WHAT SHALL BE TAXED?

WHAT SHALL
SHALL BE

EXEMPT?

WHI

HILE revising the foregoing series of articles, which were first printed in The Forum, for republication in book form, I have been reminded that my treatment of the subject of protection and free trade has been subjected to adverse criticism by the advocates of both lines of policy. That might be held to prove that I had at least succeeded in part in what I had undertaken to do through the medium of the magazines, viz., to incite an intelligent discussion of the tariff and other economic questions, in place of the common vituperative method which is so customary among those who may have no intelligent basis for what they call their opinions, and who are therefore accustomed to cover their real want of any knowledge of the subject by imputing ignorance or bad motives to their opponents on either side of the question.

There is now no difference of opinion among the intelligent advocates of protection and the reasonable advocates of freer trade at present leading up to actual free trade in the future, as to the final purpose to which all legislation ought now to be directed. That objective point is the establishment of a system of commerce with other nations which shall ultimately be as free from taxation under the form of a tariff of duties on imports, as the necessity of the nation for a revenue from such duties will permit; such point to be attained as soon as the conditions precedent can be established which will admit such objective point being reached.

Both sides, therefore, seek the same end, differing only as to time and method, with the exception of a few persons who advocate national isolation by means of "a tariff for protection with incidental revenue." They are, however, so few in number, and of such feeble influence intellectually, that they need not be considered by those who treat the subject seriously and who are free from mere partisan bias.

The main difference between the advocates of protection and free trade at the present date is upon the question of time and method in reducing the present tariff, and in regard to the subjects from which the present excess of taxation shall be first removed. The difference

is therefore one of detail, both seeking to promote domestic industry in the most effective manner known to them. Cannot an agreement be reached under such conditions?

The basis of the protective theory among those who intelligently and reasonably sustain it is this:

1st. It has been held by them that a nation should develop within its own limits the power or ability to supply itself with the necessaries of life without recourse to imports from other countries.

This view has been very urgently sustained in respect to articles which are necessary not only in time of peace, but which are even more urgently required in time of war; the absolute requirements of war being food, clothing, and arms, i. e., fabrics made of wool, iron, and steel. 2d. It has been or is held, that even aside from the necessities of war, a nation should render itself independent of all others, and should become capable of supplying itself with all the necessaries of life, if the crude materials for such supply exist within the limits of its territory and can be worked, either in the soil, the mine, or the forest.

3d. It is held that in developing the processes for converting these crude materials into their final forms ready for consumption, a great diversity of occupation may be promoted; and that while free trade may be the true objective point, it cannot be adopted safely until such conditions precedent have been established as may enable the domestic manufacturers or converters of crude materials into finished goods to compete with foreign countries on even terms.

4th. Lastly, it is now held by the advocates of protection, that in consequence of the higher rates of wages which prevail in this country as compared to foreign countries in certain specific arts, we cannot yet compete with foreign countries in these arts, if the free-trade policy should now be adopted. In support of this proposition, it is held that the rates of wages are a true standard by which the cost of goods may be compared.

In addition to these principal reasons for placing duties on foreign imports at higher rates than those which would yield the largest revenue at the lowest rates on selected subjects of taxation which are not of necessary use in domestic industry, it has been held that by means of such duties or under the protective system, so-called, additional work may be provided for the people of a given nation, through the diversity of occupations supposed to be greatly promoted by this system.

In conclusion of the whole matter, it has been and is held, that although the first effect of placing protective duties on foreign imports must be to keep the prices both of the domestic product and of the foreign import of like kind, higher than they would be except for such duties, yet the ultimate effect of the system must be to reduce such prices and to furnish a greater abundance to consumers at less cost.

This is the principal justification of the system in the minds of those who sustain it, to wit, that at the cost of a temporary higher price, lower prices will be finally attained.

Such is, I think, a fair statement of the argument for what is called protection to domestic industry by way of the imposition of taxes on foreign imports, commonly called duties.

