Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
(?-1899)
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First Pub. Date
1881
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New York: Maynard, Merrill, and Co.
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1899
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Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
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FREE TRADE

II.93.1

FREE TRADE, in the sense in which the term is generally used, may be regarded as the expression of a principle in political economy, which holds that the prosperity of a state or nation can best be promoted and maintained by freeing the exchange of all commodities and services between its own people and the people of other nations and countries, to the greatest extent possible, from all interferences and obstructions of an arbitrary, artificial character, the results of legislation in deference to either prejudice or the demands of special or private interests. In its broadest sense, free trade, as the expression of an economic principle, is, however, susceptible of a much wider and more complex definition. It was concretely and somewhat sentimentally, but at the same time truthfully, defined by Chevalier, the eminent French economist, to be "the free exercise of human power and faculties in all commercial and professional life"; and as "the liberty of labor in its grandest proportions." As represented by its leading advocates, it does not, furthermore, content itself with merely antagonizing the arbitrary restriction of the commercial intercourse of a particular country with foreign countries for the purpose of stimulating or directing the domestic industries of the former; but regarding in the light of an economic axiom, the proposition "that that government is best which governs least," it also favors the restriction of the functions of government or the state to the narrowest limits consistent with the establishment and maintenance of liberty and order, the protection of life and property, the dispensation of justice, and the providing for the common defense and the general welfare of the people governed. Free trade, accordingly, embraces within the sphere of its opposition and condemnation a great variety of forms of economic interferences on the part of the state other than those pertaining to international exchanges, and of which the following—some happily now almost obsolete, but others still existing—may be mentioned as illustrations, to wit: the arbitrary regulation by statute (usury laws) of the price and loan of money, or conjointly and consistently (as in old times), the price of commodities.*18 or (as formerly by guilds and statutes and latterly by trade associations) of the price of labor, or wages; all interference (as in England) with the free transfer and sale of land; and with the business of banking and dealing in credits, independent of the making and issue of currency; the proscription from office, business or pursuit by reason of sect or religious belief (as the present proscription of the Jews in Russia from agriculture); the continued payment by the state, from the proceeds of general taxation, of bounties, for the promotion of special domestic industries (as in the case of the beet root sugar manufacture in Europe and the French system of bounties on shipping); the inhibition (as in the United States) on foreigners from the investment of capital in American shipping; and the maintenance of navigation laws for the purpose of industrial and commercial restriction. These, and many other examples which might be cited, are all violations of the spirit if not of the correct theory of free trade; but as in the popular mind, and especially in the sphere of politics, the idea of free trade is associated almost exclusively with the freedom of international exchanges, any discussion of the subject for the purpose of affirmation or explanation from any other than this standpoint, is neither customary nor expedient, and will not here be attempted.

II.93.2

The Relations of Free Trade and Protection. Free trade as an economic principle, or politico-commercial system, is the direct opposite to the so-called principle or system of protection, which maintains, on the contrary, that a state or nation can most surely and rapidly attain a high degree of material prosperity by "protecting" or shielding its domestic industries from the competitive sale or exchange of the products of all similar foreign industries; the same to be effected either by direct legislative prohibition of foreign commerce, or by the imposition of such discriminating taxes (duties) on imports as shall, through a consequent enhancement of prices, interfere to a greater or less extent with their introduction, free exchange and consumption. An explanation of either of the terms free trade or protection involves, therefore, a presentation of the arguments, based on theory or experience, which may be adduced in support of the respective economic systems of which they are the expressions, and a review of the premises of the one almost necessarily requires a conjoint statement of the claims of the other.

II.93.3

Relation of Free Trads as an Economic System to Taxation and Revenue. It is also desirable to clearly appreciate at the outset of any explanation of the subject under consideration, the relation which "free trade" and "protection," regarded as economic systems, sustain to taxation and revenue; a point about which (at least in the United States) there is no little of popular misapprehension, which in turn has doubtless been often intentionally encouraged by a common assertion of the advocates of protection, that "the adoption of free trade as a national fiscal policy necessarily involves a resort on the part of the state to direct taxation as a means of obtaining revenue." The truth in respect to this matter is, however, as follows: The command of a constant and adequate revenue being absolutely essential to the existence of organized government, the power to compel contributions from the people governed, or, as we term it, "to tax," is inherent in every sovereignty, and rests upon necessity. The question of the obtaining of such revenue obviously, therefore, is the question of first importance in the economy of a state, the one in comparison with which all others are subordinate; for without revenue no governmental machinery for the protection of life and property, the dispensing of justice and the providing for the common defense could long be efficiently maintained. The soldier and policeman guard, while the laborer performs his labor in safety. So far, the advocates of free trade and protection fully agree. The former, however, maintain that in the exercise of this power the object of the tax should be rigidly restricted to the defraying of legitimate public expenditures, or, in other words, that taxes should be levied for revenue purposes exclusively, and that, subject to such limitations, the question as to what forms taxation had best assume—whether direct or indirect, tariff or excise, on incomes or property—becomes one of mere experience and expediency in every instance; preference being always given to those forms which involve the least waste, cost and personal annoyances in collection, which are most productive of revenue, and interpose the minimum of interference and restriction on commercial intercourse. Free trade as an economic principle is not, therefore, as is often assumed and supposed, necessarily antagonistic to the imposition of duties on imports, provided the end sought to be attained is simply revenue, and the circumstances of the state render such form of taxation expedient. Protection, on the other hand, on the ground of advantages accruing directly or incidentally, advocates and defends the imposition of taxes on imports for purposes other than those of revenue. Protection, therefore, to the exact extent to which it attains its object, is obviously antagonistic to revenue, inasmuch as revenue is received only on those commodities which come in, while protection is secured only when the importation of commodities is restricted or made difficult.

II.93.4

A Tariff for Revenue with Incidental Protection. The adjustment of a tariff for revenue in such a way as to afford what is termed "incidental protection"—an idea much favored by American politicians—is based on the supposition that by arranging a scale of duties so moderate as only to restrict and not prevent importations, it is possible to secure a sufficiency of revenue for the state, and at the same time stimulate domestic manufactures by increasing the price of competitive foreign products. That the double object thus aimed at is capable of attainment can not be doubted, but that the project is also one of the most costly of all methods of raising revenue will become evident, if it is remembered, that while revenue to the state accrues only from the tax levied on what is imported, another tax, arising from the increase of price consequent upon the tariff on imports, will also be paid by the nation upon all domestic products that are sold and consumed in competition with such imports; and this latter tax, which will not pass into the public treasury, may, and probably will, be much greater than the former. A tariff for revenue so adjusted as to afford incidental protection is therefore a system which requires the consumers, who are the people, to pay much in order that the state may receive little. So little accustomed, however, are the people of the United States (in common with those of other countries) to reason on this subject, and so intentionally have they been misinformed, that indirect taxation of the character indicated, with its two-fold and unnecessary burdens, one seen and the other unseen, is almost universally regarded as far preferable to any more direct, simple and less onerous system. In this respect, therefore, the ideas of the people of the nineteenth century are analogous to those of the fourteenth, who regarded filth as undesirable mainly by reason of and in proportion to its sensible offensiveness, and who by ignoring its unseen and subtle influences, and resorting to perfumery rather than to sanitary measures as remedies, made sure of the coming and continuance of pestilence. On the other hand, when taxes under a tariff are imposed on imports which do not compete for sale and consumption with any similar products of the importing country, then in such cases the entire proceeds of the tax, less the expense of collecting, accrue to the benefit of the state, and no further unseen or unnecessary burden of taxation is made contingent. But very curiously, under the existing (1882) fiscal and economic policy of the United States, such articles—as for example, tea and coffee—have been especially selected by statute, for exemption from taxation on importation.

II.93.5

What is a Tariff for Revenue Only? A tariff for revenue only is a tax on commodities brought from foreign countries, in order to secure revenue. It is based on the assumptions, that some indirect form of taxation is advisable, that the form in question is expedient, if not the best, and that the government should receive all the taxes paid by the people. It is levied in such a way as to carefully avoid all protection, and to bring into the public treasury all that accrues from the payment of the tax. The existing tariff of Great Britain is a revenue tariff, answering to this definition. Under this tariff, ordinary import duties are levied upon only six articles or classes of articles, none of which, it is assumed, are the product of the United Kingdom, viz., cocoa, tea, chicory, dried fruits, tobacco and wine. The other duties are levied to countervail excise or other inland taxes, which are imposed for purposes of revenue upon corresponding British productions; as for example, distilled spirits in various forms, malt liquors, gold and silver plate, playing cards, etc. Full details of the nature and amount of these "countervailing" tariff taxes may be found in the "Statistical Abstract" of the United Kingdom, published annually by authority. Under the operation of this tariff is constituted what is called "British free trade." It is not, however, absolute free trade in the sense that free trade exists in the United States between the different states and sections of the federal Union. With these preliminary statements, the essential points of the argument in favor of free trade, as contradistinguished from protection, may be stated as follows.

II.93.6

The Highest Right of Property. The highest right of property is the right to exchange it for other property. That this must be so will at once appear, if it is remembered that, if all exchange of property were forbidden, or by circumstances rendered impossible, each individual would be assimilated in condition to Robinson Crusoe on his uninhabited island; that is, he would be restricted to subsisting on what he individually produced or collected, be deprived of all benefits of co-operation with his fellow-men, and of all advantages of production derived from diversity of skill or diversity of natural circumstances. In the absence of all freedom of exchange between man and man, civilization would obviously be impossible; and it would also seem to stand to reason that to the degree in which we impede or obstruct the freedom of exchange, or, what is the same thing, commercial intercourse, to that same degree we oppose the development of civilization.

II.93.7

To Restrict Exchanges reaffirms the Principle of Slavery. Any system of law which denies to an individual the right freely to exchange the products of his labor, by declaring that A may trade on equal terms with B, but shall not under equally favorable circumstances trade with C, reaffirms in effect the principle of slavery and violates liberty. For certainly no man can be free who, by arbitrary enactment, is not allowed, in trying to exchange his product for another, to obtain all that the laws of value acting freely would give him; or who has some part of the product of his labor arbitrarily taken from him for the use and enjoyment of some other man who has not earned it. But this is exactly what slavery and a protective tariff alike do; only the one works openly, and the other covertly and indirectly. The argument that is generally put forth by the advocates of the policy of protection, in justification of legislation restricting freedom of exchange, or in defense of the pithily expressed proposition that "it is better to compel an individual to buy a hat for five dollars, rather than to allow him to purchase it for three," is, that any present loss or injury resulting from such restriction to the individual will be more than compensated to him, or to society, through some future and indirect accruing benefit. But it should be borne in mind that this is the same argument that has always been made use of in past times as a warrant for every crime against liberty; more especially in defense of slavery, in vindication of persecution by state or church for heresy or unbelief, for the establishment of state religions and enforced conformity thereto, and for all arbitrary restrictions on speech or the press. It ought not therefore to be a matter of surprise, that the intellectuality of this latter third of the nineteenth century, recognizing the antagonism of any other position to the great cause of human progress, should have ranged itself by an overwhelming majority on the side of industrial and commercial freedom, equally and for like reasons and motives as it has on the side of intellectual, religious and political freedom; that no man intellectually great by general acknowledgment, who has given any special attention to this subject, and who is not avowedly working in the interests of despotism, or private gain, can be pointed out in either hemisphere, that is not unqualifiedly in favor of removing speedily and to the greatest extent compatible with the requirements of governments for revenue, all restrictions on the commercial intercourse of both nations and individuals; and that there is not to-day a first-class college or institution of learning in the whole world which would admit or invite to its chair of political economy a person who theoretically believed in the theory or expediency of restricting exchanges as a means of increasing popular welfare and abundance.

