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Home | Library | All Hail Free Trade (and Henry George)

All Hail Free Trade (and Henry George)

August 19, 2004

Tags Big GovernmentCorporate WelfareU.S. EconomyBiographiesFree MarketsInterventionismValue and Exchange

Two large works were published in the 1800s on the subject in question. The first, Protection or Free Trade: An Examination of the Tariff Question, with Especial Regard to the Interests of Labor, was written by Henry George in 1886. The second, The History of Protective Tariff Laws, was written by R.W. Thompson in 1888. Yet today, over one hundred years later, Henry George is still with us, while R.W. Thompson remains obscure.

Henry George

Many of George’s works are available online or have been reprinted. And most recently, the Mises Institute has made available online what is undoubtedly (to Austrians) George’s most important work, Protection or Free Trade.[1]

Born in Philadelphia, Henry George (1839–1897) worked as a sailor before settling in California where he became a printer and then a journalist, later running for the mayor of New York city. Although he wrote several works that were economic in nature, he had no formal training. His granddaughter, Agnes George de Mille, said that "all he knew of economics were the basic rules of Adam Smith, David Ricardo, and other economists, and the new philosophies of Herbert Spencer and John Stuart Mill, much of which he gleaned from reading in public libraries and from his own painstakingly amassed library." In spite of some differences, George has been shown to have certain conceptional, methodological, and ideological affinities with the Austrian school of economics.[2] Indeed, Albert Jay Nock called him "the exponent of individualism against Statism."

R.W. Thompson

R.W. [Richard Wigginton] Thompson (1809–1900) was a lawyer, a judge, an Indiana state legislator, a Lincoln appointee, secretary of the Navy under President Hayes, and a Whig Congressman (1841–1843 and 1847–1849). His History of Protective Tariff Laws is not merely a history book, it is a partisan defense of protectionism. Thompson made grandiose claims for protection:

The firm establishment of protection will furnish abundant revenue for the Government, proper encouragement to industry, home markets and fair prices for all surplus products, just compensation to labor, the continued development of our vast resources, and put a stop, as fare as well-regulated national policy can do it, to those periodical fluctuations in business to which this agitation has invariably led.

In addition to his legal and political pursuits, Thompson also had an interest in religion, authoring The Papacy and the Civil Power (1876) and The Footprints of the Jesuits (1894).

Protection vs. Free Trade

Although Thompson is long dead and gone, his protectionist fallacies are still with us. "Why protection retains such popular strength in spite of all exposures of its fallacies" (p. v) is one of the questions that Henry George sought to answer in his Protection or Free Trade. In order to accomplish his task, George sought "to go over all the ground upon which protective tariffs are advocated or defended, to consider what effect the opposite policy of free trade would have, and to stop not until conclusions are reached of which we may feel absolutely sure" (pp. 4–5).

George’s book may be over one hundred years old, but his arguments against protectionism and for free trade are both fresh and applicable to the trade debates today. He relates the pessimistic attitude toward the subject that was prevalent in his day: "For a century no question of public policy has been so widely and persistently debated as that of Protection vs. Free Trade. Yet is seems today as far as ever from settlement—so far, indeed, that many have come to deem it a question as to which no certain conclusions can be reached, and many more to regard it as too complex and abstruse to be understood by those who have not equipped themselves by long study" (p. 5). Because many today are of the same opinion, George’s book is needed now just as it was when he wrote it.

Protectionism

Protection or Free Trade is distinguished by clear explanations of the nature of protectionism. George defines protectionism as follows:

Protection, as the term has come to signify a certain national policy, means the levying of duties upon imported commodities for the purpose of protecting from competition the home producers of such commodities (p. 25).

Protection, as the word has come to be used to denote a scheme of national policy, signifies the levying of duties on the importation of commodities (as a means) in order (as an end) to encourage domestic industry (p. 75).

