Henry Martyn Hoyt.

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PROTE CTION



VERSUS



FKEE TRADE



THE SCIENTIFIC VALIDITY AND ECONOMIC

OPERATION OF DEFENSIVE DUTIES

IN TRE UNITED STATES.



BY

HENRY M. HOYT.



NEW YORK:
D, APPLETON AND COMPANY,

1, 3, AND 5 BOND STKEET.
188 6,



COPTRIGHT, 1SS5,

By D. APPLETON AND COMPANY.



HP



PEEFACE.



The following pages are tlie result of a friendly chal-
lenge to me by an eminent Professor of Political Economy
in a Kew England college to investigate that science, espe-
cially its teaching in relation to protective tariffs. The
challenge was accompanied by the confident prediction :
"If you pursue it to any length, you will certainly come
to throw overboard, with scorn, the Pennsylvania notion
that the way to grow rich is to stop, by law, profitable
production " ; together with the Professor's f onnulated
conclusion : " Protection, poisonous in every root and fiber,
droops and dies the moment the light of common sense
and rational inquiry falls upon it."

Layman though I was, I could not well refuse to take
up the gauntlet thus thrown down by the Professor.

In the intervals of business engagements I have under-
taken the investigation. It has been done with reasonable
thoroughness, and, so far as I know, with impartiality and
freedom from desire of controversy. If it betrays a con-
troversial spirit, it is because it is provoked ; and even that
may add something of interest to a discussion otherwise
rather dry and abstract. What "common sense" and
faculty of " rational inquiry " I possessed have been fairly
given to the work. It could not be denied that I started
with a certain prejudgment in favor of the protective



iv PREFACE.

gcheme. Tliat, liowever, was no otlier tlian tlie general
conviction, expressed by Dr. William Rosclier, tlie distin-
guished Professor of Political Economy at the University
of Leipsic, that " the person who has only a modest opinion
of the power of his own reason, and therefore a just one
of the reason of other men and other times, will not believe
that a system like the industrial protective system, which
the greatest theorizers and practitioners favored for cent-
uries, and which governed all highly developed countries
in certain periods of their national life, proceeded entirely
from error and deception." Kor, again, did I believe that,
in a nation with the quick and trained commercial mstincts
of the Americans, such a system could be founded in mere
greed, jobbery, and congressional log-rolhng. If the prac-
tice had been found expedient, some reasons could be found
justifying it.

The inquiries, then, necessarily led to a study of the
play and interaction of the economic forces, as ordinarily
expounded in the formal treatises on political economy.
I found, in detail and specifically, what I had only felt
before in a general way, that the whole underground of
that science had been wrongly chosen, and that the whole
superstructure was now being taken down by the younger
school of economists, both in Europe and the United
States. I have deemed it proper to submit, at some length,
the destructive criticism to which the current official politi-
cal economy has been subjected.

Of all the forces and their combinations, as usually
treated, I find only four pertinent to the discussion pro-
posed :

First. The object of all our efforts is " the satisfaction
of our desires." This will be found to be a more manage-
able motive than " wealth " for the labor and abstinence of
men gathered together in society.



PREFACE. V

Second. " Commodities are paid for with commodities."
In international commerce, imjDorts must be paid for with
exports — in the long run, imjDorts must balance exports.

Third. While " division of labor " has been the pivot,
the fulcrum on which the industrial world has been moved,
and while the special aptitude of each individual producer
furnishes the materials for domestic exchange, and supe-
riority, at some point, the materials for international trade,
the law announced by Adam Smith is the law of the case :
" Division of labor is limited by the extent of the market."
That is, in other words, the advantages of a " division of
labor " may be lost by the want of an adequate market in
which the products of the labor at the point of superiority,
embodied in commodities, may be sold.

Fourth. In a given area, as of a nation, where the
owners of capital and the owners of labor speak the same
language, hve under the same laws, and act under the same
moral, poHtical, social, and economic motives, thus render-
ing labor and capital therein substantially mobile, the com-
petition of capital with capital and of labor with labor is
effective. Over such an area, competition tends to equahze
the recompense of all the capitals and the rewards of all
labor. A monopoly in such a nation is impossible.

