Do you have a bitch against free trade?
Post it in this web page (click here) or in SocialContract.com
Message Board.
All arguments against free trade (total unilateral free trade) will be posted in this site and debunked.
THE SUCKING SOUND AND YOU
Part 2
What about those high tariffs in the 19th century?
Free-trade bashers like to cite empirical evidence, e.g., history, as proof that high tariffs are good for the economy and that free trade does not work. On pp. 131-137, Ravi Batra argues that U.S. industry in the 19th century soared as a result of high tariffs imposed in the 1820's and then again in the 1860's. On the surface, his argument seems convincing.
He proves this much: If an economy is highly competitive from within, the enactment of high tariffs will not necessarily cut off innovation and progress within industry, as some free traders might naively predict. A fundamental thesis Batra operates on is that competition is essential, but that this competition can be all domestic competition, without the need for competition from abroad.
But does the foreign competition obstruct progress? Do the high tariffs really make the economy perform better?
We have to consider the principle of cause and effect. The free trader must hold fast to this position: tariffs per se cannot cause economic benefit to the country except possibly as a revenue-raising measure for the government; any net long-term benefits which may have followed upon the enactment of high tariffs could not have been caused by those high tariffs, even though some protectionists might interpret the facts that way--there cannot be a direct causal link between high tariffs and a net benefit to the whole economy; on the contrary, high tariffs, which are an interference with business and production, can only have a negative net effect on the whole economy, leaving aside their possible benefit as a revenue source for the state.
Batra's argument from history, even if totally accurate as to the factual account, does not establish a causal link between high tariffs and the later progress in U.S. industry. There are many ways to account for the progress, such as it was, and even for any correlation between the two events, without assuming that one (high tariffs) caused, or was at all necessary to facilitate, the other (advancement of U.S. industry).
What is "progress"?
First, let's make sure we identify what is "progress" or "advancement." Surely there were some good things which happened in U.S. industry in the 19th century. However, brute proliferation of factories is not necessarily a good thing, and much of what Batra cites as "success" or "advances" was little other than this.
Listen to some of his language: " . . . industrial output rose almost tenfold between 1810 and 1860." This proves absolutely nothing. Anything that is subsidized (protected against competition) will probably increase its output. But output for the sake of output is not always an improvement.
After all, this increased "output" in certain parts of the economy was done at the expense of other parts, as energy and resources were diverted from the unprotected parts to the protected parts of the economy. And some of the output from foreign producers would have been superior to that of the U.S. producers and would have served U.S. consumers better, and what benefit is U.S. "output" if its only effect is to displace higher-quality foreign output and force consumers to pay higher prices?
In the cotton textile industry, "the number of spindles climbed from 191,000 in 1820 to 2,112,000 in 1840 and 5,236,000 in 1860 . . . " More spindles. Whoopee! In the Soviet Union it was more factories. But more of one thing probably means less of something else--it doesn't prove you're better off.
"Industrial production quadrupled between 1870 and 1900 . . . " So what? Maybe it should have only tripled. " . . . and at the turn of the century manufacturing had become the premier sector of the economy, accounting for 53 percent of its total product . . . " Is that supposed to be good? Why? Maybe 45 percent or 40 percent would have been healthier. " . . . and 22 percent of its labor force." Look, if manufacturing is so sacred, and if more manufacturing is always better, then why not 100%? Why not say the best economy would be 100% manufacturing with 100% of the population stuffed into factories 16 hours a day?
So here is another fundamental fallacy of protectionism: an obsession with factories, jobs, output, spindles, energy consumption--a craving for the elements or instruments of production for their own sake, regardless of any economic need as determined by consumer demand. The goal is the factories per se, the jobs, the spindles--busyness for the sake of busyness, while the consumers are at best a convenient disposal in which to get rid of the output. The task of this production system is not to satisfy the need of consumers for products, but to find ways to dispose of stuff produced.
