Economic Sophisms

I have said several times that I mean to limit myself to purely theoretical considerations and to expose, as far as possible, the sources of the protectionists’ errors. If I were engaging in polemics, I should ask them: “Why do you direct your tariffs principally against England and Belgium, the most heavily taxed countries in the world? Am I not justified in viewing your argument as nothing but a pretext?” But I am not one of those who believe that one is a protectionist solely from motives of self-interest and not by conviction as well. Protectionism is too popular for its adherents to be regarded as insincere. If the majority of people had faith in free trade, we should have free trade. It is doubtless motives of self-interest that have been responsible for the imposition of our tariffs, but only after having produced sincere conviction. “The will,” says Pascal,
38* “is one of the principal organs of belief.” But the belief is no less real for having its roots in the will and in the secret promptings of selfishness.

Let us revert to the sophism based on the premise of the domestic tax burden.

The state can put its taxes to either a good or a bad use. It puts them to a good use when it performs services for the public equivalent to the value it receives from the public. It puts them to a bad use when it squanders its revenues without giving the public anything in return.

In the first case, it is a sophism to say that the taxes render the conditions of production in the country that pays them less favorable than the conditions of production in a country that is free of such taxes. We pay twenty millions for courts and police forces, it is true; but we do get courts and police forces, with the security that they provide us and the time that they save us; and it is hardly likely that production is either safer or brisker among those nations, if there are any, in which each man takes the law into his own hands. We pay several hundred millions for highways, bridges, harbors, and railroads; granted. But we have these railroads, these harbors, these bridges, and these highways; and unless we made a mistake in building them, it cannot be said that they render us inferior to nations that are not, it is true, burdened with the taxes needed to support a public works program, but that, at the same time, have no public works. And this explains why, while we blame our domestic taxes for our industrial inferiority, we direct our tariffs precisely against those countries that are themselves the most tax-ridden. The fact is that taxes, when properly used, have bettered rather than worsened the
conditions of production in these countries. Thus, we must again conclude that protectionist sophisms not only deviate from the truth, but are contrary to it, are, in fact, at the opposite pole from it.
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As for domestic taxes that produce little revenue, abolish them if you can; but surely the strangest imaginable method of neutralizing their effects is to supplement taxes levied for public purposes with taxes levied for the profit of individuals. A fine way, indeed, to correct the situation! The state has taxed us too much, you say. Well, all the more reason for not taxing one another besides!

A protective tariff is a tax directed against foreign goods, but that falls, let us never forget, on the domestic consumer. Now, the consumer is the taxpayer. And is it not ridiculous to tell him: “Since your taxes are heavy, we shall raise the price of everything you buy; since the state takes a part of your income, we shall hand over another part of it to a monopolist”?

But let us delve further into this sophism, which is so much in vogue among our legislators, although it is quite extraordinary that the very people who defend unproductive taxes (for that is what they are assumed to be on our present hypothesis) are the ones who attribute to them our alleged industrial inferiority in order to justify other taxes and restrictions as compensatory devices.

It seems clear to me that neither the essence nor the consequences of protectionism would in any way be altered if it took the form of a direct tax levied by the state and distributed as subsidies to privileged industries by way of indemnification.

Let us assume that, while foreign iron cannot be sold on our market for less than eight francs, French iron cannot be sold for less than twelve.

On this hypothesis, the government has two ways of assuring the French producer a domestic market.

The first is to impose a customs duty of five francs on foreign iron. It is clear that this would definitely bar the iron from the French market, since it could no longer be sold for less than thirteen francs, that is, eight francs net price and five francs for the tax, and that at this price it would be driven from the market by French iron, which we assumed to be only twelve francs. In this case the buyer, the consumer, would bear all the costs of protection.

On the other hand, the state might levy a tax of five francs on the public and give the proceeds as a subsidy to the ironmaster. The protective effect would be the same. In this case too, foreign iron would be excluded from the French market; for our ironmaster would sell his product at seven francs, which with the five-franc subsidy would give him a remunerative return of twelve francs. But with domestic iron available for seven francs, the foreigner could not sell his at eight.

Between these two systems I can see only one difference. Their principle is the same; their effect is the same: but in one case the protection is paid only by certain individuals; in the other, by everyone.

I frankly confess my preference for the second system. It seems to me more just, more economical, and more honest: more just, because if society wants to pay bounties to certain of its members, everybody should contribute to them; more economical, because it will save much of the cost of collection and will eliminate many restrictions; finally, more honest, because the public would then see clearly the nature of the operation and realize what it is being made to do.

But if the protectionist system had taken this form, it would be really laughable to hear people say: “We pay heavy taxes for the army, the navy, the courts, public works, the public schools, the national debt, etc.; they amount to more than a billion francs. That is why it would be good for the state to take still another billion from us, for the relief of those poor ironmasters, those poor stockholders of the Anzin Company,
40* those unfortunate owners of woodlands, those useful codfishers.”

One has only to examine matters closely to be convinced that this is what the sophism I am combatting amounts to. Do what you will, gentlemen; you cannot
give money to some without taking it away from others. If you absolutely insist on draining the taxpayer dry, well and good; but at least do not treat him like a fool. Do not tell him: “I am taking this money from you to repay you for what I have already taken from you.”

It would be an endless task to attempt to criticize everything that is false in this sophism. I shall confine myself to three points.

You argue that, since France is overburdened with taxes, it is necessary to protect this or that industry. But we have to pay these taxes in any case, whether or not there is protection. If, then, the spokesman of a particular industry argues: “We share in the payment of taxes; they raise our costs of production, and we demand that a protective tariff be levied so as to raise correspondingly the selling price of our product,” what does such a demand amount to but that the burden of the tax be shifted onto the rest of the community? The object of the demand is to recover, by raising the price of the product, the amount of the tax paid by the industry. Now, since the total revenue from all taxes must always flow into the treasury, and since the public has to assume the burden of the rise in price, it pays not only its own share of the tax but that of this industry as well. But, you say, everyone will be protected. In the first place, that is impossible; and even if it were possible, where would be the relief? I shall pay for you, and you will pay for me; but the tax will have to be paid nonetheless.

This, you are the victims of an illusion. You pay taxes in order to have an army, a navy, a church,
41* public schools, courts, highways, etc., and yet you want to free first one industry, then a second, then a third, from its share of taxes, in every case by distributing the burden among the public. But you do nothing but create endless complications, with no result except these complications themselves. If you could show me that a rise in prices that is due to protection falls on foreigners, I might see some plausibility in your argument. But if, before the enactment of the proposed law, the French public was paying the tax, and if, after the law is enacted, it will pay the customs duty as well as the tax, I really cannot see what will be gained by the law.

But I go even further: I maintain that, the heavier our taxes on domestic products, the more quickly must we open our harbors and our frontiers to the goods of foreign countries less heavily taxed than we. And why? To shift to them a larger part of our tax burden. Is it not an incontestable axiom of political economy that taxes ultimately fall upon the consumer? Thus, the more our foreign trade expands, the more foreign consumers will reimburse us for the taxes embodied in the products we sell them; whereas we should have to make them, in this respect, a lesser repayment, since, according to our hypothesis, their products are less heavily taxed than ours.

Finally, with respect to these heavy taxes that you are using as a justification for the protectionist system, have you ever asked yourself whether it is not the system itself that produces them? I do wish someone would tell me what would be the use of large standing armies and powerful navies if trade were free….. But that is the concern of the politicians.

And let us not confuse, by probing too deeply,

    Their affairs with ours.
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