The inquiry, also, involved an analysis of the nature
and number of the desires for which a given people seek
satisfaction, and the means of satisfying them. It proved
not at all impossible to deal with the aggregate desires of
a nation as a unit, and to treat the problem as if it was the
case of an individual.

Suppose an individual, an average American farmer,
with a number of workmen, all of high skill, energy, and
industry, in possession of certain fertile fields, with stores
of building-material, stones, timber, fuel, and certain ma-
chinery, out of which, by his labor, he could supply a large



vi PREFACE.

proportion of liis and their wants directly by production,
and the remaining portion of their wants, indirectly, by
exchanging the surplus of their natural products. Let
him be sm-rounded, at a greater or less distance, by neigh-
bors who have fields hke his, only less productive, with
artisans who could make his sleds, harrows, harness, cotton
and woolen goods, dishes, and so on, the product of handi-
craft industries ; not with less labor, but for lower money-
price ; and besides, stocks of merchandise, consisting of
tea, coffee, sugar, tropical fruits, drugs, medicines, and, if
you please, wines and cigars. The farmer now works his
lands to their capacity, and gathers his crops of wheat, food,
cotton, and tobacco. He already thus has, in his garnered
fruits and grains, something more than half the subsistence
of himself and workmen. For the rest, he proposes to
exchange his surplus — to trade the things he does not want
for the things he does want. We will suppose (for it will
subsequently appear that if anything is legitimate in the
science of political economy, it is a supposition) the annual
value of his crops to be $10,000. To feed his family and
pay the cost of raising the things he raises on his fields
will cause him an outlay, say, of $6,T00. This leaves him
$3,300 with which to supply his outstanding want of
clothes, carpets, nails, hats, farming-utensils, tea, coffee,
sugar, medicines, fruits, wine, and cigars. The inherited
traits and historical traditions of this farmer are such as to
make all these wants legitimate ; they are desires which he
is willing to gratify. Upon making the effort to market
his surplus he finds he can only sell $700 worth ; his neigh-
bors will only buy, because they only want, $700 worth. Of
this sum he spends half — $350 — for drugs, medicines,
fruits, wine, tea, coffee, and sugar, which climate and other
reasons forbid him to produce. The other half — $350 — he
lays out in certain commodities which he and his workmen



PREFACE. Vii

have not as yet the skill aud patience to undertake to pro-
duce. There remains yet on his hands $2,600 with which
he would, if he could, buy his hats, coats, carpets, shirts,
dishes, nails, etc., for himself and his workmen. But there
is no market to take them o& his hands in excess of $350
worth, in addition to the $350 worth already sold ; nor did
his neighbors ever have a surplus of manufactured goods
equal to his demand. According to the abstract principles
of political economy, his neighbors on the poorer soils
ought to stop cultivating them to the extent of the addi-
tional $2,600 worth of his products, and turn their sldll
and energy to the production of the hats, coats, etc., that
he wants to buy with that surplus. But, in point of fact,
the farmer finds that they do not do so ; that they do, under
natural causes and inherited traits, still till their native
soils to within a narrow margin of their fertility. Besides,
laborers move freely to the farm from the neighborhood,
still further disturbing the commercial equilibrium between
the two communities ; but this only made the farmer less
dependent on his neighbors to make things for him, for
now the migration of the workmen themselves takes the
place of a trade in the products of their labor.

Therefore, finding upon examination that he can make
all these things on the farm, and with as small an expenditure
of labor and skill (both of which he has) as his neighbors,
he proceeds to make them. Why ? Because he found no
other way to satisfy all his desires. Although up to $700
worth he could buy them abroad and cheaper, beyond that
amount he must make them himself or go without them,
for he can not hinj them at all, for the reason that he does
not bring acceptable pnrchase-money in his hands. Rather
than go without them, he proceeds to make them on the
best conditions attainable under his natural and acquired
resources. The desires are natural to him, and the manu-



viii PREFACE.

facture is natural to liim. The manufacture of the $2,600
worth is natural, but it is more, it is necessary, and is an
indispensable part of his supply. Its naturalness does not
depend on the price his neighbors charge, nor their willing-
ness to accept the commodities he offers in exchange, but
upon the actual amount of labor it costs him to produce
them.