In a society which adopts a Batra-type definition of "progress" it is inevitable that much energy and resources and labor will be devoted to the task of conning people, even hypnotizing them, into buying things they don't really want--whatever it takes to move product and keep the factories humming. One way or another, the product must be disposed of.
Since "progress" is defined as ever-more factories, ever-more production, regardless of market demand, ever-more "employment" and burning of calories by wage-earners, this production cannot be made subservient to consumer demand, but rather the consumers must be whipped into line and made subservient to the need of producers for a market. Either that or massive disposal sites will be needed into which the excess products may be dumped, and/or vast recycling centers where excess products are disassembled for shipment back to the factories for reassembly.
The above has in fact become a part of the definition of "progress" in modern industrial society. Whenever we hear of the need for more "growth" and more "jobs" and for economic "stimulus" from the government, it is all based on a fundamental obsession with production for the sake of production, not production driven by consumer demand.
Now the latter, production driven by consumer demand, is also part of the meaning of "progress."
We have here two different concepts of "progress" (and there may be even more than these two). And, put very simply, one of them is correct while the other is wrong and perverse. Consumer-driven production is the right kind, while obsessive productionism and production-driven consumerism is a perverse and detrimental form of "progress."
Why does obsessive productionism exist? the need for "jobs" and "growth" and production for the sake of production? It exists because of the perception that there are a lot of riff-raff out there, worthless people who need to be put somewhere, scum who would otherwise only get into mischief, and who therefore need a "job" where we can put them in order to get them out of our hair.
The perception is: If we don't give them a "job," then the only alternative will be to put the "restless natives" on welfare or put them in jail. Thus, a "job" is a kind of babysitting slot in which to put a potential trouble-maker, or the cheapest way to keep that person out of mischief. A substitute for welfare or prison. That's the fundamental purpose of a "job," not service to society or to consumers.
Again, there is also the other definition of "progress" and corresponding concept of "job" or "work" as service to society or consumers. Neither concept totally dominates. But one is a correct and healthy concept, while the other is detrimental and perverse and unhealthy for society.
Now this is not to deny Batra's claim that real "progress" did occur in the 19th century (genuine progress, meaning increased production driven by consumer demand, rather than production for its own sake). Batra makes a few good points: "Consumer prices systematically declined" and by 1860 "real wages in the United States were twice the level of those in Europe." Okay, that's a real improvement (though he doesn't indicate whether the wage level takes into account the low "compensation" to the slave workers in the cotton fields of the South).
And from 1869 to 1900 "real wages jumped 50 percent, retail prices tumbled 37 percent," and per capita income also more than doubled. Yes, these are real benefits, based on the consumer-driven production meaning of "progress."
But much of the "gain" cited by Batra is an illusion based on the myth that more factories are somehow a proof of more well-being. This seems to be based on his doctrine from page 3: "Manufacturing, not trade, is the main source of prosperity." This is not a fact, but an article of faith. The truth is that there must be a cutoff point where more factories (even more spindles!) is not better, but worse.
Batra concludes: "the United States, led by manufacturing, became the preeminent economic power in the world. Would free trade have done that? Absolutely not." But what would free trade have done? It would have brought to U.S. consumers more choice, more access to manufactured goods. It would have brought all those same U.S. products which were the best quality at the lowest prices, plus additional products--the best of the foreign producers, and it would have eliminated only those U.S. products which were inferior and overpriced.
But would the U.S. have become the same "preeminent economic power"? What is the meaning of this preeminence and power? What purpose does it serve? What good is this economic power if it is so weak that it collapses when the protective tariffs are removed? Why not instead cultivate an economic power established on a foundation of serving consumers rather than denying them freedom of choice?
There is nothing in Batra's argument to show that it wouldn't have been better under free trade. True, there probably would have been less total manufacturing within the U.S. But it would have been better manufacturing. Why? Because it would have been more competitive, and thus leaner and meaner.
