Economic protectionism

Front matter

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DATE DUE

SFPI

Part One Chap* Page

I. THE ORIGIN OF ECONOMIC PROTECTIONISM.

1. National Economy and World Economy.

The classification of economic activity. Private economy, world economy, national economy ..... 1

2. The Development of Protectionistic Economic Theory.

The mercantilistic theory of national enrichment. The classical world economics. Fichte’s ‘ closed commercial state ’. The newer conception of national economics. Present-day views concerning national economics and world economics ......... 8

II. THE SUBJECTS OF WORLD ECONOMY.

1. The Great Economic Spheres.

The sphere of the state, the customs sphere, and the eco¬ nomic sphere. The division of the greater customs domains into economic spheres ....... 22

2. The Small Economic Divisions.

The evolutionary tendencies of the small economic divisions.

The formation of customs unions. The specialization of industry with a view to foreign trade .... 31

3. Customs Districts Wholly or Partly Dependent.

Colonies. ‘ Open-door ’ districts . . . . .46

III. THE OBJECTS OF WORLD ECONOMY

1. World Commerce.

The concept of commerce. International commerce. The causes of international value transfers .... 73

X

2. The International Exchange of Commodities.

The development of world commerce. Foreign and domestic trade. Relative extent of foreign trade. The cur¬ rents of world trade. The causes and effects of the inter¬ national exchange of commodities . .... 79

3. International Transfers of Capital.

The essential nature of international capital transfers. The form. The causes. The effects ..... 91

4. International Migrations.

The essential features. The causes. The effects . . 115

Part Two The Directions Assumed By Economic Protectionism

I. THE ECONOMIC PROTECTIVE POLICY IN GENERAL.

1. The Essence of Economic Protectionism.

The limits of the concept. Systematic general view of protective measures . . . . . . .125

2. The Theoretical Basis of Economic Protectionism.

Protectionist theories hitherto current. The new theory of protectionism ........ 127

II. PROTECTION AFFECTING COMMODITIES, BY NEGA¬ TIVE MEASURES.

1. Protection by Customs Duties.

The genesis of protective duties. Theories of protective duties. Import duties. Export duties . . . .135

2. Freight-rate Protection.

The genesis of protection by freight rates. Schedules affecting imports. Transit tariffs ..... 163

3. Administrative Protection.

The genesis of administrative protection. Veterinary police-power exclusions. Exclusion through measures for the protection of industrial property. Protective provisions in regulations affecting food products. Exclusion measures con¬ nected with the awarding of public contracts. Other pro¬ tective measures . . . . . . . .179

CONTENTS xi

CHAP.

4. Protection by Concerted Popular Action.

page

The genesis of protection by concerted action. The boycott of foreign goods. Protection by appeal to the national consciousness

III. PROTECTION AFFECTING COMMODITIES, BY POSI¬ TIVE MEASURES.

1. Bounties on Exports.

Governmental export bounties. Sugar bounties. Bounties on distilled liquors. The litres d' acquits d caution in France. Import certificates in the German grain trade. Private export bounties . . . . _ 200

2. Freight-rate Concessions.

Special rates on exports . 229

3. Measures for the Encouragement of Shipping.

The genesis of artificial support of the merchant marine.

Ship subsidies. Shipping bounties ..... 231

4. Other Positive Measures for Commodity Protection.

Subsidies for the promotion of exportation. Encouragement of exportation by political and capitalistic influence . . 250

IV. PROTECTION AFFECTING CAPITAL, BY NEGATIVE MEASURES

1. Obstacles placed in the way of Foreign Enterprisers.

Utilization of the antipathy to foreigners. The nationaliza¬ tion of foreign capital . . . . . . .254

2. The Discouragement of Capital Exportation.

Discouragement by influencing public opinion. Manipula¬ tion of the technical means of transferring capital . . 259

3. Discouragement of the Denationalization of Capital.

Self protection against denationalization. Governmental protection against denationalization. Nationalization as a defence against foreign control ..... 262

V. PROTECTION AFFECTING CAPITAL, BY POSITIVE MEASURES

1. The Encouragement of the Immigration of Capital.

Inducements extended to persons living on an income to take up their residence in a country. The encouragement of the immigration of business enterprisers .... 270