He explains what protectionists hope to achieve:

Protectionists contend that to secure the highest prosperity of each nation it should produce for itself everything it is capable of producing, and that to this end its home industries should be protected against the competition of foreign industries. They also contend (in the United States at least) that to enable workmen to obtain as high wages as possible they should be protected by tariff duties against the competition of goods produced in countries where wages are lower (p. 25).

The aim of protection, in short, is to prevent the bringing into a country of things in themselves useful and valuable, in order to compel the making of such things. But what all mankind, in the individual affairs of every‑day life, regard as to be desired is not the making of things, but the possession of things (pp. 32–33).

But for protectionism to accomplish its purposes would be impossible. Protectionism, like socialism, suffers from a calculation problem:

To make a protective tariff that would even roughly accord with the protective theory would require in the first place a minute knowledge of all trade and industry, and of the manner in which an effect produced on one industry would act and react on others. This no king, congress or parliament ever can have. But, further than this, absolute disinterestedness is required (pp. 84–85).

And even were it possible to obtain for the making of a protective tariff a body of men themselves disinterested and incapable of yielding to bribery, to threats, to friendship or to flattery, they would have to be more than human not to be dazed by the clamor and misled by the representations of selfish interests (p. 85).

The making of a tariff, instead of being, as the protective theory requires, a careful consideration of the circumstances and needs of each industry, is in practice simply a great "grab" in which the retained advocates of selfish interests bully and beg, bribe and logroll, in the endeavor to get the largest possible protection for themselves without regard for other interests or for the general good. The result is, and always must be, the enactment of a tariff which resembles the theoretical protectionist’s idea of what a protective tariff should be about as closely as a bucketful of paint thrown against a wall resembles the fresco of a Raphael (p. 85).

But not only does George show how protectionism fails to achieve its goals, he also relates its true nature:

To admit that labor needs protection is to acknowledge its inferiority (p. 19).

There is something in the very word "protection" that ought to make working-men cautious of accepting anything presented to them under it. The protection of the masses has in all times been the pretense of tyranny (p. 19).

Protective tariffs are as much applications of force as are blockading squadrons, and their object is the same—to prevent trade. The difference between the two is that blockading squadrons are a means whereby nations seek to prevent their enemies from trading; protective tariffs are a means whereby nations attempt to prevent their own people from trading (p. 43).

What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war (pp. 43–44).

Protection calls upon us to pay officials, to encourage spies and informers, and to provoke fraud and perjury, for what? Why, to preserve ourselves from and protect ourselves against something which offends no moral law; something to which we are instinctively impelled; something without which we could never have emerged from barbarism, and something which physical nature and social laws alike prove to be in conformity with the creative intent (p. 50).

The protective system is simply a system of encouraging certain industries by enabling those carrying them on to obtain higher prices for the goods they produce (p. 82).

The fixing of protective duties is simply the distribution of pecuniary favors among a crowd of greedy applicants (p. 85).

The pleas for protection are contradictory and absurd; the books in which it is attempted to give it the semblance of a coherent system are confused and illogical (p. 219).

Protection, as we have seen, operates to reduce the power of a community to obtain wealth—to lessen the result which a given amount of exertion can secure. It "makes more work," in the sense in which Pharaoh made more work for the Hebrew brickmakers when he refused them straw; in the sense in which the spilling of grease over her floor makes more work for the housewife, or the rain that wets his hay makes more work for the farmer (pp. 220–21).

George considers one of the strengths of free trade to be that it "may be carried into practice to the point of ideal perfection" (p. 83). Taken to its logical conclusion, protectionism can be seen to be the absurd theory that it is:

Consider, moreover, how sharply this theory of protection conflicts with common experience and habits of thought. Who would think of recommending a site for a proposed city or a new colony because it was very difficult to get at? Yet, if the protective theory be true, this would really be an advantage (p. 31).