It is also held by a few persons, even some holding quite conspicuous positions, that by way of duties on imports foreign nations may be made to pay revenue to this country. Such an argument hardly calls for serious consideration, as it could never be put forward by any one conversant with commerce. It is based on the admitted fact that, if the duties imposed should so obstruct our demand upon a foreign country for a given article, this obstruction, in place of raising the price at home, may depress the price abroad, and this depression of price is said to be the same as putting our tax upon other people! In point of fact this lowering of foreign prices is one of the most injurious effects of a mistaken policy, especially when it affects the crude or partly manufactured articles which are used in the mechanical and manufacturing arts, as it gives the foreign manufacturer an advantage over our own which cannot be overcome. See the subsequent figures on iron and steel.

One may not hastily and dogmatically pronounce all these propositions to be without any foundation; and it is both useless and mischievous to denounce those who present such views as being mere spoliators, or to say that they are striving as a body to support themselves and those whom they employ at the cost of their neighbors, without rendering any true service in return. These views have been, and are now, held in perfect sincerity and integrity by many of the most upright citizens in this country; they are still believed to be sound by a very large number of intelligent men, who sustain them without any other purpose than because they fully believe that the welfare of the nation depends upon their being sustained.

Unquestionably there are among the supporters of protection many persons whose own interests are to themselves so paramount in the matter-or are believed by them to be so paramount in their relation to others, as to obscure all consideration of the public welfare; as there are also, on the other side, advocates of free trade who would break down all barriers to immediate free exchange without any reference to the long period during which protective duties have been maintained, and without any consideration of the great harm that may arise from bad methods of abating what may even be an existing evil.

With such intolerant and illogical persons, who give little or no consideration to existing conditions, no discussion is possible.

The writer was bred in the firm conviction that, for the reasons given, the protective system was founded on principle and on facts,

and that protection was necessary to the welfare of the country. It has only been by close observation of the facts of life that he gradually became convinced that these arguments for the so-called system of protection were not founded on any principle and cannot be justified at the present time even on the ground of expediency. The arguments should be met, however by a fair and full consideration of the facts and the influences which led to the adoption of the policy in the past, and of the conditions as they exist at present, changed as they have been in some measure by past acts.

It may be admitted that by force of the highly protective system as it now exists in this country, and as it has been in force practically since the years 1861 and 1863, certain arts have been more fully developed, certain products have been increased, and certain prices may have been reduced both here and in other countries through the effect and in consequence of this system. It may even be admitted that in respect to certain very important commodities-notably iron and steel, the actual prices have been reduced both here and in other countries more rapidly, and possibly to a lower point, than they would have been, except the protective system had been in force in this country. It must be admitted that as a consequence of the high duties upon wool, the price of domestic wool has been reduced by force of protection to a lower point than it would have attained except under this system; and that wool growers have been misled in their expectation even of temporary benefit to themselves. There may be other articles which have been affected in the same way.

All that can be said in rejoinder to this possible admission of the claims made on behalf of protection is, that any reduction of prices which has been, or may be brought about in this way is not worth what it costs; and that during the longer or shorter period given to the operation of this method of securing a reduction in the actual price of an important material, such a disparity or difference in price has been maintained throughout this period of high protection in the cost of the crude materials-such as wool, iron, steel, and chemicals, which are most necessary in the processes of our domestic industry, as compared to the cost of these same materials to the consumers of other countries, as to have made the cost of the protective system much greater than the benefit, if any benefit there has been to any one.

In other words, whatever may be the advantage or the disadvantage of a reduction in price, if it has been brought about by or through the interference of legislation, the disadvantage of being subjected to higher prices in this country as compared to prices elsewhere through a long period, on the most important crude materials which are absolutely necessary in all branches of domestic industry, has been and is much greater than any possible benefit arising from lower absolute prices of such materials at a later period.