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THE LIBRARY

OF

THE UNIVERSITY

OF CALIFORNIA

LOS ANGELES



savs
Nfiat




w **



/



.



PREFERENTIAL TRADE



PREFEKENTIAL TRADE



A STUDY OF ITS ESOTERIC MEANING



BY

BENJAMIN , HOARE



AUTHOR OF "THE PROTECTIONIST HANDBOOK" "A WHITE MAN'8 LAND '

" TWENTY-FIVE YEARS OF PROTECTION "

AND OTHER ECONOMIC WORKS



LONDON
KEGAN PAUL, TRENCH, TRUBNER & CO. Ltd

DRYDEN HOUSE, GERHARD STREET, W.
1904




(The rights of translation and of reproduction are reserved)



HP



PBEPACE



Thoughts of a thirty years' growth are here. They have come
£2 to me at all manner of times. In the hard grind of a daily
v> journalist ; in the reading and ponderings on books ; in the
fc conversation of friends ; in the whirl of platform politics ; in
gj the waking hours of the night. I can trust to their soundness
'** all the more because they have been of slow and even tardy
development.

There was once a time when, in my earlier years, I was half
caught by the fascinations of some of the Cobdenic theories. I
need not blush to admit it. Some of the reasonings of Mill and
Marshall are excessively alluring. Even more of Henry George's
speculations, owing to their literary charm and 1 their refreshing
frankness, are particularly seductive. One may very easily fall
o> into these intellectual pitfalls unawares.



1=0 This is really why I have written my book — to warn others

t3 off the quicksands and shallows of fallacy which were a some-

9 time lure and somewhat of a danger to me. Fortunately for me

the profounder reasonings of the German school of economists

came as a corrective. And so it happened that even while

coquetting with the danger I never actually fell a victim to it.

There was in it certainly one beneficial result. It made me

tolerant of even the intolerance of the average Cobdenist. There

2= is no department of knowledge, I should think, in which a little

gi learning is a more dangerous thing than it is in fiscal economics.

s Most certainly it is true respecting that study that

There shallow draughts intoxicate the brain,
And drinking largely sobers us again.

384813



vi PREFACE

But a man must not drink too much and too constantly of the
same kind of intoxicant. Ruskin and Carlyle and List, diversi-
fied by Henry Carey and Judge Byles's " Sophisms," are a very
saving prophylactic when the mind is becoming a trifle hardened
in the sterility of the English classical school of the last
half-century.

I have written very little that is original. But at this time
of day can anyone be original on such topics ? I have tried
rather to combine, compare, and analyse. I have not con-
sciously shirked any difficulty, though I have sometimes rather
indicated than fully stated the refutations of the less recondite
errors. Covering much ground, I have never lost sight of the
need of abridgment, and can only hope that I have not too much
sacrificed the argument to the imperious call for brevity.

I had designed to call my book by another name. But the

opportune revival of sound opinions in England has determined

the name of " Preferential Trade." In that name I recognise

the whole force and doctrine of Tariff Protection to National

Industry. National Trade is Preferential Trade, and the trade

of every nation within itself is the first consideration for

statesmen to aim at. Imperial Preferences are good, but not

so good as domestic Preference. My work is therefore for

Preferential Trade in its widest signification of a national

policy of Protection.

The Author.
"Marinook," Kew, Melbourne:
December 30, 1903.



CONTENTS

BOOK I
THE WANT OF A TRUE SCIENCE

LETTER I.— TO OPEIUS
The Root op the Tariff Controversy

PAG*

1. Economic Science still a Riddle. 2. The Tariffs of the World.

3. A Clue to a Solution. 4. Deduction and Induction. 5. Opposite
Methods employed. 6. Advantage of Modern Research ... 1

LETTER II.— TO THE RIGHT HON. LEONARD COURTNEY

Clearing the Ground

1. Theories which help and Theories which hinder. 2. Is Political
Economy a Science? 3. The Doctrine of Selfishness Unscientific.

