D.): Examination, of the plan of Mutual Taxation.

32. Suppose then that the industries and sections all begin to tax each other as we see that they do under protection. Is it not plain that the taxing operation can do nothing but transfer products, never by any possibility create them? The object of the protective taxes is to “effect the diversion of a part of the capital and labor of the country from the channels in which it would run otherwise.” To do this it must find a fulcrum or point of reaction, or it can exert no force for the effect it desires. The fulcrum is furnished by those who pay the tax Take a case. Pennsylvania taxes New England on every ton of iron and coal used in its industries. Ohio taxes New England on all the wool obtained from that state for its industries. New England taxes Ohio and Pennsylvania on all the cottons and woolens which it sells to them. What is the net final result? It is mathematically certain that the only result can be that (1) New England gets back just all she paid (in which case the system is nil, save for the expense of the process and the limitation it imposes on the industry of all), or, (2) that New England does not get back as much as she paid (in which case she is tributary to the others), or, (3) that she gets back more than she paid (in which case she levies tribute on them). Yet, on the protectionist notion, this system extended to all sections, and embracing all industries, is the means of producing national prosperity. When it is all done, what does it amount to except that all Americans must support all Americans? How can they do it better than for each to support himself to the best of his ability? Then, however, all the assumptions of protectionism must be abandoned as false.

33. In 1676 King Charles II. granted to his natural son, the Duke of Richmond, a tax of a shilling a chaldron on all the coal which was exported from the Tyne. We regard such a grant as a shocking abuse of the taxing power. It is, however, a very interesting case because the mine-owner and the tax-owner were two separate per. sons, and the tax can be examined in all its separate iniquity. If, as I suppose was the case, the Tyne valley possessed such superior facilities for producing coal that it had a qualified monopoly, the tax fell on the coal mine owner (landlord); that is, the king transferred to his son part of the property which belonged to the Tyne coal owners. In that view the case may come home to some of our protectionists as it would not if the tax had fallen on the consumers. If Congress had pensioned General Grant by giving him 75 cents a ton on all the coal mined in the Lehigh Valley, what protests we should have heard from the owners of coal lands in that district! If the king's son, however, had owned the coal mines, and worked them himself, and if the king had said: “I will authorize you to raise the price of your coal a shilling a chaldron, and, to enable you to do it, I will myself tax all coal but yours a shilling a chaldron,” then the device would have been modern and enlightened and American. We have done just that on emery, copper and nickel. Then the tax comes out of the consumer. Then it is not, according to the protectionist, harmful, but the key to national prosperity, the thing which corrects the errors of our incompetent sell will, and leads us up to better organization of our industry than we, in our unguided stupidity, could have made.

34. The protectionist says, however, that he is going to create an industry. Let us examine this notion also from his standpoint, assuming the truth of his doctrine, and see if we can find any thing to deserve confidence. A protective tax, according to the protectionist's definition (§ 13) “has for its object to effect the diversion of a part of the labor and capital of the people * * * into channels favored or created by law.” If we follow out this proposal, we shall see what those channels are, and shall see whether they are such as to make us believe that protective taxes can increase wealth.

35. What is an industry? Some people will answer: It is an enterprise which gives employment. Protectionists seem to hold this view, and they claim that they “give work” to laborers when they make an industry. On that notion we live to work; we do not work to live. But we do not want work. We have too much work. We want a living; and work is the inevitable but disagreeable price we must pay. Hence we want as much living at as little price as possible. We shall see that the protectionist does “make work” in the sense of lessening the living and increasing the price. But if we want a living we want capital. If an industry is to pay wages, it must be backed up by capital. Therefore protective taxes, if they were to increase the means of living, would need to increase capital. How can taxes increase capital? Protective taxes only take from A to give to B. Therefore, if B by this arrangement can extend his industry and “give more employment,” A's power to do the same is diminished in at least an equal degree. Therefore, even on that erroneous definition of an industry, there is no hope for the protectionist.

36. An industry is an organization of labor and capital for satisfying some need of the community. It is not an end in itself. It is not a good thing to have in itself. It is not a toy or an ornament. If we could satisfy our needs without it we should be better off, not worse off. How then can we create industries?

37. If any one will find, in the soil of a district, some new power to supply human needs, he can endow that district with a new industry. If he will invent a mode of treating some natural deposit, ore or clay for instance, so as to provide a tool or utensil which is cheaper and more convenient than what is in use, he can create an industry. If he will find out some new and better way to raise cattle or vegetables, which is, perhaps, favored by the climate, he can do the same. If he invents some new treatment of wool, or cotton, or silk, or leather, or makes a new combination which produces a more convenient or attractive fabric, he may do the same. The telephone is a new industry. What measures the gain of it? Is it the “employment” of certain persons in and about telephone offices? The gain is in the satisfaction of the need of communication between people at less cost of time and labor. It is useless to multiply instances. It can be seen what it is to “create an industry.” It takes brains and energy to do it. How can taxes do it?