If to prevent trade were to stimulate industry and promote prosperity, then the localities where he was most isolated would show the first advances of man. The natural protection to home industry afforded by rugged mountain‑chains, by burning deserts, or by seas too wide and tempestuous for the frail bark of the early mariner, would have given us the first glimmerings of civilization and shown its most rapid growth. But, in fact, it is where trade could be best carried on that we find wealth first accumulating and civilization beginning. It is on accessible harbors, by navigable rivers and much traveled highways that we find cities arising and the arts and sciences developing (p. 48).

If all industries are to be protected, then it is only logical that

We must not only forbid foreign commerce, but restrain internal commerce. We must not only prohibit any new applications of labor‑saving invention, but must prevent the use of the most important of those already adopted. We must tear up the railway and go back to the canalboat and freight‑wagon; cut down the telegraph‑wire and rely upon the post‑horse; substitute the scythe for the reaper, the needle for the sewing‑machine, the hand‑loom for the factory; in short, discard all that a century of invention has given us, and return to the industrial processes of a hundred years ago. This is as impossible as for the chicken to go back to the egg (p. 240).

George’s conclusion is that "it is not merely that the ideal perfection with which the freetrade theory may be reduced to practice is impossible in the case of protection, but that even a rough approximation to the protective theory is impossible. There never has been a protective tariff that satisfied protectionists, and there never can be" (p. 84).

George further makes the point (and quite humorously) that if protection of domestic industry is the goal, there are other ways of providing protection other than imposing a tariff:

Instead of levying import duties, we might, for instance, destroy a certain proportion of imported commodities, or require the ships bringing them to sail so many times round the world before landing at our ports. In either of these ways precisely the same protective effect could be secured as by import duties, and in cases where duties secure full protection by preventing importation, such methods would involve no more waste. Or, instead of indirectly encouraging domestic producers by levying duties on foreign goods, we might directly encourage them by paying them bounties (p. 75).

If it is desired to "encourage" American industries, George relates that "the best way of doing so would be to abolish our tariff entirely and to pay bounties from funds obtained by direct taxation" (p. 82). Why protection is preferred to bounties (government subsidies to business) is "for the same reason that indirect has been preferred to direct taxation—because the people do not so readily realize what is being done" (p. 83). But with direct payments to industries that need "protection," all industries would eventually clamor for government subsidies "for it is not in human nature that the farmers, the stock-raisers, the builders, the newspaper publishers and so on, would consent to the payment of bounties to other industries without demanding them for their own" (p. 93).

George demolishes one protectionist argument after another.

He shows how the "encouragement" of "infant industries" suffers from a calculation problem (pp. 87–91). He concludes that "not merely is the encouragement likely to go to industries that do not need it, but it is likely to go to industries that can be maintained only in this way, and thus to cause absolute loss to the community by diverting labor and capital from remunerative industries" (p. 89).

George points out the hypocrisy of protectionists who seek to diminish imports while at the same time they desire more exports (p. 107). He makes the case that a country that has a lot of imports is a rich country (p. 103). He deems "repugnant to reason" the notion that "the way to increase the wealth of a country is to promote the sending of such things away and to prevent the bringing of them in" (p. 103). He considers the notion that "an excess of exports over imports shows increasing wealth" to be absurd (p. 107). Trade deficits are an accounting fiction (pp. 107–08, 112–13, 119–20).

George likewise demonstrates the "obvious absurdity in taking the nation or country as the protective unit and saying that each should have a protective tariff" (p. 34) because "if there is any truth in the protective theory it must apply not only to the grand political divisions but to all their parts. If a country ought not to import from other countries anything which its own people can produce, the same principle must apply to every subdivision; and each State, each county and each township must need its own protective tariff" (p. 36). This demonization of foreigners is also illogical because of the simple fact of supply and demand. It is not the foreign exporters who are the cause of goods being imported into the United States, "the cause of their coming here is that they are asked for by the American people. It is the demand of purchasers at retail that causes goods to be imported" (p. 44).