4. Man a Multiform Being. 5. Religious Motives modify Gain
Motives. 6. Mill's Mistakes of Definition. 7. Conflict in the Eco-
nomic Camp. 8. Political Economy in Chaos 10

LETTER III.— TO SIR HIGGLER OF THE MARKET

Cheapness — A New Juggernaut

1. The Free Trade Formula on Cheapness. 2. Two Kinds of Cheap-
ness. 3. Cheapness lessens Wages. 4. Cheapness of Production
based on Cheap Labour. 5. Cheapness not Abundance. 6. Cheap-
ness lessens Employment. 7. Cheapness which changes Wealth
into Poverty. 8. Carlyle and Carey on Cheapness. 9. Cheapness
deplored as Ruin by Free Traders. 10. The True Formula . . 18



viii PREFERENTIAL TRADE

LETTER IV.— TO THE WAR SPIRIT OF COMPETITION

Tium: Competition — The Great Demoraliser

PACK

1. The Deduct ionist Doctrine. 2. Defining Terms. 3. Trade Compe-
tition riot an Eternal Law. 1. Trade Competition tends to Destroy
it.-elf. .">. Trade Competition co-exists with Monopoly. 6. Com-
petition in Sale of Commodities. 7. Competition with the Mask off.
8. Competition in Wages, it. Trade itself not a Natural Law.
LO. The Waste of Trade Competition. 11. Trade Competition of
Two Kinds. 12. Competition when a Tonic and when a Poison.
13. Nature of Trade Competition 31



LETTER V.— TO THE FRATERNAL SPIRIT IN MAN

Co-operation — The Solvent op Competition

I. A Half way -house to Socialism. 2. How Industrial Co-operation
began. 3. The Social Condition it had to meet. 4. The Traders'
Remedy. 5. The Co-operators' Remedy. 6. The First Growth.
7. Early Testimony. 8. The Doctrine of Ability. 9. The Co-
operative Wholesale. 10. The Moral Achievements of Co-operation.
11. Co-operative Achievements on the Continent. 12. Ethical
Tendency of Co-operation. 13. Subsidiary Means .... 51



LETTER VI.— TO LORD ROSEBERY

Trade — Its Tendency and Nature

1. Trade not Altruistic. 2. Trade Idolatry. 3. Trade which is Hurtful.
4. Trade Roguery and Adulteration. 5. A Review of Trade History.
6. Trade and Slavery. 7. Commerce versus Trade. 8. Where Trade
leads (J4



BOOK II
TRADE VIEWED IN THE LIGHT OF HISTORY

LETTER VII. — TO MR, JOHN BULL

Building the World's Workshop

1. England's Early Social Condition. 2. Early Policy of Protection.
3. English Wars for Monopoly. 4. The Landed Interests of
England. 5. Wages and Food-cost at various Periods. 6. How
England used the Competitive System. 7. Trade Wars. S.England's
Wealth and Poverty. 9. England's Trade Decline. 10. A National
Dan S er 80



CONTENTS ix

LETTER VIII.— TO MICHAEL DAVITT, ESQ.
Free Trade the Destroyer op Ireland

PAGE

1. Ethics and Economics. 2. Early Irish Manufactures. 3. England
begins to destroy. 4. J. R. Green's Opinion of it. 5. The
Effects of Protection in Ireland. 6. The Death-blow. 7. As
Ruinous as War. 8. The Consequence of Free Trade Wisdom.
9. A Terrible Fact. 10. The Doctrine of Sacrifice. 11. Free Trade
the Mother of all the Evils. 12. Decline of the Population.
13. The National Aspiration. 14. Causes of Irish Decline . . 93



LETTER IX.— TO LORD CURZON
The Hindoo and the Trader

1. India before the Trader. 2. The British Trader in India. 3. Idle-
ness and its Waste. 4. The Mutiny and its Cause . . . .108



LETTER X.— TO PRESIDENT EMILE LOUBET

Why France abjured Free Trade

1. Her Policy of War and Trade. 2. Character and Policy of Colbert.
3. The Relapse of France to Free Trade. 4. The Revolution brings
back Protection. 5. Agricultural Progress. 6. France and England
compared. 7. Material Growth. 8. Wonderful Recovery from the
War. 9. French and English Wealth compared. 10. Pauperism in
France and England. 11. Concluding Reflections . . . .118