II.93.8

Unconstitutionality of Protection as a National Policy in the United States. In countries having a despotic government, there is no restraint on the adoption of any fiscal or economic policy on the part of the state. But in countries where the government is free, or based on the consent of the governed, and where the powers of the state are limited by a written constitution, or by the principles which are naturally inherent in, and essential to this form of government, it becomes an interesting question as to the right of such a government to levy discriminating taxes for the purposes of protection, or for purposes other than for defraying public expenditures, even though any injustice thereby done to the individual is more than compensated by some indirect benefit to the entire community. In short, is not this one of those acts of procedure on the part of the state which is antagonistic to the principles of a free government, and which, fully recognized and broadly carried out, will of necessity be utterly destructive of it? and in respect to which, as in the case of a tax to support an established church, or of a law compelling every man to help catch a fugitive slave, the dissent and resistance of even one citizen makes unjust any enactment authorizing such procedure? In the case of the United States this question has recently been considered and passed upon by its highest judicial tribunal, under the following circumstances: In 1872 the legislature of Kansas passed a law authorizing counties and towns of that state "to encourage the establishment of manufactories and such other enterprises as may tend to develop" such county or city, by the direct appropriation of money, or by the issue of bonds to any amount that the local authorities might consider expedient; and under this act the city of Topeka created and issued its bonds to the extent of $100,000 and gave the same "as a donation," a majority of voters approving, to an iron bridge company, as a consideration for establishing and operating their shops within the limits of the city. The interest coupons first due on these bonds were promptly paid by the city out of a fund raised by taxation for that purpose, but subsequently, when the second coupons became due and the bonds had passed out of the possession of the bridge company by bona fide sale to a loan association, the city refused to meet its obligations, on the ground that the legislature of Kansas had no authority under the constitution of the state to authorize the issue of bonds, the interest and principal of which were to be paid from the proceeds of taxes, for any such purpose as the encouragement of manufacturing enterprises. Legal proceedings to enforce payment were thereupon commenced by the bondholders in the United States circuit court, and judgment having been there given for the city, the case was appealed to the United States supreme court, where with only one dissenting voice (Judge Clifford) the judgment of the lower court was affirmed, the opinion of the court and the principles upon which it was based being given by Mr. Justice Miller. From this opinion attention is asked to the following extracts, reference being made, for the benefit of those who desire a more complete statement, to the report in full, 20 Wallace, pp. 655-668: "It must be conceded that there are rights in every free government beyond the control of the state. A government which recognized no such rights, which held the lives, the liberty and the property of its citizens subject at all times to the absolute disposition and unbounded control of even the most democratic depository of power, is after all but a despotism. It is true it is a despotism of the many, of the majority, if you choose to call it so, but it is none the less a despotism." * * * "The theory of our governments, state and national, is opposed to the deposit of unlimited power anywhere. The executive, the legislative and the judicial branches of these governments are all of limited and defined powers. There are limitations of such powers which grow out of the essential nature of all free governments—implied reservations of individual rights, without which the social compact could not exist, which are respected by all governments entitled to the name." * * * "Of all the powers conferred upon the government that of taxation is most liable to abuse. Given a purpose or object for which taxation may be lawfully used, and the extent of its exercise is in its very nature unlimited. This power can as readily be employed against one class of individuals and in favor of another, so as to ruin the one class and give unlimited wealth and prosperity to the other, if there are no implied limitations of the uses for which the power may be exercised. To lay with one hand the power of the government on the property of the citizen, and with the other bestow it upon favored individuals to aid private enterprises and build up private fortunes, is none the less robbery because it is done under the forms of the law and is called taxation. This is not legislation; it is a decree under legislative forms. Nor is it taxation. Beyond a cavil there can be no lawful tax which is not laid for a public purpose." * * * "It may not be easy to draw the line in all cases so as to decide what is a public purpose in this sense and what is not. But in the case before us, in which towns are authorized to contribute aid by way of taxation to any class of manufacturers, there is no difficulty in holding that this is not such a public purpose as we have been considering. If it be said that a benefit results to the local public of a town by establishing manufactures, the same may be said of any other business or pursuit which employs capital or labor. The merchant, the mechanic, the innkeeper, the banker, the builder, the steamboat owner, are equally promoters of the public good and equally deserving the aid of the citizens by forced contributions. No line can be drawn in favor of the manufacturer which would not open the public treasury to the importunities of two-thirds of the business men of the city or town."

II.93.9

—Here then we have, from the supreme court of the United States, a decision as recent as 1874, defining the limitation of the power of taxation "growing out," as it was expressed, "of the essential nature of a free government"; and which would seem to admit of no other construction than that taxation for "protection," or for the aid of private interests engaged in manufacturing or other business, is beyond the province of the legislative power of either the national or state governments of the federal Union; and when imposed, to use the exact language of the court, "is none the less robbery because it is done under the forms of law, and is called taxation." Other judicial authorities in the United States to whom weight is accorded, have also concurred in this opinion. Thus, Thomas M. Cooley, one of the justices of the supreme court of Michigan, and professor of law in the university of that state, in his work, "Principles of Constitutional Law," (p 57), thus defines the limits of taxation under the constitution of the United States: "Constitutionally a tax can have no other basis than the raising of a revenue for public purposes, and whatever governmental exaction has not this basis is tyrannical and unlawful. A tax on imports, therefore, the purpose of which is not to raise a revenue, but to discourage and indirectly prohibit some particular import for the benefit of some home manufacture, may well be questioned as being merely colorable, and, therefore, not warranted by constitutional principles." The question at issue has also formed the subject of review by the supreme court of the state of Maine, and the following are extracts from the opinions given by the members of this tribunal respecting the limitations on the powers of a free government to impose taxes: "No public exigency can require private spoliation for the private benefit of favored individuals. If the citizen is protected in his property by the constitution against the public, much more is he against private rapacity." "If it were proposed to pass an act enabling the inhabitants of the several towns by vote to transfer the farms, or the horses, or oxen, or a part thereof, from the rightful owner or owners to some manufacturer whom the majority might select, the monstrousness of such proposed legislation would be transparent. But the mode by which property would be taken from one or many and given to another or others, can make no difference in the underlying principle. It is the taking that constitutes the wrong, no matter how taken." "Taxation," said the chief justice (in giving an opinion adverse to the right of a town to grant aid, under a permissible statute of the state legislature, to a manufacturing enterprise), "by the very meaning of the term, implies the raising of money for public uses, and excludes the raising if for private objects and purposes. 'I concede,' says Black, C. J., in Sharpless vs. Mayor, 21 Penn., 167, 'that a law authorizing taxation for any other than public purposes is void.'" "No authority or even dictum can be found," observes Dillon, C. J., in Hanson vs. Vernon, 27 Iowa, 28, "which asserts that there can be any legitimate taxation, when the money to be raised does not go into the public treasury, or is not destined for the use of the government or some of the governmental divisions of the state." "If there is any proposition about which there is an entire and uniform weight of judicial authority, it is that taxes are to be imposed for the use of the people of the state in the varied and manifold purposes of government, and not for private objects or the special benefit of individuals. Taxation originates from and is imposed by and for the state." "Our government is based on equality of right. The state can not discriminate among occupations, for a discrimination in favor of one is a discrimination adverse to all others. While the state is bound to protect all, it ceases to give that just protection when it affords undue advantages, or gives special and exclusive preferences to particular individuals and particular and special industries at the cost and charge of the rest of the community."

II.93.10

Free Trade Natural; Protection Artificial. The general result for which all men labor, is to increase the abundance or diminish the scarcity of those things which are essential to their subsistence, comfort and happiness. Different individuals are endowed with different natural capacities for making the various forces of nature and varieties of matter available for production. One man is naturally fitted to excel as a farmer, another as a mechanic, a third as a navigator, a fourth as a miner, engineer, builder, or organizer and director of society, and the like. The different countries of the earth likewise exhibit great diversity as respects soil, climate, natural products and opportunity. It would seem clear, therefore, in order that there may be the greatest material abundance, that each individual must follow that line of production for which he is best fitted by natural capacity or circumstances; and that, for the determination of what that line shall be, the promptings of individual self-interest and experience are a far better guide than any enactments of legislatures and rulers possible can be; and, finally, that the greatest possible facility should be afforded to producers for the interchange of their several products and services. So true, indeed, are these propositions, that mankind in their progress from the rudest and most incipient social organizations to higher degrees of civilization, invariably act in accordance with them, and, as it were, instinctively. Robinson Crusoe upon his uninhabited island and the solitary settler in the remote wilderness follow, of necessity, a great variety of occupations, as those of the farmer, hunter, builder, blacksmith, fisherman, tailor, and the like. But as rapidly as the association of others in the same neighborhood admits, the solitary man abandons his former diversity of employment, and devotes himself, more or less exclusively, to a single department of industry, supplying his want of those things which he does not himself produce, by exchanging the surplus product of his own labor for the surplus product of others' labor, who follow different industries. It is to be further observed that settlements in all new countries commence, if possible, in close proximity to navigable waters, so as to take advantage of natural facilities for intercommunication between man and man for the purpose of exchanging services or commodities; and that if commenced inland, one of the first efforts of the new society is the construction of a path or road, which will enable its members to hold communication with some other settlements or societies. Next, as population and production increase, the rude path or trail gives way to a well-defined road, the ford to a bridge, the swamp to a causeway, the pack carried upon the backs of men and animals to the wagon drawn by horses, the wagon to the railway car, the boat propelled by oars and sails to the boat propelled by steam, and finally the telegraph, annihilating space and time; all efforts and achievements having the single object of facilitating intercommunication between man and man, and removing obstructions in the way of interchanging human services and commodities. Free exchange between man and man, or, what is the same thing, free trade, is therefore action in accordance with the teachings of nature. Protection, on the other hand, is an attempt to make things other than nature designed. Free trade, or the interchange of commodities and services with the minimum of obstruction, by rendering commodities cheap, tends to promote abundance. Protection, by interference or placing obstructions in the way of exchanges, tends to increase the cost of commodities to the consumer, and thereby promotes scarcity.

II.93.11

—So instinctively and so universally, moreover, does human nature, when left free to follow its own instincts, repudiate every idea that there can be anything in the nature of a principle in the doctrine of protection growing out of the natural order of things, that it would probably be impossible to find a single sane person who did not consider it a privilege to satisfy his legitimate and rational wants at the smallest price, or the minimum of effort, and make haste to embrace the opportunity. Again, if a person says "he is not in favor of free trade," (by which is to be understood, in accordance with the definitions before given, the removal of all restrictions on the exchange of commodities and services, except such as governments after careful inquiry may deem it expedient to institute for the sake of revenue, or for sanitary or moral considerations) then it stands to reason, unless he utters words and cant phrases without any idea of their meaning, that he must be in favor of trade that is not free, that is, of restricted trade, or no trade at all; for there are no other alternatives. But does anybody know of any one who is not in favor of good roads and bridges, of swift and safe lines of railroads and steamships, of telegraphs and newspapers? But roads and bridges, and steamships and railroads, and telegraphs and newspapers, are merely agencies for effecting and facilitating the interchange of ideas and commodities; and it amounts to precisely the same general result, whether we make the interchange of commodities costly and difficult by interposing deserts, swamps, unbridged streams, bad roads or bands of robbers between producers and consumers, or whether, for the benefit of some private interest that has done nothing to merit it, we impose a toll on the commodities transported, and call it a tariff. A 20 per cent. duty may fairly be considered as the representative equivalent of a bad road; a 50 per cent., of a broad, deep and rapid river, without any proper facilities for crossing; a 75 per cent., a swamp flanking such a river on both sides; while a 100 per cent. duty and upward, such as levied on some articles under the existing (1882) tariff of the United States, may be compared in effect to the present condition of affairs in Central Africa, where the lack of facilities for movement, combined with insecurity for life and property, enhance the cost or price of transported commodities to the highest degree consistent with their entering into consumption, or act as a complete restriction. In all such instances, whether the obstructions be natural or artificial, the general result is the same, namely, there is a greater effort and an increased cost required to produce a given result, and a diminution of the abundance of the things which minister to everybody's necessities, comfort and happiness.

