CHAPTER VII.

PROTECTION.

Protection is protection against competition from outside. It does not say that home producers must for ever be subsidised. It uses generally the Infant Industry argument, which might, indeed, have some weight if it were not for the notorious fact that these infants never grow up. What does grow up is the Vested Interest, against which nothing short of an economic revolution can prevail.

ONE may very well deprecate the word Protection. In political theory we are accustomed to speak of External and Internal Protection as two recognised functions of government, and "Protection," without any qualifying adjective, seems to assume that, in the field of industry also, the honest citizen can put himself under a power which protects him against those who would do him wrong.

But the Protection with which we are dealing is not protection against evil doers: in spite of the militant expressions of many of its advocates, the foreigner who sends us cheap goods is not an evil doer. It is protection against Competition from outside, and therefore from Service from outside. It always seems to me remarkably like

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PROTECTION AGAINST CHEAPNESS CHAP.

that kind of protection which closes the entries of village sports against the, presumably, stronger outsider, and so secures the prizes-raised by subscription from the countryside, of course-to the villagers. And, being protection against competition, it is protection against Cheapnessprotection against Abundance.

Other nations want to send in their goods at what we may, roughly, call "cost price "-meaning cost plus carriage. The protected country says, "No, you shall not, because our people cannot produce so cheaply even when the 'natural protection' of distance is taken into account; they must not be undersold; they must be allowed to sell at their cost price." That is to say, the home consumer must pay a higher price in order to let the home producer sell his goods at all. For, if the protected country could make as cheaply or more cheaply, the argument for Protection would. disappear.

The rationale of the matter comes out in the absurd provision of the United States, that "works of art by American artists temporarily residing abroad are admitted free; all other works of art, including paintings, pastels, pen and ink drawings, and statuary, pay a duty of 20 per cent." American artists, evidently, are regarded by their government as tradesmen. No wicked nonsense of Art for Art's sake in that country. If Americans will buy pictures from Italy and France—well, they must pay for passing over their own countrymen. It is a very good illustration of the contagion of Protection: if a

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HOW PROTECTION PROTECTS

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people, with government funds and powers, protect one industry, they must protect all-even the professions! 1

How, then, does Protection protect?

Let us suppose that, in England and America, the cost price of equal goods is 100s. For clearness sake, let us disregard the additional cost of ocean carriage. America puts on a tariff of 50 per cent. To pay the exporter, then, English goods would require to be sold in America for 150s.

At this price, if the American goods are of equal quality, the English goods will not be sold at all. In this case, American producers find that they have the monopoly of their own market, and it would be contrary to all experience if they did not take advantage of it to raise their prices. So long as they can get something under 150s., they keep the English goods shut out, and that is all they want. This is certainly protection of American producers. But the question, of course, is, In

If

such a case where is the need of Protection? there were no tariff, the American would sell at 100S. and have his profit. Why penalise the American consumer to give the American producer an extra profit?

Take another extreme case. Suppose that the English cost price is 100s. and the American cost price 200s., and the tariff still 50 per cent. Then the English goods sell in America at 150s. The

1 But for this contagion, who would have expected that wine growers in France would be asking for bounties, or Aberdeen workers for a protective duty on foreign granite?

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INFANT INDUSTRY ARGUMENT

CHAP.

result, of course, is that the Americans cannot sell at all. The American consumer gets his goods cheap enough, but there is no American manufacture.

Take, lastly, the more likely case, that the English cost is 100s. and the American cost 150s., the tariff remaining 50 per cent. Then the English goods come in on an equal footing of competition with the American goods. The American consumer has, indeed, to pay 50 per cent. more for his goods than he need have paid if he had taken them all from England, but the American manufacturer has his profit, and his industry is "protected."

Of course if it were baldly put forward that a country should, permanently, pay a half more for its goods than it need pay, in order that certain home manufacturers may get a living, the claim would not be listened to by anyone. The nation would naturally ask, "Cannot we get on without these manufacturers; are there not other industries that do not need such a costly poorrate; would it not be wise to devote our labour and capital to these, taking the cheap goods from abroad with thanks?" And, certainly, a nation like America, which sends us every year some £127 millions, mostly the produce of her magnificent natural resources, would know that she had plenty of industries which need no protection, and that the exported products of these industries would pay for all the imports she wanted.

But this claim, of home producers to live permanently at the expense of home consumers, is

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INFANT INDUSTRY ARGUMENT

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not put forward in any such bare-faced manner. What is put forward is an argument that appeals to everyone on the face of it, and has even met with some countenance from economists, the Infant Industry argument.1 Here Protection is defended as a kind of Patent Law privilege, or Copyright for a certain limited period; or, to use a favourite metaphor, a kind of apprenticeship, during which the apprentice simply spoils things, and cannot earn a wage. It is the contention, not so much that manufactures are profitable per se, as that a varied industry is necessary to a nation's continuous growth, just as a varied diet is. Free Trade, it is said, would condemn a young country too long to mere exploitation of its natural resources, to the neglect of industries for which it is naturally fitted, or is, at least, under no disadvantage: these industries are prevented from taking root by this exclusive attention to what is easiest, or by some artificial or removable

1 This argument, unanimously adopted by American protectionists on the appearance of Alexander Hamilton's famous Report on Manufactures in 1791, was elaborated by Friedrich List in his National System of Political Economy, published 1841. Protection, he said, was a "national apprenticeship"; a stage in a nation's progress, not its final form. List is often quoted as an out-and-out Protectionist. He was nothing of the kind. He said, for instance, that the maintenance of Protection in England at the time he wrote was a mistake due to the stupidity of the ruling class. Going over the history of the great nations, he showed that they had all had this period of apprenticeship: first, Free Trade in the agricultural stage, when there were no separate manufactures on a great scale; then Protection; last, he said, should come Free Trade. The same ideas, and the same moderation, are found in Alexander Hamilton.