THE POLICY OF A PROTECTIVE TARIFF § 1. Military and political motives for inteference with trade. I 2. Revenue and protective tariffs. § 3. Growth of a protective system. § 4. The infant-industry argument. § 5. The home-market argu ment. § 6. The "two-profits" argument. § 7. The balance-of-trade argument. § 8. The claim that protection raises wages. § 9. Tariffs and unemployment. § 10. Exports and exhaustion of the soil. § 11. Protection as a monopoly measure. § 12. Equalizing "costs of produc tion." § 13. Tariff legislation and business depressions. § 14 Harm of sudden tariff reductions. § 15. Some lessons from our tariff history.
§ 1. Military and political motives for interference with trade. The considerations set forth in the last chapter raise a strong presumption in favor of the sovereign state permit ting its citizens to trade freely across its boundaries, as the best way to further their own prosperity and, on the whole and in the long run, that of the nation. Indeed, this pre sumption and belief has been held by nearly all serious stu dents of the question, with more or less of modifications and qualifications, ever since Adam Smith published his work on the "Wealth of Nations" in But in conflict with this belief has been the all but unanimous policy of nations from early times, throughout the Middle Ages, and down to this day, of interposing some special hindrances (of varying de grees and kinds) to this kind of trade. Sometimes this has been done by prohibitions, but more often by taxes imposed upon either imports or exports. Sometimes the attempt is made to justify the policy of governmental interference with foreign trade by arguments which crumble before the slight est examination, and again it is admitted that free trade is 1 See ch. 3, § 12 and § 13.
246 true in theory, but it is declared to be false in practice. The latter view is not to be entertained for a moment. If free trade in theory (as an explanation) is complete and true, it will in practice (as a plan of action) be sound and workable. In truth, however, the practical policy of governmental inter ference with foreign trade has always in part rested on other than simple economic grounds.
Interference with free trade with the foreigner has always been in large measure due to political motives. In every
petty medieval state or self-governing city, the aim was to make the economic boundaries coincide as nearly as possible with the political boundaries. Except for the trade in a few articles of comparative luxury, this aim was at that time nearly attainable. The peasantry surrounding a fortified town and enjoying its protection were compelled to trade there. Down to our own time it has seemed to statesmen ex pedient to forbid or discourage trade that might nourish the economic power of future enemies. Sometimes governments have used embargoes, bounties, or tariffs as weapons to injure the trade of other nations and to secure diplomatic or com mercial concessions. Often they have sought by tariffs to encourage the building of ships and the manufacture of arma ments and of all kinds of munitions by private enterprise within their own borders, even when the immediate cost of these products was greater than if they were purchased abroad. In such cases it is always a question whether an outright expenditure would not be better, whether the govern ment could not build its own arsenals and shipyards more economically than it can foster private enterprise by means of a protective tariff. However, the political (or military) argument for protection recognizes that it is in itself a costly (not a profitable) policy, and that the cost is justified only on the grounds that military necessity warrants the outlay.
The military argument as applied to the preparation of ships and munitions has no application to a tariff on those articles that have no bearing upon military power. But the most recent application of chemistry, physics, and the mechanical arts to the uses of war has given new significance to a larger policy of industrial preparedness for military purposes. The year 1914 probably ushered in for the world a new epoch of protective and discriminatory tariff legis lation determined by political rather than by direct economic considerations. Yet it is possible that if the nations agree to limit armaments they will, at the same time, move toward freer trade and the open-door policy.