If this had been merely an industrial group, formed on
strictly commercial principles, there would have been no
more workers in it than were necessary to produce the $700
surplus. But this society happened to be formed of men
fleeing from the hardness and oppressions of life elsewhere,
and who were not moving on economic motives alone. It
was composed of picked men, of the highest type, brooking
no masters, having the common bonds of kindred, lan-
guage, habits, laws, love of religious liberty, and self-gov-
ernment — all of which our benignant farmer permitted
them to enjoy in the fullest degree. The group made by
these social, moral, and political considerations determined
the size of the industrial group. The political entity be-
came the industrial entity. This made them sufliciently
numerous to disturb their commercial equilibrimn with
their neighbors, and consequently the $2,600 surplus lay
useless in their hands. When they found that their labor
in factories, furnaces, and machine-shops, on looms and
potter's wheels, was as productive as that on fertile fields,
the surplus food recovered its utility and exchange value,
as subsistence for the laborers whom aH these inducements
had drawn together. The farmer now proceeds to "or-
ganize the industries" of that political entity; especially,
as he has never experienced any lack of capital in any en-
terprise which promised adequate returns.

This farmer, in this determination, has simply accepted
the limitations imposed on his external exchanges. His



PREFACE,



IX



mental resolution, thus forced on Lira, not to try to luy^
but to raalce^ has imposed a }woliiVitor]f tariff upon all
that portion of his necessary supply which lie does make.
He has now, in the language of the economist, imposed re-
strictions on his exchanges ; that is, he does restrict the
exchanges with his neiglibors, but, to a greater extent, he
enlarges the exchanges which take place on his own farm.
He has got himself in a place where, in the language of
the free-trade writer, he collects taxes of himself. It is
not taxation^ it is simply the cost of the increased comfort
which follows upon the increased consumption he is now
enabled to indulge. If it be taxation it is voluntary, inas-
much as it is undergone for the sake of the satisfaction of
his desires. He can stop the taxation if he will lessen his
satisfactions. Abundance and cheapness have been equal-
ized upon the lowest and only terms open to him. He
has, however, subserved his true economic purposes, and
has realized the true end of all his efforts. The ratio be-
tween effort and enjoyment has, in his case, been reduced
to a minimum. He was reduced to the alternative of
wanting fewer things, or making them, on his farm, for
himself. Being a civilized man, he chose the latter ; being
a vertebrate, he could not do business on the basis of being
a hermit-crab.

But, inasmuch as the constant pressure of the neighbors
to sell the paltry amount of $350 (which he could really
better do without, but which some of his people insisted
on having) introduces confusion and friction between his
own producers and consumers, stops his mills, makes his
workmen stand idle, and prevents him and them getting
what they want, he imposes an hnport duty on these
goods, sufficient to equalize their cost with that of his home
product ; and the sum thus received goes into his treasury,
for the common use of himself and all his laborers. This



X PREFACE.

farmer, now, has imposed on himself "a tariff for reve-
nue^'' " with incidental protection^'' or rather a tariff for
'protection, with incidental revenue.

All this time there were certain dogmatic thinkers
(very few of them were hand-workers) who said they, per-
sonally, could make better bargains away from home, if,
having got into their pockets the high wages which they
had received for " services " rendered to their co-workmen,
they might be allowed to spend it among the neighbors to
whom they had rendered no services ; and urged their in-
alienable right to pursue their o^\^3 interests, so destructive
to the interests of the little community. But, the farmer
seeing that they, at best, could only get a part of the $350
worth of imported manufactures, and that the rest of his
workmen must go without the $2,600 worth which they
might otherwise make and enjoy, acting for the society,
promptly put his foot down on this line of uneconomic
as well as selfish conduct.

I think it will not be questioned that, if a farmer found
himself in these surroundings, he could only supply all bis
wants, and those of his workmen, in the way supposed ;
and that, by so doing, he would not only increase the
population and " wealth " of the commimity on the farm,
but, thus "regulating commerce," would promote their
"general welfare"; and he would do this on the true
premises of political economy.

