J. Shield (Joseph Shield) Nicholson.

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THE LIBRARY

OF

THE UNIVERSITY

OF CALIFORNIA

LOS ANGELES



THE



Tariff Question

WITH SPECIAL REFERENCE TO

WAGES AND EMPLOYMENT

By J. SHIELD NICHOLSON, M.A., D.Sc.











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LONDON


ADAM AND CHARLES BLACK


1903



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THE TARIFF QUESTION



WITH SPECIAL REFERENCE TO



WAGES AND EMPLOYMENT



J. SHIELD ^NICHOLSON, M.A., D.Sc.

PROFESSOR OF POLITICAL ECONOMY IN THE UNIVERSITY OF EDINBURGH
EXAMINER IN THE UNIVERSITY OF LONDON



LONDON

ADAM AND CHARLES BLACK

1903






c^-



'"■■'n



15 JUL 1921 ,,-



5r THE SAME AUTHOB.



PRINCIPLES OF POLITICAL ECONOMY.

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published by ADAM AND CHARLES BLACK.



PREFACE



f The occasion of the following pages was
to a public lecture in connection with the



class of political economy in the University



>-

DC

g of Edinburgh, The address has been

revised, and a few supplementary notes

have been added. An abstract of the

general argument appeared in a good

many papers, and I received many

•Si requests from different parts of the

5* country for a verbatim report. The

^ subject is treated from the economic

£ standpoint, and it is perhaps right to

mention that though, during the last five-

and -twenty years, I have written and

spoken on many topics that were the

subject of controversy, I have never taken

any part in active party politics.

I J. SHIELD NICHOLSON.

University of Edinburgh,
October^ iP'^S-



CONTENTS



PAGE

The Complexity of the Question - - - 5

The Export Test of National Prosperity - 7

The Danger of Percentages - - - 8

The Character of the Exports - - - 10

Imports - - - - - - 12

Wages Statistics - - - - - 16

Eesume of the Argument - - - - 18

The Proposed Food Taxes and the Cost of Living 23

The Farthing Budget - - - - 29

The Compensation Inequitable - - - 31

The Proposed Taxes on Manufactures - - 32

The Taxes as yielding Revenue - - - 33

The New Taxes as Protective Duties - - 35

The Dislike of the Word ' Protection ' - - 37

One New Protectionist Argument — Dumping - 39

The Old Protectionist Argument revived - 41

Protected Wages and General Wages - - 41

Protection and Employment - - - 46

The Analogy with Labour-saving Machinery - 47

Imports paid for by Exports - - - 49

Cheap Imports cause Demand for Other Things 50

The Argument tested by Facts - - - 51

Decrease of Pauperism - - - - 52

The Occupations of the People - - - 53

Emigration - - - - - - 55

Out of Work - - - - - 56

Conclusion - - - - - - 58

APPENDIX

Note 1. — The Population and Export Trade of
THE United Kingdom compared with those of

Germany and the United States - - 60
Note 2. — The Excess of Imports into the United

Kingdom - - - - - - 60

Note 3. — Progress of British and Foreign Shipping 61

Note 4. — The Incidence of Import Duties - 62

Note 5. — Protection and Employment - - 65



THE TARIFF QUESTION

WITH SPECIAL KEFEEENCE TO WAGES
AND EMPLOYMENT



The Complexity of the Question.

Anyone who has followed the contro-
versy on the Tariff Question, as it is often
called, must lono- ao'o have discovered
that it is not one question, but a whole
group of questions. Some of these
questions are so general that they cover
the whole field of economic inquiry into
the nature and the causes of the wealth
of nations. We have discussions on the
relative prosperity of different nations,
[ 5 ]



6 THE TARIFF QUESTION

and the tests of that prosperit3^ The con-
dition of the working classes, the relative
rates of wages, the continuity of employ-
ment, the cost of living involve con-
siderations of the widest range. Questions
on the accumulation and the employment
of capital are also, it appears, of funda-
mental importance. Even when we come
to foreign trade itself the discussions
range over the most difficult questions of
theory and the history of opinions and
policies, and involve the marshalling of
complicated statistics over long periods ;
and when at last, after all these general
preliminaries, we come in contact with
tariffs and taxes proper, we find that
the difficulty is rather increased than
diminished by the nearer approach to
practical proposals, because there is no
longer a mere conflict of opinions, but a



EXPORT TEST OF NATIONAL PROSPERITY 7

conflict of material interests. On the
present occasion I can only deal with a
part of these topics.

