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Literature of the Fiscal Controversy (1904)*

By Bertrand Russell

The Tariff Problem. By W. J. Ashley. London: P. S. King and Son. 1903.
The Riddle of the Tariff. By A. C. Pigou. London: R. Brimley Johnson. 1903.

PROFESSOR ASHLEY’S work is, probably, the best presentation in existence of the case for Protection and Imperial Preference. It is not vitiated, like so many writings on the same side, by elementary mistakes in economic reasoning; the policy that it advocates is coherent, and the grounds adduced in its favour have much apparent force. These grounds are derived, not, like the usual arguments of orthodox economists, from a consideration of the equilibrium of trade, but from a forecast of its changes. Although it is not given to mortals (except Tariff Reformers) to know the future, it is yet possible to give reasons for disbelieving in Professor Ashley’s predictions. At the same time, it must be admitted, and it should be urged, that Free Traders have given too little attention to the changes produced by economic forces, and have confined their discussions too much to the short-period effects of tariffs. I see no reason to think that different results would be arrived at by a change in this respect; and I believe that a change of method would remove something of the contempt so widely felt for “economic pedantry.”

After an introductory chapter on State control in general, the author proceeds to discuss the policy of free imports. He admits that Protection always involves a loss at first ; but he argues, like List, that productive power is more important, in the long run, than momentary wealth. He suggests certain limitations to the policy of free imports: bargaining power, the merely temporary cheapness of dumped products, the loss due to non-transferability of labour from a decaying trade to a growing one, and the necessity of some trades for national defence. These arguments are developed later.

Professor Ashley then passes to the outlook. He points out that, by the law of increasing returns, production for a large market is cheaper than for a small one, and he suggests that foreign countries, especially America, have a larger market than we have, though he gives no reason for this suggestion. He holds that, by successive onslaughts in times of depression, America will extinguish our metallurgical trades ; and that, under Free Trade, we shall find it impossible to revive them when they are gone. Then, he tells us, the secondary industries, which use iron and steel, will also be destroyed by American dumping. And this process is already in operation. The better trades are stationary or declining, and those that grow are objectionable. In the end, we are told, England will become a country for tourists and rich people who like picturesque scenery; and the history of Holland will be repeated.

Many things may be said in criticism of this fancy picture. To begin with, the economies of production on a large scale are, I think, exaggerated; and, so long as all English production is not concentrated in a single Trust, it is plain that the market supplied by English manufactures is large enough to secure more of such economies if they exist. And the picture of the ruin of the iron and steel trades is not borne out by their recent history; for, in spite of their outcry, they have made large profits, and the imports have been very small, in proportion, not only to home production, but to the exports. In any case, ruin would not come suddenly ; and if it appeared to be impending (which it does not), a bounty would, surely, be a better method, since it would not deprive us of the immense advantages we gain from cheap steel. As for the export of coal being an expenditure of capital, the same holds of iron, not only in respect of the ore (if this is native), but also in respect of the coal employed. Yet, merely because our exports of iron are more or less stationary, this argument is never employed by Protectionists. Another inconsistency is this. It is urged, with some truth, that we should be in a bad way if, owing to decay of the iron and steel trade, we were unable to repair our ships at home in time of war ; yet the supply of Welsh coal to rival navies is decried. Is it not plain that, if the one would be an evil, the other must be an advantage? That foreign ships depend on our coal, is surely a most potent superiority in our naval position. Again, of the seven export trades to which Professor Ashley objects, two – soap and confectionery – are carried on, in part at least, under excellent conditions; while in two others, America’s export to us is growing faster than our exports. Such arguments, it may be said, only affect details; but the Protectionist case is made up of details. The broad fact is, of course, that, in most of our staple trades, we have had to face the growth of European and American competition, and that nothing we can do will restore the manufacturing monopoly we once possessed. But this in itself has not injured us, unless superiority to other nations be more desired than prosperity. And the dangers which Professor Ashley dreads seem all to presuppose dumping on a scale which is most improbable. Moreover, the hypothesis that, if primary industries were destroyed, secondary manufactures could next be attacked, would only be legitimate if, among all our competitors, primary and secondary industries were everywhere carried on jointly by single firms. If this were not the case – and it is certainly most improbable – we should continue to enjoy, as now, the benefit of greater cheapness in the half-manufactured goods.

To meet the supposed dangers, a “policy of industrial defence” is advocated. Defensive tariffs will be necessary, but only as a temporary and provisional measure ; our true safety lies in developing the economic unity of the Empire. Until the transition to economic Imperial unity is completed, we must have a defence against the assaults of Trusts. The Trusts will not collapse, as some hope; and Professor Ashley boldly maintains, admitting that they are a result of Protection, that they are really beneficent, and even afford the best hope of improving the conditions of labour. This is a paradoxical assertion, with which probably few people will be found to agree.

