The Forgotten Man, and Other Essays

by William Graham Sumner

109. I know of no case where this hope has been realized, although we have been trying the experiment for nearly a century. The weakest infants to-day are those whom Alexander Hamilton set out to protect in 1791. As soon as the infants begin to get any strength (if they ever do get any) the protective system forces them to bear the burden of other infants, and so on forever. The system superinduces hydrocephalus on the infants, and instead of ever growing to maturity, the longer they live, the bigger babies they are. It is the system which makes them so, and on its own plan it can never rationally be expected to have any other effect. (See further, under the next fallacy, §§ [111] ff.)

110. Mill[20] makes a statement of a case, as within the bounds of conceivability, where there might be an advantage for a young country to protect an infant industry. He is often quoted without regard to the limitation of his statement, as if he had affirmed the general expediency of protection in new countries and for infant industries. It amounts to a misquotation to quote him without regard to the limitations which he specified. The statement which he did make is mathematically demonstrable.[21] The doctrine so developed is very familiar in private enterprise. A business enterprise may be started which for some years will return no profits or will occasion losses, but which is expected later to recoup all these. What are the limits within which such an enterprise can succeed? It must either call for sinking capital only for a short period (like building a railroad or planting an orange grove), or it must promise enormous gains after it is started (like a patented novelty). The higher the rate of interest, as in any new country, the more stringent and narrow these conditions are. Mill said that it was conceivable that a case of an industry might occur in which this same calculation might be applied to a protective tax. If, then, anybody says that he can offer an industry which meets the conditions, let it be examined to see if it does so. If protection is never applied until such a case is offered, it will never be applied at all. A thing which is mathematically conceivable is one which is not absurd; but a thing which is practically possible is quite another thing. For myself, I strenuously dissent from Mill’s doctrine even as he limits it. In the first place the state cannot by taxes work out an industrial enterprise of a character such that it, as any one can see, demands the most intense and careful oversight by persons whose capital is at stake in it, and, in the second place, the state would bear the loss, while it lasted, but private interests would take the gain after it began.

(B) That Protective Taxes do not Raise Prices but Lower Prices.

111. To this it is obvious to reply: what good can they then do toward the end proposed? Still it is true that, under circumstances, protective taxes do lower prices. The protectionist takes an infant industry in hand and proposes to rear it by putting on taxes to ward off competition, and by giving it more profits than the world’s market price would give. This raises the price. But the consumer then raises a complaint. The protectionist turns to him and promises that by and by there will be “overproduction,” and prices will fall. This arrives in due time, for every protected industry is organized as a more or less limited monopoly, and a monopoly which has overproduced its market, at the price which it wants, is the weakest industry possible (§ [24]). The consumer now wins, but a wail from the cradle calls the protectionist back to the infant industry, which is in convulsions from “overproduction.” Some of the infants die. This gives a new chance to the others. They combine for more effective monopoly, put the prices up again by limiting production, and go on until “overproduction” produces a new collapse. This is another reason why infants never win vitality. The net result is that the market is in constant alternations of stringency and laxity, and nothing at all is gained.

112. Whenever we talk of prices it should be noticed that our statements involve money—the rate at which goods exchange for money. If then we want to raise prices, we must restrict the supply of goods, so that on the doctrine of money also we shall come to the same result as before, that protective taxes lessen production and diminish wealth.

113. The problem of managing any monopoly is to dose the market with just the quantity which it will take at the price which the monopolist wants to get. In a qualified monopoly, that is, one which is shared by a number of persons, the difficulty is to get agreement about the management. They may not have any communication with each other and may compete. If so they will overdose the market and the price will fall. Then they meet, to establish communication; form an “association,” to get harmonious action, and agree to divide the production among them and limit and regulate it, to prevent the former mistake and restore prices (§ [24]).

(C) That we should be a Purely Agricultural Nation under Free Trade.

114. A purely agricultural nation covering a territory as large as that of the United States is inconceivable. The distribution of industries now inside the United States is a complete proof that no such thing would come to pass, for we have absolute free trade inside, and manufactures are growing up in the agricultural states just as fast as circumstances favor, and just as fast as they can be profitably carried on. Under free trade there would be a subdivision of cotton, woolen, iron and other industries, and we should both export and import different varieties and qualities of these goods. The southern states are now manufacturing coarse cottons in competition with New England. The western states manufacture coarse woolens, certain grades of leather and iron goods, etc., in competition with the East. Here we see the exact kind of differentiation which would take place under free trade, and we can see the mischief of the tariff, whether on the one hand it strikes a whole category with the same brutal ignorance, or tries, by cunning sub-classification, to head off every effort to save itself which the trade makes.[22] If, however, it was conceivable that we should become a purely agricultural nation, the only legitimate inference would be that our whole population could be better supported in that way than in any other. If there was a greater profit in something else some of them would go into it.

(D) That Communities which Manufacture are More Prosperous than those which are Agricultural.

115. This is as true as if it should be said that all tall men are healthy. It would be answered that some are and some are not; that tallness and health have no connection. Some manufacturing communities are prosperous and some not. The self-contradiction of protectionism appears in one of its boldest forms in this fallacy. We are told that manufactures are a special blessing. The protectionist says that he is going to give us some. Instead of that he makes new demands on us, lays a new burden on us, gives us nothing but more taxes. He promises us an income and increases our expenditure; promises an asset and gives a liability; promises a gift and creates a debt; promises a blessing and gives a burden. The very thing which he boasts of as a great and beneficial advantage gives us nothing, but takes from us more. Prosperity is no more connected with one form of industry than another. If it were so, some of mankind would have, by nature, a permanently better chance than others, and no one could emigrate to a new, that is agricultural country, without injuring his interests. The world is not made so.