The Export Test of National
Prosperity.

Take first the idea that the best test
of national prosperity is the growth of
the export trade. That is the test that is
applied throughout in the lively articles
that appeared in the London paper with
the largest circulation. In a melancholy
array of figures it is shown that, whilst
the exports of Germany, the United
States, and even France, are increasing,
our exports are stationary or declining,
and the implication is that relatively to
these countries we are in a deplorable
state, and fast approaching ruin.

No doubt the export trade is an im-



8 THE TARIFF QUESTION

portant part of the trade of the countries
named, but, after all, it is only a part. In
one of the valuable memoranda of the
Blue-book* just issued, a calculation is
given of the proportion of British labour
devoted to the export trade, and it is
stated to amount to between one-fifth and
one-sixth of the whole labour of the
country, t

The Danger of Percentages.

Next it must be observed that, even
supposing the export trade is the best
sign of all trade, the method of taking
percentages of the trade at two dates in
the different countries as the measure of
progress is utterly misleading. According

* This Blue-book (Cd. 1761) gives the results of the
official ^inquiry,' and is the source of the evidence here
used, except where otherwise stated.

t P. 360 of the Blue-book.



THE DANGER OF PERCENTAGES 9

to the gloomy tables of the Daily Tde-
grapJi, the German exports in thirty years
from 1872 were doubled, whilst those of
the United Kingdom only increased by
about 10 per cent, I say nothing of the
year chosen, but it should be noted that
at present the population of Germany is
about 39 ])er cent, larger than that of
the United Kingdom, and yet when we
look to the absolute trade, the total exports
of the United Kino-dom are about
£40,000,000, or some 16 percent, greater
than the total exports of German}^, in
spite of all the education and the tariffs
that are supposed to give Germany so
great an advantage.

Again, the population of the United
States is nearly double that of this
country, and yet, in spite of its immense
territory and wonderful resources, its ex-



lo THE TARIFF QUESTION

ports on the average do not exceed those
of this country. If you calculate the
exports per head of population, then the
exports from this country are nearly double
those of Germany or the United States,
and if we include in the exports, as we
ought, new ships and also the services of
our ships, our exports are more than
double. I do not pretend to say that
therefore we are twice as prosperous,
but if the export test is to be the test of
industrial progress over a period, then also
it ought to be the test of the relative
prosperity of countries at the same time.*

The Character of our Exports.

But we are not only told that the
amount of our exports is stationary, but
that their character has changed for the

* See note (1) in Appendix.



THE CHARACTER OF OUR EXPORTS n

worse. It is said that we are exporting
less of manufactures and more of raw
material, especially coal. It is implied in
this argument that manufactures employ
very much labour, and that coal and raw
material are, so to speak, the gifts of
Nature, and employ little labour. Such
an idea is, of course, utterly baseless. In
England and Wales the number of those
employed in coal-mining is by the last
census about 1 per cent, more than those
employed in cotton. In a valuable paper
by Mr. D. A. Thomas published in the
Royal Statistical Journal (September,
1903), it is shown that, of the Welsh coal
for export, about 80 per cent, of the value
goes as wages, and only 4 per cent, as
royalties. It is shown also in the same
paper that directly, and indirectly through
the encouragement of freights, the export



12 THE TARIFF QUESTION

of coal is closely associated with the
prosperity of our shipping trade. And
as regards shipping, the earnings of
British vessels in foreign trade are about
£90,000,000 a year. This, again, is
almost the value of our exports of cotton
and woollen goods combined, and there a
considerable part of the value is in raw
material from foreign sources. Our car-
rying trade is our most important invisible
export, and logically should be added to
the visible commodities.

Imports.

