Appendix Iii.

THE INDUSTRIAL PROTECTIVE SYSTEM AND INTERNATIONAL FREE TRADE.

THE INDUSTRIAL PROTECTIVE SYSTEM AND INTERNATIONAL FREE TRADE.

SECTION I.

PROXIMATE ECONOMIC EFFECTS OF THE INDUSTRIAL PROTECTIVE SYSTEM.

That the principal measures which the mercantile system recommended, artificially to increase a nation's wealth, could not produce the immediate effects expected of them, has been shown, especially from the natural history of money. Their proximate economic consequences necessarily consisted in this, that they diverted the existing productive forces of the nation from their places of application (Verwendungsplätzen) hitherto, to others which the government thought more advantageous.

A. If home producers are in a condition to offer their commodities as good and as cheap as foreigners, all protection of the former by import duties, or even by prohibitions, is superfluous. The home producer has, as a rule, not only the advantage of the smaller cost of freight to the place of consumption,[A3-1-1] but that of being earlier informed, because of his proximity to consumers, of a change in their tastes.[A3-1-2] If, indeed, foreigners could supply us better and cheaper, and if they are kept from supplying our market only by artificial means, the state compels our consumers to a sacrifice of enjoyment;[A3-1-3] and such a sacrifice as is not fully compensated for by the profit made by the favored producers in any manner. The latter are generally soon compelled by home competition to arrange their prices in accordance with the rate of profit usual in the country. If they had no "protection" they would simply employ their productive forces in other branches of production; and in those in which they were equal or even superior to foreign competitors. By means of the products thus obtained, the people might then get in exchange all those commodities from foreign countries, the production of which it is, according to the laws of the division of labor, better to leave to foreign countries.[A3-1-4] Since one nation can lastingly pay another nation only with its own products, any limitation of imports must, under otherwise equal circumstances, be attended by a corresponding limitation of exports.[A3-1-5] Directly, therefore, these hindrances to importation produce no increase, but only a change in the direction (Umlenkung) of the national forces of capital and labor; an increase, only in case that foreign producers are thereby caused to transfer their productive forces within our limits;[A3-1-6] which may certainly be considered the greatest triumph of the protective system. Hence it is absurd when an equal extension of "protection" to all the branches of a nation's economy is demanded, as it is so frequently, in the name of justice. There is here no real protection whatever, analogous, for instance, to the protection afforded by the judge, but a favor which can be accorded to no one without injuring some one else.[A3-1-7]

England, indeed, had, up to 1849, protective duties both for industry and agriculture. But the protective duties were of no real importance, except in the case of the latter, because the greater part of England's industrial products were superior to foreign competition without the help of protective duties. Something similar is true of most duties on raw material in the United States.]