II.93.12

—Examples derived from the actual experience of the United States, will further serve to illustrate and enforce this argument. Upon the coast of Nova Scotia, within a short distance of the United States, there are coal mines of great value, which unlike any others in the whole world, are located so advantageously in respect to ocean navigation that, almost by the action of gravity alone, the coal may be delivered from the mouth of the pit upon the deck of the vessel. Now, for years the government of the United States imposed a tax on the landing of this coal within its territory, of $1.25 per ton. But if we assume that coal upon a well-managed railroad can be transported for one cent per ton per mile, the effect of this tax upon the people of New England and New York, who under natural circumstances would find it to their profit to use this coal, is precisely equivalent to the removal of these mines from a point on the coast of Nova Scotia, to a location 125 miles inland. And it would also seem to stand to reason that if the removal of these mines 125 miles into the interior was a benefit to the people of the United States, a further augmentation of their distance from the seaboard to 500 or 1,000 miles would be a still greater blessing, and that their absolute annihilation would be the superlative good of all. Some years ago an English engineer, Mr. Bessemer, devised a new process for the manufacture of steel. He did not claim to make anything new; he did not claim to make steel of a quality superior to what was made before; but he did succeed in showing mankind how to make an article indispensable in the work of production cheap, which was before dear. Immediately on the assured success of the invention, the advocates of protection in the United States asked congress to impose such a duty on the import of this steel as would, through a consequent increase of its price to American consumers in a great degree neutralize the only benefit accruing from the discovery and use of the new process, namely, its cheapness, and they succeeded in obtaining, and still (1882) retain, a duty that in a great degree accomplishes such a result. In the spring of 1880 the northwestern states of the federal Union experienced snow storms of unusual severity, which greatly impeded all means of intercommunication. From a protectionist point of view these storms could not legitimately have been regarded in the light of a calamity; for they afforded, in the first instance, occupation to a very large number of laborers in digging out the railroad tracks, who otherwise would have had to seek other employments, or perhaps have had none whatever. A large number of locomotives and cars were also injured; and somebody had to be paid for putting them again in order, which may be set down as benefit No. 2. And finally, for lack of ability to transport the commodities necessary for subsistence, the dealers in coal, provisions and other merchandise were enabled to dispose of their stocks at high prices, and so realized unusual profits. Or, in other words, they had created for them, by act of nature, an exceedingly profitable home market of precisely the same character as that which a high tariff creates. Of course, with such beneficial results, everybody ought to have been contented. But so far from this being the case, everybody regarded the condition of affairs in the light of a national calamity. The complaints were loudest in those sections where, by the unexpected restrictions on intercommunication, the discomfort and even suffering from the scarcity of useful things—food and fuel—was greatest; and the conductors of the newspapers of the country, following their instincts, and forgetting for a time their economic views, were unanimous in hoping that the serious obstructions to business occasioned by the snow (tariff) would not long continue. If, however, the people who had found profitable employment in shoveling snow, repairing broken machinery, and in selling the necessaries of life at famine prices, could have been consulted, they might possibly have been found in favor of frequent and long continued snow-blockades, and ready to denounce as unpractical theorists, unpatriotic, and even corrupt, all those entertaining a contrary opinion.

II.93.13

—From the above propositions and examples it would seem evident that the direct effect of a protective duty, when it is really operative, is to compel, on the part of the community employing such an agency, a resort to more difficult and costly conditions of production for the protected article; and also that when a community adopts the protective policy it commits itself to the indorsement of the principle that the creation and maintenance of obstacles is equivalent to, or the surest method of creating material abundance, and the development of natural wealth. But if this policy be correct, then the country "which is the hardest to get at has the most advantageous situation; pirates and shipwrecks contribute to national prosperity by reason of the increased price of freights and insurance; and improvements in navigation and railroads are injurious." Such conclusions would seem to be too absurd to require serious refutation; but that people of reputed intelligence and prominent station practically indorse them, is proved by the utterances and teachings of men prominently identified with the protectionist policy in the United States, where protection has been made for many years a prominent feature in the national fiscal system, and, as it is claimed, with success. Thus, for example, the late Henry C. Carey, who stands in relation to the modern doctrine of "protection" very much the same as the prophet Mohammed does to the religion of Islam, expressed the opinion, over and over again, that the interests of the United States—material and moral—would be greatly benefited if the Atlantic could be converted into an impassable ocean of fire, and also that a prolonged war between Great Britain and the United States would be of the greatest possible benefit to the latter country. Horace Greeley favored the imposition of a duty of $100 per ton (above 500 per cent.) on the importation of pig-iron into the United States, and referred to the statement as illustrating his idea of the kind of a tariff that this country needed; or, in other words, he favored the practical prohibition of exchanges with foreign countries. With consistency, also, he was opposed to internal exchanges of the products of labor, when the transactions involved any extensive transportation of the things exchanged. "When a railroad," he said, "brings artisans to the door of the farmer, it is a blessing. When it takes the wheat, the flesh, the corn and the cotton to a distant manufacturing centre, a locomotive is an exhauster; its smoke is a black flag, and its whistle is the scream of an evil genius." The university of Pennsylvania, which claims to rank among the first educational institutions of the United States, teaches, through its approved text books (in 1882), that "commerce between distant points is an undesirable thing"; that it is not expedient that the United States should have any foreign commerce; and that "if there were no other reasons for the policy which seeks to reduce foreign commerce to a minimum, a sufficient one would be found in the effect on the human material it employs." Again, in a debate in the United States house of representatives, in 1882, on a proposition to revise the consular system with a view of making its provisions less onerous to American shipping, one Hiscock, a representative from the great commercial state of New York, after admitting that the existing system was "complex and to some extent cumbersome," and "an obstruction to the importation of foreign commodities," declared himself in favor of its continuance, and solely for the latter reason. These incidents are here introduced, because they afford to one seeking information respecting the opposing theories of free trade and protection, a clear insight into the real animus of the sincere advocates of protection in the United States in the latter third of the nineteenth century; and further because unless they are put on record at a time nearly contemporaneous with their occurrence, they may, in the not very remote future, be regarded as incredible and fictitious.

II.93.14

The Practical as contradistinguished from the Theoretical Rule of Free Trade. Such then, is a summary of the facts and arguments which can be adduced in support of "free trade," considered from the standpoint of theory, or abstract principle. These facts and arguments are in themselves so clear and cogent, and so thoroughly in accordance with common sense and natural human instincts, that it does not seem possible for a person of fair intellectual ability, who is not predisposed to despotism as a form of government, or whose mind at the outset is not warped by prejudice, to study and understand the subject thoroughly without giving his hearty allegiance to at least the theory of free trade. And it is the testimony of nearly all instructors in colleges and other institutions of learning where the subject is taught thoroughly, and personal inquiry and discussion is permitted and stimulated, that such is the experience of nine-tenths of their students; and that the other one-tenth would be also in the same way of thinking if they cared to think at all, or were not influenced by personal considerations. Furthermore, the advocates of the protective theory rarely attempt to meet the facts and arguments as here presented: neither are they willing to even discuss the subject from the purely theoretic or abstract standpoint. But they evade and shift the question at issue, by asserting that the industries of a country ought not to be defined or regulated by merely economic reasons; that other interests—political or social—which are peculiar to each country or nation ought and necessarily do come in, to materially modify the universal and undeviating application of the free trade principle. Or, as the chairman of a convention of protectionists which assembled in New York in November, 1881, popularly expressed it in his opening address, "We plant ourselves on protection as a matter of fact. The professors tell us that free trade is perfect in theory, but it can't be applied to us. It would not correspond with the facts." The same idea, but expressed somewhat differently, is also embodied in the assertions that are frequently made by protectionists in the United States, that there is no such thing as a definite system or science of political economy; that every nation, owing to differences in natural conditions and habits and customs, has necessarily a system of its own; that all talk about the independence of nations and the brotherhood of man is mere sentiment, and that historical experiences and reasoning from general principles amount to nothing. In short, it is proclaimed that every nation must have an economic system of its own, the result of its own wants and experiences, and that in the United States, as well as in all other countries, it is only necessary for the nation to determine what are its peculiar interests and pursue them, to do exactly right. It is not necessary to here discuss these assumptions and propositions further than to remark that nothing can be more absurd and unfounded than the assertion which to a certain extent has become popular (in the United States) that a thing may be true in theory and yet false in application or practice. A theory is simply an exposition of the general principles of any art or process; and if the exposition or theory is really true, then it must of necessity be true in its application or practice; and any one who asserts to the contrary simply uses words without any conception of their meaning. And as for the proposition that there is no such thing as general principles in economic science, but that every nation has a system of its own and determines its own economic laws, the legitimate inference and the one which protectionists accept, and of necessity must accept, is, that the drawing of an artificial arbitrary line on the surface of the globe and calling one side Canada and the other side Ohio, or one portion of territory the United States and the other England, of itself is sufficient to invalidate conclusions based on sound reasoning and careful experience, and make a course of action which is universally acknowledged to be a blessing in one case, a curse and a calamity in another. But for the purpose of facilitating this investigation and helping to speedily and clearly get at the truth, it is expedient to meet the advocates of the protective theory on their own ground; and to assume with them, that in any discussion of this subject of free trade, with a view of determining its correctness as an economic principle, and its value as a basis of any national policy, it is the deductions and results of actual experience and not of abstract reasoning, that alone need to be considered. To deductions and results of this character, accordingly, it is proposed to next ask attention.

II.93.15

The Results of Specific Experiment. The largest and most complete experiment in free trade that the world has ever seen, has been made in the United States, and the results may be claimed to constitute an absolute demonstration of the wisdom of this policy and of the benefits that would accrue to the whole world from its adoption. We have here, at the present time of writing (1882), a nation of more than 53,000,000 of people, representing races most diverse in their origin, natural capacity and intellectual culture; inhabiting a country continental in its area, embracing almost every variety of climate, and affording the greatest opportunity for (as it indeed has) the most varied occupations and industries. The different states and territories into which this great country is divided differ among themselves in respect to wages of labor,*19 prices of commodities, climate, soil, and other industrial conditions, as widely as the United States as a whole differs from any foreign country with which it is engaged in extensive commercial intercourse; and no case can be cited, or even imagined, which requires protection, on the protectionist theory, so much as the cultivation of the comparatively poor soils of the eastern states against the cultivator of the rich soils of the valley of the Mississippi, with the products of the two sections competing freely in the same markets. And yet the law which governs the exchange of all products and services in the United States is that of absolute free trade, and throughout the entire territory no internal taxes are levied by either the federal, state or local governments with a view of favoring any private interests or industries, or for any other than general public uses or revenue. Under such a state of affairs, the centres of great industries, the distribution of population and the conditions of domestic production and competition are continually changing, but, under the influence of natural laws working freely, no permanent social and economic disturbances, or interruptions to national growth and prosperity ever occur, while the people adjust themselves to any temporary vicissitudes with no more thought of complaining than against the vicissitudes of the weather. No protectionist, moreover, in the United States has ever thought it expedient to propose, in order to develop at the earliest period the growth of manufactures in the newer and poorer states, that these latter should be allowed to impose restrictions on the introduction into their territory of the manufactures of the older and richer states; or has ever ventured to publicly express a doubt, that within the geographical limits of the country, the greatest freedom of innocent production and trade should be accorded. And while the extension of these conditions of industrial and commercial freedom in any degree beyond the geographical boundaries of the United States is opposed by the protectionists as fraught with national disaster, there can not be a doubt, should Canada, Mexico and Cuba at any time peacefully become incorporated into the federal Union, that the industries of the United States would at once quietly adjust themselves to any new conditions, that the productions, the exchanges and general business interests of all the countries concerned would be speedily and greatly augmented, and that no objections to the proposed enlargement of their territory would be raised by the people of the United States for any other than political reasons—Experience of Great Britain. Between 1841 and 1846, Great Britain, under the leadership of Sir Robert Peel, definitely abandoned the theory and practice of protection, which for centuries had characterized her foreign commercial policy, and adopted the opposite policy of free trade with all the world. This result was not due to any change in popular sentiment proceeding from a better acquaintance with general economic principles, but from a realization, on the part of all classes of the British people, of the disastrous results which the recognition and practice of the policy of protection, during a period of many years, had entailed upon the country. These results Mr. Noble, in his work, "Fiscal Legislation of Great Britain," thus describes: "It is utterly impossible," he says, "to convey by mere statistics of our exports any adequate picture of the condition of the nation when Sir Robert Peel took office in 1841. Every interest in the country was alike depressed; in the manufacturing districts mills and workshops were closed and property depreciated in value; in the seaports shipping was laid up useless in the harbor; agricultural laborers were eking out a miserable existence upon starvation wages and parochial relief; the revenue was insufficient to meet the national expenditure; the country was brought to the verge of national and universal bankruptcy." Great Britain, therefore, it may be said, really adopted free trade under compulsion, and in face of the active opposition of some of her leading statesmen and the very grave doubts of not a few of her ablest financiers and economists. The repeal of the "corn laws" (duties on the imports of cereals), the test question, was denounced as being "inexpedient and full of hazard, injurious to all and ruinous to some, especially to the laborer and the artisan ruinous to the best interests of the country, the most pernicious measure ever presented to a British parliament, and a serious breach of the constitution." It was confidently predicted that it would "shake the social relations of the country to their foundation, subvert the whole system of society, throw great quantities of land out of cultivation, render it impossible for the government to raise taxes, would lower wages and reduce the laborer to a lower scale of life." Mr. Disrach, in the house of commons, gravely asserted that the tendency of free trade "was to sap the elements and springs of our manufacturing prosperity"; and, in the house of lords, Lord Stanley (afterward the earl of Derby) boldly predicted that "before many years elapsed, they would have the manufacturing interests of the country earnestly requesting the legislature to give them that protection that they have been so desirous you should withdraw from us." Never, however, in all history has any change in state policy been so magnificently vindicated by all subsequent experience; and of this the following is a summary of some of the more important results. Under the most stringent system of protection ever known in Great Britain the growth of British exports, commencing with 1805, was as follows: 1805, $190,000,000; 1825, $194,000,000; net increase in twenty years, $4,000,000, or at the rate of $200,000 per annum. Under a somewhat reduced protection as to manufactures, but with duties ranging from 20 to 30 per cent., British exports increased from $194,000,000 in 1825 to $237,000,000 in 1837, a net increase in seventeen years of $43,000,000, or at the rate of $2,400,000 per annum. During the next seven years, or between 1837 and 1842, there was no increase whatever. After protection to manufactures had been substantially abandoned in 1842, but while protection to agriculture and shipping continued, exports increased rapidly, namely, from $237,000,000 in 1842 to $289,000,000 in 1846, or to the extent of $52,000,000; a greater gain in four years of partial free trade, than had been achieved in thirty-seven previous years of protection. With further removals of restrictions on British exchanges—on food products in 1846, and on shipping in 1849—the increase in the value of British exports was rapid and continuous, rising from $289,000,000 in 1846 to the enormous figure of $1,432,000,000 in 1880. The total increase of British imports and exports, during the last thirty years of the full protective system, was, as nearly as real values can be ascertained, about $340,000,000. The like increase in the first thirty years of British free trade was $2,400,000,000, or ten times as large as under protection.

