So far as I can gather, the circumstances alleged to constitute a new problem are these; the need to protect special industries for war purposes; and the need to make temporary fiscal provision against industrial fluctuation set up by variations in the international money exchanges. Obviously, the first of these pleas has already gone by the board, as regards any comprehensive fiscal action. One of the greatest of all war industries is the production of food; and during the war some supposed that after it was over, there could be secured a general agreement to protect British agriculture to the point at which it could be relied on to produce at least a war ration on which the nation could subsist without imports. That dream has already been abandoned by practical politicians, if any of them ever entertained it. The effective protection of agriculture on that scale has been dismissed as impossible; and we rely on foreign imports as before. Whatever may be said as to the need of subsidising special industries for the production of certain war material is nothing further to the fiscal purpose, whether the alleged need be real or not. The production of war material is a matter of military policy on all fours with the maintenance of Government dockyards, and does not enter into the fiscal problem properly so called. But to the special case of dyes, considered as a “key” or “pivotal” industry, I will return later.
How then stands the argument from the fluctuations of the exchanges? If that argument be valid further than to prove that all monetary fluctuations are apt to embarrass industry, why is it not founded on for the protection of all industries affected by German competition? The Prime Minister in his highly characteristic speech to the Lancashire deputation, admitted that the fall of the mark had not had “the effect which we all anticipated”—that is, which he and his advisers anticipated—and this in the very act of pretending that the further fall of the mark is a reason for adhering to the course of taxing fabric gloves. All this is the temporising of men who at last realise that the case they have been putting forward will bear no further scrutiny. The idea of systematically regulating an occasional tariff in terms of the day-to-day fluctuations of the exchanges is wholly chimerical. A tariff that is on even for one year and may be off the next is itself as disturbing a factor in industry as any exchange fluctuations can be.
Nor is there, in the nature of things, any possibility of continuous advantage in trade to any country through the low valuation of its currency. The Prime Minister confesses that Germany is not obtaining any export trade as the result of the fall. Then the whole argument has been and is a false pretence. The plea that the German manufacturer is advantaged because his wages bill does not rise as fast as the mark falls in purchasing power is even in theory but a statement of one side of a fluctuating case, seeing that when the mark rises in value his wages bill will not fall as fast as the mark rises, and he is then, in the terms of the case, at a competitive disadvantage.
But the worst absurdity of all in the tariffist reasoning on this topic is the assumption that in no other respect than wage-rates is German industry affected by the fall of the mark. The wiseacres who point warningly to the exchanges as a reason for firm action on fabric gloves never ask how a falling currency relates to the process of purchasing raw materials from abroad. So plainly is the falling mark a bar to such purchase that there is prima facie no cause to doubt the German official statement made in June, that foreign goods are actually underbidding German goods in the German markets, and that the falling exchange makes it harder and harder for Germany to compete abroad. We are dealing with a four-square fallacy, the logical implication of which is that a bankrupt country is the best advantaged for trade, that Austria is even better placed for competition than Germany, and that Russia is to-day the best placed of all.
Tariffs and Wages
The argument from the exchanges, which is now admitted to be wholly false in practice, really brings us back to the old tariffist argument that tariffs are required to protect us against the imports of countries whose general rate of wages is lower than ours. On the one hand, they assured us that a tariff was the one means of securing good wages for the workers in general. On the other, they declared that foreign goods entered our country to the extent they did because foreign employers in general sweated their employees. That is to say—seeing that nearly all our competitors had tariffs—the tariffed countries pay the worst wages; and we were to raise ours by having tariffs also. But even that pleasing paralogism did not suffice for the appetite of tariffism in the way of fallacy. The same propaganda which affirmed the lowness of the rate of wages paid in tariffist countries affirmed also the superiority of the rate of wages paid in the United States, whence came much of our imported goods which the tariffists wished to keep out. In this case, the evidence for the statement lay in the high wage-rate figures for three employments in particular—those of engine-drivers, compositors, and builders’ labourers: three industries incapable of protection by tariffs.
Thus even the percentage of truth was turned to the account of delusion; for the wages in the protected industries of the States were so far from being on the scale of the others just mentioned, that they were reported at times to be absolutely below those paid in the same industries in Britain. For the rest, costs of living were shown by all the official statistics to be lower with us than in any of the competing tariffed countries; and in particular much lower than in the United States. There were thus established the three facts that wages were higher in the Free Trade country than in the European tariffed countries; that real wages here were higher than those of the protected industries in the United States, and that Protection was thus so far from being a condition of good wages as to be ostensibly a certain condition of bad. All the same, high wages in America and low wages on the Continent were alike given as reasons why we should have a protective tariff.
There stands out, then, the fact that the payment of lower wages by the protected foreign manufacturer was one of the tariffist arguments of the pre-war period, when there was no question of unequal currency exchanges. To-day, the argument from unequal currency exchanges is that in the country where the currency value is sinking in terms of other currencies the manufacturer is getting his labour cheaper, seeing that wages are slow to follow increase in cost of living. Both pleas alike evade the primary truth that if country A trades with country B at all, it must receive some goods in payment for its exports, save in a case in which, for a temporary purpose, it may elect to import gold. But that fact is vital and must be faced if the issue is to be argued at all. Unless, then, the defender of the occasional tariff system contends that that system will rectify trade conditions by keeping out goods which are made at an artificial advantage, amounting to what is called “unfair competition,” and letting in only the goods not so produced, he is not facing the true fiscal problem at all. Either he admits that exports and freight charges and other credit claims must be balanced by imports or he denies it. If he denies it, the discussion ceases: there is no use in arguing further. If he admits it, and argues that by his tariff he can more or less determine what shall be imported, the debate soon narrows itself to one issue.
The pre-war tariffist argued, when he dealt with the problem, that tariffs would suffice at will to keep out manufactured goods and let in only raw material. To that the answer was simple. An unbroken conversion of the whole yield of exports and freight returns and interest on foreign investments into imported raw material to be wholly converted into new products, mainly for export, was something utterly beyond the possibilities. It would mean a rate of expansion of exports never attained and not only not attainable but not desirable. On such a footing, the producing and exporting country would never concretely taste of its profit, which is to be realised, if at all, only in consumption of imported goods and foods. It is no less plainly impossible to discriminate by classes between kinds of manufactured imports on the plea that inequality in the exchanges gives the foreign competitor an advantage in terms of the relatively lower wage-rate paid by him while his currency value is falling. Any such advantage, in the terms of the case, must be held to accrue to all forms of production alike, and cannot possibly be claimed to accrue in the manufacture of one thing as compared with another, as fabric gloves in comparison with gold leaf. In a word, the refusal of protection to gold leaf is an admission that the argument from inequality of currency exchanges counts for nothing in the operation of the Safeguarding of Industries Bill. In the case of any other import, then, the argument falls.