LETTER XL— TO PRESIDENT THEODORE ROOSEVELT

How America found her Fiscal Faith

The American Intellect. 2. The Effects of Custom. 3. The In-
fluence of Slavery. 4. The First Protective Tariff. 5. The Second
Protective Tariff. 6. The Third Protective Tariff. 7. The Free
Trade Tariff of 1846. 8. The Fourth Protective Tan if. '.». The Fifth
Protective Tariff. 10. The Population Test. 11. The Productive
Test. 12. The Pauper Test. 13. The Wages Test. 14. The Con-
sumers' Test. 15. A Comparative Period Test. 16. Imports and
Exports. 17. The Cultivation Test 136



x PREFERENTIAL TEADE

LETTER XII.— TO THE UNSPEAKABLE TURK
How n!i: Im'i;i:h;.n Trader blighted Turkey

PAQE

1. Turkey's Gr« 2. Turkey's Decline. 3. Industrial Collapse.

1. Agricultural Decline. 5. National Bankruptcy .... 150



LETTER XIII.— TO THE PRIVY COUNCILLOR M. DE WITTE,

Ex-Minister of Russian Finance

The Rise of the Muscovite Manufacturer

1. Bnssla in the Past. 2. Russia's Trial of Free Trade. 3. Russia's
Start of the Protective Policy. 4. Vital Necessity of Manufac-
tures. 5. Slow Growth of Manufactures. 6. The New Protection.
7. Cobdenist Opinion of it. 8. Professor Mendeleeff's Official Report.
9. Mid-century and Fin-de-siecle Critics agree. 10. Cotton Growth
and Manufactures. 11. Siberia and its Economic Uses. 12. Popula-
tion and Area. 13. The Russian Farmer and Low Prices. 14. Russia's
Foreign Trade. 15. Russian Internal Policy 156



LETTER XIV.— TO KAISER WILHELM

German Ethics in Political Economy

1. German Method of Inquiry. 2. The National Method versus the
Cosmopolite Theory. 3. The Leading Features of National and
Historical Schools. 4. Lessons from German History. 5. German
Agriculture. 6. Return to Protection and its Results. 7. Free Trade
Explanations of the Success of German Protection. 8. Customs
Taxation in Germany. 9. The Growth of the Collectivist Idea . . 172



LETTER XV.— TO THE MINISTER OF THE INTERIOR OF THE
NETHERLANDS

The Hanseatic League and the Netherlands

. The Hanseatic Traders. 2. Their Great Success. 3. Useful History.
4. Hanse Trade Decline. 5. The Rise of Holland. 6. Her Energy
and Riches. 7. Dutch Supremacy challenged. 8. Adam Smith on
the Carrying Trade. 9. Rival Tariff Systems compared. 10. Hol-
land's Failure. 11. The True Lesson taught 185



CONTENTS xi

LETTER XVI.— TO DAVID SYME, ESQ.,
Pioneer of Australian Protection

Why Australia sued Cobdenism

1'AQE

1. Free Trade Energy. 2. Reason of the Revolt. 3. Victoria in Riches.
4. Victoria in Poverty. 5. The Want of a New Colony. 6. Protec-
tion in New Zealand. Queensland, South Australia, Tasmania, and
Western Australia. 7. New South Wales Tariff. 8. Contributory
Motives. 9. Population compared. 10. Other Marks of Progress.
11. Cost of Living 194



LETTER XVIL— TO THE RIGHT HON. JOSEPH CHAMBERLAIN
The World-wide Experiences of Free Trade

1 . Free Traders admit their own Decadence. 2. Instances of that Decay.
3. Opinions of Bismarck, Schmoller, and List. 4. Policy of Colbert,
Napoleon, and Thiers. 5. A Galaxy of America's Intellectual Stars.
6. English Thinkers and Statesmen 207



