability of the people of the nation to satisfy their desires. The laws of political economy naturally fall under two heads, subjective and objective, according as they are deduced from an investigation into the nature of man himself and his desires, or into the nature of the physical world. In looking at the physical world one notices that different countries are suited to the production of different commodities. To force peaches to grow in Canada and wheat in Cuba would be a waste of energy. At the same time it is not less true that in every part of the world the total results will be larger where there is a varied production than if the inhabitants confined themselves to raising a single crop. Another fact in the physical world which profoundly affects agriculture is what is called by economists the law of diminishing returns. It is based on the limited nature of the natural resources of a country, especially for the growth of particular commodities. If there is more than a certain quantity of wheat demanded, for instance, all the good wheat-lands being exhausted, poorer wheat-lands, requiring the expenditure of more energy per bushel, will be used to cultivate that cereal. The amount of energy which will be necessary to obtain a loaf of bread does not depend on the average energy required to produce a bushel of wheat, but on the energy which is needed to produce that portion of the wheat crop which is grown on those acres least suited for its cultivation. For as all the wheat is sold at practically the same price, that price must be high enough to compensate those who have expended the greatest amount of energy in producing it. It follows from these considerations that it is of prime importance to the country that every part of the land should be put as far as possible to its best use—that is, growing that for which it is adapted. If any land is required to grow a commodity for which it is ill suited the amount of energy which the people have to expend in order to obtain that commodity is greatly increased. If a man is left to himself he will not always use the land in the best way. By the best use is not meant that use which enables the producer to obtain directly from the land what will be for him the greatest amount of food. It is rather that use which, taking into consideration the wants and products of the rest of the world, tends to make the inhabitants of the nation obtain directly or through exchange the greatest amount of production. The protectionist contends that the peculiar economic condition of the United States, for instance, would make the adoption of free trade result in a bad use of the natural agricultural resources of the country.
Thus of all the products of the United States wheat and cotton are alone those which Europe especially demands. In cotton the United States has practically a monopoly, and its exportation is not affected by the tariff. The cultivation of wheat, however, would be greatly increased by any step in the direction of free trade. Suppose the Americans removed the duty on iron, England would send to the United States more iron than she does at present, and would buy more wheat to pay for the iron. As a result of free iron, wheat would be grown even more than at present on lands unsuited for its cultivation. It would require more energy to obtain a loaf of bread, as what has to be given in exchange for a product must compensate for the energy expended on what is produced under the most disadvantageous circumstances. The amount, therefore, which the inhabitants of the country, in which term we include the farmers themselves, would have to give for wheat would be increased. At the same time it is acknowledged that with the removal of the tariff on iron the amount of energy required to obtain a definite quantity of iron would be decreased. The protectionist argues that the people, by seeking to increase their foreign trade at the expense of home industries, would lose as consumers more than they would gain. It will be seen that the solution of the question depends upon two factors. In the first place it depends upon the proportion which wheat bears to iron in the expenses of the average man. If, on the repeal of the tariff, iron falls 25 per cent., and wheat rises 5 per cent., but the average man spends fifteen times as much in wheat as in iron, free trade in iron has caused actual loss in production. The people find more difficulty in satisfying their desires. Secondly, the solution depends upon the physical conditions of the country in respect to its capacity for wheat-raising—how far an increased demand for wheat will cause lands less suited for wheat to be planted with that cereal. From the above it will be seen that advantages of protection depend upon the particular circumstances of each case.
There is another argument which likewise attacks the major premise of the free-trader, and on which the Americans are beginning to lay some stress. This owes its origin to the fact that the desires of the Americans are at present adapted to European conditions rather than to those of their own continent. The protectionist believes that government can aid in the unconscious adaptation of the individual citizen to his environment. This can be done by the second method of protection instanced in the first part of this article; that is to say, the imposition of burdens on the commodities which satisfy the same desires as the commodity one desires to protect. To illustrate this from the use of cotton and wool in clothing. The climate of England is much damper than that of the United States. Wet cotton fibre is a better conductor of heat than wet woolen fibre. It is absolutely essential that the Englishman should have in his clothing a large proportion of wool. At the same time, cotton being more easily obtained than wool, it is a waste of energy to use the latter where the former can be employed without danger to health. The dry climate of the greater part of the United States renders it possible for the people to employ with safety a larger proportion of cotton in their clothing than is advisable in England. But the Americans, instead of taking advantage of their environment, tend to copy the fashions of London. Thus the tariff on wool and woollens, besides being defended on the ground of the protection it affords the sheep raisers, is also advocated on the ground that it unconsciously causes the people to use a larger proportion of cotton.
