Protectionism: The -ism Which Teaches That Waste Makes Wealth
D.): Definition of Free Trade and of a Protective Duty.
19th Century William Graham Sumner EnglishWhat then is a protective tax? In order to join issue as directly as possible, I will quote the definition given by a leading protectionist journal, of both free trade and protection. “The term free trade, although much discussed, is seldom rightly defined. It does not mean the abolition of custom houses. Nor does it mean the substitution of direct for indirect taxation, as a few American disciples of the school have supposed. It means such an adjustment of taxes on imports as will cause no diversion of capital, from any channel into which it would otherwise flow, into any channel opened or favored by the legislation which enacts the customs. A country may collect its entire revenue by duties on imports, and yet be an entirely free trade country, so long as it does not lay those duties in such a way as to lead any one to undertake any employment, or make any investment he would avoid in the absence of such duties; thus, the customs duties levied by England—with a very few exceptions—are not inconsistent with her profession of being a country which believes in free trade. They either are duties on articles not produced in England, or they are exactly equivalent to the excise duties levied on the same articles if made at home. They do not lead any one to put his money into the home production of an article, because they do not discriminate in favor of the home producer.”
“A protective duty, on the other hand, has for its object to effect the diversion of a part of the capital and labor of the people out of the channels in which it would run otherwise, into channels favored or created by law.”
I know of no definitions of these two things which have ever been made by any body which are more correct than these. I accept them and join issue on them.
It will be noticed that this definition of a protective duty says nothing about foreigners or about imports. According to this definition, a protective duty is a device for effecting a transformation in our own industry. If a tax is levied at the port of entry on a foreign commodity which is actually imported, the tax is paid to the treasury and produces revenue. A protective tax is one which is laid to act as a bar to importation, in order to keep a foreign commodity out. It does not act protectively unless it does act as a bar, and is not a tax on imports but an obstruction to imports. Hence a protective duty is a wall to inclose the domestic producer and consumer, and to prevent the latter from having access to any other source of supply for his needs, in exchange for his products, than that one which the domestic producer controls. The purpose and plan of the device is to enable the domestic producer to levy on the domestic consumer the taxes which the government has set up as a barrier, but has not collected at the port of entry. Under this device the government says: “I do not want the revenue, but I will lay the tax so that you, the selected and favored producer, may collect it.” “I do not need to tax the consumer for myself, but I will hold him for you while you tax him.”
There are some who say that “a tariff is not a tax,” or as one of them said before a Congressional Committee: “We do not like to call it so!” That certainly is the most humorous of all the funny things in the tariff controversy. If a tariff is not a tax, what is it? In what category does it belong? No protectionist has ever yet told. They seem to think of it as a thing by itself, a Power, a Force, a sort of Mumbo Jumbo whose special function it is to produce national prosperity. They do not appear to have analyzed it, or given themselves an account of it, sufficiently to know what kind of a thing it is or how it acts. Any one who says that it is not a tax must suppose that it costs nothing, that it produces an effect without an expenditure of energy. They do seem to think that if Congress will say: “Let a tax of—per cent. be laid on article A,” and if none is imported, and therefore no tax is paid at the custom house, national industry will be benefited and wealth secured, and that there will be no cost or outgo. If that is so, then the tariff is magic. We have found the philosopher's stone. Our congressmen wave a magic wand over the country and say: “Not otherwise provided for, 150 per cent.,” and, presto! there we have wealth. Again they say: “Fifty cents a yard and fifty per cent. ad valorem;” and there we have prosperity! If we should build a wall along the coast to keep foreigners and their goods out, it would cost something. If we maintained a navy to blockade our own coast for the same purpose, it would cost something. Yet it is imagined that if we do the same by a tax it costs nothing.
This is the fundamental fallacy of protection to which the analysis will bring us back again and again. Scientifically stated it is that. protectionism sins against the conservation of energy. More simply stated it is that the protectionist either never sees or does not tell the other side of the account, the cost, the outlay for the gains which he alleges from protection, and that when these are examined and weighed they are sure to vastly exceed the gains, if the gains were real, even taking no account of the harm to national growth which is done by restriction and interference.
There are only three ways in which a man can part with his product, and different kinds of taxes fall under different modes of alienating one's goods. 1st. He may exchange his product for the product of others. Then he parts with his property voluntarily, and for an equivalent. Taxes which are paid for peace, order and security, fall under this head. 2d. He may give his product away. Then he parts with it voluntarily without an equivalent. Taxes which are voluntarily paid for schools, libraries, parks, etc.,etc., fall under this head. 3d. He may be robbed of it. Then he parts with it involuntarily and without an equivalent. Taxes which are protective fall under this head. The analysis is exhaustive, and there is no other place for them. Protective taxes are those which a man pays to his neighbor to hire him (the neighbor) to carry on his own business. The first man gets no equivalent (§ 108). Hence any one who says that a tariff is not a tax would have to put it in some such category as tribute, plunder, or robbery. In order, then, that we may not give any occasion for even an unjust charge of using hard words, let us go back and call it a tax.
In any case it is plain that we have before us the case of two Americans. The protectionists who try to discuss the subject always go off to talk English politics and history, or Ireland, or India, or Turkey. I shall not follow them. I shall discuss the case between two Americans, which is the only case there is. Whether Englishmen like our tariff or not is of no consequence. As a matter of fact, Englishmen seem to have come to the opinion that if Americans will take their own home market as their share, and will keep out of the world's market, they (the Englishmen) will agree to the arrangement; but it is immaterial whether they agree, or are angry. The only question for us is: What kind of an arrangement is it for one American to tax another American? How does it work? Who gains by it? How does it affect our national prosperity? These and these only are the questions which I intend to discuss.
I shall adopt two different lines of investigation. First, I shall examine protectionism on its own claims and pretensions, taking its doctrines and claims for true, and following them out to see whether they will produce the promised results; and second, I shall attack protectionism adversely, and controversially. If anyone proposes a device for the public good, he is entitled to candid and patient attention, but he is also under obligation to show how he expects his scheme to work, what forces it will bring into play, how it will use them, etc. The joint stock principle, credit institutions, coöperation, and all similar devices must be analyzed and the explanation of their advantage, if they offer any, must be sought in the principles which they embody, the forces they employ, the suitableness of their apparatus. We ought not to put faith in any device (e. g. bi-metalism, socialism) unless the proposers offer an explanation of it which will bear rigid and pitiless examination; for, if it is a sound device, such examination will only produce more and more thorough conviction of its merits. I shall therefore first take up protectionism just as it is offered, and test it, as any candid inquirer might do, to see whether, as it is presented by its advocates, it has any claims to confidence.