II.93.16

—The repeal of the navigation laws of Great Britain in 1849 was as strenuously resisted as was the previous abolition of duties on the importation of food products and manufactures. Free trade in shipping, it was confidently asserted, would ruin British ship owners, destroy domestic ship building, and drive British sailors into foreign marine service. Not one of these predictions was in any degree realized. Between 1816 and 1840, under the restrictive system, a period of twenty-four years, the total increase in British tonnage was only 80,000 tons. In 1848, the last year of the British navigation laws, the aggregate tonnage belonging to the United Kingdom was 3,400,000. In 1858 the aggregate was 4,657,000, an increase of 1,257,000 in ten years. In 1878 it was 5,780,000; and in 1880, 6,574,000. Previous to the repeal of the British corn laws, the wealth of Great Britain increased at a slower rate than population. Since 1849 the increase of the population of the United Kingdom has been in the ratio of about 33 per cent., while the national wealth, as tested by the income tax, has increased at the rate of 130 per cent. In 1841 the capital of British savings banks was $120,000,000; in 1880, $388,000,000. In 1850 there were 920,000 paupers in England and Wales; in 1880, notwithstanding the growth of population, there were but 803,000. In 1850 there were 51,000 convictions for crime in England and Wales; in 1880 there were but 11,214. But the most striking demonstration of the increased happiness and comfort that have accrued to Great Britain under free trade, is derived from the following table, which shows the average per capita consumption of the leading articles of food by her people in 1840 (under protection), and in 1880 (under freedom), respectively:

Table.  Click to enlarge in new window.*20

II.93.17

Experience of Belgium. The experience of Belgium is even more instructive. During the French occupation of this country under the First Napoleon, the protective system was carried out, practically and under military rule, to a degree rarely if ever equaled. Not only was the introduction of all foreign goods into the country strictly forbidden, but all goods of foreign production found within the state were seized and burned, and the persons concerned in their importation summarily and severely punished. The result of such a system was that when the Dutch reassumed the sovereignty, in 1814, the whole country had become desolated, and to a considerable extent depopulated. The Dutch, however, brought in a new fiscal and commercial policy, one cardinal feature of which was a limitation of duties on imports to 3 per cent. on raw materials and 6 per cent. on manufactured articles. Under this liberal legislation the principal manufactures of Belgium again sprang into existence. But a deep-rooted antagonism between the Dutch and the Belgians led to a separation of the two countries in 1830, when, mainly through a hatred of the old government and its policy, the previous free trade legislation was repealed, and from 1830 to 1855 high protective and discriminating duties were imposed on imports. But in 1851 the finance minister in his place in parliament declared that if this policy was continued it would prove the ruin of the whole system of domestic industry; and in 1855 the parliament and the people so fully acquiesced in his opinion that protection in Belgium was swept away at once and forever, and the duties on imports were arranged purely with a view to revenue. The general result has been to give to Belgium, comparatively, the position of the first industrial and commercial state of the world. With an area of territory of about 11,000 square miles, (that of the two states of Massachusetts and Connecticut), only one-half arable land, with a standing army on a peace basis—a necessity by reason of political relations—nearly double that of the United States, with a population (in 1876) of 5,336,000, and, apart from a few coal and iron mines, hardly any natural resources, Belgium maintains the most dense population in Europe; enjoyed a revenue in 1880, of $57,000,000 (of which only $3,600,000 was derived from customs); has the greatest diversity of textile manufactures, and consumes more silks than any other country; has the best managed and cheapest railway system in Europe; and a domestic export and import commerce that quadrupled between 1861 and 1870, and for the year 1878 aggregated $498,000,000 exclusive of $254,000,000 of transit exports and imports to and from other countries. If the foreign commerce of the United States were equal to that of Belgium in the ratio of population, its annual value (in place of being $1,613,000,000 in 1880) would have been over $4,500,000,000. The secret of these great results is due mainly, if not exclusively, to the circumstance that the custom house in Belgium is but a mere appendage to the excise department; and only about one-fifteenth part of the revenues is derived from duties on imports. "Those who allege that the industry and commerce of a state will not prosper if made free, must take upon themselves the burden of proving the following proposition: that the illiterate population of Belgium, occupying a limited area of half sterile soil, is less in need of protection and can work to better advantage in supplying the world with the most useful products of the so-called manufacturing industries, than the well-instructed population of the United States, possessing a boundless area of fertile soil." It may, therefore, be fairly claimed that practice and experience, more especially in the case of the United States, have established the practicability and desirability of free trade as an economic system or theory, by evidence which, for weight, uniformity, concentration and positiveness, is immeasurably greater than the evidence which can be brought for any other theory whatever.

II.93.18

Results of the Policy of Protection. On the other hand, it is not possible to adduce any corresponding evidence, drawn from history or experience, in support of the wisdom of protection; and for the best of reasons, that there is none. Wherever protection has existed, economic history has been full of convulsions, contradictions and absurdities. No single clear and positive result has been produced. The modern doctrine of protection is an inheritance from the middle ages. "The restraint of production and trade was a policy which ancient civilization never adopted. The great statesman of Athens congratulates his audience on the fact that, thanks to the extended commerce of their country, they are as familiar with the use of foreign products as they are with those of domestic industry, and use them even as freely as the country of their origin does. The public opinion of Greece was profoundly shocked when, as a measure of political animosity, Athens excluded a Greek city, Megara, from its market." Prof. Thorold Rogers thinks that the origin of protection as an economic system is to be found in the so-called "mercantile system" of the middle ages, which was based upon the doctrine that wealth consisted solely in specie (money) or the precious metals, and therefore it was of the greatest importance that a government should secure as far as possible the greatest amount of specie within the country whose affairs it administered. International trade was the process by which the precious metals were distributed; and if such trade were allowed to freely exist, the attempts of government to restrain the exportation of money would be fruitless, and that natural impoverishment would thereby certainly follow. In the middle ages the principle that trade and commerce are mutually advantageous, and that after every fair mercantile transaction both parties are richer than before, was also not understood in Europe. On the contrary, the generally accepted theory among both nations and individuals in respect to trade was pithily embodied by an old proverb, "What is one man's gain must be another man's loss." Commerce, therefore, it was assumed, could benefit one country only as it injured some other. In accordance, therefore, with this principle, every state in Christendom, in place of rendering trade and commerce free, exerted itself to impose the most harassing restrictions on commercial intercourse, not only as between different countries, but also as between districts of the same country, and even as between man and man. "Country was accordingly separated from country and town from town as if seas ran between them. If a man of Liege came to Ghent with his wares, he was obliged first to pay toll at the city's gate; then when within the city he was embarrassed at every step with what were termed 'the privileges of companies'; and if the citizen of Ghent desired to trade at Liege, he experienced the same difficulties, which were effectual to prevent either from trading to the best advantage. The revenues of most cities were also in great part derived from the fines and forfeitures of trades, almost all of which were established on the principle that if one trade became too industrious or too clever, it would be the ruin of another trade. Every trade was accordingly fenced round with secrets, and the commonest trade was termed, in the language of the indentures of apprentices, 'an art or mystery.'" If one nation saw profit in any one manufacture, all her efforts were at once directed to frustrate the attempts of other nations to engage in the same industry. She must encourage the importation of all the raw materials that entered into its production, and adopt an opposite rule as respected the finished article. At the close of the sixteenth century England undertook the woolen manufacture. By the 8th of Elizabeth the exporter of sheep was for the first offense to forfeit his goods forever, to suffer a year's imprisonment, and then have his left hand cut off in a market town on market day, there to be nailed up to the pillory. For the second offense he should be adjudged a felon, and suffer death. At a later period, in the reign of Charles II., it was enacted that no person within fifteen miles of the sea should buy wool without the permission of the king: nor could it be loaded in any vehicle, or carried, except between sunrising and sunsetting, within five miles of the sea, on pain of forfeiture. An act of parliament in 1678, for the encouragement of woolen manufactures, ordered that every corpse should be buried in a woolen shroud. In 1672 the lord chancellor of England announced the necessity of going to war with the Dutch and destroying their commerce, because it was surpassing that of Great Britain; and even as late as 1743 one of England's greatest statesmen declared in the house of lords that "if our wealth is diminishing, it is time to ruin the commerce of that nation which had driven us from the markets of the continent, by sweeping the seas of their ships and blockading their ports." By the treaty of Utrecht, which concluded the great war of England and Spain against Louis XIV. and his allies, England being able to dictate the terms, secured the adoption of a section by which the citizens of Antwerp were forbidden to use the deep water that flowed close by their walls; and it was further expressly stipulated that the capacious harbor of Dunkirk, in the north of France, should be filled up and forever ruined, so that French commerce might not become too successful.

II.93.19

—With the progress of civilization, and the consequent diffusion of information, the arbitrary restrictions on trade above noticed, which were formerly so common in Europe, have almost entirely disappeared, and men now wonder that any benefit could ever have been supposed to accrue from such absurd and monstrous regulations. But the change to a more liberal state of things, though constant, has been slow, and the harsh policy of the middle ages, in the process of modification and extinction, has given rise to and is lineally represented by the modern policy of "protection," which, while clearly recognizing the inexpediency of interfering with domestic exchanges, regards foreign trade as something different from other trade, which it is for the interest of the state to interfere with and regulate. As in the case of free trade, there is no better way of testing and explaining this opposite policy than by considering the results of its specific and practical application; and to some of these it is proposed to next ask attention.