This review of the last two arguments by which the protectionists in the United States have supported their policy shows something beside the fact that a change in economic conditions will produce a corresponding change in the influence of different arguments. It also shows that it is easy to imagine conditions, which at the same time are not unlikely to occur, in which the adoption of a protective policy, either through a tariff legislation, internal improvements, or bounties, will increase the productive power of the nation. The universal negative which asserts that under no circumstances can the interference with free competition increase productive power is disproved. Thus much has already been admitted by free-traders. But they contend that it is impossible for any one to tell exactly when a combination of circumstances exists which would render the protection of a particular industry advisable, and therefore it is better not to interfere with international competition. The argument admits that we can easily imagine whole classes of cases in which interference with free international competition in particular commodities would be highly beneficial, but objection is made to any action being taken, because we cannot tell exactly when it would be right to interfere. As a matter of fact, this argument is not aimed at protection, but against all changes in existing laws. If for a long series of years the policy of a nation has been to protect the iron industry, then according to this objection it has no right to adopt free trade in iron, because, while some may consider it desirable, that fact depends on circumstances which we can never exactly estimate or with absolute certainty determine. There is no intrinsic difference between the legislation for the purpose of increasing the productive power of the nation and developing its resources through a tariff and through an internal improvement. The action of men and of nations is based on probabilities. The best we can do at any time is that which we believe is most probably right. It is undeniable that it is more difficult to impose a proper tariff than to decide where a canal should be built. It may also be admitted that in some cases it is much more difficult to determine when protection is desirable than in others. Each case must be examined by itself. Any one who advocates a change in existing laws should have ground for believing that the change would be beneficial; but, believing that a change would be advantageous, he need not wait until he has arrived at absolute certainty before attempting to effect that change.
We have not attempted to answer many arguments of the free-trader. For the most part these arguments either go to show what the protectionist admits or disapproves of for which he never contends. One illustration of this last tendency will suffice. It is stated by the free-trader that protectionists desire a tariff or other protective law, because they think it will increase the amount of gold and silver coinage in the country. That there are many who do not realise that the value of the exports and imports always tend to balance each other must be allowed; but that many who are influenced by reason are protectionists because they think protection adds to the stock of the nation's gold and silver we cannot believe. The attempt to impose this argument on those who advocate a tariff is similar to that which would class the modern believer of a governmental policy which seeks to develop the natural resources of the country with the advocate of the mercantile system of the middle ages and its obsolete theory of the 'Balance of Trade.' This last was the belief that the only trade which is beneficial is that which at the end of a series of transactions showed a balance in money due by the foreign to the home country.
There is probably nothing in the science of economics more definitely settled than that the apparent balance of trade is no indication of its profitability to the nation.
The thought which truly underlies all protectionist arguments is that the government of the nation, being the chief among its social organisations, should not simply be the enforcer of civil order, but that it can and should aid in the advancement of the people and in the increase of their productive power. It is impossible, even if it were desirable, to increase simultaneously all the industries of the nation. Government aid to industry, if it comes at all, must come through protection to particular industries or classes of industries. The internal improvement as well as the tariff gives a greater stimulus to one occupation than to another. The advisability of such stimulation or protection does not depend upon the fact that it increases production along certain lines, but that it enables the people to satisfy their desires more easily. The protectionist does not claim that protection is always good, or that we can tell the precise moment when an internal improvement or a tariff becomes advisable, but he does claim that under certain circumstances great good can come to a nation from judicious aid to industry; and that, though we can never tell exactly when these circumstances exist, we can sometimes be as certain as of anything else in the domain of political science.
It is proper that mention should here be made of a theory which is popularly supposed to stand midway between free trade and protection—that of the fair-trader. Speaking broadly, it may be said that a believer in the fair-trade theory advocates freely opening the ports of his nation only to those countries which on their part admit, without restriction or tax, the products of his country. There are two senses in which this general attitude may be regarded. The first is essentially non-economic. It is an outcome of a sentiment for equality and equity, or an undefined feeling that a nation is conferring a benefit on another country when she admits the products of that country free of duty, and therefore she should not do so unless a corresponding advantage is given to her by the foreign nation. Nations, however, do not open or close their ports to foreign trade for the good of foreigners, but for their own advantage. A foreign government may exact a duty on our products when imported into their country, but this is no reason why we should or should not tax their products. On the other hand, if we regard the attitude of the fair-trader as denoting a belief that his government in treating with other governments should attempt to establish those commercial relations which are most advantageous to his country, his position is essentially that of a protectionist. It may often be advisable that a nation, for the sake of gaining an advantage in one direction, should forego an advantage in another. When this principle is applied to foreign relations it finds its practical expression in what are known as 'reciprocity treaties.' It is this policy which the protectionists in the United States are at present logically assuming in negotiating their commercial treaties with foreign nations.
See Henry Carey's works; History of American Protective System, by A. W. Young (1866); Protection, a Boon to Consumers (1867), and The Protective Question Abroad (1870), by J. L. Harges; Plea for Limited Protection, by Lord Bateman (1877; Amer. ed. 1878); An Argument for a Protective Tariff, by J. B. Wise (1880); Government Revenue, by Ellis H. Roberts (1884); Protection to Home Industry, by Robert Ellis Thompson (1886); The American Protectionist's Manual, by G. B. Stebbins (1888); The Economic Basis of Protection, by
Simon N. Patten (1890); Our Sheep and the Tariff, by the present writer (1891); Geo. B. Curtiss, Protection and Prosperity (1896).
[With the above article, by an American protectionist, Mr W. Draper Lewis, should be compared the article FREE TRADE, in Vol. IV., by Professor Shield Nicholson, written from the opposite point of view.]