2. The Encouragement of Capital Emigration.

Encouragement of the emigration of business enterprisers. Encouragement of the emigration of capital . . . 272

Xll

CHAP. PAGE

VI. PROTECTION AFFECTING LABOUR, BY NEGATIVE MEASURES.

1. The Discouragement of Emigration.

The principle of the freedom of emigration. Restrictions for safeguarding public interests. Restrictions for the protection of the emigrant ........ 274

2. The Discouragement of Immigration.

The principle of the freedom of immigration. Protection against immigration by sanitary and public-safety regulation. Protection against the competition of foreign labour. Inter¬ national regulation . . . . . . . .281

VII. PROTECTION AFFECTING LABOUR, BY POSITIVE MEASURES.

1. The Encouragement of Emigration.

Colonization abroad on non-economic grounds. Emigra¬ tion for relieving pressure on the home labour-market. The repatriation of immigrants ...... 293

2. The Encouragement of Immigration.

Inducements contained in immigration laws. Propaganda of private enterprises ....... 294

Part Three The Effects Of Economic Protectionism

I. THE EFFECTS OF COMMODITY PROTECTION.

1. Effects of the Negative Measures.

The effect of protective duties on prices. The effect of pro¬ tective duties on production costs. The effect of export duties.

The effect of freight-rate protection. The effect of administra¬ tive protection and of protection by concerted popular action 303

The effect of export bounties. The effect of measures for the encouragement of shipping . . . . . .318

II. THE EFFECTS OF CAPITAL PROTECTION.

1. Effects of the Negative Measures.

The effect of discouraging the importation of capital. The effect of the discouragement of capital exportation . . 330

The effect of the encouragement of capital importation.

The effect of the encouragement of capital exportation .

CONTENTS xm

CHAP. PAGE

III. THE EFFECTS OF LABOUR PROTECTION.

1. Effects of the Negative Measures.

The effect of the restriction of emigration. The effect of the restriction of immigration ...... 333

The effect of the encouragement of emigration. The effect of encouraging immigration ...... 337

IV. THE EFFECTS OF ECONOMIC PROTECTIONISM IN GENERAL.

Increase in the productive power of the national economy. Growth of world-economic activity. Increase and equaliza¬ tion of the mutual dependence of nations. Intensification of conflicts of interest. Strengthening of international com¬ munity of interest. Conclusion ...... 339

INDEX . 353

Part One I

THE GENESIS OF ECONOMIC PROTECTIONISM 1. National Economy and World Economy

The Classification of Economic Activity. The essentials of economic protectionism can be understood only in the light of a clear comprehension of the relations between private economy, national economy, and world economy. By economic activity in general we mean conscious endeavour directed to providing for the satisfaction of human wants. This provision, however, is not incumbent upon the individual human being alone ; in many respects the burden is entirely taken out of his hands or essentially lightened by the various social groups in which his life is lived. Private economy includes the economic activities, on the one hand, of persons who are bound together by the natural ties of the family into a consumption unit or household, and, on the other hand, of those whose similar or mutually complementary activities unite them into an industrial unit with efforts directed, not toward the most advantageous utilization of goods, but toward the most effective means of procuring them. The national economy embraces the economic activity of the politically organized state, within which under present-day conditions the private- economy units occupy a position similar to that of the cells in a plant or animal body. Economic society, moreover, is not a mere spatial proximity of the constituent units, but an organism directed by a common will, and whose development may come into conflict with that of its individual members. Transactions between societies are carried out by the private-economy units, yet by no means independently, but subject always to limitations imposed by the obligations and interests of the larger group. Society, and especially society organized as a state, possesses its own interests, which frequently clash with those of the individual, but which none the less are to be distinguished fundamentally from altruism.1 The expres¬ sion ‘ world economy ’, in turn, denotes the interlacing of economic interests which results from the extension of the economic activities of individuals and societies beyond national boundaries.

