XVII. Protection and Producers

CHAPTER XVII. PROTECTION A.1.~D PRODUCERS. '!'HE primary purpose of protection is to encourage producers*-that is to say, to increase the profits of capital engaged in certain branches of industry. The protective t1:eory is that the increase a protective duty causes in the price at which an imported commodity can be sold within. the country, protects the hOlne pro ducer (i.e., the man on whose account commodities are produced for sale) from foreign competition, so as to encourage him by larger profits than he could otherwise get to engage in or increase production. All the bene. ficial effects claimed for protection depend upon its effect in thus encouraging the elnploying producer, just as all the effects produced by the motion of an enginellpon the complicated machinery of a factory are dependent upon its effect in turning the main driving-wheel. The main driving-wheel (so to speak) of the protective theory is that protection inereases the profits of the protected producer.

But when, assuming this, the opponents of protection represent the whole class of protected producers as grow'* For want of a better term I have here used the word "pro ducers" in that limited sense in which it. is applied to those who control capital and employ labor engaged in production. The industries protected by our tariff are (with perhaps some nominal exceptions) of the kind carried Oil in this way. 166 PROTEGTION AND PRODUCERS. 167 ing rich at the expense of their fellow-citizens, they ,are ~ontradicted by obvious facts. Business men well know that in our long-protected industries the margin of profit is as small and the chances of failure as great· as in ,any others--- if, in fact, those protected, industries are not harder to win success in by reason of the more trying fluctuations to which they are subject. The reason why protection inmost cases thus fails to encourage is not difficult to see.

The cost of any protective duty to the people at large is (1), the tax collected upon imported goods, plus the profits upon the tax, plus the expense and profits of smuggling in all its forms; plus' the expense of sometimes trying smugglers of the coarser 'sort, and occasionally sending 3, poor and friendless one to the penitentiary; plus bribes and moieties received by government officers; and (2), the additional prices that must be paid for the products of the protected home industry. It is from this second part alone that the protected industry can get its encouragement. But only a part of this part of what the people at large pay is real encour~ agement. In the first place, it is true of protective duties, as it is true of direct subsidie~, that they cannot be had for nothing. Just as the Pacific Mail Steamship Company and the various land-and bond-grant railways had to expend large sums to secure representation at Washington, and had to divide handsomely with the Washington lobby, so the cost of securing Congres sional " recognition" for an infant industry, or fighting off threatened reductions in its "encouragement," and looking after every. new. tariff bill, is a considerable item.

But still more important is the absolute loss in carrying on industries so unprofitable in themselves that they can be maintained only by subsidies. And to this loss must be added the waste that seems inseparable from govern168 PROTECTION OR FRE~ TRADE' mental fosterage, for just in proportion as industries are sheltered from competition are they slow to avail them selves of improvements in machinery and methods.* Out of the encouragement which the tariff beneficiaries receive in higher prices, much must thus be consumed, so that the net encouragement is only a small fraction of what consumers pay. Taking encouraged producers and taxed consumers together there is an enormous loss. Hence in all cases in which duties are imposed for the benefit of any particular industry the discouragement to industry in general must be greater than the encourage ment of the· particular industry. So long, however, as the one is spread over a large surface and the other over a sUlall surface, the encouragement is more marked than the discouragement, and the disadvantage imposed on all industry does not much affect the few subsidized industries.

But to introduce a tariff bill into a congress or parlia ment is like throwing a banana into a cage of monkeys. No sooner is it proposed to protect one industry than all the industries that are capable of protection begin to screech and scramble for it. They are, in fact, forced to do so, for to be left out of the encouraged ring is neces sarily to be discouraged. The result is, as we see in the if This disposition is, of course, largely augmented by the greater cost of machinery under our protective tariff, which not only increases the capital required to begin, but makes the constant discarding of old machinery and purchase of new, required to keep up with the march of invention, a much more serious ms.tter. Case8 have occurred in which British manufacturers, compelled by com petition to adopt the latest improvements, have actually sold their discarded machinery to be shipped to the United States and used by protected Americans. It was his coming p,eross a case of this kind that led David A. Wells, when he visited Europe as Special Com..

missioner of Revenue, to begin to question the usefulness of on? tariff in promoting American industry.

PROTECTION AND PRODUCERS. 169 United States, that they all get protected, some more: and some less, according to the money they can spend and the political influence they can exert. Now everY' tax that raises prices for the encouragement of one~ industry must operate to discourage all other industries; into which the products of that industry enter. Thus a; duty that raises the price of lumber necessarily. discour ages the industries which make use of lumber, from those connected with the building of houses and ships to those engaged in the making of matches and wooden tooth picks; a duty that raises the price of iron discourages the innumerable industries into which iron enters; & duty that raises the price of .salt discourages the dairy-· man and the fisherman; a duty that raises the price of' sugar discourages the fruit-preserver, the maker of .:;yrupsand cordials, and so on. Thus it is evident that \'very additional industry protected lessens the· eneour·· agement of those already protected. And since the net ~ncouragement that tariff beneficiaries can receive asa whole is very much less than the aggregate additiont() prices required to secure it, it is evident that the point at which protection will cease to give any advantage to the protected must be much short of that at which everyone' is protected. To illustrate: Say that the total number of industries is one hundred, of which one-half are capable of protection. Let us say that of what the pro tection costs, one-fourth is realized by the protected industries. Then (presuming equality), as soon as twenty five industries 0 btainprotection, the protection can be of no benefit even to them, while, of course, involving ft heavy discoura,gement to all the rest.

I use this illustration merely to show that there is a point at which protection must cease to benefit even th~ industries it strives to encourage, not that I think it .possible to give numerical. exactness to such matters.