BOOK III
REACHING A CONCLUSION

LETTER XVIII.— TO SIR A. CON AN DOYLE

The Science of Protection

Word-worship an Ignis Fatuus. 2. Diversity of Occupation a Neces-
sity. 3. What hinders Diversity. 4. How to prove the Doctrine
of Diversity. 5. Diversity stimulates Ability. (5. Diversity is
Economic. 7. Free Trade opposed to Diversity. 8. Why not protect
the Provinces as well as Countries 1 9. Commerce versus Trade.
10. The Soldier and the Trader. 11. The Trader's Interests.
12. Adam Smith on Foreign Trade and Home Commerce. 13. Henry
George's Attempt to answer Smith. 14. Ricardo's Failure to answer
Smith. 15. Comparative Volume of Home and Foreign Trade.
16. Revenue Tariffs are not Free Trade. 17. The Conclusion . . 21J



xn



PREFERENTIAL TRADE

,,,,,,• xix po THE RIGHT BON. ABTHUB BALFOUR,
Prime Minister of England

Tim: PHILOSOPHY OF PbOTKCTIOH

The Utet of PhiloBophy. 2. Politica] Economy the Science of

Bappineas, not of Wealth. 8. Human Motives for Actions. 4. Di-

B Philosophic Truth. 5. Philosophy inculcates

SOtion to the Boy and Man. 7. Protection to

the TMe and Flower. B. Parallel between the Individual and the

Production insufficient. 10. Protection a House

Father



232



LETTER XX.— TO MR. JOHN BURNS, M.P.
The Cost of Protection

1. Free Trade Objections. 2. Nothing Good without Cost. 3. Free
Trade Admissions. 4. Views of the Statesman and of the Counter.
5. Method of Estimating the Cost of Protection. 6. Concrete
Examples. 7. Some Australian Examples. 8. An American
Example. 9. Some English Examples. 10. Who pays Customs
Duties? 11. Cases where Customs Duties are paid by Consumers.
12. Theories and Facts concur 243



LETTER XXL— TO THE GENIUS OF THE COBDEN CLUB
Tiie Cost of Free Trade

The Agricultural Debt. 2. Cost of Navy for protecting Transport.
3. Loss of Industries. 4. Loss by Unnecessary Transport. 5. Loss
of Man's Time. 6. The Cost of the Soil. 7. Loss in the Want of
Diversity of Avocation 256



LETTER XXII.— TO SIR FREDERICK HOLDER,
Speaker of the Australian Parliament

Tiie Free Trade Case Summarised

1. Focussing tint Pointe of Dispute. 2. Why Free Trade ignores History.
Maxim-. 4. Henry George on Free Trade.
5. Free Trade Methods 263



CONTENTS xiii

LETTER XXIII.— TO W. D. BEAZLEY, ESQ.,
Speaker of the Victorian Parliament

The Protectionist Case summarised

I'AQK

Want of a Science. 2. Cheapness, Competition, and Co-operation.
3. Trade and its Tendency. 4. Historical Resume — England.
5. Ireland's Ruin. 6. India's Ruin. 7. The Fiscal Story of France.
8. The Fiscal Story of America. 9. Turkey's Decline. 10. Russian
Industrial Growth. 11. The German Lesson. 12. The Hanse Towns
and Holland. 13. Why Australia is Protectionist. 14. The World's
Teaching. 15. The Science and Philosophy of Protection. 16. The
Cost of Protection. 17. The Cost of Free Trade. 18. Free Trade
Admissions of Protection 273



LETTER XXIV.— TO THE HON. ALFRED DEAKIN,

Prime Minister of the Australian Commonwealth

Reaching the Goal

1. Laissez /aire condemned. 2. The State in loco parentis. 3. Ethics
in Political Economy. 4. Diversity of Avocation. 5. But Trade 1
6. Who pays Customs Duties ? 7. The Lessons from History.
8. Preferential Trade : what it Means. 9. The Conclusion . . 280



INDEX 293



PREFERENTIAL TEADE

A STUDY OF ITS ESOTERIC MEANING



BOOK I

THE WANT OF A TRUE SCIENCE



Letter I.— To OPEIUS

THE ROOT OF THE TARIFF CONTROVERSY

Wise men learn by other men's mistakes ; fools by their own. — Proverb.

My dear Harry, — You and I have spent many an hour in
lively cracks over what Carlyle called the " Dismal Science,"
1. Eco- without finding it in the least dismal. I always
nomic arraigned you for holding the text writers too cheaply,
still a But in turn I have to confess that had Pope lived in
riddle. our d a y h e might certainly have described Economic
Science as The glory? j egfc> and riddle of the W01 . ld

A few men, such as Adam Smith, Ricardo, Bastiat, Carey,
and Mill, have deemed the study of it a glory. To many — as
to Carlyle, Ruskin, and Argyll — it has appeared a jest. To the
great mass of men it is still an unsolved riddle, too dismal to
approach the solution of.