Private Economy. The development of these three fields of economics has been very unequal. Only in recent years has the theory of the private economy been treated to any extent, and at best the discussions contain chiefly material belonging to commercial technology. It is none the less a matter for scientific investigation, since economic phenomena are to be judged by different standards according to whether the private- economy standpoint of the individual or the national- economy standpoint of the political society is adopted ; but the private interest is at every point so depen¬ dent upon the social that the latter must be regarded as predominant. For the individual entrepreneur, a destructive exploitation of human labour may be a useful means of increasing his competitive efficiency, as also any other sort of unfair competitive methods, but the opposing standpoint of the social whole must prevail. Under these circumstances it is of little practical value to investigate the relations to one another of the private- economy units composing a politi¬ cally organized society, or even their relations to the political power viewed from below upward instead of from the stand¬ point of the whole. The private entrepreneur will be likely to treat the national- economy factors as fixed quantities in his own calculations and only call them in question where the issue is raised as to the most suitable organization for utilizing them. The private-economy consumption unit, the family, requires in general no elaborate organization;

1 Emanuel Sella, Der Wandel des Besitzes, German translation by J. Blumstein, Munich and Leipsic, 1912, p. 3.

but it is otherwise with the modern corporate productive unit working to supply an ever-extending trade, which is forced to maintain on the inside a complicated office-system ' and on the outside an equally complex mechanism for meeting competition, utilizing the common means of trade and commerce, &c. It is therefore comprehensible that only modern large-scale industry has led to the development of a theory of private economy which has taken on the form of a commercial technology.

World Economy. The theory of world economy is also in a stage of development so primitive that languages other than German have not yet a generally recognized word for it, and this in spite of the fact that in cases where water transportation was convenient economic relations between different countries developed earlier than those within a country itself. The subject-matter of this science, in con¬ trast with that of national economy, can only be a descrip¬ tive economics, seeking to analyse and explain international economic transactions. Thus it serves merely to supplement the treatment of national economy, forming with the latter the material for a theory of national- economic policy as opposed to world-economic policy. There cannot be a world economy or international economy, because a world- will which would rank above the national wills and in which they would find expression does not exist. International relations are not regulated in accordance with an ideal of the human race, but according to the wills of the nations concerned. Regulation by international agreement is essen¬ tially different from regulation by laws of states, in that the treaty embodies no higher organic will, but merely a summa¬ tion of separate will-units to the extent to which they are in agreement in certain particulars. In a commercial treaty a state seeks to further, not the commerce of the world, but merely its own foreign trade, and will consequently annul the agreement without regard to the effect on the world economy the moment it finds such a course consonant with its own interests. The agreement only is international ; the economic policy which finds expression in it is (strictly national. We have not an international economic policy ; we have only an economic foreign policy which is part of the national economic policy. World- economic processes hold an ancillary, not a dominant, position in regard to the various national-economic bodies of the world, which thus find a new field of activity outside the sphere of their political jurisdiction.

For this reason the quest for a principle of world economics is also vain. The classical political-economy found such a principle in international division of labour, in consequence of which, every forward step in world economy meant an increase in national welfare and national- economic and world-economic ideals coincided. But the necessary presupposition of this argument from the international division of labour is false, the assumption, namely, that the wealth production in any country is permanently restricted to its natural resources. Nevertheless, as world- economic relations increase in complexity, they undergo more and more thoroughgoing regulation by international agreements, treaties, and trade congresses. In this movement we may recognize the begin¬ nings of an international organization, but such a union must remain as distinct from political organization as free association is from compulsory. Just as a free association can never succeed in binding together all the members of an interest group and completely subordinating their special interests to the common aim, so an international organization can only mitigate conflicts of interest, never make them entirely subservient to a higher principle of economic policy. Only the national- economy principle of the greatest possible development of productive forces is finally decisive.

National Economy. The question remains, why the politi¬ cally organized nation in particular should form so con¬ spicuous a landmark in the economic fife that all other forms of organization are overshadowed and dwarfed in comparison.

In glancing over the course of human development we see four types of social structure following one another, the later never entirely displacing the earlier, it is true, and all ' to a certain extent continuing to subsist side by side, yet varying sharply in their relative significance. These four are blood communities, language communities, religious com¬ munities, and political communities. In European countries in recent times, or since the appearance of mercantilists ideas in the sixteenth century, the political community has pushed the others more and more into the background, for the simple reason that this form is best adapted to the require¬ ment of a more perfect socialization of the process of satisfy¬ ing wants. If the principle of nationalism was especially emphasized in the nineteenth century, it was because the bond of a common nationality served, in the two European countries Germany and Italy, as a useful implement in advancing political organization. That the principle is no longer dominant is best explained by the consideration that it has not been strong enough to disrupt existing wellestablished political states.