The protectionist notion that "transporters and traders are non-producers" is also dealt with (pp. 58–59). "Middlemen" provide valuable services, as do investigators, philosophers, teachers, poets, artists, priests, and others considered to be "useless exchangers" who "add nothing to the real wealth of society" (pp. 59–63).

The idea that manufacturing is the cause of the growth of population and wealth, instead of the result, is likewise exposed as a myth (pp. 139–44).

George considers the distance that imports must sometimes travel as irrelevant. This is because "commodities can often be produced in one place with so much greater facility than in another that it involves a less expenditure of labor to bring them long distances than to produce them on the spot, while two points a hundred miles apart may be commercially nearer each other than two points ten miles apart" (p. 149).

George is especially concerned with the relationship between protectionism and wages. He begins his Preface with the explanation of how he is endeavoring "to determine whether protection or free trade better accords with the interests of labor, and to bring to a common conclusion on this subject those who really desire to raise wages" (p. v). His conclusion is that a protective tariff may temporarily increase profits but that this does not necessarily lead to wage increases (pp. 184–88). In fact, because tariffs increase prices, they hurt the "sellers of labor" (p. 179).

Protectionist arguments against "cheap foreign labor" are likewise dismissed (pp. 182–83). George explains:

The truth is, that a low rate of wages does not mean a low cost of production, but the reverse. The universal and obvious truth is, that the country where wages are highest can produce with the greatest economy, because workmen have there the most intelligence, the most spirit and the most ability; because invention and discovery are there most quickly made and most readily utilized. The great inventions and discoveries which so enormously increase the power of human labor to produce wealth have all been made in countries where wages are comparatively high (p. 126).

And not only does a protective tariff ultimately harm workers, it "permits the use of inferior machinery and slovenly methods" (p. 201).

Ultimately, George recognized that protectionism is purely political:

The fixing of protective duties is simply the distribution of pecuniary favors among a crowd of greedy applicants (p. 85).

After a tariff has been enacted, come the interpretations and decisions of treasury officials and courts to unmake and remake it, and duties are raised or lowered by a printer’s placing of a comma or by arbitrary constructions, frequently open to grave suspicion, and which no one can foresee (p. 85).

In the scramble which the protective system has induced, every interest capable of being protected and powerful enough to compel consideration in Congressional log‑rolling has secured a greater or less share of protection—a share not based upon any standard of needs or merits, but upon the number of votes it could command (p. 139).

But to introduce a tariff bill into a congress or parliament is like throwing a banana into a cage of monkeys. No sooner is it proposed to protect one industry than all the industries that are capable of protection begin to screech and scramble for it. They are, in fact, forced to do so, for to be left out of the encouraged ring is necesarily to be discouraged. The result is, as we see in the United States, that they all get protected, some more and some less, according to the money they can spend and the political influence they can exert (p. 153).

Free Trade

Rather than just bring to light the fallacies of protectionism, George makes a positive case for free trade. Through trade "prejudices are worn down, wits are sharpened, languages enriched, habits and customs brought to the test of comparison and new ideas enkindled" (p. 50). It is through trade that "useful seeds and animals, useful arts and inventions, have been carried over the world, and that men in one place have been enabled not only to obtain the products, but to profit by the observations, discoveries and inventions of men in other places" (p. 48). Trade is "the extinguisher of war, the eradicator of prejudice, the diffuser of knowledge (p. 48), while protection "has always found an effective ally in those national prejudices and hatreds which are in part the cause and in part the result of the wars that have made the annals of mankind a record of bloodshed and devastation—prejudices and hatreds which have everywhere been the means by which the masses have been induced to use their own power for their own enslavement" (p. 11).

And when George mentions free trade, he really means free trade, not the modern GATT, WTO, EC, FTAA, NAFTA, government-managed, thousand-page trade agreement variety. Echoing trade debates today, George assails British proponents of "fair trade" (p. 135). He advocates that a country practice free trade now—not when other countries remove their tariffs, increase their wages, and come up to our standards (p. 135).