After all that you and I have said together, you will scarcely
ask me, as some might — Why add another knot in this tangled
skein of sophistication ? You know that I am not unmindful of
the Pythagorean wisdom, that " we ought either be silent, or
speak things that are better than silence." I cherish a hope

B



PREFERENTIAL TRADE



that, instead of adding to the tangle, I may, in part at least,

unravel it.

All men are agreed that on the question of a trade that is free
nist a trade that is restricted, the world is still full of con-
troversy, as it has been during most of the last century. States-
men, economic doctors, and thinkers have ranged themselves
on both sides. For the Restrictionists the mind most readily
to such names as Colbert, Napoleon, Pitt, Alex. Hamilton,
Clay, List, Greeley, Webster, Carey, Bismarck, and Thiers. On
the side of Free Trade we think of Adam Smith, as long as
peace lasted, McCulloch, Mill, Peel, Cairnes, Cobden, Bright,
Fawcett, Bastiat, Say, and others. All of these have spoken
thoughtfully, some eloquently, and most of them have acted
as well as preached. Yet still the contest continues, without
exhibiting any very decided indications that its end is defi-
nitely approaching. The statesmen of the world are as busy
as ever putting up tariffs and pulling them down.

I have got out for you a sort of classification of the nations,
as they range at present, under the two banners. It is true
that customs duties exhibit all varieties, ranging from
the sternest prohibition to an almost imperceptible
impost. But, taking in one group all those tariffs which
are levied purely for revenue purposes, and in another
those where the duties are levied with a view to foster industry,
the classification is as follows :



2. The
Tariffs
ot the
World.



State




Protective Tariffs


Free Trade and Revenue
Tariffs




Population


Area in
Square Miles


Population


Area in
Square Miles


I tinn .
Austria-Hungarj

urn
n a

;l

.
1

Chirm

1

I Uica
D( mnark .
lor

.




4,000,000

43,000,000

7,000,000

1 .250,000

15,000,000

::. I<>0,000

'0,000

403,000,000

4,000,000

11,000,000

240,000

2,300,000

1,270,000

' 10,000,000


1,113,000

241,000

11,000

567,000

3,200,000

24,000

293,000

4,218,000

504,000

82,000

23,000

15,000

120,000

400,000








Carried forw


ard .


1 508,260,000


10,811,000









THE EOOT OP THE TARIFF CONTROVERSY





Protective Tariffs


Free Trade and Revenue
Tariffs


State












Population


Area in

Square Miles


Population


Area in
Square Miles


Brought forward


. 508,260,000


10,811,000








France and Colonies


94,000,000


4,571,000








Germany .


58,000,000


208,000








Great Britain :










United Kingdom








42,000,000


120,800


British Crown Set










tlements in Europe










Asia (including










India), Africa










America & Oceana










exclusive of self










governing colonies







350,000,000


4,440,000


Newfoundland


220,000


162,000








Canada .


5,400,000


3,653,000








Australian Com










monwealth .


3,900,000


2,972,000








New Zealand .


730,000


104,000








Cape Colony .


1,700,000


230,000








Natal


1,000,000


35,000








Greece


2,500,000


25,000








Guatemala


1,600,000


48,000








Hayti


1,250,000


10,000








Holland and Colonies







40,000,000


796,000


Honduras .


420,000


46,000








Italy .


33,000,000


114,000








Japan


45,000,000


148,000








Liberia


2,000,000


35,000








Luxemburg


220,000


1,000








Mexico


14,000,000


767,000








Montenegro ,


230,000


3,600








Morocco .


9,000,000


219,000








Nepaul


3,000,000


54,000








Nicaragua .


400,000


50,000








Paraguay .


500,000


157,000








Persia . -


9,000,000


628,000








Peru .


5,000,000


695,000


— ■





Portugal and Colonies


14,000,000


920,000








Roumania .


6,000,000


51,000








Russia


130,000,000


8,800,000








Salvador .


810,000


7,200








San Domingo


620,000


18,000








Servia


2,400,000


19,000








Siam .


