are of course seriously injured and have insisted upon protection against this procedure which has been authorized in Canada.
In answer to these various arguments the free traders, or those desiring a modification of present high rates, make their main appeal to the doctrine of comparative costs. Briefly stated this asserts that nations, like individuals, can do some things better than others. Like the individual lawyer therefore who pays to have his boots blacked while he devotes himself to the law, the nation should produce the things it is best fitted for and pay others to produce other things which it can do less well. In this way each will obtain the largest possible return. Protection, which interferes with this natural international division of labor, simply diverts labor and capital from more into less profitable industries. Practically, this purely abstract economic argument has had little influence on the commercial policy of nations, which have been moved more by political and industrial considerations. Today, however, there is no question but that the freer movement of capital and industry throughout the world would be advantageous. In answer to the home market argument it is pointed out that with the growth of large-scale production the profitable area of manufacture has greatly widened and now in many cases transcends national boundaries. As home producers seek foreign markets, as they are beginning to do, they themselves will demand a reduction of the tariff, especially in the matter of raw materials. Free traders also deny the need of artificially diversifying industry in a country as large and varied as the United States, or of building up infant industries. Indeed, on the latter point, they urge that many of our trusts are the result of the tariff, and that the attempt to grant legislative favors has resulted only in wholesale demoralization and a debauching of our national politics.
In conclusion it may be said that under certain conditions the policy of protection is relatively defensible; that it has undoubtedly hastened the industrial development of the United States, though it has not caused it; and that, on the other hand, it is responsible for not a few evils in our political and industrial life. The struggle of particular interests during the framing of the Payne bill shows the impossibility of deciding this issue upon academic grounds. It may be prophesied, however, that as our manufacturers reach out more seriously after the foreign markets the tariff will be modified so as to make this possible; but he would be a rash prophet who should predict a sudden or great change in our tariff policy within the present generation.
XVIII. THE FUNCTIONS OF GOVERNMENT.
In the course of the preceding pages we have repeatedly referred to the necessity or desirability of governmental action, and have emphasized the important part which it plays in our economic life today. Every practical economic problem that confronts us calls in some degree for the exercise of state activity. It is necessary for us then, if we are to render sound judgment on these questions, to have a clear opinion as to the proper sphere of government action, as to how far the State should interfere in the economic activities of private individuals. We cannot do better than to state first the main functions of a modern state. The modern industrial system, as we saw in the first section, is based upon certain fundamental institutions—personal liberty, competition, and private property. The first function of government is to guarantee to every individual the rights of freedom, property, and contract; this involves the maintenance of peace and order. These are often spoken of as “natural rights”; rather they are rational rights, based upon expediency and human welfare, and are created and maintained by society. Without the constant
support and intervention of government they would possess little reality or significance. But in addition to guaranteeing these fundamental institutions, modern governments grant individuals certain privileges, as patents, copyrights, trade-marks, franchises, etc., designed to stimulate the economic activity of individuals.
A second group of functions undertaken by the modern state is regulative. As we have seen, laws are made regulating the freedom of contract, the conditions of labor, the conduct of business, methods of banking and transportation, etc. The terms under which competitive business may be conducted are laid down, and while freedom of industry prevails for every individual it is only on condition that he conforms to the rules of the game thus prescribed. But the conditions are not merely restrictive; sometimes they are designed to promote enterprise, as in the case of gifts, subsidies, protective duties, etc. In all these ways the State interferes with the action of perfectly free competition for the purpose of securing better or more equitable conditions. A third group of functions embraces the direct participation in industry by the Government itself, as the post-office, gas, electric, and water works, canals, roads, sewers, parks, etc. In other countries, when the functions of government are more extended than in the United States, it conducts railroads, telegraph and telephone systems, tenements, pawn shops, theaters, industrial insurance, or various other activities. The line which divides public from private enterprise varies greatly in different countries.
This raises the general question, how far is it desirable that the economic functions of government should extend? As to the necessity of state activity in some form there can be no doubt. Production, exchange, distribution, and to a smaller extent consumption, are all social processes; they concern the whole of society, and must be brought under social control. Montesquieu laid down the proposition
in the middle of the eighteenth century that taxes invariably increase with the growth of liberty. Historically this has been verified: the development of freedom in government and industry has meant the realization of self-restraint by the imposition of regulative law. But the modern State has gone further than this: it has realized the necessity of taking an active part in modern industrial life, for the equalization of the terms of competition, the redress of grievances, and the furnishing of utilities, either because it could do it better or because it was the only agency capable of acting. The standpoint of this treatise has been one of moderate individualism, believing in free competition and individual initiative, but not frightened off by the bogey of socialism, if at any point the interference of government seemed desirable or necessary. To present the matter clearly it will be well to state briefly the main theories that have been held as to the proper function of government, arranging them in their logical, though not in their historical, order.
At one extreme stands anarchism, which must be thought of not as anarchy and riot, but as a philosophical theory of society. Scientific anarchism contemplates an ideal state of perfect freedom, in which the State, the coercive exercise of authority by man over man, would not exist. According to this theory only the individual has rights; there is no more divinity of right in a majority than there is in kings. Government is an invasion of the right of the individual to do as he will, and should be abolished; with its abolition would vanish the various moral, social, and industrial evils to which it has given rise, and human society would develop on a higher plane. Stated in its extreme form anarchism is evidently too ideal for frail human nature as at present constituted. Of more practical importance has been the theory of extreme individualism as set forth by Herbert Spencer—a view designated by Huxley as the night-watchman theory of the