Let us now look for a moment at the
other element in the balance of trade —
namely, the imports. There is no question
that over a long series of years the excess
of imports of commodities into this
country over its ex^^orts has been increas-



IMPORTS 13

ing. It is really curious to find that
there is so much alarm over this adverse
balance ; the resurrection of the most
ancient of all trade fallacies is, indeed,
quite remarkable. It has been pointed
out over and over again that if a country
exports goods it must receive payment in
imports. Similarly, if it does a carrying
trade with its ships, it must be paid again
in imports ; and if it invests cajjital abroad,
it must receive the interest in imports ;
and so on of a number of less important
elements in the national balance-sheet.*

If we had to choose between exports
and imports as a sign of national pros-
perity over a long period, it would be far
more rational to take imports. A country
consumes and enjoys its imports whilst
the foreigner consumes and enjoys its

* See note (2) in Appendix.



14 THE TARIFF QUESTION

exports. It is not worth while to
dwell further on this point ; some argu-
ments must be taken for granted, even if
some people have never heard of them.
It will be more interesting and profitable
to test this notion of the adverse balance
of trade by reference to the very latest
official figures. This is a return by the
Board of Trade that comes down to
31st July, 1903. In order to bring
the figures down to the latest date, the
trade is compared over the first six months
of the last three years. Let us, then,
look at these figures for the trade of this
countr}^ and that of the United States for
the first six months of 1901 and 1903.
What do we find ?

Take the United States. The imports
for the six months of 1903 show an
increase of £5,000,000 over the corre-



IMPORTS 15

spending period in 1901 ; whilst as
regards exports there was a decrease of
£5,000,000. For the same dates and
periods the imports into the United
Kingdom diminished and the exports
increased. Thus, if an increase of exports
is good, and that of imports is bad, it is
the United States that is on the down-
ward grade, and not the United Kingdom.
I may mention also that, in spite of
Protection, in Belgium, France, Italy,
Canada, and Germany, the imports exceed
the exports. Thus, on this test they are
all in a bad way, and in the case of
Germany the excess of imports was a
larger percentage of the exports in 1901
than it was in 1896, which shows, by
mixing the fallacy of the adverse balance
with the percentage fallacy, that Germany
is rapidly descending the downward path.



l6 THE TARIFF QUESTION

Wages Statistics.

Perhaps, however, everyone will admit
that in testing the progress of wages in
different countries, instead of making de-
ductions from the amount and the character
of its export trade, which perhaps does
not account for 10 to 20 per cent, of the
total labour, it would be better to refer
to the actual returns of waofes in each
case. Here the Blue-book"^' gives a most
interesting table of comparisons. Taking
the years 188G-1900 as the basis of com-
parison — and I take this year 1886
simply because the figures for Germany
do not go further back — and comparing
the rise of wages in the United Kingdom
(1886-1900) with the rise in Germany,
the United States, France, and Italy, we
find in the first place that the rise has

* Page 127.



^WAGES STATISTICS 17

been greatest of all in the United
Kingdom. And it is still more remark-
able to find that in the United States
wages rose more rapidly in the period
from 18 80 to 1890, in which there had
been a slight reduction of tariffs, than
they did in the period from 1890 to
1900, in which there had been the great
increase of tariffs (McKinley, Dingley).
And, most curious of all, the rise of
wages in the U^iited Kifigdom was most
rapid after the United States had in-
creased its tariffs.

Such is the result of the direct and
simple appeal to statistics collected for
this famous inquiry into the result of
tariffs. America raises its tariffs, and
it is waofes in the United Kino'dom that
rise most in response.



i8 THE TARIFF QUESTION

Resume of the Argument.

It will be convenient at this point to
resume the main points of the argument
as regards the export trade. In the
popular argument for tariff reform it is
assumed that the export trade is the
surest test of national prosperity ; and it
is further implied that it is the best sign
of the employment of labour, and if the
export trade rises or falls it is assumed
that wages rise and fall in a correspond-
ing way.

Well, then, even in the United
Kingdom it is shown in the recent Blue-
book that the labour employed in the
export trade is only from one-sixth to
one-fifth of the whole of this labour. At
the best, then, the export trade is only
one part of the industry of the nation,
probably not 20 per cent.



RESUMlt OF THE ARGUMENT 19

Next, even if we take this export trade
as the test, it is fahacious to take per-
centages of the rate of increase, especially
if we take an abnormally inflated year as
our starting-point, such as 1872, But
apart from that altogether, if at this pre-
sent time we compare the export trade of
the United Kingdom with that of other
countries, it is the greatest of all, ahso-
lutely, if we take account of our shipping -/^
and relatively to the numbers of the
population, our export trade, apart from
shipping, is almost double that of Ger-
many or the United States. Now, I
do not assert that this export trade is
the best and the only true test of national
prosperity, but I do say that, to apj^ly the
test at all as a mark of national prosperity,
you must take account of the size of the

* See note (3) in Appendix.