The progressive socialization of the want- satisfying activities causes discontent with the original condition in which peoples were distinguished by race, language, or religion, and demands the union of the population of a terri¬ tory among themselves and with their home-land into a coherent economic body by means of a political constitution. Political institutions form a common basis for economic activity, which increases in importance, and by its character¬ istics soon comes to distinguish one political community from another. Other communities are not combated or eliminated, but utilized. Common descent is decisive for the character of wants, since the life-habits of persons of the same stock are much alike ; it is also decisive for the specializations in production, because human aptitudes are also fairly uniform within the same race-group. A common language facilitates exchange among the inhabitants and thus furthers the imitative impulse so important economically, leading to the formation of common usages and customs which impose manifold conventional requirements on the individual. Religious views influence the pursuit of culture, which involves the production and consumption of economic values. But once the state has been forged, an assimilation process goes on within it, often furthered, too, by external change and chance. In friendly business competition and on the field of battle a common store of experiences is accumulated by the whole politically organized population. Thus we speak of a ‘ people ’, not in the ethnographic sense of a homo¬ geneous nationality or in the legal sense of the citizenship of a state, but with the economic meaning of the population of a certain territory. It therefore includes all persons who actually dwell within the area under the political jurisdiction in question. Germans belong to France when and so long as they remain in France, even though they do not renounce their nationality or give up their German citizenship. In countries with a nationally homogeneous population the term ‘ nation ’ is often used for the political community, but there also the nation is unmistakably and always more than simply the cultural community implied in nationality. The formation of an independent national economy may possibly be impeded but it cannot be checked by the circumstance that different nationalities inhabit contiguous portions of the territory under a common political constitution. Dissimilarities in physical characteristics of the people signify little economi¬ cally, and differences in spiritual qualities are more and more pushed aside by the influence of the unavoidable common commercial language and the sledge-hammer blows of a common political destiny. The Austrian, Swiss, and Belgian economic societies are very real entities in spite of the national contrasts within those states.

Economic PTotectionism. The national economy, then, is to-day the dominant economic unit to which other groups and factors must subordinate themselves. Sometimes narrower territorial units may exist within and wider ones beyond that of the national economy, possessing some of the characteristics of the latter. Thus in federal states the component states have a certain economic independence, and it is possible to speak of a Prussian or Saxon national economy as well as of the German. So again, a customs union combines politically independent states into a higher economic unit, and there is an Austro-Hungarian national economy in addition to the Austrian and Hungarian. In all these cases we are dealing merely with a division of the national-economic functions between different territorial units which behave externally as one. The goods or the travellers entering German territory across the Saxon boundary are affected at once by the German and Saxon national economics ; on entering Austria they are subject at the same time to the merely Austrian railway rates and to the Austro- Hungarian customs regulations, &c.

Economic protectionism represents the logical consequences of the situation created when world- economy relations break into the national-economy sphere. It is not therefore a policy of world economics, but a detail of the external policy of the national economy. It is neither more nor less than the sum total of the measures adopted by the national- economy unit for the purpose of advancing its interests in the field of world economy.

2. The Development of Protectionistic Economic

Theory

The Mercantilistic Theory of National Enrichment. Mer¬ cantilism, as the first scientific movement in economics, assigned economic functions to the state, and so laid the foundation of the present conception of political economy. The theory regarded world- economy relations purely as a means of enriching the national- economy group. Each state should sell as much as possible to foreign countries and buy as little as possible from them, so that its national wealth might be increased through a large excess of exports over imports. Commercial treaties were regarded as a means of taking advantage of other nations and to be desired only by politically powerful countries and feared by all others. The consequent closing of the gates against foreign goods involved a general shrinkage of world- economic activity, though this was richly compensated by the abolition of internal customs lines which set free domestic trade in every country.