II.93.20

The Experiment of Protection in the United States. While, as already pointed out, the United States have adopted absolute free trade, in the law governing their internal or domestic exchanges, they have at the same time, and more especially since 1861-2, applied and maintained the principles of protection to their foreign exchanges, with a degree of rigidity and on a scale of magnitude which has hardly any parallel in recent commercial history. This policy has now (1882) been in uninterrupted operation for over twenty years; and as the experiment has been made on a grand scale and under most favoring circumstances, it may, it would seem, be legitimately regarded as a test. The prime object, it will not be questioned, for which protection has been instituted and maintained in the United States, has been the development of the so-called manufacturing industries of the country, and the rendering of the nation industrially independent. That this result has not been effected under the protective policy, but that the economic movement in the above respects has been retrograde, admits of proof from data which are accessible to everybody who has access to the official records, and which does not involve the least resort to hypothesis. Thus, for all practical purposes, the exports of the United States may be regarded as made up of agricultural products and manufactures. She exports products of the sea, the mine and the forest; but the shipments of these are comparatively small in amount; and some of them are in manufactured form, so that in the comparisons it is proposed to institute, all non-agricultural products will be treated as manufactures; and making these inclusions, the following facts are revealed: 1st. that for the year 1879-80, 87½ per cent. of the total exports of the United States consisted of unprotected unmanufactured products—all agricultural except petroleum; and 2d, that the value of the manufactured products exported constituted a smaller proportion of the total exports in 1879-80 than they did in 1869-70, and that the proportion was also smaller in 1869-70 than it was in 1859-60. Or, to put the case differently, in 1859-60 the value of the manufactured exports of the United States constituted 17.5 per cent. of the value of the total exports. In 1869-70, after ten years of a high tariff policy, they had run down to 13.4 per cent.; and in 1879-80, after another ten years of like experience, they were further reduced to 12.5 per cent. During the same period the export of unmanufactured unprotected articles increased from a proportion of 82.3 per cent. of the total exports in 1859-60 to 87.5 of the total in 1879-80. On the other hand, the value of the imports of foreign merchandise, which was at the rate of about $10.80 per capita in 1860, increased to $11.21 in 1870 and to $13.36 in 1880. The increasing inability of American manufacturers under protection to command foreign markets is therefore demonstrated. It is not to be denied that the foreign commerce of the United States greatly increased in the thirty years included between 1850 and 1880; but a fair analysis of this trade will bring nothing of consolation to the believer in the efficacy of the protectionist policy as a means of national development. During the ten years from 1850 to 1860 under a tariff of low duties, the United States increased her exports of manufactured articles in the ratio of 171 per cent.; but during the next twenty years, or from 1860 to 1880, under a tariff called protective, the corresponding increase was in the ration of only 89 per cent.*21

II.93.21

—A legitimate, but striking result of the inability thus demonstrated of the so-called manufacturing industries of the United States, to export their products to any considerable extent, has been to practically limit the market, or demand for them, to the domestic consumption of the country, and this, in turn, has prevented any enlargement of these industries corresponding to the increasing ability and desire of other nations to exchange or consume, and the increased facilities for effecting international exchanges. But with the great natural resources of the country, its rapidly increasing population, the increased use and power of machinery, and the energy of the people, the power of production in the United States tends to continually exceed the power of domestic consumption, and out of this singular condition of affairs there is a continual portent and frequent realization of stagnation of business, diminished wages and employment for labor, increasing pauperism and social disturbances. Two other practical and specific illustrations of the evil influence of the policy of protection in the United States are worthy of special notice. With a view of fostering the construction and use of ships, the protection of those branches of industry in the United States has been made for many years as absolute and complete as it was possible for the law to make it. No vessel of foreign construction can be imported, or participate in the coasting trade. No citizen of the United States can buy or acquire an American register, license or title to any foreign-built vessel. No foreigner is allowed to directly participate in the ownership or command of any American vessel. Materials used in the construction of ships intended for foreign trade may be imported free of duty. Under such a system the foreign commercial marine of the United States has been almost annihilated, as is shown by the circumstance that while in 1865, 75 per cent. of the total foreign trade of the United States was carried in American bottoms, in 1881 the proportion was only 16.2 per cent. The coasting trade, in respect to which no foreign competition whatever is permitted, has also declined. On the other hand, the shipping interests of other countries which have repealed the restrictions which navigation laws similar to those existing in the United States formerly imposed, have experienced a development during the corresponding period, greater than any other branch of industry, save that of railway construction and transportation.

II.93.22

—Another most remarkable illustration of the evil effect of commercial restrictions in limiting trade and industry, and consequently national development, is to be found in the history of the commercial relations between the United States and the British North American provinces. Thus, in 1852-3, in the absence of anything like commercial freedom, the aggregate exchanges between the two countries amounted to only $20,691,000. The subsequent year a treaty of reciprocity went into effect, whereby the people of the two countries were enabled to trade and exchange their products with little or no obstruction in the form of import duties. The result was, that the aggregate of exchanges rose the very first year of the operation of the treaty from $20,691,000 to $33,494,000, which subsequently increased, year by year, until it reached the figure of $55,000,000 in 1862-3, and $84,000,000 in 1865-6. In this latter year the treaty of reciprocity was repealed and restrictive duties again became operative. The result was, that the annual aggregate of exchanges immediately fell to $57,000,000, and in 1873, seven fully years after expiration of the treaty, when both nations had largely increased in wealth and population, the decrease of trade consequent on the abrogation of the treaty had not been made good. Again, the population of the United States consists, in round numbers, of 50,000,000; and these fifty millions annually make exchanges among themselves, through the agencies of railroads alone, and exclusive of all other instrumentalities of trade, such as ships, wagons, boats and animals, to the extent of over twelve thousand millions of dollars; or, in other words, every four millions of the population exchange commodities among themselves, each and every year, to the extent of considerably more than a thousand millions. It is true that much of this exchange represents the movement of the same commodity, backward and forward, over the same route, under different forms or conditions—as raw material or manufactured product—and that it is not all a direct movement between producers and ultimate consumers. But it is safe to assume that not one ton or one dollar's worth is transported a single mile except for the real or supposed advantage of the owner. On the other hand, the British North American provinces contain at present a population of about four millions, and as the geographical line which separates them from us is so artificial, that except where a river or lake has been named as the boundary, it is not easy to tell where one country begins and the other ends; and as they have the same wants and material interests that we have, speak essentially the same language and are not lacking in resources, energy or courtesy, it would be but natural to suppose that the methods and amount of trade over the whole territory subject to the two governments would be subject to the same influences, and that men and commodities would pass as freely between the two countries as they do between different sections of the provinces, or between the different states of the federal Union. But the United States, with a view of promoting national industry and development has for a long time established all manner of arbitrary and burdensome restrictions on trade and commercial intercourse along the artificial line separating the two countries; or, in other words, it has established a ridge right across the boundary line, difficult to overcome and with very few gaps in it. And the people of Canada, after remonstrating against this policy for a long time, and after repeatedly asking the United States to unite with them and demolish the ridge, and level down all the obstructions, have finally become disgusted with their treatment, and have concluded to experiment in the way of trade restrictions themselves. And the result has been that, in place of exchanging commodities annually to the value of a thousand millions of dollars, the total aggregate of all the exchanges—exports and imports—between the four millions of people in the dominion of Canada and the entire population of the United States was but seventy-seven millions in 1874; and since Canada has concluded to imitate the policy of the United States and have a commercial barrier or ridge of her own, this comparatively small aggregate has been further reduced, and amounted in 1879 to only fifty-six millions, or less than the exchanges of which the clearing houses could take cognizance in such cities of the United States, as Cleveland, Ohio; Memphis, Tenn.; or New Haven, Conn., during the same period. Here, then, is an annual loss of business, measured by the results of 1879, of some $940,000,000 between the two contiguous countries, one-half of which at least falls upon the United States, in consequence of the commercial policy adopted. Could the barriers be removed, how many wheels, engines, cars, spindles, looms, hammers and strong human arms would be put in motion, and how much greater would be the sphere of employment, enjoyment and abundance for the people of the two countries.

II.93.23

—In response to the arguments in favor of free trade derived from either abstract reasoning or specific examples, the advocates of the theory of protection (especially in the United States) submit certain counter arguments.

II.93.24

The Argument of Extended Opportunities for Domestic Industry. It is claimed, with much speciousness and apparent fairness, that by prohibiting the importation and use of the products of foreign (manufacturing) industries, a demand will be created for a corresponding additional quantity of American products, and that this, in turn, will create additional opportunities for the employment of American laborers; and the results of their labor and expenditure remaining in the country, the national wealth will be thereby augmented; whereas if the same amount of labor and expenditure is diverted to, and takes place in, a foreign country, the result will be exactly opposite.

II.93.25

—In answer, now, to this, it may be said, 1st. That the amount of consumption in the two instances, and consequently the results of consumption, will not be the same; for whatever increases the price of a useful commodity diminishes its consumption, and, vice versa, whatever diminishes the price increases consumption. 2d, To admit the desirability of creating an opportunity of employing labor, through the agency of a tax on all consumers of certain articles, to do work that would yield to the same consumers a greater product of the same articles if performed elsewhere, or an equal product at less cost, is to admit that the natural resources of a country are so far exhausted that there is no opportunity for the truly productive employment of labor—an argument which, however effective in over-populated countries, can have no possible application in a new country like the United States, whose natural resources, so far from being exhausted, are yet, as it were, unappropriated and unexplored. Again, a tax levied in pursuance of legislative enactment for the maintenance of such labor is clearly in the nature of a forced charity, while the petitioners for its enactment answer in every particular to the definition of the term "pauper"—namely, one who publicly confesses that he can not earn a living by his own exertions, and therefore asks the community to tax themselves or diminish their abundance for his support. 3d, The only true test of the increase of national wealth is the possession of useful things in the aggregate, and not in the amount of labor performed or the number of laborers employed, irrespective of results. A tariff, from its very nature, can not create anything; it only affects the distribution of what already exits. If the imposition of restrictions by means of taxes on imports enables a producer to employ a larger number of workmen and to give them better wages than before, it can be accomplished only at the expense of the domestic consumers, who pay increased prices. Capital thus transferred is no more increased than is money by transference from one pocket to another, but on the contrary it is diminished to just the extent that it is diverted from employing labor that is naturally profitable to that which is naturally unprofitable.

II.93.26

Protection in reality does not Protect. Herein, then, is exposed the fallacy of the averment that duties levied on the importation of foreign commodities protect home industry. It may be conceded that certain industries may be temporarily stimulated, as the result of such duties, and that the producers may obtain large profits by a consequent increase in the price of their products; but then, it is at the expense of those who pay the increased price, who are always the domestic consumers. To further make clear this position, the following illustration, drawn from actual American experience, is submitted: For a number of years subsequent to 1860, congress, with a view a protecting the American producer, imposed such a duty on foreign salt as to restrict the import and at least double the price of this commodity, whether of foreign or domestic production, to the American consumer. The result was, taking the average price of No. 1 spring wheat for the same period in Chicago, that a farmer of the west, desirous of buying salt in that market, would have been obliged to give two bushels of wheat for a barrel of salt, which without the tariff, he would have readily obtained for one bushel. If, now, the tax had been imposed solely with a view to obtaining revenue, and the farmer had bought imported salt, the extra bushel given by him would have accrued to the benefit of the state; and if the circumstances of the government required the tax, and its imposition was expedient and equitable, the act was not one to which any advocate of free trade could object. But in the case in question the tax was not imposed primarily for revenue, as was shown by the circumstance that imports and revenue greatly decreased under its influence; and the salt purchased by the farmer in Chicago was domestic salt, which had paid no direct or corresponding tax to the government. The extra bushel of wheat, therefore, which the farmer was compelled to give for his salt, accrued wholly to the benefit of the American salt boiler, and the act was justified on the ground that American industry, as exemplified in salt making, was protected. And yet it must be clear to every mind that if the farmer had not given the extra bushel of wheat to the salt boiler, he would have had it to use for some other purpose advantageous to himself—to give to the shoemaker, for example, in exchange for a pair of brogans. By so much, therefore, as the industry of the salt boiler was encouraged, that of the farmer and shoemaker was discouraged; and, putting the whole matter in the form of a commercial statement, we have the following result: under the so-called "protective system" a barrel of salt and two bushels of wheat were passed to the credit of what is called "home industry," while under a free system there were a barrel of salt, two bushels of wheat, and a pair of shoes Protection, therefore, seeks to promote industry at the expense of the products of industry; and its favorite proposition, that though under a system of restriction a higher price may be given for an article, yet all that is paid by one is given to some other person in increased employment and wages, has this fallacy, namely, that it conceals the fact that the entire amount paid by the consumer would "in the long run" have been equally expended upon something and somebody if the consumer had been allowed to buy the cheap article instead of the dear one; and consequently the loss to the consumer is balanced by no advantage in the aggregate to any one. "When a highwayman takes a purse from a traveler, he expends it, it may be, at a drinking saloon, and the traveler would have expended it somewhere else. But in this there is no loss in the aggregate; the vice of the transaction is that the enjoyment goes to the wrong man. But if the same money is taken from the traveler by forcing him to pay for a dear article instead of a cheap one, he is not only despoiled of his just enjoyment, as before, but there is a destructive process besides, in the same manner as if the loss had been caused by making him work with a blunt ax instead of a sharp one. Whenever, therefore, anything is taken from one man and given to another under the pretense of protection to trade, an equal amount is virtually thrown into the sea, in addition to the robbery of the individual"

II.93.27

Influence of Protection not Permanent, but Temporary. A further conclusion, alike deducible from theory and proved by all experience, is that not only does protection to a special industry not result in any benefit to the general industry of a country, but also that its beneficial influence on any special industry is not permanent, but temporary. Thus, the price of no article can be permanently advanced by artificial agencies, without an effort on the part of every person directly or indirectly concerned in its consumption to protect and compensate himself by advancing the price of the labor or products he gives in exchange. If sufficient time is afforded, and local exchanges are not unduly restricted, this effort of compensation is always successful. Hence, from the very necessity of the case, no protective duty can be permanently effective. Hence, also, it is that protected manufacturers always proclaim, and not doubt honestly feel, that the abandonment of protection, or even its abatement, would be ruinous; and in all history not one case can be cited where the representatives of an industry once protected have ever come forward and asked for an abatement of taxation on the ground that protection had done its work. Under this head the experience of the United States affords a most curious and convincing illustration. Thus, in 1862-3, in order to meet the expenses of a great war, the government imposed internal taxes on every variety of domestic manufactures, and in accordance with the principles of equity imposed what were claimed to be corresponding taxes on the imports of all competing foreign products. Soon after the close of the war, however, when the cessation of hostilities diminished the necessity for such large revenues, the internal taxes were repealed, but in no one instance was there a protected manufacturer found who took any other position than that a repeal of the corresponding tariff would be most disastrous to his business. The tariff, as originally raised to compensate for the new internal taxes, was therefore left in a great degree unchanged. That the principle here laid down, of want of permanency in protective agencies, is furthermore admitted by the protected (American) manufacturers themselves as a result of their own experience, is also proved by the following striking testimony, forced out under oath before a government commission from one of the foremost of their number in 1868—the late Oakes Ames, of Massachusetts: Ques. "What, according to your experience, was the effect of the increase of the tariff in 1864 on the industries with which you are specially acquainted?" Ans. "The first effect was to stimulate nearly every branch, to give an impulse and activity to business; but in a few months the increased cost of production and the advance in the price of labor and the products of labor were greater than the increase of the tariff, so that the business of production was no better, even if in so good a condition, as it was previous to the advance of the tariff referred to."

