The home-market appeal is strongest when addressed not to all farmers, but to one class of farmers—those whose lands are situated nearer the manufacturing cities. As city popu lation grows, some land is converted from the extensive cul tivation of corn. and wheat to dairying, fruit- and market. gardening in the neighborhood of cities, and perhaps at length is used for factory sites or as city lots. There is. thus, a partial validity in the argument as applied to a compara tively small number of farmers, who gain as landlords, not as tillers of the soil. Even greater gains have sometimes been reaped by the owners of timber-lands, ore-mines, coal lands, and other natural resources, the values of which have been raised by tariff legislation. But, unless these gains come from truly productive additions due to the tariff, there is no benefit to the community as a whole.
§ 6. The "two-profits" argument. Somewhat related to this idea of the home-market and the saving of two freights is the "two-profits" argument. It is said that the tariff keeps "two profits" at home; foreign trade gives but one. The word "profits" is here used in the popular sense of gain from a single transaction. Both parties are said to profit, and both profits are thought to be secured at home when two citizens are forced to trade with each other. The view that there are "two profits" in a trade is an advance upon the notion that "one man's gain is another's loss," 3 but there is an error in elementary arithmetic here, both as to the num ber and as to the aggregate amount of profits. The pur pose of a protective tariff is to compel two citizens of a country to trade with each other instead of trading with two citizens of a foreign state; the number of profits made by each 3 See ch. 15, § 1.
country is therefore not increased by substituting domestic for foreign trade.
What, then, as to individual size and aggregate amount of the profits? The gain is not the same in all trades; the trade is made if there is a gain to each party, no matter how small it is; but the generous "profit" on one transaction where the conditions of the two parties are very different may be greater than the total of petty gains on a dozen trades between two traders of evenly matched powers. Indeed, the greater the difference in the conditions and capacities of two groups of traders, the greater is the sum of the profits that they may secure through the members of each group trad ing with those of the other, rather than by the members of each group trading only among themselves. Can it safely be assumed that every trade with a foreigner is less advan tageous than one with a fellow citizen? Diamond cuts diamond, but two Yankees left to themselves should not be worsted in bargains with the universe. If they could ex change to better advantage with each other, they probably would discover it as soon as the interested manufacturers and political orators who can prove so eloquently that they know the other man's business better than he knows it himself.
Forcing the home trade by making our citizens trade with each other, whether both wish or not, may be to the advan tage of one citizen, but it is not likely to be to the advantage of both citizens.
§ 7. The balance-of-trade argument. At the foundation of nearly all belief in the virtues of a protective tariff will be found the "favorable balance-of-trade" notion. The ideal of the more thoroughgoing upholder of a protective policy is to keep merchandise consistently flowing out of the coun try, and to have nothing coming in—in any case, nothing that by any fair amount of effort (whatever that be) could be produced at home. This is called maintaining a "favor able balance of trade." Sometimes the emphasis is more on the advantages of an excess of exports of goods, sometimes more on the importance of the need "to keep money at home." The simple error in these opinions is clearly apparent in the explanation of foreign exchanges and of the principles regulating the international flow of money.* An interesting commentary on the opinion before us is the fact, already noted,' that an excess of exports is the usual situation in poor debtor countries having constant interest payments to meet ; while, on the contrary, rich creditor coun tries have an excess of merchandise imports.
The "favorable balance-of-trade" argument, with the em phasis on money rather than on goods, is that the protective tariff keeps money at home which, if trade is free, will be sent abroad to buy foreign goods, thus impoverishing the country. This doctrine, as presented in the seventeenth and eighteenth centuries in Europe, was known as mercantilism. It had great influence upon the commercial policies of all the great European nations. A superficial glance at the trade relations of an old rich country with a new province seems to give evidence for such a belief. A richer country that, is lending capital (sent to the debtor country in the form of goods) has at the same time a larger supply of money. The lack of money and the poverty of the newer country are looked upon by the protectionist as due to the importation of goods. The common cause of the imports to newly settled districts and of their scanty stocks of money, it need hardly be repeated here, is the comparative poverty of settlers and pioneers .° Often these are paying for im ports by means of loans, and in any case their monetary stocks are not decreased either by their foreign trade or by their domestic trade with the older and richer parts of the same country. Europe and the United States, in their trade with China and South America, usually do not get gold in exchange, but merchandise of various sorts. It is true that 4 See ch. 3, § 7 and ch. 15, 7-11.