In 1815, Batra recounts, foreign textile manufacturers began "dumping" their product onto the U.S. market, and "many of the weaker mills that had sprouted behind the umbrella of the embargo were driven out of business." These "weaker mills" could not compete and had survived only because of an embargo from 1807 to 1815. Under free trade, such uncompetitive businesses fail, or they become stronger. Only the strong survive.
Free trade forces producers to become strong enough to compete in the world market or causes them to go out of business. What's wrong with that? Doesn't that provide the best result for consumers? If "progress" means consumers are better served, then this is a good result, and it is free trade, not high tariffs, which make it happen.
One of the real benefits Batra cites, lower prices, would have been the result of free trade. Protecting those weaker mills, and other less competitive producers, obviously did nothing to bring down prices, but only made products more expensive for consumers. Many reasons could be given why retail prices "tumbled" 37%. Obviously tariffs did not cause this. Without tariffs, and thus more competition, the prices would have "tumbled" even more than the 37%.
Batra offers us nothing to show that consumers benefitted from the high tariffs. The tariffs obviously benefitted no one other than select special interests in the manufacturing sector, at the expense of consumers. It is clear again that the "progress" Batra cares about is that of more U.S. production for its own sake, more factories, spindles, etc., and not more benefit to consumers.
What caused U.S. prosperity if not high tariffs?
Nevertheless, is there a seeming causal relation? Is there a coincidence of two events--high tariffs followed by increased prosperity? Should we offer an explanation for this if we reject the cause-and-effect explanation given by Batra? Why not?
There are at least three possible explanations for this occurrence of high tariffs followed by prosperity. One is mere coincidence--no correlation at all. Even this is more plausible than the cause-and-effect explanation, since no one has explained how high tariffs can produce prosperity.
Another explanation is to question the historical claim that the tariffs actually were high. How can we question this? By comparing U.S. tariffs to those of other countries during the same period. If tariffs or trade barriers of other countries of this time were just as high as those of the U.S., or if they were even higher, then it is incorrect to claim that U.S. tariffs were "high." High compared to what?
For now this question will remain unanswered, as the figures for this are difficult to come by. But, suffice it to say, if tariffs in European countries in the 18th and 19th century were as high or higher than the U.S. tariffs, then Batra's entire argument here goes down the drain.
But even if we accept the premise that U.S. tariffs were "high," there is a very plausible explanation as to how the high tariffs and the following prosperity could be correlated, though no causal link exists. In fact, this explanation lies hidden in Batra's language. The key is to change our question: Instead of asking, "Did high tariffs cause prosperity to ensue?" let's ask the question, "What caused the high tariffs?" This is an easier question to answer.
Why were there no high tariffs before 1820? The answer would seem to be that there was little industry to protect. Almost everything was agriculture, and these interests favored foreign trade because of their European markets. Americans traded farm products to the Europeans in return for manufactured goods.
But then a period of isolation began in 1807 which cut off this foreign trade until 1815. During that time something new developed, as U.S. industry sprouted up to meet the domestic demand. This new upstart industrial sector had no intention of departing from the scene in 1815 when the trade with Europe resumed.
"The rise of manufacturing created a new lobby that had not existed prior to the War of 1812. For the fist time there was a significant economic interest--Northern manufacturers and their workers--that could be hurt by the resumption of trade." This "budding manufacturing industry" was at odds with the Southern agricultural interests, who desired a return to the previous trade with Europeans. Eventually a coalition of Northern interests prevailed and got the high tariffs put into place.
Over many years the tariffs slowly declined, but in 1862 they shot back up again, initially only to give relief to business because of heavy tax increases at this time. But when these taxes were later dismantled, "a powerful lobby of manufacturers" prevailed upon the government to keep the high tariffs in place.
So then, what caused high tariffs was a new entity which sprouted up during the isolation years of 1807-1815 and then started flexing its muscles. When something new comes on the scene, something with lots of energy and potential and youthful vigor, is it not typical for it to have both a negative as well as a positive side?