The Classical World-Economics. The physiocratic-classical school, under the influence of the cosmological viewpoint of the dominant nature-philosophy, emphasized the necessity of the widest possible extension of economic relations, to the end that the division of labour, which had been so conspicuously triumphant in national industry, should become international as well, and that each country should devote itself to the production of those goods for which it found itself most favoured by natural conditions. In this way each country would operate with the lowest possible production-costs and exchange its products for others produced in other countries under the same favourable conditions. Thus each would reap a twofold advantage, being in a position at once to sell as dearly and buy as cheaply as possible. The interests of humanity and of the nations were viewed as identical, and hence national boun¬ daries should not be allowed to have any bearing on economic relations. Holding such views, the classical school found no place for an economic policy ascribing any sort of activity m this field to the state as an organic body. It would have nothing to do with citizens of different countries, but only with economic individuals. Its task was to consist exclusively in the discovery of those natural laws which govern the economic process as carried on by the human race as a whole.

Fichte's ‘ Closed Commercial State \ The philosopher

Fichte came to a very different conclusion.1 If the task is imposed upon the state of protecting every one in the possession of his property, it must first give to every one his own. To this end Fichte constructed a socialistic ideal state in which every person should have his part in economic activity assigned to him according to a definite plan. Such an organization, of course, could be maintained only by making impossible any disturbance from without of the equilibrium between the various productive classes. Hence the state would be forced to take over all trade with foreign countries and would become as isolated as a commercial body as it had previously been juridically and politically. To this end all gold and silver money would first of all have to be with¬ drawn from circulation, because it is a universal medium, and for it would be substituted a new national currency made from a new substance whose composition should be kept secret so that it could circulate only within the country. At the same time the state would monopolize all foreign trade, but only for the purpose of reducing imports by the development of substitute industries and would cut down exports by restrictions from year to year until a condition of complete economic independence of foreign countries should be reached. Foreign travel should be permitted only to scholars and artists, when its cost would be borne by the state. 4 Idle curiosity and quest of diversion should no longer be allowed to drag their tedium about through every country on the globe.’

The newer Conception of National Economics. By way of the two extremes, the classical idea of a world economy and the fantastic socialist dream of a closed commercial state —

4 the two leading types of political nonsense ’, as Adam G. Muller says 2 — thinkers finally reached the concept of national economy. Irresistible, that is, as were the doctrines of Adam

2 ‘ Ilistorische Ubersicht der Entwicklung,’ in Bernhard Harms, Volkswirtschaft und Weltwirtschaft, Jena, 1912.

Smith and his immediate successors in cultured circles, yet in the long run the truth forced recognition outside of England that, in the economic relations of the world, states are after all independent units between which opposition as well as community of interests subsists. In consequence, the alleged natural laws of economic exchange undergo modifications in each country, which must be taken into account in all political calculations. Especially the older historical school in Germany began to perceive that countries more retarded in their development could not expect to profit by the free play of economic forces in the same degree as could England, where industrial progress had been carried much farther. The somewhat obscure Reichsgraf von Soden, who first employed the term ‘ national economy ’ (V olkswirtschaft), uses it, it is true, to designate those very economic doctrines which follow from cosmopolitan principles and hence relate to humanity as a whole ; he distinguishes from it under the name of political economy ( Staats-Wirtschafts - kunde) the science based on political organization and relating to economic welfare within the scope of the state. The correct view was brought forward by Karl Heinrich Rau, who acknowledges that the exchange of goods extends beyond the borders of the individual state, but contends that in so doing it constitutes an economy of a higher order. The subject-matter of the science can in his view be only the economic life within the state, even though occasional inter¬ national relations be taken into account.

This national science of economics, or political economy, he divided again into two branches, pure and applied. Pure economics, as the theoretical part, treats of the natural economic laws ; the applied or practical branch, on the other hand, deals with the means of promoting the economic welfare of a people. The conceptions of Karl Knies and Wilhelm Roscher were similar to that of Rau. They emphasized particularly the special character certain to be imparted to the economic life of any people by the distinctive natural resources of the country and the national history. It is quite possible to suppose that the science would set applied or practical ‘ political ’ economy more in the foreground as soon as it dropped the quest for eternal natural laws of world economy and took up rather the temporally and spatially conditioned bases of national welfare, regarding individual states as economic units as well as political, and comparing them as such. Pursuit of this course led to the first sharp conflict with the classical school. If the economic life of the race is to be differentiated along national lines, there can be no uniform recipe valid under all conditions for increasing the ‘ wealth of nations ’. Hence the German List and the American Carey raised their voices in opposition to the free-trade principles advocated by the classical economists, which they contended were suited only to requirements such as those of England. Other countries should in their view still make use of protective duties as an educational expedient until their industries could hold their own with the English in a freer competition. The classical writers had taken a mere fiction for a reality and were bound to meet with disaster in the practical application of their doctrines.