If we find a nation relatively in the l.'ke condition and
environment, the principles of the science of political
economy will be equally applicable to it. This applica-
bility will depend on the closeness of the correspondence
in the facts. The analogy will be found unexpectedly
complete ; especially in the fact that, in any event, about
nine tenths of the manufactures in the "protected" in-
dustries must be produced at home, under American con-



PREFACE. xi

ditions. What the tariff does — and all it does — is to com-
pel the foreign producer to spend as much in getting into
the American market for the other tenth as the American
producer does.

Our question is, therefore, I conceive, a national ques-
tion and not a cosmopolitan one.

The operation of the four principles indicated is seen
in the illustration :

First. The satisfaction of the farmer's desires; these,
in their number, kind, and intensity, will depend on the
kind of man he is, and wiD determine the kind of effort he
makes to satisfy them.

Second. His " imports must be paid for with liis ex-
ports " ; that is, by his external trade he can get nothing
into his territory except in pay for what he sends out of
his territory.

Third. " Division of labor is limited by the extent of
the market " ; that is, if he can not sell the total product
of his work, when applied to his most advantageous indus-
try, his labor will not be as profitable as it might otherwise
be, and he might as well stand idle for a part of the time.
What he makes when he would otherwise be idle costs him
nothing.

Fourth. When he turns his labor and capital to his own
fields and workshops, under effective competition and the
perfect mobility of these factors of production, no monop-
oly can grow up within his little territory.

When the individual or the community discover that
they need certain commodities, but can not buy more value
than they can sell, by reason of not offering acceptable pay,
and, at the same time, can produce them ^vith no greater
cost of labor and abstinence in overcoming the obstacles
which nature presents than other individuals or other com-
munities, they naturally set about making them by the



xii PREFACE.

direct act of production. In tlie case of a nation, tlie na-
tional legislature provides for tlie domestic production and
exchange, by imposing some sort of restriction on the for-
eign exchange.

Possibly, my friend the Professor is not aware of the
full contents of " the Pennsylvania notion." ne seems to
think pig-iron is the only god of that people. The first
corporate determination of that State, at least, shows what
one great Commonwealth, finding itself in the predicament
of om' farmer, did, and exactly the reasons for doing it. In
the preamble to her tariff act, passed on the Wih day of
8e2)temh€i\ 1785, just one hundred years ago, it was thus
recited :

*'Ati act to encourage and protect the manufactures of
this State, by laying additional duties on the importation of
certain manufactures which interfere with them. Whereas,
divers useful and beneficial arts and manufactures have been
gradually introduced into Pennsylvania, and the same have
at length risen to a very considerable extent and perfection,
insomuch that during the late war between the United States
of America and Great Britain, when the importation of Euro-
pean goods was much interrupted, and often very difficult
and uncertain, the artisans and mechanics of this State were
able to supply, in the hours of need, not only large quantities
of weapons and other implements, but also ammunition and
clothing, without which the war could not have been carried
on, whereby their oppressed country was greatly assisted and
relieved : and, whereas, although the fabrics and manufact-
ures of Europe and other foreign parts, imported into this
country in times of peace, may be afforded at cheaper rates
than they can be made here, yet good policy and a regard to
the well-being of divers useful and industrious citizens, who
are employed in the making of like goods in this State, de-
mands of us that moderate duties be laid on certain fabrics



PREFACE.



xni



and manufactures imported, which do most interfere with,
and which (if no relief be given) will undermine and destroy
the useful manufactures of the like kind in tliis country ; for
this purpose :

" Section 2. Be it enacted, and it is hereby enacted, by
the Representatives of the Freemen of the Commonwealth
of Pennsylvania, in General Assembly met, and by the au-
thority of the same, that further and additional duties, here-
inafter specified, shall be levied, collected, and paid, on the
importation into this State of certain goods, wares, and mer-
chandise, enumerated and particularized in this act " — and
the act goes on to enumerate more than seventy articles.