There's no reason to assume that these new companies, all of them small and aggressive and very turf-conscious, had no potential to compete in the world market. But they sprouted up in a period when there was only a domestic market, and even if they had wanted to join the world trading system in 1815, the bone-headed protectionists of Europe would probably have thrown a tantrum and kept them out.
Aggressiveness expresses itself in many different forms--some good, some bad. The new U.S. manufacturing companies were aggressive, and this aggressiveness produced many benefits in the 19th century, but it also produced a down side--high tariffs against foreign competition.
This is a perfectly realistic and sensible explanation why high tariffs and prosperity could occur at the same time, being correlated, but without one causing the other. What happened, the correlation, is that they were both caused by a third element--a new wave of energetic manufacturing companies, awakening to their new place in the world and feeling their Wheaties, eager to assert themselves and claim a piece of the action.
A counterargument to this might be that the original upstart of the new industrial sector was caused by the economic isolation, and this isolation of U.S. consumers from the Europeans was a necessary condition to create the new U.S. industries, and furthermore, protective tariffs imposed by the U.S. would have provided the needed isolation just as well as the foreign embargo did. And thus, the European embargo on the U.S. was a blessing in disguise because it gave birth to the new U.S. manufacturing sector. And protective tariffs in 1807 would have done the same.
No doubt the European embargo did give a boost to the early process of U.S. industrial development, advancing it forward in time. But there is every reason to believe that U.S. industry, even had it evolved more gradually, would have been just as healthy without this initial stimulus. Perhaps even healthier. Strong competitive U.S. companies would have emerged just the same, and the consumers would have been better served. And, in any event, only a fool would suggest that without the trade embargo of 1807-1815, the U.S. today would still be a backward agrarian society.
The new U.S. producers which emerged had a lot of spirit and many good points. But with this came at least one major fault: they didn't appreciate the principle that consumers should be free to spend their money as they see fit. They viewed the consumers largely as their property, like pawns in a game, placed before them as objects to be manipulated, or like poker chips which are divided up evenly among them and then fought over to see who can rake in the most chips. They didn't understand that it is their function to serve consumers, and not the role of consumers to serve them. Protectionists have trouble understanding this proper relation of producers to consumers.
But this fault does not negate the good part. The great industrial progress of the 19th century, including the innovations and the new inventions, could not have happened without this new energetic class of industrial producers. But protectionism did not create this new class of producers. It's the other way around: they created protectionism. And the best of them surely would have survived under free trade.
We have no reason to believe the most competitive producers would have become extinct without the high tariffs to protect them against foreign competition. Only the weaklings would have fallen by the wayside. Under the free trade, U.S. industry would have become meaner and leaner--and thus better.
This theory is as good as any other to explain U.S. industrial advancement in the 19th century. It makes more sense than the theory that high tariffs caused the advancement. Yes, the tariffs may have caused the quantity of U.S. industry to increase, but they did not cause better industry or better service to consumers, which is what really counts.
This is a good theory because it is based upon a well-founded premise, which is that good and evil can both emanate from the same source. Throughout history, good and bad often occur together. Those civilizations which produced the greatest cultural and scientific achievements were also the most brutal and destructive. And so does it follow from this that we must practice destruction and brutality if we are to produce the good achievements? No. What we must do is harness the energy which causes both the good and the evil, and we must force it continually toward the good and away from the evil.
Protectionism is evil because it denies people freedom to spend their money as they see fit, thus denying them control over their own lives; and it interferes with total production, raising the cost of production by protecting the less efficient producers and restricting competition, thus reducing the wealth, causing higher prices to consumers, and reducing prosperity.
Those who favor this interference into the lives of other people have the burden of proof on them. They must prove the necessity for this interference and suppression of individual freedom. The empirical arguments, or arguments from history, of Batra and others, fall way short of proving any such necessity.
It is not good enough to show a possible correlation between two events. To establish that one caused the other, you must identify the connection. How did high tariffs create industrial progress and prosperity? How did it make the economy stronger to impose tariffs and thus deny consumers free choice and interfere with the production process? This has not been answered.