2—2



20 THE TARIFF QUESTION

nations. But as regards the rates of
wages it is better to go to the statistics
direct. These statistics are, of course, as
the compilers of the Blue-book point out,
very rough, but they are fairly representa-
tive, and, at any rate, they are far better
than mere deductions from the export
trade. And these figures show that wages
rose more rapidly during the last twenty
years in theUnited Kingdom than in the
United States, and the rise was relatively
greatest in the United Kingdom after the
United States had so much increased its
tariffs.

Now, observe carefully that I do not
mean for a moment to imply that the
export trade is not of great, and even
of vital, importance to this country, but
so also, and to a proportionately greater
degree, if we reckon by the numbers of



R^SUMjfe OF THE ARGUMENT 21

the people employed, are other occupa-
tions. We have been told that we are
a manufacturing nation, and that agri-
culture can never be our main support —
that our agriculture is ruined. A state-
ment of this kind suggests much more of
the false than the true. For again the
Blue-book tells us that in agriculture, in
England and Wales, there are employed
more people than in the four great textiles
put together — viz., in cotton, wool, silk,
and linen. There are even now more
people employed in the agriculture of
England and Wales than in all these
industries. In the same way there are
more employed in building trades than
in these textiles ; and if we put agricul-
ture and building and coal-mining to-
gether, and make the usual allowance for
the families of the adult workers, these



22 THE TARIFF QUESTION

three industries support more than one-
third of the population of England and
Wales. The point, then, is this : that in
making any fiscal changes, in making any
tariff reforms, it is not right to consider
only the foreign trade — it is not safe to
consider even the whole of the manu-
factures.

Especially, if it is proposed to impose
fresh taxes on articles of universal con-
sumption and on primary necessaries, we
must projDcrly consider the effect on the
masses of the people. After this effect
has been made clear, we may look to the
incidental and partial advantages that are
supposed to follow.







THE PROPOSED FOOD TAXES 23

The Proposed Food Taxes and the
Cost of Living.

It is now apparently definitely and
finally admitted that any effective pre-
ference to the colonies will involve duties
on corn and meat. Certain kinds of
grain may be exempted, and certain kinds
of meat, but not enough to affect the
general argument.

Now, obviously the first question of
importance to decide at this point is the
incidence of these new taxes — that is, by
whom will they be paid ? And, in par-
ticular, will they fall on the foreigner or
on the home consumer ? It is generally
admitted by economists that, under certain
conditions, part of any import duty may
for a time, and possibly for a long time,
fall on the foreign producer. But it is



24 THE TARIFF QUESTION

equally admitted that these conditions
are so unlikely to occur that, if we have
to choose one simjole rule, it is safer to
suppose that any tax on a consumable
commodity falls on the consumer.*

Prominence has been recently given t
to the opinion of some unknown, or, rather,
unnamed, authority as to the incidence of
taxes on corn and meat, which is indeed
strikingly fresh and curiously precise. It
was asserted that the proportion of the
tax that falls on the home consumer is
in proportion to the quantity the taxed
imports bear to the whole amount con-
sumed : that is, if two-thirds are im-
ported, two-thirds of the tax will fall
on the home consumer ; and if only 2 per
cent, is imported, 2 per cent, only will

* See note (4) in Appendix.

f See Mr. Chamberlain's Glasgow speech, October 6,
1903.



THE PROPOSED FOOD TAXES 25

fall on the home consumer. Unfor-
tunately, the reasons for this opinion
were not given, and perhaps some mis-
take has been made in the adaptation of
the opinion of the expert for popular
consumption. But, at any rate, the
theory is in striking contradiction to the
figures that are given in the Blue-book.
In the case of France, for example, it is
shown that in the years of considerable
importation the price of wheat in France
was higher than that in the United
Kingdom, nob only by the full amount
of the duty, but, on the average, to the
extent of one - third more than the
duty. It was only in the years of so-
called minimum importation the price did
not rise to the full extent of the duty —
curiously enough, on the average, the
rise was one-third less than the duty.



