Mises Daily Articles
Calhoun's Cause: Free Trade
In The Essential Calhoun (TEC), editor Clyde Wilson commented that "it is curious how ignorant contemporary advocates of free markets are of tariff struggles in nineteenth-century America."
There is much truth in this statement, since most advocates of free markets seem to be more interested in pure economic theory than in history. Understanding the momentous political struggles over tariffs in 19th-century America can greatly improve our understanding of free trade in particular and of American economic history in general--especially the history of the War Between the States.
Any such endeavor must start with the free-trade writings of South Carolinian John C. Calhoun, who served as U.S. senator, secretary of war, secretary of state, and vice president of the United States during a 40-year public career (1810-1850).
Calhoun made dozens of speeches and wrote many letters on the issue of free trade, which he viewed as nothing less than the source of civilization itself. In a March 24, 1845, letter to Richard Cobden and William Bright of the Manchester, England, Anti-Corn League, he wrote: "I regard free trade, as involving considerations far higher, than mere commercial advantages, as great as they are. It is, in my opinion, emphatically the cause of civilization and peace" (TEC, p. 218).
Ludwig von Mises echoed this sentiment in Human Action (scholar’s edition, p. 827) when he wrote that
"What distinguishes man from animals is the insight into the advantages that can be derived from cooperation under the division of labor. Man curbs his innate instinct of aggression in order to cooperate with other human beings. The more he wants to improve his material well being, the more he must expand the system of the division of labor."
And, of course, international trade is an indispensable means of doing so.
A contemporary of Calhoun's, French political economist Frederic Bastiat, stressed this same theme when he said that "if goods can’t cross borders armies will." Bastiat equated protectionism with legalized plunder, which in his eyes was the same as communism (see his essay "Protectionism and Communism" in Selected Essays on Political Economy).
It is important to understand that in 19th-century America, the tariff was the chief source of federal revenue; there were no income, social security, or capital gains taxes. Consequently, the great political struggle between the Jeffersonians and the Hamiltonians over the appropriate size and scope of the central government often centered on the issue of the tariff. To the advocates of centralized governmental power (the Federalists, then the Whigs, and later the Republican Party of Lincoln), the protectionist tariff was not only a means of protecting politically favored industries from competition; it was the potential economic lifeblood of big government.
Calhoun understood this better than anyone, and, since he considered himself to be a political heir of Jefferson's, he spent a quarter of a century in fierce opposition to protectionist tariffs. He knew that the power to tax could become the power to destroy and was in some ways the American Bastiat. (Interestingly, Bastiat's first American translator was a constituent of Calhoun's, Louisa S. McCord of Columbia, South Carolina.) Calhoun’s arguments in defense of free trade were economic, political, and constitutional.
Calhoun understood that while all consumers would be burdened by protectionist tariffs, the manufacturing North would enjoy a net benefit at the expense of the agricultural and export-dependent South, since protection enabled it to raise the prices of the goods it sold. In a September 1828 letter to Micah Sterling, he wrote that "Almost every man to the North, let his employment be what it may . . . hopes to receive more from the Tariff by the increased price of his labour, or his property than what he pays in duties, as a consumer" (TEC, p. 190).
He also recognized the fundamental economic fact that restricting imports with protectionism will eventually restrict a country’s exports as well by reducing the wealth of that country’s trading partners. "During the eight years of high duties [1824-1832], the increase of our foreign commerce, and of our tonnage . . . was almost entirely arrested; and . . . the exports of domestic manufactures actually fell off" (TEC, p. 192). He thus considered protectionism to be a form of economic "warfare" against export-related industries, primarily lumber, fisheries, agriculture, and shipping.
Calhoun explained what contemporary economists refer to as the "optimal tariff," which is a variant of the Laffer Curve idea:
"On all articles on which duties can be imposed, there is a point in the rate of duties which may be called the maximum point of revenue--that is, a point at which the greatest amount of revenue would be raised. If it be elevated above that, the importation of the article would fall off more rapidly than the duty would be raised; and, if depressed below it, the reverse effect would follow: that is, the duty would decrease more rapidly than the importation would increase. If the duty be raised above that point, it is manifest that all the intermediate space between the maximum point and that to which it may be raised, would be purely protective, and not for revenue." (TEC, p. 195)
Unlike many supply-side economists, however, Calhoun did not believe that maximizing government revenue was "optimal" or even desirable. It must first be proved that the expenditures to be financed with the higher tariff revenues are constitutional, he said. During the 1824-1832 high-tariff period, the federal budget surplus "led to the vast expansion of the currency . . . from which have succeeded so many disasters. It was that which wrecked the currency, overthrew the . . . entire machinery of commerce, precipitated hundreds of thousands from affluence to want, and which has done so much to taint private and public morals" (TEC, p. 193). Here, Calhoun was referring to the effects of the panic of 1837.
Calhoun echoed Bastiat’s "legal plunder" theme when, in an August 5, 1842, speech before the U.S. Senate regarding the proposed tariff bill, he asked: "Protection against what? Against violence, oppression, or fraud? If so, Government is bound to afford it. . . . It is the object for which Government is instituted."