II.93.28

Will Free Trade tend to diminish and Protection tend to increase the Wages of Domestic Industry? Upon no one argument have the advocates of protection relied more, in support of their system, than the assumption that, if there were no restrictions on trade, the opportunity to labor created by protection and the results of the expenditure of the earnings of such labor would be diverted to other countries to their benefit, and to the corresponding detriment of that country which, needing protection by reason of a necessity for paying higher wages or other industrial inequalities, abandons it, or, to speak more specifically, it is assumed that if the United States were to adopt a policy of free trade, England would supply us with cotton and metal fabrications, Germany with woolen goods, Nova Scotia with coal, the West Indies exclusively with sugar, Russia with hemp and tallow, Canada with lumber, and Australia with wool; that thereby opportunity to our own people to labor would be greatly restricted, and the wages of labor be reduced to a level with the wages of foreigners. Specious as is this argument, there could not be a greater error of fact or a worse sophism of reason. In the first place, only a very small proportion of the United States are engaged in occupations that admit of being protected against the influence of foreign competition. According to the returns of the census of 1870—and the condition of things is without doubt comparatively the same now as then—12,500,000 persons were engaged in all occupations. These twelve and one-half millions were the "working and business men" and women of the country. Each of these "laborers" had to support, on an average, three and one-fifth persons. 47 per cent. of these were engaged in agriculture. 22 per cent. of them were engaged in "professional and personal services," which class includes unskilled laborers and professional men. 9 per cent. were in trade and transportation. 22 per cent. were in "manufactures, mechanical and mining industries." Out of all the productive laborers of the country, therefore, there were nearly four in other industries for every one in "manufactures." Taking the whole country over, therefore, four "working and business" men were affected injuriously by the taxes imposed on them in consequence of the national policy of protection, for every one who could possibly gain by them. It is also curious to note how few of the many products of domestic manufacturing industry can be directly benefited by a protective tariff. Anything that can be exported regularly, and sold in competition in foreign countries with similar foreign products, evidently can not be directly benefited by any tariff legislation, and in this category, and apart from our great agricultural staples, must be included our petroleum, turpentine and rosin; nearly all building materials and constructions of wood, including vessels; our products or gold, silver and copper; our stoves, tinware, shovels, axes, nearly all agricultural machines and implements, and most articles of common hardware; boots and shoes, and sole leather; coarse cotton fabrics, starch, refined sugar, distilled spirits and alcohol, most fermented liquors, wagons, carts, most carriages, harnesses, railroad cars, sewing machines, all ordinary confectionary, and the cheaper papers and paper hangings, photographs, picture frames, pianos, india-rubber goods, toys, watches, guns, fixed ammunition, newspapers, buttons, brooms, gas, clocks, and a great variety of other articles, not one of which, if the tariff was entirely abolished, would be imported to any considerable extent, and most of which, under free trade, would be manufactured and exported in vastly larger quantities than at present. But supposing the reverse was true; and that in consequence of the abandonment of the protective policy, large quantities of the commodities above mentioned should be imported from foreign countries, none of them will be given away to American consumers for nothing. Product for product is the invariable law of exchange, and we can not buy a single article abroad, save through the medium of something that must be produced at home. Hence the utter absurdity of that assertion which to protectionists seems pregnant with such dreadful meaning, namely, "that under free trade we should be deluged with foreign goods"; for if more should be really imported under a free trade than under a protective policy, then one of two things would take place: either we must produce more at home in order to pay for the new excess of imports, in which case domestic industry would be stimulated and not diminished; or, not producing more, we must obtain more in return, or, what is the same thing, a higher price for what we already produce—a result manifestly conducive to national prosperity. It would also seem to be in the nature of a self-evident proposition, that nothing under any circumstance can or will be imported unless that in which it is paid for can be produced at home with greater final advantage.

II.93.29

—Again, the favorite argument of the advocates of protection that, if trade is unrestricted and the people of a country, under the inducement of greater cheapness, are allowed to supply themselves with foreign commodities, the opportunities for the employment of domestic labor will be correspondingly diminished, is an argument identical in character with that which has in past times often led individuals and whole communities to oppose the invention and introduction of labor-saving or "labor-dispensing" machinery. But, to sift thoroughly this sophism, it is sufficient to remember that labor is not exerted for the sake of labor, but for what labor brings, and that human wants expand just in proportion to the multiplication of the means and opportunity of gratifying human desires. If the wages of a day's labor would purchase in the market one hundred times as much as at present, can any one doubt that the demand for the necessaries and luxuries of life would be increased a hundred-fold? If the people of the United States could obtain the products of the labor of other countries for nothing, could the labor of the whole world supply the quantity of things we should want? In short, the demand for the results of labor can never be satisfied, and is never limited except by its ability to buy; and the cheaper things are, the more things will be purchased and consumed. Nothing, therefore, can be more irrational than the supposition that increased cheapness, or increased ability to buy and consume, diminishes or restricts the opportunity to labor. If by the invention of machinery, or the discovery of cheaper sources of supply, the labor of a certain number of individuals in a department of industry becomes superfluous or unnecessary, such labor must take a new direction, and it is not to be denied that in the process of readjustment temporary individual inconvenience, and perhaps suffering, may result. But any temporary loss thus sustained by individuals is more than made up to society, regarded from the standpoint of either producers or consumers, by the increased demand consequent on increased cheapness through greater material abundance, and therefore greater comfort and happiness.

II.93.30

—Wages in the United States are, as a general thing, unquestionably higher than in Europe. The difference in rates between the United States and Great Britain, taking the purchasing power of money into consideration, is not at present very considerable, and not near as great as is commonly represented. From 1875 to 1878 wages in many departments of industry were higher in Great Britain than in the United States, and the tide of immigration, especially of skilled labor, notably rolled back. On the continent wages are much lower than in Great Britain; but British industry does not ask to be protected on account of this difference, but defies continental competition. On the other hand, the continental states that have recently adopted the protective policy have pleaded, as a reason, the necessity of guarding against the competition of the United States; while, very curiously, the comparatively high wages of Great Britain are put forward as the main reason for the maintenance of protection in the United States. The high wages paid for labor in the United States are due to two causes. 1. Owing to great natural advantages, a given amount of labor, intelligently applied, will here yield a greater or better result than in almost any other country. It has always been so, ever since the first settlements within our territory, and has been the main cause of the tide of immigration that for the last 200 years has flowed hitherward. Hamilton, in his celebrated report on manufactures, made before any tariff on the imports of foreign merchandise into the United States was enacted, notices the fact that wages for similar employments were as a rule higher in this country than in Europe; but he considered this as no real obstacle in the way of our successful establishment of domestic manufactures; for he says "the under takers"—meaning thereby the manufactures—"can afford to pay them." And that this assertion embodied a general truth will appear evident from the following considerations. Wages are labor's share of product, and in every healthy business are ultimately paid out of product. No employer of labor can continue for any great length of time to pay wages, unless his product is large. If it is not, and he attempts it, it is only a question of time when his affairs will be wound up by the sheriff. Or, on the other hand, if a high rate of wages continues to be permanently paid in any industry and in any country, it is in itself proof positive that the product of labor is large, that the laborer is entitled to a generous share of it, and that the employer can afford to give it to him. And if to-morrow the tariff of the United States was swept out of existence, this natural advantage, which, supposing the same skill and intelligence, is the sole advantage which the American laborer has over his foreign competitor, would not be diminished to the extent of a fraction of an iota. Consider, for example, the American agriculturist. He pays higher wages than his foreign competitor. In fact, the differences between the wages paid in agriculture in the United States and Europe are greater than in any other form of industry. The tariff can not help him, but, by increasing the cost of all his instrumentalities of production, greatly injures him. With a surplus product in excess of any home demand to be disposed of, no amount of other domestic industry can determine his prices. How then can he undersell all the other nations, and at the same time greatly prosper individually? Simply because of his natural advantages of sun, soil and climate, aided by cheap transportation and the use of ingenious machinery, which combined give him a greater product in return for his labor than can be obtained by the laborers in similar competitive industries in any other country. What has he to ask of government other than that it will interfere with him to the least possible extent? Take another case in point. Wages in England, in every industry, are much higher than in the continental states of Europe. In the cotton manufacturing industries they are from 30 to 50 per cent, higher than in France, Belgium and Germany; and an English cotton operative receives more wages in a week than an operative similarly employed in Russia can earn in a month. Now which of these countries has the cheapest labor? The question may be answered by asking another: Does England seek protection against the competition of the continental states, or is it the continental states that demand protection against England? In short, instead of high industrial remuneration being evidence of high cost of production in this country, it is direct evidence of a low cost of production; and in place of being an argument in favor of the necessity of protection, it is a demonstration that none is needed. Industrial products of every kind are made at the lowest cost by those who earn the highest wages, wherever modern machinery is brought in to aid in the work on their production; and this "bringing in" has been done to a greater degree in the United States than in any other country. 2. Wages are exceptionally high in the United States for another reason. The existing tariff imposes an average tax of about 40 per cent, on the whole value of imported commodities; and as these number some 2,000 articles and include almost everything that is necessary or useful to life, the cost of all such commodities, whether imported or produced at home, is always enhanced; sometimes greatly and to the full extent of the duty, and sometimes to a lesser extent, as when the domestic product is equal to the home demand, and domestic competition is severe. But if the American laborer is compelled thereby to pay more for his comforts and luxuries than his foreign competitor, he must have higher wages, or he will be at a disadvantage with him. If his wages are advanced to such an extent as will exactly compensate him for his comparative increased expenses, he is no better off relatively, having gained nothing on the one hand, nor lost anything on the other. But there being no fixed rule or standard for making such adjustments, the American laborer is almost always placed at a disadvantage. The tariff taxes are constant; their influence in increasing prices varies as a rule within narrow limits; they fall exclusively on consumption and are as certain as death. On the other hand, the prices of labor vary with the supply and demand in the domestic market. Whoever heard of a protected manufacturer making up his schedule of wages in advance, or varying it afterward, except on compulsion, according to the varying expenses of his employés? Let any one examine the census reports of the United States, and he will find that in her great textile and metal industries the amount paid for wages represents only about 20 per cent, of the value of the finished product. If, now, the American laborer uniformly received two dollars in wages where his foreign competitor received but one, and the value of the products of their labor was always the same, a tariff of 20 per cent, on the value of all competitive foreign imports would obviously fully compensate for any advantages the foreign manufacturer would have on the score of wages. But the wages of the American laborer in the industries specified are not 100 per cent, higher than are paid to the British laborer, who is his only for midable competitor, nor 50 per cent. The domestic manufacturer, however, says 20 per cent, protection is not enough, and demands and receives 40, 60, 70, and even 100 per cent, and upward. Now what does this excess represent? It certainly is not needed to compensate for any difference in wages, and the American laborer does not profit by it. Neither is it to be claimed that the domestic manufacturer does to the full extent; but it represents duplications and reduplications of taxes, an increased cost of raw materials and the instrumentalities of production, a misapplication and waste of labor; in short, a loss that really benefits no one. All tariff rates, both direct and indirect, fall on consumption and must be paid by the consumer in the increased price of the things he consumes; and the heavier these taxes are made by any sort of legislation of avoidable expenditures, the heavier will be the burden on the man who, from necessity, expends all or nearly all his wages in living, as compared with one who only needs to expend a part of his income for similar purposes and lays up a surplus for increasing his income. Hence, in place of there being any warrant for the assertion which is continually made that the American laborer is greatly benefited by the advance of wages which accrues to him under the protective policy, which imposes a double burden of taxation—one direct and visible, and the other indirect and not readily seen—no more efficient or cruel device was ever instituted for making the rich richer, and the poor poorer; and every dollar raised by the government by taxation for any other purpose than to provide revenue for its most economical administration, constitutes a heavier burden on the recipients' of small incomes or wages than upon any other class of the community.