Present-day Views concerning National Economics and World Economics. We may divide into three groups the views now held regarding the relations between national and world economy. The first group includes theories which assume an increasing isolation of national economy from world economy by trade restrictions, and hence approach the idea of a ‘ closed commercial state ’, though perhaps on other than the original grounds. The second group of theories assumes on the contrary a progressive assimilation of the two economies and regards a perfect world economy as the ultimate ideal and the goal to be striven for. The third group assumes no displacing of either system by the other, but a continued existence of both side by side, each supplement¬ ing the other in their constant interchange, though of course further distinctions arise in the treatment of these relations.

The continuous spread of economic protectionism led to the adoption, especially in agricultural circles, of the maxim that the goal of future progress must be the supply of the home demand by the country itself. Heavy manufactures also, always closely related to agriculture in respect of com¬ mercial policy preferences, incline to the same view. For ex¬ ample, the chamber of commerce of Essen, one of the greatest industrial regions in Germany, declares in its annual report for the year 1912, that it is as important to Germany to place on a plane of safety the provision by her own activities of the most important necessaries of life, especially bread and meat, as it is to produce the implements of external power. In the literature of the subject the same thought was repre¬ sented in the controversy carried on a few years ago on the subject of the agricultural versus the industrial state.1 It was contended that when the countries formerly devoted to the production of raw materials develop manufactures and increase in population, they will necessarily purchase smaller quantities of manufactured goods while their exportation of raw materials will be less. Their commerce with the great states of older civilization will therefore gradually fall off. Perhaps the most pointed statement of the case is that of Kropotkin, who says : ‘ Every nation to be its own farmer and manufacturer; every individual to be a field labourer and some sort of technologist ; every individual to be in the possession of scientific knowledge and technical skill— this, according to our view, is the tendency of the civilized nations.’ And in another place he explains 2 : ‘In proportion as the nations of western Europe meet with increasing difficulty in

, A* Wa£ner> Agrar- und Industriestaat, Jena, 1902 ; J. Meline ’ Reiour

MeJaaf6’ i9®!5 L’ Brentano’ Schrecken des iibersiegenden Indus - tnestaates, second edition, Munich, 1907; Gerhard Hildebrand, Die Erschuttemng der Industrieherrschaft und des Industrie- Sozialismus, Jena,

2 P. Kropotkin, Landwirtschaft, Industrie und Handwerk. Authorized

finding a market for their goods in foreign countries and in obtaining in exchange for them the means of life, they will be compelled to produce those means of life within their own territory ; they will be compelled to rely upon domestic purchasers for a market for their goods and upon domestic producers for the necessaries of life — and the sooner they do it, the better.’ Sombart 1 also has expressed his belief in c the decreasing significance of world-economy relations On the other hand, it has justly been pointed out that the increasing industrialization of the characteristically rawmaterial-producing countries has not at all lessened their foreign trade, but has even increased it. Especially striking is the fact, shown by commercial statistics, that in general, imports increase more rapidly than exports. This is to be traced in part to the increasing demand for raw materials and for food- stuffs, but the imports of manufactures also have increased instead of diminishing. In France the Tariff Commission of the Senate, on the occasion of the tariff revision of 1910, established the fact that in the period from 1899 to 1908 imports increased from 4,518,000,000 to 6,091,000,000 francs while exports increased only from 4,229,000,000 to 4,615,000,000. Of manufactured goods alone, the imports increased from 728,000,000 francs to 1,151,000,000 or fiftyeight per cent, the exports only from 2,077,000,000 to 2,619,000,000 or twenty-five per cent. Germany, England, the United States of America, and Belgium lead the world in iron industries, yet their imports of iron and iron goods have increased instead of decreasing. The most intensive com¬ mercial activity is carried on not between the industrial nations and colonial or agricultural countries, but among the most highly developed industrial states. Germany exports three-fourths of her goods to western Europe ; more than half the exports of France are taken up by England, Germany, and Belgium ; England’s best customers, with the exception of