Herein will be found, I think, a fair exposition of the
motives not " to stop by law profitable production," but
rather, by enlarging the domestic exchanges, to substitute
a new form of production in order to provide for the " sat-
isfaction of the desires " of all the people. " The freemen
of the Commonwealth of Pennsylvania " then knew what
they wanted, and the most feasible and cheapest scheme
for supplying their wants. They stood at the beginning
of things, and saw them clearly enough. The " notion "
spread rapidly through all the States of the confederation ;
so much so, that the purely commercial convention, called
by the late colonies in 1786, resulted in the formation of
the Constitution of the United States in 1787. The pres-
ent Constitution was undeniably dictated by commercial
necessity. Mr. Webster said, in his speech to the citizens
of Buffalo, in June, 1833 : " The protection of American
labor against the injurious competition of foreign labor, so
far, at least, as respects general handicraft production, is
known, historically, to have been designed to be obtained
by establishing the Constitution." And Mr. Choate, in
the Senate, March, 18-42, said: "A whole people, a whole
generation of our fathers, had in view, as one groundwork



xiv PREFACE.

and purpose of tlieir new government, the acquisition of
tlie means of restraining by governmental action the im-
portation of foreign manufactures for the encouragement
of manufactures and of labor at home ; and desired, and
meant to do this, by clothing the new government with
this specific power of regxdatlng commerced

There is, then, the jural power, under the Constitution,
to enact a prohibitory tariff even, if economic principles
justified it. Whether they do or not, it is the purpose of
the following pages to determine. Anyway, such a tariff
is not unconstitutional.

I have not dealt in statistics, which are liable to no end
of combinations and no end of disputation. Comparisons
are impossible for want of the second term of the compari-
son, to wit, another people, like ours in traits and j^hysical
resources, developed under free trade.

There have been no assumptions made in the argument.
The contribution made by American labor in the commodi-
ties produced in the protected industries is a necessary part
of the full supply of the whole demand. They are, there-
fore, natural and necessary.

On tlie other hand, the advocates of freedom of trade
proceed entirely on the assumption that foreigners have
the capital, labor, and skill to make a surplus of manu-
factured commodities which will supply our demand, and
that there is a foreign market adequate to take the surplus
of all our products made " under freedom," and that we
can exchange one surplus for the other, and thus l)uy the
satisfaction of our remaining desires. I^either of these
assumptions is true. This is a question of history and fact,
and not of a jpriori hypothesis. If the following pages
show some repetition — even to tediousness — on this point,
it is because it crops out from whatever direction the sub-
ject is explored, and it is unavoidable. If the main line



PREFACE. XV

of the argument is well chosen, I have no fears but that
writers on economy will appear who can use a more rigor-
ous logic and wield more facile pens. They will nialce the
necessary generalizations in the debate, and blaze the de-
sirable " short cut " through the discussion. I have reached
very positive convictions of my own, in the progress of my
study, upon the scientitic validity of defensive duties in
their operation on industry in the United States.

I am persuaded that a people such as ours, acting under
physical conditions such as ours, were driven by the very
nature of the case to the course of development which we
took. At the same time I am not unmindful of the dan-
ger in economic discussion alluded to by Mr. Mill, " the
danger of overlooking something." If I have incurred
the danger, sharp criticism will detect and point it out. I
am sure that neither the writer nor any of his fellow-citi-
zens can have any interest in this great debate excej^t to
get at the right and truth of the matter.

What we are, the census and the national landscape show
— what might have heen, under free foreign trade, has never
been made to appear. Until the economist of free trade
makes some demonstration in this line, he must rest under
the condemnation which Dr. Johnson has thus expressed :
" He who will determine against that which he knows, be-
cause there may be something which he knows not, he that
can set hypothetical possibility against acknowledged cer-
tainty, is not to be admitted among reasonable beings."

It is evident enough from numerous extracts, intended
to be duly credited, that I have borrowed freely from the
writings of many authors ; but I should fail to pay a posi-
tive and distinct debt, if I omitted acknowledgment of my
obligations to the late George Basil Dixwell, of Boston.

II. M. H.

Wilkes-Bakre, Pa., December^ 1SS5.



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