Against the dumping practised by Trusts, import duties, it is argued, are the only possible defence. It is conceded that they will not be of much use in commercial negotiation (p. 132) – a remark which may be commended to Retaliators. An all-round low tariff, Professor Ashley says – writing before Mr. Chamberlain’s Glasgow speech – would be no good; it would not be sufficient against dumping, and would preserve some trades not worth preserving. (This is the first time it is admitted that some of our decaying trades are undesirable.) What is required is, that the Executive should have power to impose high duties at discretion; 50 to 75 percent, would often be necessary. These duties, when the danger is passed, might be removed again, for fear our manufacturers should lose the stimulus of competition.

This scheme, it must be confessed, is most unpractical. To begin with, Protection is only electorally feasible if it is universal. And it is most improbable that Parliament would surrender the control of taxation, that historic bulwark of our liberties. Most improbable of all is the supposition, that such duties, once imposed, could be removed by a mere Executive act. At least two General Elections, and mountains of agitation, would be required.

But it is the Imperial aspect that interests Professor Ashley most. His proposal, in this respect, is the one which was made at Glasgow, and immediately abandoned in view of Colonial repudiation: it is the proposal for a “schedule of forbidden industries.” Professor Ashley points out that there is no hope of inducing the Colonies to abandon those industries which they have established, or to refrain from establishing such as they are peculiarly fitted for. He even goes so far as to suggest, that it may ultimately become desirable to transport to Canada the men employed in iron and steel in this country – a proposal hardly likely to commend itself to their present employers. But, in regard to industries for which the Colonies are naturally unfitted, he hopes that some arrangement may be possible. He even goes so far, in urging the Colonists to concentrate on agriculture, as to suggest (p. 158) that manufactures are a curse, on account of the conditions of labour, and that the Colonists might avoid this curse. But unless they begin at a late chapter of his book, they are not likely to be persuaded by him on this point.

There is a chapter on the incidence of the corn duties, which argues (1) that a small tax will raise the price of corn by less than the tax; (2) that no part of this rise will appear in the price of bread; (3) that it would not matter if bread were dearer. The first of these points may, perhaps, be true, though the argument upon which it is based (namely, that we are by far the largest customer for American wheat), is shown in the course of the discussion (p. 193) to be likely to become less true in the future.

The second argument is based on the fact, that the price of the loaf does not vary by less than a halfpenny, while the difference made by the tax would be less than a halfpenny. This argument, which is often applied, is formally fallacious. A precisely analogous argument would be this: Inner circle trains run every ten minutes; hence, a delay of a minute in reaching the station cannot make a passenger later in reaching his destination. It is obvious that the tax would sometimes make no difference, while at other times it would just turn the scale, and make a difference of a halfpenny.1 The third argument, whatever its validity, is not suitable for electioneering.

The last chapter sets forth Protection and Imperial Reciprocity as necessary to Trade Unionism, although it mentions, incidentally, that Krupp and Mr. Carnegie succeeded in destroying Unions, while English employers have failed to do the like. We are next told that Peace and Retrenchment demand this policy – Peace, because Free Traders will fight to retain the open door in China (as the Protectionists would “take it lying down”); Retrenchment, because the policy will induce the Colonies to subscribe to armaments. And, finally, we are told that the Empire will break up if we hesitate: Canada will conclude a reciprocity treaty with the United States. This is an astounding statement, in view of the American Protectionist’s horror of Reciprocity. If we adopt this policy, it appears, we may hope to rival America in the purity of our politics, and Russia in wealth and general enlightenment. A great ideal, truly! Happy those who do not live to see its realisation.

Mr. Pigou’s little book, The Riddle of the Tariff, is an admirably clear statement of the Free Trader’s answers to such arguments as Professor Ashley’s. The author points out, in regard to dumping, how much smaller in amount, and how much less ruinous in its effects, it is, than the trades affected have led us to believe ; how impossible it would be to devise a tariff which should diminish fluctuations; how unprofitable it would be to any foreign nation deliberately to attempt the ruin of an English industry, unless – what is unlikely – the result would be a world-wide monopoly; since, without this result, prices could not afterwards be sufficiently raised to make good the loss. The discussions of general Protection, of tariff bargaining, and of Imperial Preference, are all excellent. In conclusion, while deciding against Retaliation, Protection, and Preference, Mr. Pigou points out that, in combination, they involve new evils, not to be found in any one separately. Thus, for example, either Protection, or Preference, as a policy, would hamper tariff bargaining, which requires a willingness to abandon duties in return for concessions by other nations. The book is too compressed to be summarised; and a review can do little more than advise readers to study it.

B. Russell

*  Bertrand Russell, “Literature of the Fiscal Controversy,” The Independent Review 1 (Jan 1904), 684-8  A Literature Review

1 The fallacy is one which has been exposed in logic books ever since Greek times. It proves that no one ever becomes bald, because the loss of one hair will not make a man bald.