II.93.31

—From these premises, therefore, the following reductions may be regarded as in the nature of economic axioms: 1. A nation or community can attain the greatest prosperity, and secure to its people the greatest degree of material abundance, only when it utilizes its natural resources and labor to the best advantages and with the least waste and loss, whatever may be the nominal rate of wages paid to its laborers. The realization of such a result is hastened or retarded by whatever removes or creates obstructions or interferences in the way of production and exchanges. 2. The exports, on the whole, of any country must and always do balance its imports; which is equivalent to saying that if we do not buy we can not sell, while neither buying nor selling will take place unless there is a real or supposed advantage to both parties to the transaction. 3. As a nation exports only those things for which it possesses decided advantages relatively to other nations in producing, it follows that what a nation purchases by its exports it purchases by its most efficient labor, and consequently at the cheapest possible rate to itself. Hence, the price paid for every foreign manufactured article, instead of beig so much given for the encouragement of foreign labor to the prejudice of our own, is as truly the product of our own labor as though we had directly manufactured it ourselves. Free trade, therefore, can by no possibility discourage home labor or diminish the real wages of laborers.

II.93.32

Does Protection encourage Diversity of Industry? The averment that prohibition or restriction of foreign imports encourages diversity of domestic industry is answered by saying that when any trade can be introduced or undertaken for fiscal or public advantage, private enterprise is competent to its accomplishment. "To ask for more is only to ask to have a finger in the public purse." It may be possible to conceive of specific cases in which it might be politic for a government to give an advantage for a limited time and for a definite object. But protection, as an economic system, can not rightfully claim any support from such an admission, inasmuch as its demand is that the public shall be obliged to support all manufacturing enterprises upon no other ground than that they can not support themselves.

II.93.33

Does Protection tend to cheapen Manufactured Products? Protection, it is alleged, has a tendency to make what are termed manufactured products cheaper. A very fit and cogent answer which has been made to this assertion of the opponents of free trade is, that if protection is to be recommended because it leads ultimately to cheapness, it were best to begin with cheapness. Another answer is to be found in the circumstance that not a single instance can be adduced to show that any reduction has ever taken place in the cost of production under a system of protection, through the agencies of new inventions, discoveries and economies which would not have taken place equally soon under a system of free trade; while, on the contrary, many instances can be referred to which prove that protection, by removing the dread of foreign competition, has retarded not only invention, but also the application and use of improvements and inventions elsewhere devised and introduced. Thus, referring to the experience of the United States, where the system of protection has in general prevailed for many years, it is a well-known fact that the department of industry which has been distinguished more than any other by the invention and application of labor-saving machinery is that of agriculture, which has never been protected to any extent; and for the reason that in a country which raises a surplus of nearly all its agricultural products for sale in foreign countries, it never can be. On the other hand, in that department of industry engaged in the primary manufacture of iron, which has always been especially shielded by high restrictive duties, not only from foreign competition, but also from the necessity of the exercise of economy and skill, the progress in the direction of improvement has been so slow, that according to the report of the geological survey of Ohio for 1872-3, there was hardly a furnace at that time in that great iron-producing state that could be compared with the best English furnaces in respect either to construction, management or product; many Ohio furnaces unnecessarily wasting one-fourth of the metal in the ore in the process of smelting.

II.93.34

Is it profitable to effect a reduction of prices by artificially stimulating production? It is here pertinent to notice an idea adopted by a school of American economists or politicians, that it is for the advantage of a country to endeavor to effect a reduction of prices by the creation, through legislation or otherwise, of an excessive or artificial stimulus to production. That the creation of an artificial stimulus to domestic production—such as is almost always temporarily afforded by an increase of the tariff or by war, which necessitates extraordinary supplies—does have the effect in the first instance to quicken certain branches of production, and subsequently to reduce prices through the competition engendered, can not be doubted; but experience shows that in almost every such instance the reduction of prices is effected at the expense or waste of capital, and that the general result, in place of being a gain, is one of the worst events that can happen to a community. Thus, the first effect of creating an extraordinary domestic demand is to increase prices, which, in turn, affords large profits to those in possession of stock on hand or of the machinery of production ready for immediate service. The prospect of the realization of large profits next immediately tempts others to engage in the same branch of production—in many cases with insufficient capital, and without that practical knowledge of the details of the undertaking essential to secure success. As production goes on, supply gradually becomes equal to, and finally in excess of, demand. The producers working on insufficient capital or with insufficient skill are soon obliged, in order to meet impending obligations or dispose of inferior products, to force sales through a reduction of prices, and the others, in order to retain their markets and customers, are soon compelled to follow their example. This in turn is followed by new concessions alternately by both parties, which are accompanied by the usual resort of turning out articles or products of inferior quality, but with an external good appearance. And so the work of production goes on, until gradually the whole industry becomes depressed and demoralized, and the weaker producers succumb, with a greater or less destruction of capital and waste of product. Affairs having now reached their minimum of depression, recovery slowly commences. The increase of the country causes consumption gradually to gain on production, and finally the community suddenly becomes aware of the fact that supply has all at once become unequal to the demand. Then those of the producers who have been able to maintain their existence, enter upon another period of business prosperity; others agains rush into the business, and the old experience is again and again repeated. Such has been the history of the industry of the United States under the attempt to restrict the freedom of trade by high duties on imports, frequently modified. To use a familiar expression, it has always been either "high water" or "low water" in the manufacturing industry of the country—no middle course, no stability. What the people have gained at one time from low prices as consumers, they have more than lost at another by the recurrence of extra rates, and they have also lost, as producers, by periodical suspensions of industry, spasmodic reduction of wages, and depression of business. Meantime, the loss to the country from the destruction of capital and the waste and misapplication of labor, has been something which no man can estimate; but to which, more than to any other one agency, the present remarkable industrial depression of the country must be attributed. The illustrations under this head afforded by the recent industrial experience of the United States are very numerous, and are not surpassed in curious interest by anything on record in the whole range of economic history. The following will serve as examples: In 1864-5 it was found that the supply of paper of domestic manufacture was insufficient to meet the consumption of the country, and that the supply from abroad was greatly impeded by an unusually heavy duty imposed in time of war on its import. The price of paper in the country accordingly rose with great rapidity, and the profits of the paper manufacturers, who were then in possession of the machinery of production, became something extraordinary. The usual effect followed. A host of new men rushed into the business and old manufactories were enlarged, so that during the years 1864-6 it was estimated that more paper mills were built in the United States than during the whole of the twelve years previous. As a matter of course, the market became overstocked with paper, prices fell with great rapidity, many abandoned the business through inclination or necessity, and many mills and much machinery were sold for less than the cost of construction; while in the spring of 1869 the paper makers met in convention to consider the desirability of decreasing the production of paper—or, what is the same thing, of allowing their capital and their labor to remain unemployed—on account of the unprofitableness of the business. In October of the same year a storm of great violence swept over the northern portion of the country, and in the flood which followed, many mills engaged in the manufacture of paper were so injured as to be temporarily incapable of working. A leading journal in one of the paper-manufacturing districts, devoted to the advocacy of protection, in commenting on the effects of the storm, used this language: "There seems to have been unusual fatality among paper mills, but this disaster will work to the advantage of those who escaped the flood, and we doubt not that those that did stand will do a better business in consequence of the lessened supply"; or, in other words, the condition of this particular industry had become so bad-through the influence of a fiscal policy based on the theory of protection that the occurrence of a great public calamity, with a vast attendant destruction of property, had come to be regarded in the light of a public blessing.

II.93.35

—Again, at Kanawha, Virginia, there are remarkable salt springs, some of which furnish conjointly with the brine an inflammable gas, which flows with such force and quantity that it has been used not only to lift the salt water into tanks at a considerable elevation above the evaporating pans, but also to subsequently evaporate the brine by ignition under the furnaces; thus obviating the expense both of pumping and of fuel. During the war, in order to deprive the army and the people of the southern confederacy of a supply of salt, the springs in question, at Kanawha, were rendered useless by the federal forces; which fact, coupled also with the imposition of excessively high duties (over 100 per cent.) on the import of foreign salt, gave to the manufacturers of salt on the Ohio river such a market, that although the cost of manufacturing was nearly doubled, their profits for a time were enormous; salt that cost in 1868, at points on the Ohio river, twenty-three cents per bushel, in barrel, selling readily in Cincinnati for forty eight cents per bushel. The result was such an increase in the number of salt wells and furnaces on the Ohio river, and such an increase in the power of production, that the available market, deprived of the stimulus of the war, was upon unable to take but little more than one-half of the salt that could be produced. As was natural, the price of salt under such circumstances rapidly declined; and a struggle for existence among the manufacturers commenced. The furnaces built at war prices and based on insufficient capital were soon crushed out of existence; while life was preserved to the remainder only by the formation of manufacturers' association for permanently limiting production; and in order that such limitation of production and consequent breaking down of prices might not be interfered with, the Kanawha wells (the proprietors of which were not in the association), with all their advantages, were leased for a term of years at a large annual rental, called "dead rent," and all utilization of them suspended and forbidden. "Now had the duty on salt," writes one of the leading members of the association, under date of December, 1874, "never been raised above the present rate, I have no doubt that the capital invested in the business would have been more profitable, and that the waste of the large amount that has been uselessly invested would have been prevented."

II.93.36

Laws establishing Protection necessarily unstable. One of the essential attributes of a just law is that it bears equally upon all subjected to its influence; and it would also seem clear that the general effect of an unjust law must be injurious. Now a system of law imposing protective duties must, in order to be effective, be partial and discriminating, and therefore unequal and unjust; for if a law could be devised which would afford equal protection to all the industrial interests of a nation, it would benefit in fact no interest by leaving everything relatively as before: or, in other words, the attempt to protect everything would result in protecting nothing. Any system of laws founded on injustice and inequality can not, furthermore, be permanent. The possibility that it may be further changed to meet the increased demands of special interests, and the instinctive revolt of human nature against legal wrong and partiality, continually threaten its stability. Hence, a system of industry built upon laws establishing protection through discriminating taxes can never have stability of condition; and without such stability there can be no continued industrial prosperity. On the other hand, one of the strongest arguments in behalf of freedom of trade is, that it makes every branch of industry independent of legislation, and emancipates it from all conditions affecting its stability other than what are natural and which can in a great degree be anticipated and provided against.

II.93.37

Do foreigners pay, in all or part, the taxes upon imports? It is often asserted, by the advocates of protection, that a tariff on imports "obliges a foreigner to pay a part of our taxes." To this it may be replied that if there were any plan or device by which one nation cold thus throw off its burden of taxation in any degree upon another nation, it would long ago have been universally found out and recognized, and would have been adopted by all nations to at least the extent of making the burden of taxation thus transferred in all cases reciprocal. If the principle involved in the proposition in question, therefore, could possibly be true, no advantage whatever could accrue from its application. But the point itself involves an absurdity. Taxes on imports are paid by the persons who consume them; and these are not foreigners, but residents of the country into which the commodities are imported. A duty on imports may injure foreigners by depriving them of an opportunity of exchanging their products for the products of the country imposing the duty, but no import taxes will for any length of time compel foreigners to sell their products at a loss, or to accept less than the average rate of profit on their transactions; for no business can permanently maintain itself under such conditions. Where a nation possesses a complete monopoly of an article, as is the case of Peru in respect to guano, and to a great extent with China in the case of tea, the monopoly always obtains the highest practicable price for its commodity, and the persons who find its use indispensable are obliged to pay the prescribed prices. The imposition of a tax on the importation of such a commodity into a country may compel the monopoly, for the sake of retaining a market, the reduce its prices proportionally; and in such cases the nation imposing the impost may to a degree share the profit of the monopoly. But the price to the consumers is not diminished by reason of the import duty, and the cases in which any interest has such a complete control over the supply of a product as to enable it arbitrarily to dictate prices, are so rare as hardly to render them worthy of serious consideration in an economic argument.