38. Suppose that we create an industry even in this sense, What is the gain of it? The people of Connecticut are now earning their living by employing their labor and capital in certain parts of the industrial organization. They have changed their “industries” a great many times. If it should be found that they had a new and better chance hitherto undeveloped, they might all go into it. To do that they must abandon what they are now doing. They would not change unless gains to be made in the new industry were greater. Hence the gain is the difference only between the profits of the old and the profits of the new. The protectionists, however, when they talk about “creating an industry,” seem to suppose that the total profit of the industry (and some of them seem to think that the total expenditure of capital) measures their good work. In any case, then, even of a true and legitimate increase of industrial power and opportunity, the only gain would be a margin. But, by our definition, “a protective duty 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 otherwise run.” Plainly this device involves coercion. People would need no coercion to go into a new industry which had a natural origin in new industrial power or opportunity. No coercion is necessary to make men buy dollars at 98 cents apiece. The case for coercion is when it is desired to make them buy dollars at 101 cents apiece. Here the states” man with his taxing power is needed, and can do something. What? He can say: “If you will buy a dollar at 101 cents, I can and will tax John over there two cents for your benefit; one to make up your loss and the other to give you a profit.” Hence, on the protectionist's own doctrine, his device is not needed, and can not come into use, when a new industry is created in the true and only reasonable sense of the words, but only when and because he is determined to drive the labor and capital of the country into a disadvantageous and wasteful employment.

39. Still further, it is obvious that the protectionist, instead of “creating a new industry,” has simply taken one industry and set it as a parasite to live upon another. Industry is its own reward. A man is not to be paid a premium by his neighbors for earning his own living. A factory, an insane asylum, a school, a church, a poor-house, and a prison can not be put in the same economic category. We know that the community must be taxed to support insane asylums, poor-houses, and jails. When we come upon such institutions we see them with regret. They are wasting capital. We know that the industrious people all about, who are laboring and producing, must part with a portion of their earnings to supply the waste and loss of these institutions. Hence the bigger they are the sadder they are.

40. As for the schools and churches, we know that society must pay for and keep up its own conservative institutions. They cost capital and do not pay back capital directly, although they do indirectly, and in the course of time, in ways which we could trace out and verify, if that were our subject. Here, then, we have a second class of institutions.

41. But the factories and farms and foundries are the productive institutions which must provide the support of these consuming institutions. If the factories, etc., put themselves on a line with the poor-houses, or even with the schools, what is to support them and all the rest too? They have nothing behind them. If in any measure or way they turn into burdens and objects of care and protection, they can plainly do it only by part of them turning upon the other part, and this latter part will have to bear the burden of all the consuming institutions, including the consuming industries. For a protected factory is not a producing industry. It is a consuming industry! If a factory is (as the protectionist alleges) a triumph of the tariff, that is, if it would not be but for the tariff (and otherwise he has nothing to do with it), then it is not producing; it is consuming. It is a burden to be borne. The bigger it is the sadder it is.

42. If a protectionist shows me a woolen mill and challenges me to deny that it is a great and valuable industry, I ask him whether it is due to the tariff. If he says no, then I will assume that it is an independent and profitable establishment, but then it is out of this discussion as much as a farm or a doctor's practice. If he says yes, then I answer that the mill is not an industry at all. We pay sixty per cent. tax on cloth simply in order that that mill may be. It is not an institution for getting us cloth, for, if we went into the market with the same products which we take there now and if there were no woolen mill, we should get all the cloth we want, but the mill is simply an institution for making cloth cost per yard sixty per cent. more of our products than it otherwise would. That is the one and only function which the mill has added, by its existence, to the situation. I have called such a factory a “nuisance.” The word has been objected to. The word is of no consequence. He who, when he goes into a debate, begins to whine and cry as soon as the blows get sharp, should learn to keep out. What I meant was this: A nuisance is something which by its existence and presence in society works loss and damage to the society—works against the general interest, not for it. A factory which gets in the way and hinders us from attaining the comforts which we are all trying to get,—which makes harder the terms of acquisition when we are all the time struggling by our arts and sciences to make those terms easier, is a harmful thing, and noxious to the common interest.

43. Hence, once more, starting from the protectionist's hypothesis, and assuming his own doctrine, we find that he can not create an industry. He only fixes one industry as a parasite upon another, and just as certainly as he has intervened in the matter at all, just so certainly has he forced labor and capital into less favorable employment than they would have sought if he had let them alone. When we ask which “channels” those are which are to be “favored or created by law,” we find that they are, by the hypothesis, and by the whole logic of the protectionist system, the industries which do not pay. The protectionists propose to make the country rich by laws which shall favor or create these industries, but these industries can only waste capital, so that if they are the source of wealth, waste is the source of wealth. Hence the protectionist's assumption that by his system he could correct our errors and lead us to greater prosperity than we would have obtained under liberty, has failed again, and we find that he wastes what power we do possess.

