Henry George’S ‘Protection Or Free Trade’ by C
Total Page：16
File Type：pdf, Size：1020Kb
Vol. XLVI No. 3 Published by ECONOMIC AMERICAN INSTITUTE EDUCATION for BULLETIN ECONOMIC RESEARCH March 2006 Great Barrington, Massachusetts 01230 Guidance from an Economics Classic: Henry George’s ‘Protection or Free Trade’ by C. Lowell Harriss* Abstract. The ideas of Henry George on free trade and poverty greater than then necessary and reducible. He land taxation are still relevant. The standard of living was a most exceptional person. A master of brilliant has risen without the adoption of his ideas on the latter style, he dealt with topics of enduring importance. Thus in contradiction of his predictions. But the decrease in much of what George says has relevance, direct and protectionism is important in explaining the failure of indirect, to present conditions. Some retains its original the predictions and upholds his views on the benefits of validity, but not all. Our critical faculties must not be free trade. dulled by admiration for what stands as valid. Today’s world differs from that which George knew. Yet his I insights and conclusions, resting in part on observation Freedom, Progress and Hope about human nature, are often valid, and they can al- Human freedom is a means as well as an end. Progress, ways serve his stated objective of stimulating us to though in itself “the” end, is also a means to its own think. advance. Henry George thought and wrote about both He did not get the academic acceptance which the freedom and progress — and much else — a century quality of his work justified (compared with the work ago. Here we focus on one portion of his views, free of others in the academic world). Can things written a trade. What he said can still benefit mankind; only part century ago have value today? Of course they can. We of his wise advice has been followed. And today that is would be foolish to overlook wisdom of the past. Yet being challenged by selfishness and ignorance. the world changes. No one writing a century ago could Potentials of promise and hope remain — the poor possibly know what has developed in the last genera- can become less poor, the productive more highly re- tion or the last decade. warded, the restricted freer. Avoidable errors of eco- One reason for the acceptance of foolish practices nomic policy plague the world. George, writing a cen- has been weakness where George was powerful — in tury ago, was not the only economist, nor the only popu- exposition by those who support freedom. George said lar writer, who saw the merits of freedom and the hu- things so very well. He wrote about matters of deep and man costs of man-made restrictions on trade. For de- broad concern. He wrote with conviction and style, with cades, academia has been well supplied with econo- passion and vigor; yet too few of the potential benefici- mists who pointed to the adverse, anti-humane effects aries have had exposure to his message. There remains, of man-made barriers to international exchange. Yet, at least for me, a sense of an unending job — to convey there has been progress in freeing trade, perhaps more the fruits of logic and the evidence as it accumulates. than George could have imagined. Deception can be exposed, waste revealed. George’s interests took him beyond our borders. He wrote with bitterness about poverty here and abroad, II Free Trade, Not Obstruction *C.Lowell Harriss is former Chairman of the Board of Trustees of “What protection teaches us, is to do to ourselves in American Institute for Economic Research, former Chairman of the time of peace what enemies seek to do to us in time of Board of Directors of the Robert Schalkenbach Foundation (New war.” [George, 1980:47] York), and Professor Emeritus of Economics at Columbia Univer- Protection or Free Trade was published in 1886. Its sity. This article, which is based on a paper presented before the Henry George Institute, originally appeared in the July 1989 issue of The value continues. Any reader should find the exposition American Journal of Economics and Sociology. We are grateful to both revealing and stimulating. Examples abound. that journal and to Professor Harriss for permission to reprint it here. “Trade is not invasion. It does not involve aggression 1 on one side and resistance on the other, but mutual from encouragement by tariff, and, second by the consent and gratification.” [Ibid., p. 46] loss due to transfer of capital and labor from oc- Yet restrictions imposed by political (governmental) cupations which they would choose for themselves force have a long history. For example, one complaint to less profitable occupations which they must be of the American colonists against Britain was London’s bribed to engage in. If we do not see this without imposition of restrictions on trade. After achieving po- reflection, it is because our attention is engaged litical independence, some leaders of the new republic with but a part of the effects of protection. We see advocated restrictions to encourage manufacturing. For the large smelting-works and the massive mill nearly a century before 1886 the tariff for protection without realizing that the same taxes which we was a major issue of domestic politics. Influential groups are told have built them up have made more costly pressed for restrictions as a means of encouraging spe- every nail driven and every needleful of thread cific types of industrial development. used throughout the whole country. [George, Man-made obstacles to trade, it was argued, could 1980:101] foster economic progress; opponents pointed to adverse effects for consumers and exporters. It was the pro- Or today the successes of the steel industry in restrict- restriction argument that George attacked. The term ing imports make us as users of steel worse off. Work- “protection” carries overtones of merit, connotations of ers in factories that require steel for export products — something beneficent. Does it not prejudice the case e.g., heavy machinery — suffer. Getting anything like somewhat? “Restriction” seems to me preferable. rational discrimination in a policy of governmentally The division of labor and exchange facilitate man’s determined restrictions is impossible. As one industry efforts to rise from barbarism to civilization, from pov- benefits, those which use its higher priced products must erty and gross inequality toward generalized economic suffer. well-being. But to introduce a tariff bill into congress or par- Where each family raises its own food, builds its liament is like throwing a banana into a cage of own house … no one can have more than the bar- monkeys. No sooner is it proposed to protect one est necessities.… This social condition, to which industry than all the industries that are capable of the protective theory would logically lead, is the protection begin to screech and scramble for it. lowest in which man is ever found — the condi- They are, in fact, forced to do so, for to be left out tion from which he has toiled upward. He has of the encouraged ring is necessarily to be dis- progressed only as he has learned to satisfy his couraged.… Now every tax that raises prices for wants by exchanging with his fellows and has the encouragement of one industry must operate freed and extended trade. [George, 1980:51] to discourage all other industries into which the products of that industry must enter. Thus a duty Who would possibly challenge the historical record? that raises the price of lumber necessarily dis- No one. Yet the lesson is denied implicitly in argu- courages the industries which make use of ments advanced time and again. Perhaps another state- lumber, … duty a that raises the price of iron dis- ment will provide emphasis. courages the innumerable industries into which iron enters; … a duty that raises the price of sugar If to prevent trade were to stimulate industry and discourages the fruit-preserver, the maker of syr- promote prosperity, then the localities where he ups and cordials, and so on. [George, 1980:168- was most isolated would show the first advances 69] of man. The natural protection to home industry afforded by rugged mountain-chains, by burning Note that recent restrictive decisions of our own gov- deserts, or by seas too wide and tempestuous for ernment have applied to lumber, steel, and sugar! In the frail bark of the early mariner, would have discussing the relationship of tariffs to wages, George given us the first glimmerings of civilization and says: shown its most rapid growth. But, in fact, it is where trade could best be carried on that we find It is not true that the products of lower-priced wealth first accumulating and civilization begin- labor will drive the products of higher-priced la- ning. It is on accessible harbors, by navigable riv- bor out of any market in which they can be freely ers and much traveled highways that we find cit- sold, since, as we have already seen, low-priced ies arising and the arts and sciences developing. labor does not mean cheap production, and it is [George, 1980:51-52] the comparative, not the absolute, cost of produc- tion that determines exchanges [George, 1980:198- Tariffs reduce the total real income of the economy. 99]. However protection may affect special forms of People subjecting themselves to restrictions on trade industry it must necessarily diminish the total re- deprive themselves of opportunities to satisfy their turn to industry — first, by the waste inseparable wants. 2 It might be to the interests of [lighting] companies Two examples illustrate essential points of George’s to restrict the number and size of windows, but exposition: hardly to the interests of a community.