II.93.38

The Peace and War Argument. Another powerful argument in favor of free trade between nations is, that of all agencies it is the one most conducive to the maintenance of international peace and to the prevention of wars. The restriction of commercial intercourse among nations tends to make men strangers to each other, and prevents the formation of that union of material interests which creates and encourages in men a disposition to adjust their differences by peaceful methods rather than by physical force. On the other hand, it requires no argument to prove that free trade in its fullest development tends to make men friends rather than strangers, for the more they exchange commodities and services the more they become acquainted with and assimilated to each other; whereby a feeling of inter-dependence and mutuality of interest springs up, which, it may be safely assumed, does more to maintain amicable relations between them than all the ships of war that ever were built or all the armies that ever were organized.

II.93.39

—Of the truth of this the experience of England and the United States in respect to the Alabama claims is a striking example. The moral and religious sentiments of the people of the two countries undoubtedly contributed much to restrain the belligerent feelings that existed previous to the reference of the claims to arbitration; but a stronger restraining element than all, and one underlying and supporting the moral and religious influences, was a feeling among the great body of the people of the two nations that war, as a mere business transaction, "would not pay"; and that the commerce and trade of the United States and Great Britain are so interlinked and interwoven that a resort to arms would result in permanent and incalculable impoverishment to both countries.

II.93.40

—One argument, however, in favor of protection, which is said to take stronger hold on the popular mind than almost any other, is the asserted necessity of artificially stimulating by legislation all manner of domestic industries, in order that the country may not be dependent on other nations for martial requisites in case of possible foreign war. The first answer to this averment is, that whatever may have been our condition heretofore, the power of production at present in the United States is so great, so varied, and so permanently established, that it is hardly possible to conceive of a contingency in which the nation would be inconvenienced by a deficiency of any material requisite for the carrying on of war, with the exception of the two commodities, gold and saltpetre; and it will not be pretended by any one that the domestic supply of either of these articles can be advantageously increased by restricting their importation. Second, with a vigorous, patriotic population, especially if the same be supplemented, as in the case of England and the United States, with favorable natural conditions for defense, that nation, under our present civilization, will be most invulnerable in war which can incur and sustain the greatest and longest-continued expenditure, or which, in other words, is possessed of the greatest national wealth. But national wealth increases in a ratio proportioned to the removal of obstacles in the way of the development of trade, commerce, and all productive industries, whether such obstacles be in the nature of an imperfect education of the people, or in the nature of bad roads, high mountains, impenetrable forests, trackless deserts, popular prejudices, or legal commercial restrictions, which impede a free interchange of commodities and services. In support of these positions two historical illustrations may be cited as evidence. During the late civil war, the confederate states, although deficient in almost all the so-called manufacturing industries, with a population trained almost exclusively to agriculture, and with all their main lines of intercommunication with the external world blockaded, nevertheless managed to obtain at all times adequate military supplies for conducting great campaigns so long as they were able to pay for them, and finally succumbed to the financial rather than to the physical power of their antagonists. Upon this same point the example of Holland is also most instructive. From the commencement of their existence as a nation, the Dutch not only made their country an asylum for the oppressed of all nations, but they took especial care that their trade, industries, and all commercial exchanges should be "unfettered, unimpeded, and unlegislated upon," and this too while all the rest of the civilized world adopted a diametrically opposite policy. The result was that, though possessing a most restricted territory (about four hundred thousands acres of arable land) and a limited population (less than two millions), they not only maintained their independence against the combined hosts of Spain, France and Germany, but for a time became the dominant naval power of the world. Though not raising a bushel of wheat, Holland became the best place for Europe to buy grain; though she did not posses an acre of forests, there was always more and better timber to be obtained in her ports than elsewhere; and though she smelted no iron, and did not raise a "sheaf of hemp," her fleets became the best that sailed the seas; and all because, to use the words of one of her statesmen (Cornelius DeWitt, 1745), "she had the wealth to pay for these commodities," and possessed with wealth because trade and all exchange were felt unimpeded.

II.93.41

Why Free Trade is not immediately and universally accepted and adopted. But the question here naturally arises, if the above propositions in favor of free trade are correct, and if the doctrine of protection is as false and injurious as it is represented to be, how happens it that free trade does not at once meet with universal acceptance? and how is the adherence of many men of clear intellect and practical experience to the opposite doctrine to be accounted for? One of the best answers to these questions was given by the celebrated French economist, Bastiat, in an article written many years ago, entitled "That which is Seen and That which is not Seen," in which he showed that protection is maintained mainly by a view of what the producer gains and a concealment of what the consumer loses; and that if the losses of the million were as patent and palpable as the profits of the few, no nation would tolerate the system for a single day. Protection accumulates upon a single point the good which it effects, while the evil which it inflicts is infused throughout the community as a whole. The first result strikes the eye at once; the latter requires some investigation to become clearly perceptible. Mankind also divide themselves into twoclasses—producers and consumers, buyers and sellers. The interest of producers and sellers is that prices shall be high, or that there shall be scarcity; the interest of consumers and buyers is that prices shall be low, or that there shall be abundance. Every person will at once admit that it is for the general interest that there shall be abundance, rather than scarcity. But in the case of individuals controlling large agencies for production, their interest as producers and sellers of large quantities of commodities may be made greater than their interest as consumers, if by the aid of legislation the price of what they produce can be raised, by discriminating laws, disproportionately over what they consume, or to the cost of production. Men of this class are generally rich beyond the average of the community, and therefore influential in controlling legislation and in determining fiscal policies; and it is but natural that in so doing they should consult their own interests rather than the interests of the masses.

II.93.42

—It is not generally known that Adam Smith, after writing his unanswerable argument in favor of free trade in his "Wealth of Nations," closed the discussion with an expression of opinion that to expect that freedom of trade would ever prevail in Great Britain would be as absurd as to expect that Utopia would ever be there established; and he assigns as the main reason for his opinion "the private interests of many individuals who irresistibly oppose it," and whose influence he declared could not be overcome. And he draws this picture of the danger which threatened any individual who attempts to oppose the claims of the manufacturers, which all must recognize as equally applicable to the present situation. "The member of parliament," he says, "who supports every proposal for strengthening monopoly, is sure to acquire great reputation for understanding trade, but also great popularity and influence with an order of men whose members and wealth render them of great importance. If he opposes them, on the contrary, and, still more, if he have authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services, can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger arising from the influence of furious and disappointed monopolists." It is happily true that Adam Smith's anticipations were not realized, and that his teachings largely contributed to a different result. But it is equally true that this result would have been greatly delayed in Great Britain had not reform been necessary to prevent revolution on the part of a starving, discontented people, made hungry and discontented by restrictions on trade, which in turn made food dear and employment scarce.

II.93.43

—In the United States the greatest obstacle to the adoption of free trade, in common with many other economic reforms—such as pertain to currency, banking, bankrupt laws, local taxation, and the like—has been the continued and remarkable prosperity of the country, consequent, not upon legislation, but upon the utilization by the people of their great natural resources, their energy, their skill in the invention and use of labor-saving machinery, and the continued influx of the capital and population of other countries. These conditions have in times past made the people of the United States so indifferent to influences and results which in almost any other country would have been pregnant with national disaster, that the nation at large may be said to have actually preferred to endure many economic evils rather than devote time to their consideration, and meet the political issues contingent upon attempted change or reformation. One striking illustration of this state of affairs is to be found in the matter of the loses through the destruction of property by fire, in the United States. These losses exceed, comparatively and absolutely, those experienced in any other country, and at present exceed on an average $100,000,000 per annum. If products of the various industries of the different states could be gathered in quantities sufficient to represent this valuation—for example, in the form of cloths, furniture, boots and shoes, cotton, corn, wheat, tobacco, and the like—and the same be publicly and arbitrarily burned, the universal sentiment would be one of horror, and that the nation could not annually endure such a calamity of loss. But as it is, the masses of the people are absolutely indifferent to the subject, and do not care to be informed.

II.93.44

—For further information on the subject of free trade, reference may be made to the following publications. Bastiat's Sophisms of the Protectionists; Grosvenor. Does Protection Project? Prof. W. G. Sumner, Lectures on the History of Protection in the United States; Fawcett, Free Trade and Protection; Thompson, A Catechism of the Corn laws London (scarce); Horace White, The Tariff Question; Reports of the Special Commissioner of the Revenue of the United States, 1865-70; J.S. Moore, The Parsee Letters, and Friendly Sermons to the Protectionist Manufacturers of the United States; Lieber, Notes on the Fallacies Peculiar to American Protectionists; and the various treatises on political economy by Perry, Walker, J.S. Mill, Macleod, Cairnes, etc. [Compare the article PROTECTION in this Cyclopædia;, vol. iii., in which the argument for the protective system will be found. ED.]

DAVID A. WELLS.


Notes for this chapter


18.
One of the most curious illustrations under this head is to be found in the recent experience of the United States, which, in 1878, made obligatory by statute the purchase and coinage of silver bullion to the extent of not less than two millions of dollars per month. The ostensible reason for such an enactment, was to afford to the people and business of the country a larger measure of coin currency. The real reason was to create for the silver mining interests of Colorado and other sections, an artificial and larger market for their product. The result was, that the additional coinage being both unnecessary and inconvenient it remained to a great extent dormant in the public treasury: a large amount of what would otherwise have been useful merchandise, available for exchanges, was withdrawn from the channels of industry and commerce; and an unnecessary tax of two millions of dollars per month, amounting in the aggregate at present writing (1882), to more than one hundred millions of dollars, has been imposed on the people and other industries of the country for a comparatively small measure of benefit to certain sectional and private interests.
19.
The difference in wages in the same industries in different sections of the United States, is well illustrated in the following returns of wages in the iron industries of different states, made under the census of 1880: Unskilled labor in blast furnaces, in Virginia, 82 cents per day; in Alabama. 98 cents; in Pennsylvania, $1.09; and in Missouri, $1.29. Skilled labor in iron rolling mills, in Alabama, $2.25 per day; in Massachusetts, $2.70; in Pennsylvania, $3.03; in Ohio, $3.87; and in Kentucky, $4.62. The yearly average wages in the aggregate iron industries of the different sections of the United States are reported as follows. Eastern states, $417; Western, $396; Pacific, $354; Southern, $304.
20.
Importation in 1840 prohibited.
21.
The following tables, compiled from the official reports of the United States treasury, show the total value of all the domestic merchandise exported from the United States during the three decades, 1859-60, 1869-70, and 1879-80; and also what proportion of such exports was made up of agricultural products and petroleum. All other articles not included in this list are regarded as manufactured products.

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These figures represent, approximately, the value of the exports of unmanufactured products; and the difference between their total and the aggregate amount of exports (exclusive of specie) will very closely approach the value of the shipments of manufactures. The total value of the exports of merchandise for the fiscal year 1879-80 was $823,946,000. Of this amount, $721,700,000 consisted of unmanufactured products, chiefly agricultural, leaving $102,246,000 as the value of the exports of manufactures. How these figures compare with those of ten and twenty years previous will appear from the following statement:

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Compared with 1869-70, the exports of unmanufactured products show an increase of 121½ per cent, while in manufactured articles the increase is only 103¾ per cent. The ten years covered by this comparison was a period during which the present high tariff was in full operation; and yet it will be seen that the ratio of increase in the exports of manufactures falls below that on manufactured, or chiefly agricultural products, by 17½ per cent. Comparing 1880 with 1859-60, when the United States had a low revenue tariff, the increase in the exports of agricultural products appears to have been 177½ per cent. and in manufactures only 82½; or the ratio of increase in the protected articles was less than one-half of that which occurred in the unprotected articles. Or, to put the comparison in another form, the ratio of exports of agricultural and manufactured products, respectively, to the total exports was as follows, at each of these decennial periods:

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Footnotes for HAYTI

End of Notes


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