26 THE TARIFF QUESTION

On the whole, it may be safely said that
over a series of years the price rose by at
least the extent of the duty.

In the case of Germany, until recently
the importation of wheat was relatively
small, and the price did not rise to quite
the full extent of the duty ; but as the
import has increased, so has the rise in
the price of the wheat.

Until the unnamed expert gives his
theory in a scientific form, it is best to
assume considering^ our larsfe foreio^n im-
ports that an import duty on wheat and
meat will fall on the home consumer, or
that the price will rise to the full extent of
the duty, and possibly even more. In this
case it is, of course, only the foreign food
that is taxed for the benefit of the revenue,
but the consumer is taxed on all the food
by the rise in price.



THE PROPOSED FOOD TAXES 27

This point is of the greatest importance,
because in the scheme it is proposed to
give compensation to the consumer by
reducing other taxes. If, then, this com-
pensation is to be real and equitable, the
consumer must be compensated not only
for what is paid into the treasury from
this new tax, but also for the rise in price
which gives nothing to the revenue. Take
the case of wheat alone. In the Blue-
book (p. 108) the figures show that,
roughly, one-third of our wheat (and
corresponding flour) is produced within
the Empire, and two-thirds comes from
foreign countries. Roughly, also, it may
be said that a tax of 2s. per quarter on
the foreign wheat would yield about
£2,000,000 to the revenue ; but besides
this, the consumer would have to pay
another £1,000,000 tlirough the rise in



28 THE TARIFF QUESTION

price. Or the matter may be put more
simpl}^ in this way : If owing to a tax the
price rises by the amount of the tax, the
loss to the consumer is measured by the rise
in price on the whole consumption. Thus,
if wheat rises 2s. per quarter, and the total
consumption is 30,000,000 of quarters,
the consumer will so ftir lose £3,000,000.

But wheat is only one of the food
products to be taxed ; there are other
forms of grain, and also various kinds of
meat.

In the case of meat it is said that two-
sevenths are imported. In this case, for
every £2 received by the Exchequer there
would be in addition £5 lost by the con-
sumer. In the same way we might go
through the list of foods, and the calcula-
tion given b}^ Mr. Ritchie seems probable
enough — namely, that if the new taxes on



THE FARTHING BUDGET 29

food yield, roughly, £6,000,000 to the
revenue, they will take £16,000,000 from
the consumer. There is nothing new in
this argument : it is the standard argu-
ment against differential duties. If, then,
the consumer is to receive compensation in
taxes, he must receive not only compensa-
tion for the £6,000,000 that the Treasury
receives, but also for the other £9,000,000
or £10,000,000 that in some form or
other is paid to the agricultural interests
of this country and the colonies.



The Farthing Budget.

There is another method of dealing
with the real burden of the new taxes
that is at present very popular with tariff
reformers, but one that is very untrust-
worthy. A budget, namely, is calculated



30 THE TARIFF QUESTION

of the ordinary expenditure of the ordinary
working man and his family, and then the
effect of the new taxes and of the pro-
posed remissions is worked out in farthings
in this weekly hudget.

There are two objections to this plan :
In the first place, there are great difficulties
in constructing an average budget of this
kind. Very few statistics are available.
We know accurately the total amount of
tea consumed in this country, and pretty
accurately the amounts of other important
articles consumed by the whole nation,
but we have very little information of the
actual amounts consumed by diflerent
classes and types. And, in the second
place, this method gives no indication of
the yield to the revenue, and of the cost
of raising the revenue. It conceals or
evades the fundamental difficulty that the



THE COMPENSATION INEQUITABLE 31

whole of the tax on tea goes to the
revenue, but only part of the tax on corn
or meat. It conceals the ftxct that, if
the working man pays just the same as a
consumer — that is, more on bread and less
on tea — still the Treasury suffers a great
loss. This loss must be made up out of
other taxes, and it is easy to show that
this will involve, on the scheme proposed
— viz., taxation of manufactures — further
loss to the working classes.

The Compensation Inequitable.

Before considering this point, however,
it may be noted briefly that, apart from
the cost and burden of these differential
duties on food, the method of compensa-


1 3

Online LibraryJ. Shield (Joseph Shield) NicholsonThe tariff question, with special reference to wages and employment → online text (page 1 of 3)