During the years immediately following the completion of Hamilton's report, the situation • was so favorable to the development of the ship- ; ping industry of the United States that little , attention was given to the question of protection. The Napoleonic wars made shipping under the f flag of a European State hazardous and gave America. as the only important neutral country, the lion's share of the world's carrying trade. While this condition continued.shipping and com merce flourished in an unprecedented fashion. The situation was abruptly changed by Napo leon's Berlin Decree and the British Orders in Council of 1800-07. which set up a paper block ade of all important European ports and deprived American merchant vessels of the immunity which they had previously enjoyed. The United States retaliated with the Embargo (1807) and the Non-Tntercourse Act (1809), and filially be came involved in the War of 1812. From 1807 to 1815, in consequence of these difficulties, time United States was more nearly isolated indus trially than ever before or since. Foreign trade was almost entirely suspended and the country was forced to produce for itself nearly all of the commodities which it required. It was during i this period that manufacturing first developed to the position of an important American industry. When it ended, the industrial situation was so different from that described by Hamilton that the whole question of protection assumed a new aspect.
• • The Tariff Act of 1816. the first out-and-out protective tariff that the country had known, was defended more on the ground of protecting industries already established than of building up new industries. In fact, the highest duties provided were to remain in force only three years, since it was believed that by that time our manufactures would lie adjusted to the condi tions of peace and able to hold their own against foreign competitors. The erroneousness of this view was soon demonstrated, and succeeding tariffs continued the protectionist policy, al though with modifications, down to 1857. Dur ing this period the 'vested interests argument,' the *home-market argument.' and the 'infant industry argument' were those most frequently urged in support of protection. The vested inter ests plea needs no explanation. It is always urged by conservative people in favor of the continu ance of an established policy and does not pretend to throw any light upon the expediency or inex pediency of the policy itself. The home-market argument, as advanced by ITenry Clay, the father of the `American system,' as protection began to be called, was designed to reconcile the interests of the agricultural South and West with those of the manufacturing North. It rested upon the proposition that the prosperity of the American fanner depends upon a regular and constant market for his products and that such a market is to be obtained only by building up manufactur ing centres within the country. The experience
of the years from 1816 to 1825 was cited to prove that the foreign market was not to be depended upon. and farmers were exhorted to unite with manufacturers in establishing a system which should bind different sections of the country to gether by furthering the interests of all. To the greater stability claimed for the home market— a quality now- seriously questioned by economists —later analysis has added another merit. The home market calls not only for the stable prod ucts which will bear ocean transportation, but for all kinds of perishable goods. Substituting it for the foreign market renders possible diver sified farming and enables cultivators to substi tute for one-crop systems of agriculture scientific rotation of crops, which serves to preserve and perpetuate the fertility of the soil. This ad vantage is believed by protectionists to outweigh the admitted losses incidental to the protectionist policy and to insure in the long run a greater degree of prosperity than will result from the free play of economic forces.
The infant-industry argument is the one to which economists generally have conceded great est weight. It is urged in both a special and a general form. As it applies to special industries, it rests on a recognition of the risks and difficul ties which attend the domestication of new branches of production. In the successful prose cution of any industry three factors co;iperate the requisite natural resources, skilled and un skilled workmen of different grades. and the ap propriate forms of capital. As regard: each one of these the country which has praetieed an industry has a marked advantage over the coun try which has not. The natural resources of the latter may he superior. but they are undeveloped : its labor force may he ample and adaptable. hut it is untrained: its people may he competent to use tools and machines. hut they have no fa miliarity with the special forms of capital needed. Under such circumstances the encour agement of a protective tariff may suffice to induce investors to establish the new industry when without it they would not venture on such a step. After a few years, if the industry to he domesticated has been wisely chosen, the initial difficulties will have been surmounted and the protective duty may be withdrawn without dan ger of crushing out the now vigorous infant. Advocates of such a policy recognize quite clearly that resort to protection entails a serious burden on consumers. They justify the temporary loss on the ground that the establishment of the new industry on a permanent footing affords in the end a more than compensating gain.