Protectionists and "fair trade" advocates are not the only ones criticized by George. He faults Adam Smith for his inconsistencies (pp. 7–8, 97–99, 264–65). The true free traders in history he regarded as the French economists (p. 50). The English economists held to "the emasculated form" of free trade, whereas "those illustrious Frenchmen, with whom originated the motto Laissez faire, and who, whatever may have been the confusions of their terminology or the faults of their method, grasped a central truth which free traders since their time have ignored" (p. vi).

George dedicates his book, not to Adam Smith, Alfred Marshall, and Lionel Robbins, but to Quesnay, Turgot, Mirabeau, Condorcet, and Dupont (p. ii). He criticizes modern free trade advocates for their methods and unsound arguments (pp. 9, 178, 205–06, 210–11, 226–27). He has special contempt for those free traders who would argue for the substitution of a protective tariff with a revenue tariff (pp. 9, 64–65, 206, 222, 228, 259, 262). He calls this substitution "such a lame and timorous application of the free‑trade principle that it is a misnomer to speak of it as free trade. A revenue tariff is only a somewhat milder restriction on trade than a protective tariff" (p. 259).

George recommended the immediate repeal of protectionist measures: "If protection be unjust, if it be an infringement of equal rights that gives certain citizens the power to tax other citizens, then anything short of its complete and immediate abolition involves a continuance of injustice" (p. 197). And not only that, he advocated what he acknowledged were drastic measures:

Free trade, in its true meaning, requires not merely the abolition of protection but the sweeping away of all tariffs—the abolition of all restrictions (save those imposed in the interests of public health or morals) on the bringing of things into a country or the carrying of things out of a country. But free trade cannot logically stop with the abolition of custom‑houses. It applies as well to domestic as to foreign trade, and in its true sense requires the abolition of all internal taxes that fall on buying, selling, transporting or exchanging, on the making of any transaction or the carrying on of any business, save of course where the motive of the tax is public safety, health or morals. Thus the adoption of true free trade involves the abolition of all indirect taxation of whatever kind, and the resort to direct taxation for all public revenues. But this is not all. Trade, as we have seen, is a mode of production, and the freeing of trade is beneficial because it is a freeing of production. For the same reason, therefore, that we ought not to tax any one for adding to the wealth of a country by bringing valuable things into it, we ought not to tax any one for adding to the wealth of a country by producing within that country valuable things. Thus the principle of free trade requires that we should not merely abolish all indirect taxes, but that we should abolish as well all direct taxes on things that are the produce of labor; that we should, in short, give full play to the natural stimulus to production—the possession and enjoyment of the things produced—by imposing no tax whatever upon the production, accumulation or possession of wealth (i.e., things produced by labor), leaving every one free to make, exchange, give, spend or bequeath (pp. 259–60).

The case for free trade is ultimately based on three principles. First, comparative advantage. Trade allows men to capitalize on differences in natural abilities and physical surroundings (climate, location, natural resources). Second, gains from trade. Trade is always beneficial to both parties—trade never harms one party at the expense of the other. And third, freedom itself. The freedom to trade is natural and moral; to prohibit two willing parties to freely trade is unnatural and immoral. These are the principles elaborated on throughout George’s book.

Comparative Advantage

It is only one of the many benefits of trade that it enables people to obtain what the natural conditions of their own localities would not enable them to produce (p. 52).

In no one place will nature yield to labor all that man finds useful. Adaptation to one class of products involves non‑adaptation to others. Trade, by permitting us to obtain each of the things we need from the locality best fitted to its production, enables us to utilize the highest powers of nature in the production of them all (pp. 52–53).

Strictly to reserve our home market for home producers would be to exclude ourselves from participation in the advantages which natural conditions or the peculiar skill of their people give to other countries (p. 96).