U.S. producers in the 19th century who sought and gained protection against their foreign competitors could have been just as aggressive and tough and resourceful without the high tariffs and without their desire for the tariffs. They were tough, but they could have been even tougher.
What's wrong with an aggressive spirit which welcomes foreign competition as a challenge rather than trying to smother it? The more competition the better! This is the kind of spirit we need to instill into the producers of the future.
The most that could be argued for high tariffs is that this trade policy was inevitable when U.S. industry was young and immature and arrogant. But now we have grown up. Now we understand that our work must be done to serve a consumer market and that the consumers are not the playthings of producers and wage-earners. The new toughness must meet a higher standard.
Protectionism is for parasites.
Your customer or employer is paying you not out of sympathy, but out of a desire to extract something of value from you. It's not you or your welfare they want, but rather the value they get from you, and they will seek that value from whatever source offers it to them at the least cost.
Now that's reality. We can either face up to it and make ourselves valuable, thus making a positive difference in our society, in the world; or we demand sympathy, we can whine and demand that someone hire us or buy our product because we're "Americans" and become a burden on those other Americans who are thus forcedd to subsidize us.
The best Americans, the ones who are a true asset to our country, will be those who adopt the new standard of toughness for themselves. It's always easier to run to the government for protection and to lean on others and expect them to support you out of sympathy, and to shame them with petty appeals to their patriotism or with sermons telling them they must "take care of their own" (as if, when they spend money, their purpose is to take care of anyone other than themselves).
Yes, making yourself a burden on others is the easier way. The protectionist formula burdens the more competitive U.S. producers and workers by denying them access to foreign goods and forcing them to subsidize the less competitive U.S. workers and producers. This is not the formula for improving the U.S. economy.
There is a final ultimate refutation of Batra's theory that early high tariffs produced the prosperity gains in the 19th century. Very simply--if American industry became so successful in the 19th century, why did it need protection?
Even if we grant that new U.S. producers may have somehow needed protection in the 1820's, why did they still need it in the 1840's and beyond? If they became the efficient and strong powerhouse that Batra describes, then couldn't they finally hold their own and compete against the foreigners? If they really needed protection in the 1850's and 1860's, then they must not have been strong, they must not have been competitive in comparison to their foreign counterparts.
You can't have it both ways: either 1) by mid-century, U.S. producers were successful and efficient and strong, in which case they could be self-reliant and needed no protection against foreign competition; or 2) American producers at mid-century needed protection, in which case they were not strong or efficient or capable of competing. And if the latter is the case, then where is the great success story of U.S. industry in the 19th century which those early high tariffs allegedly produced? There is none, and U.S. consumers would have been better served by the more efficient foreign producers.
The very most a free-trade-basher can claim is that high tariffs were needed until perhaps the 1830's in order to get U.S. companies off the ground. But with the great success of these companies brought on by the tariffs, U.S. industry should have become strong and capable of continuing on its own.
So to continue the tariffs indefinitely makes no sense, because it assumes in effect the original tariffs failed to achieve their purpose of creating a strong competitive industrial sector, and if those earlier tariffs were such a failure, why assume the new ones would do any better?
So the argument from history to justify high tariffs is self-contradictory and utter nonsense for this reason, if for no other.
End of Part 2. Proceed to: Part 3: What about that deindustrialization?
Return to Free Trade Forever front page
Return to The Sucking Sound and You Introduction
Return to Part 1: What about those declining wages?
Proceed to:
Part 3: What about that deindustrialization? cont'd
Part 4: What about that multiplier effect?
Part 5: Compete? Yes, but not with them foreigners!
Part 6: Lower Cost vs. Higher Income
Do you have a bitch against free trade?
Post it in this web page (click here) or in SocialContract.com
Message Board.
All arguments against free trade (total unilateral free trade) will be posted in this site and debunked.