44. “But,” says the protectionist, “do you mean to say that, if we have an iron deposit in our soil, it is not wise for us to open and work it?” “You mean, no doubt,” I reply, “open and work it under protective help and stimulus; for, if there is an iron deposit, the United States does not own it. Some man owns it. If he wants to open and work it, we have nothing to do but wish him God-speed.” “Very well,” he says, “understand it that he needs protection.” Let us examine this case then, and still we will do it assuming the truth of the protectionist doctrine. Let us see where we shall come out.

The man who has discovered iron (on the protectionist doctrine), when there is no tax, does not collect tools and laborers and go to work. He goes to Washington. He visits the statesman, and a dialogue takes place.

Iron man.—“Mr. Statesman, I have found an iron deposit on my farm.”

Statesman.—“Have you, indeed? That is good news. Our country is richer by one new natural resource than we have supposed.”

Iron man.—“Yes, and I now want to begin mining iron.”

Statesman.—“Very well, go on. We shall be glad to hear that you are prospering and getting rich.”

Iron man.—“Yes, of course. But I am now earning my living by tilling the surface of the ground, and I am afraid that I can not make as much at mining as at farming.”

Statesman.—“That is indeed another matter. Look into that carefully and do not leave a better industry for a worse.”

Iron man.—“But I want to mine that iron. It does not seem right to leave it in the ground when we are importing iron all the time, but I can not see as good profits in it at the present price for imported iron as I am making out of what I raise on the surface. I thought that perhaps you would put a tax on all the imported iron so that I could get more for mine. Then I could see my way to give up farming and go to mining.”

Statesman.—“You do not think what you ask. That would be authorizing you to tax your neighbors, and would be throwing on them the risk of working your mine, which you are afraid to take yourself.”

Iron man (aside).—“I have not talked the right dialect to this man. I must begin all over again. (Aloud). Mr. Statesman, the natural resources of this continent ought to be developed. American industry must be protected. The American laborer must not be forced to compete with the pauper labor of Europe.”

Statesman.—“Now I understand you. Now you talk business. Why did you not say so before? How much tax do you want?”

The next time that a buyer of pig iron goes to market to get some, he finds that it costs thirty bushels of wheat per ton instead of twenty.

“What has happened to pig-iron?” says he.

“Oh! haven't you heard?” is the reply. “A new mine has been found down in Pennsylvania. We have got a new ‘natural resource.’”

“I haven't got a new ‘natural resource,’” says he. “It is as bad for me as if the grasshoppers had eaten up one.third of my crop.”

45. That is just exactly the significance of a new resource on the protectionist doctrine. We had the misfortune to find emery here. At once a tax was put on it which made it cost more wheat, cotton, tobacco, petroleum, or personal services per pound than ever before. A new calamity befell us when we found the richest copper mines in the world in our territory. From that time on it cost us five (now four) cents a pound more than before. By another catastrophe we found a nickel mine, thirty cents (now fifteen) a pound tax! Up to this time we have had all the tin that we wanted above ground, because beneficent nature has refrained from putting any underground in our territory. In the metal schedule, where the metals which we unfortunately possess are taxed from forty to sixty per cent., tin alone is free. Every little while a report is started that tin has been found. Hitherto these reports have happily all proved false. It is now said that tin has been found in West Virginia and Dakotah. We have reason to devoutly hope that this may prove false, for, if it should prove true, no doubt the next thing will be forty per cent. tax on tin. The mine-owners say that they want to exploit the mine. They do not. They want to make the mine an excuse to exploit the taxpayers.

46 . Therefore, when the protectionist asks whether we ought not by protective taxes to force the development of our own iron mines, the answer is, that, on his own doctrine, he has developed a new philosophy, hitherto unknown, by which “natural resources” become national calamities, and the more a country is endowed by nature the worse off it is. Of course, if the wise philosophy is not simply to use, with energy and prudence, all the natural opportunities which we possess, but to seek “channels favored or created by law,” then this view of natural resources is perfectly consistent with that philosophy, for it is simply saying over again that waste is the key of wealth.