The people of the country of greater advantages would import from the country of less advantages those products as to which the difference of advantage between the two countries was least, and would export in return those products as to which the difference was greatest. By this exchange both peoples would gain. The people of the country of poorest advantages would gain by it some part of the advantages of the other country, and the people of the country of greatest advantages would also gain, since, by being saved the necessity of producing the things as to which their advantage was least, they could concentrate their energies upon the production of things in which their advantage was greatest (pp. 132–33).

Gains from Trade

For the desire of one party, however strong it may be, cannot of itself bring about trade. To every trade there must be two parties who mutually desire to trade, and whose actions are reciprocal. No one can buy unless he can find some one willing to sell; and no one can sell unless there is some other one willing to buy (p. 42).

Trade is not invasion. It does not involve aggression on one side and resistance on the other, but mutual consent and gratification. There cannot be trade unless the parties to it agree, any more than there can be a quarrel unless the parties to it differ (p. 43).

Men of different nations trade with each other for the same reason that men of the same nation do—because they find it profitable; because they thus obtain what they want with less labor than they otherwise could (p. 54).

If foreigners will bring us goods cheaper than we can make them ourselves, we shall be the gainer. The more we get in imports compared with what we have to give in exports, the better the trade for us (p. 105).

Thus it is that neither advantages nor disadvantages afford any reason for restraining trade. Trade is always to the benefit of both parties. If it were not there would be no disposition to carry it on (p. 133).

Free trade is voluntary trade. It cannot go on unless to the advantage of both parties (p. 135).

Freedom

Free trade is the natural trade—the trade that goes on in the absence of artificial restrictions (p. 12).

So it is with protection. Whatever its economic merits there can be no doubt that it conflicts with those ideas of natural right and personal freedom, which received national expression in the establishment of the American Republic (p. 15).

It is as natural for men to trade as it is for blood to circulate. Man is by nature a trading animal, impelled to trade by persistent desires, placed in a world where everything shows that he was intended to trade, and finding in trade the possibility of social advance (p. 47).

For purposes of controversy this is logically sufficient, since, free trade being natural trade, the onus of proof must lie upon those who would restrict it (p. 178).

Georgism

It is only when George strays from the subject of protectionism and free trade that he advocates some decidedly non-Austrian ideas. Although he advocated the total elimination of all taxes except for a single tax upon land, he suggested "a tax on legacies and successions" (p. 293). George was harshly criticized by Murray Rothbard for his "land value taxation" scheme.[3] And rightly so, for he considered "private property in land" to be a fetish (p. 265), and insisted that "all monopoly of land must be broken up, and the equal right of all to the use of the natural elements must be secured by the treatment of the land as the common property in usufruct of the whole people" (p. 262). But on his analysis of the protective tariff, George’s keen analysis was praised by Rothbard.[4] George’s trade illustrations using Robinson Crusoe (pp. 104–05, 135, 221, 233–38) remind one of Rothbard’s familiar examples of "Crusoe economics."

Protection or Free Trade  is undoubtedly one of the most significant works ever written on the subject. It is a timeless classic that deserves wide reading.

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Laurence M. Vance teaches economics at Pensacola Junior College. Vancepub@juno.com. Comments on this essay can be posted on the blog.

 


[1] All references in this article to page numbers in Protection or Free Trade are to the Mises Institute’s online edition.

[2] See Leland B. Yeager, "Henry George and Austrian Economics," The American Journal of Economics and Sociology (December 2001). Available here.

[3] Murray N. Rothbard, Power and Market (Kansas City: Sheed Andrews and McMeel, 1977), pp. 122-135. See also Rothbard’s "The Single Tax: Economic and Moral Implications" and "A Reply to Georgist Criticisms," both reprinted in The Logic of Action Two (Cheltenham: UK: Edward Elgar, 1997), pp. 294-310.

[4] Murray N. Rothbard, Power and Market, p. 49.


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