5,000,000


200,000








Spain and Colonies


19,000,000


440,000








Sweden and Norway


8,000,000


297,000








Switzerland


3,500,000


16,000








Turkey








40,000,000


1,580,000


U. S. America .


80,000,000


3,600,000








Uruguay .


900,000


72,000








Venezuela .


2,500,000


594,000








Total


1,073,060,000


40,780,800


472,000,000


6,936,800



n 2



4 PKEFERENTIAL TRADE

Here, then, we find the facts summarised to stand thus : —





Number of
Governments


Population


Area in square

miles


Protection
Trade


51
3


1,073,060,000
472,000,000


40,780,800
6,936,800



I am not going to predicate that this overwhelming preponder-
ance of Protectionists is any proof against the soundness of
free trade. You used often to remind me of Oxenstiern's
proverbial saying about the wisdom of government; and he
but confirmed Pope's reflection : " Thou little thinkest what
a Jit tic foolery governs the world." But all will concur that
our first duty is to get a grip of the facts as they exist, and of
the forces which have to be reckoned with. I am quite aware
that this table needs discounting on both sides. India's 290
millions are largely governed by the interests of Manchester
and Bradford. The myriads of China and Russia have almost
as little voice in determining the policy under which they live
as has the Indian ryot. Still, the fact remains that, in most of
the States of the world, minds of light and leading have guided
the national policy, whether on the side of Restriction or of
Freedom. Consequently, the problem before us is how, in the
light of knowledge, to decide the question on which so many
eminent doctors disagree.

I can well remember a remark of yours on the wisdom of
the sage, that " talking comes by nature, silence by wisdom " ;
a. A clue and trul y en °ugh I do not forget that " the fool shineth
to a no longer than he holdeth his tongue." Yet, as I am

persuaded that I spy a clue out of the labyrinth, it
seemeth to me that I had better follow it a little.

The first step, I take it, in order to find the path of truth,
ia to affix finger-posts on the by-paths of error. Wherever
eminent thinkers arrive at opposite conclusions there must have
been some false factor in the sum of their reckonings. That
error may have arisen in several ways. It may have come
from a defective method of investigation, or from a true method
defectively treated; or it may have arisen in errors both of
method and treatment. We have often together looked at the
methods employed, and what have we found ? We discovered,



THE BOOT OF THE TARIFF CONTBOVEBSY 5

at the very outset, a fact which is sufficient to account for all
the honest differences of opinion between the two schools of
Restriction and Freedom. Free Traders, with perhaps the sole
exception of Marshall, adopt the method of the Deductionist
school, and Protectionists are almost invariably Inductionists,
though often unconsciously so. In this fact, followed up, I
am persuaded you will find some pregnant meaning.

All men will agree that both these methods of inquiry are
legitimate processes of investigation; but all will readily con-
cede that they are not equally applicable to all inquiries. By
the inductive process, which reasons from a multiplicity of
small facts to a general law, Franklin showed electricity and
lightning to be identical. By the deductive method, which
reasons from a general law to minor conclusions, he inferred
that iron rods would protect buildings from the lightning
stroke.

The deductive method uses the syllogism. That is well
enough, provided only that the syllogism be sound. The weak-
. _ , ness of some schools is that they have too often assumed
tion and a series of general propositions as " axioms," and, from
induction. suc ] 1 assume( J truths, have reasoned down to particulars
by means of a middle term. Granted the premises be true,
the process is infallible. Everything depends on whether the
major premises be merely assumed or be validly proven. Adam
Smith, for example, built his system on the proposition that

The effort of every individual to better his own condition, when
suffered to exert itself with freedom and security, is so powerful
a principle that it is alone, and without any assistance, not only
capable of carrying the society to wealth and prosperity, but of
surmounting a hundred impertinent obstructions. 1

Another economist says : " The laws of the market . . . are
precisely those which tend best to the universal benefit." 2 " Every
man desires to obtain additional wealth with as little sacrifice
as possible." 3 This, says Senior, is " the corner stone " of every
system of exchange in trade.

1 Adam Smith, Wealth of Nations, Book 4, ch. 5.

2 Newman, Lectures on Political Economy, p. 63.