47. “But,” he says again, “we want to raise wages and favor the poor working man.” “Do you mean to say,” I reply, “that protective taxes raise wages—that that is their regular and constant effect?” “Yes,” he replies, “that is just what they do, and that is why we favor them. We are the poor man's friends. You free-traders want to reduce him to the level of the pauper laborers of Europe.” “But here, in the evidence offered at the last tariff discussion in Congress, the employers all said that they wanted the taxes to protect them because they had to pay such high wages.” “Well, so they do.” “Well then, if they get the taxes raised to help them out when they have high wages to pay, how are the taxes going to help them any unless the taxes lower wages? But you just said that taxes raise wages. Therefore, if the employer gets the taxes raised, he will no sooner get home from Washington than he will find that the very taxes which he has just secured have raised wages. Then he must go back to Washington to get the taxes raised to offset that advance, and when he gets home again he will find that he has only raised wages more, and so on forever. You are trying to teach the man to raise himself by his boot straps. Two of your propositions brought together eat each other.”

48. We will, however, pursue the protectionist doctrine of wages a little further. It is totally false that protective taxes raise wages. As I will show further on (§ 91 and following), protective taxes lower wages. Now, however, I am assuming the protectionist's own premises and doctrines all the time. He says that his system raises wages. Let us go to see some of the wages class and get some evidence on this point. We will take three wage-workers, a boot-man, a hat-man, and a cloth-man. First we ask the boot-man, “Do you win any thing by this tariff?” “Yes,” he says, “I understand that I do.” “How?” “Well, the way they explain it to me is that when any body wants boots he goes to my boss, pays him more on account of the tax, and my boss gives me part of it.” “All right! Then your comrades here, the hat-man and the cloth-man, pay this tax in which you share?” “Yes, I suppose so. I never thought of that before. I supposed that rich people paid the taxes, but I suppose that when they buy boots they must do it too.” “And when you want a hat you go and pay the tax on hats, part of which (as you explain the system) goes to your friend the hat-man; and when you want cloth you pay the tax which goes to benefit your friend the cloth-man?” “I suppose that it must be so.” We go then to see the hat-man and have the same conversation with him, and we go to see the cloth-man and have the same conversation with him. Each of them then gets two taxes and pays two taxes. Three men illustrate the whole case. If we should take a thousand men in a thousand industries we should find that each paid 999 taxes, and each got 999 taxes, if the system worked as it is said to work. What is the upshot of the whole? Either they all come out even on their taxes paid and received, or some of the wage receivers are winning something out of other wage receivers to the net detriment of the whole class. If each man is creditor for 999 taxes, and each debtor for 999 taxes, and if the system is “universal and equal,” we can save trouble by each drawing 999 orders on the creditors to pay to themselves their own taxes, and we can set up a clearing house to wipe off all the accounts. Then we come down to this as the net result of the system when it is “universal and equal,” that each man as a consumer pays taxes to himself as a producer. That is what is to make us all rich. We can accomplish it just as well and far more easily, when we get up in the morning, by transferring our cash from one pocket to the other.

49. One point, however, and the most important of all, remains to be noticed. How about the thousandth tax? How is it when the boot-man wants boots, and the hat-man hats, and the cloth-man cloth? He has to go to the store on the street and buy of his own boss, at the market price (tax on) the very things which he made himself in the shop. He then pays the tax to his own employer, and the employer, according to the doctrine, “shares” it with him. Where is the offset to that part which the employer keeps? There is none. The wages-class, even on the protectionist explanation, may give or take from each other, but to their own employers, they give and take not. At election time the boss calls them in and tells them that they must vote for protection or he must shut up the shop, and that they ought to vote for protection, because it makes their wages high. If, then, they believe in the system, just as it is taught to them, they must believe that it causes him to pay them big wages, out of which they pay back to him big taxes, out of which he pays them a fraction back again, and that, but for this arrangement, the business could not go on at all. A little reflection shows that this just brings up the question for a wage-earner: How much can I afford to pay my boss for hiring me? or, again, which is just the same thing in other words: What is the net reduction of my wages below the market rate under freedom which results from this system? (see § 65).

50. Let it not be forgotten that this result is reached by accepting protectionism and reasoning forward from its doctrines and according to its principles. In truth, the employés get no share in any taxes which the boss gets out of them and others (see § 91 fg. for the truth about wages). Of course, when this or any other subject is thoroughly analyzed, it makes no difference where we begin or what line we follow, we shall always reach the same result if the result is correct. If we accept the protectionist's own explanation of the way in which protection raises wages we find that it proves that protection lowers wages.

51. The protectionist says that he does not want the American laborer to compete with the foreign “pauper laborer” (see § 99). He assumes that if the foreign laborer is a woolen operative, the only American who may have to compete with him is a woolen operative here. His device for saving our operatives from the assumed competition is to tax the American cotton or wheat grower on the cloth he wears, to make up and offset to the woolen operative the disadvantage under which he labors. If then, the case were true as the protectionist states it, and if his remedy were correct, he would, when he had finished his operation, simply have allowed the American woolen operative to escape, by transferring to the American cotton or wheat grower the evil results of competition with “foreign pauper labor.”