But Calhoun saw through the protectionist charade. "No; it [the protectionist tariff bill] is against neither violence, oppression, nor fraud. . . . Against what, then, is protection asked? It is against low prices" (TEC, p. 196).
He also understood what today is considered to be a basic principle of public-choice economics: that politicians will never give tax dollars to special-interest groups out in the open where the public can see it if they can disguise the looting of the taxpayers instead. The proponents of tariff protection would never advocate having the government write checks to manufacturing interests. "No; that would be rather too open, oppressive, and indefensible." Instead, they disguise the special-interest subsidy as "protection," which is nothing but "tribute, levy, exaction, monopoly, plunder . . ." (TEC, p. 197).
Calhoun also described how artificially propping up prices in politically favored industries with protective tariffs would cause a misallocation of capital that would be harmful to the entire economy.
"[I]ncreased demand and prices consequent on the exclusion of the article from abroad, would tempt numerous adventurers to rush into the business, often without experience or capital; and the increased production, in consequence, thrown into the market, would greatly accelerate the period of renewed distress . . . and demand for additional protection." (TEC, p. 202)
He believed the same effect would be caused by an excessive "expansion of the currency," which sounds a lot like an early version of the Austrian business cycle theory.
The senator from South Carolina expressed a version of Mises's "middle-of-the-road-policies-lead-to-socialism" thesis: "Every protective tariff that Congress has ever laid, has disappointed the hopes of its advocates; and has been followed, at short intervals, by a demand for higher duties" (TEC, p. 202).
Calhoun is considered to have been perhaps the last of the founding fathers in terms of his philosophical outlook (Joe Sobran has persuasively argued that Lincoln, on the other hand, probably never even read The Federalist Papers). Applying Madison's theme from Federalist #10, where he warns of the political destructiveness of the "violence of faction," Calhoun posed the rhetorical question: "Can anything be imagined more destructive of patriotism, and more productive of faction, selfishness, and violence, or more hostile to all economy and accountability in the administration of the fiscal department of Government" than protectionist tariffs? (TEC, p. 212).
Protectionist tariffs would not only benefit politically favored industries. Another major constituency, then as now, is "that active, vigilant, and well-trained corps, which lives on Government, or expects to live on it; which prospers most when the revenue is the greatest, the treasury the fullest, and the expenditures the most profuse" and which will faithfully support "whatever system shall extract most from the pockets of the rest of the community, to be emptied into theirs" (TEC, p. 212). During the first 60 years of the 19th century, that "system" was the tariff.
He even championed unilateral free trade. "If other countries injured us by burdensome exactions, it was not reason why we should do harm to ourselves" (Jan. 27, 1841, speech). American ingenuity and entrepreneurship, not protectionism, were the source of the nation’s wealth, he said in response to Henry Clay’s mercantilist superstitions.
What, then, is to be done? How is the nation to prosper economically? "I answer," said Calhoun in his 1842 Senate speech, "by the reverse means proposed in order to command the home market -- low, instead of high duties; and a sound currency." More specifically: free trade; low duties; no debt; separation from banks; economy [in government]; retrenchment [of government expenditure]; and strict adherence to the constitutions" (TEC, p. 213).
Calhoun’s free-trade views were popular throughout the South, and persisted after his death in 1850--so much so that on December 10, 1860, the Republican Party newspaper, the Daily Chicago Times, warned: "Let the South adopt the free-trade system and the North’s commerce must be reduced to less than half what it now is" (because of the much higher tariff rate there). The new Confederate Constitution outlawed protectionist tariffs altogether.
On April 2, 1861, another Republican Party newspaper, the Newark Daily Advertiser, warned ominously that Southerners had apparently "taken to their bosoms the liberal and popular doctrine of free trade" and that they "might be willing to go . . . toward free trade with the European powers" which "must operate to the serious disadvantage of the North" as "commerce will be largely diverted to the Southern cities."
"We apprehend," the New Jersey Republicans wrote, that "the chief instigator of the present troubles -- South Carolina--have all along for years been preparing the way for the adoption of free trade." This, they insisted, must be avoided at all cost by "the closing of the [Southern] ports" by military force, if necessary.
It is telling that a little over a year earlier, in 1859, Abraham Lincoln, a one-term congressman from Illinois, was pandering to the heavily protectionist Pennsylvania delegation to the 1860 Republican national convention (the state with the second highest number of electoral votes) by stating in an October 11, 1859, letter that he was "an old Henry Clay-Tariff Whig" and that "I made more speeches on that subject [in favor of high protective tariffs] than any other. I have not since changed my views" (see Reinhard Luthin, "Abraham Lincoln and the Tariff," American Historical Review, July 1944). It was his reputation as perhaps the most ardent protectionist in the Republican Party that won Lincoln the 1860 nomination and, of course, the presidency. Throughout his career, Lincoln had adopted many of the protectionist shibboleths of Henry C. Carey, a publicist for the Pennsylvania steel industry.
As soon as the new Republican Party gained power, the average tariff rate was quickly raised from a nominal 15 percent to 47 percent and higher, and remained at such levels for decades after the war. Calhoun's free-trade arguments, as eloquent and advanced as they were, were no match for the federal military arsenal.